Revision Notes V1

CS PROFESSIONAL
NEW SYLLABUS
REVISION NOTES
FOR JUNE, 2019
CORPORATE GOVERNANCE. RISK

MANAGEMENT, COMPLIANCE MANAGEMENT
AND ETHICS
VOLUME-I
BY CS SOMYA KATARIA
CS Somya Kataria (8461967667) Inspire academy
UNIT 1: CONCEPTUAL FRAMEWORK OF CORPORATE GOVERNANCE
CORPORATE + GOVERNANCE= CORPORATE GOVERNANCE
Corporate Governance means a set of systems, procedures, policies, practices, standards put in place by a
corporate to ensure that relationship with various stakeholders is maintained in transparent and honest
manner.
“Corporate Governance is the application of best management practices, compliance of law in true 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.”
FEATURES OF CORPORATE GOVERNANCE
1. Good corporate governance ensures corporate success and economic growth.

2. Strong corporate governance maintains investors’ confidence, as a result of which, company can
raise capital efficiently and effectively.
3. There is a positive impact on the share price.
4. It provides proper inducement to the owners as well as managers to achieve objectives that are
in interests of the shareholders and the organization.
5. Good corporate governance also minimizes wastages, corruption, risks and mismanagement.
6. It helps in brand formation and development.
7. It ensures organization in managed in a manner that fits the best interests of all.
NEED OF CORPORATE
GOVERNANCE
Enhanced Reduced Risk of Enhancing Combating Better Access

Corporate Enterprise Combating
Investor Accountability Corporate Crisis Corruption to Global
Performance Valuation Corruption
Trust and Scandals Market
CORPORATE GOVERNANCE THEORIES
(a) Agency Theory
According to this theory, managers act as 'Agents' of the corporation. The owners set the central objectives of
the corporation. Managers are responsible for carrying out these objectives in day-to-day work of the company.

Corporate Governance is control of management through designing the structures and processes.In agency
theory, the owners(Shareholders) are the principals. But principals may not have knowledge or skill for getting
the objectives executed. Thus, principal authorises the mangers to act as 'Agents' and a contract between
principal and agent is made. Under the contract of agency, the agent should act in good faith. He should protect
the interest of the principal and should remain faithful to the goals.
(b) Stockholder/shareholder Theory
According to this theory, it is the corporation which is considered as the property of shareholders/ stockholders.
They can dispose off this property, as they like. They want to get maximum return from this property.
The owners seek a return on their investment and that is why they invest in a corporation. So the directors are
responsible for any damage or harm done to their property i.e., the corporation. The role of managers is to
maximise the wealth of the shareholders.
(c) Stakeholder Theory
According to this theory, the company is seen as an input-output model and all the interest groups which include
creditors, employees, customers, suppliers, local-community and the government are to be considered. From
their point of view, a corporation exists for them and not the shareholders alone.
The managers and the corporation are responsible to mediate between these different stakeholders interest.
The stake holders have to maintain peace with each other. This theory assumes that stakeholders are capable
and willing to negotiate and bargain with one another. This results in long term self interest.
(d) Stewardship Theory
The word 'steward' means a person who manages another's property or estate. The managers and employees
are to safeguard the resources of corporation and its property and interest when the owner is absent. They
have to take utmost care of the corporation and should not use the property for their selfish ends.
The managers should manage the corporation as if it is their own corporation. They are not agents as such but
occupy a position of stewards. The managers are motivated by the principal’s objective and the behavior pattern
is collective, pro-organizational and trustworthy.
EVOLUTION OF CORPORATE GOVERNANCE
1. USA:
 2002: Sarbanes – Oxley Act: The Act made fundamental changes in virtually every aspect of
corporate governance related to conflict of interests, corporate responsibility, enhanced financial
disclosures and severe penalties for willful default by managers and auditors, in particular.
 The Dodd-Frank Wall Street Reform and Consumer Protection Act, 2010:
Vote on Executive Pay and Golden Parachutes: Gives shareholders a say on pay with the right to vote on
executive (senior officials) pay and golden parachutes (acquisitions). This gives shareholders a powerful
opportunity to hold accountable executives of the companies they own, and a chance to disapprove
where they see the kind of misguided incentive schemes that threatened individual companies and in turn
the broader economy.
2. UK
REPORTS:

1. Cadbury report:
The Committee on the Financial Aspects of Corporate Governance under the chairmanship of Sir Adrian
Cadbury was set up in May 1991 particularly for the BCCI and Maxwell cases. The Committee submitted its
report in 1992 and developed a set of principles of good corporate governance which were incorporated into
the London Stock Exchange (LSE)’s Listing Rules. It also introduced the principle of ‘comply or explain’. It
made the following three basic recommendations:
 the CEO and Chairman of companies should be separated;
 boards should have at least three non-executive directors, two of whom should have no financial or
personal ties to executives; and
 each board should have an audit committee composed of non-executive directors.
2. Greenbury report
The Confederation of British Industry constituted a group under the chairmanship of Sir Richard Greenbury to
make recommendations on Directors’ Remuneration. The group submitted its report in 1995, its major findings
were as under:
 Constitution of a Remuneration Committee comprising of Non Executive Directors
 Responsibility of this committee in determining the remuneration of CEO and executive directors
 Responsibility of the committee in determining the remuneration policy. Level of disclosure to
shareholders regarding the remuneration of directors’.
 Remuneration should be linked more explicitly to performance.
3. Hampel Report
It revised the earlier recommendations of the Cadbury and Greenbury Committees. Its recommendations
were:

The Board was identified as having responsibility to maintain a sound system of internal control,
thereby safeguarding shareholders’ investments.
 The Board was to be held accountable for all aspects of risk management.
4. Higgs Report
 at least half of a board (excluding the Chair) be comprised of non-executive directors

 that the non-executives should meet at least once a year in isolation to discuss company performance;
 that a senior independent director be nominated and made available for shareholders to express any
concerns to; and
 that potential non-executive directors should satisfy themselves that they possess the knowledge,
experience, skills and time to carry out their duties with due diligence.
5. India
The SEBI Committee on corporate governance was formed in June 2017 under the Chairmanship of Mr.Uday

Kotak with the aim of improving standards of corporate governance of listed companies in India.
With the aim of improving standards of Corporate Governance of listed companies in India, the Committee was
requested to make recommendations to SEBI on the following issues:
 Ensuring independence in spirit of Independent Directors and their active participation in functioning
of the company;
 Improving safeguards and disclosures pertaining to Related Party Transactions;
 Issues in accounting and auditing practices by listed companies;
 Improving effectiveness of Board Evaluation practices;

• Disclosures of Auditor Credentials, Audit Fee, Reasons for Resignation of Auditors
• Disclosure of Expertise/Skills of Directors
• Enhanced Disclosure of Related Party Transactions (RPT)-A
• Mandatory Disclosure of Consolidated Quarterly Results with effect from Financial Year 2019-2020-
• Reshaping the Institution of the Board of Directors and Enhancing the Role of Committees of the
Board
6. SOUTH AFRICA
King IV report
LEADERSHIP, ETHICS
1. The governing body should lead ethically and effectively.
AND CORPORATE
CITIZENSHIP 2. The governing body should govern the ethics of the organisation in a way
that supports the establishment of an ethical culture.
3. The governing body should ensure that the organisation is and is seen to be a
responsible corporate citizen.
STRATEGY,
PERFORMANCE AND
4. The governing body should appreciate that the organisation’ score purpose,
REPORTING
its risks and opportunities, strategy, business model, performance and
sustainable development are all inseparable elements of the value creation
process.
5. The governing body should ensure that reports issued by the organisation
enable stakeholders to make informed assessments of the organisation’s
performance, and its short, medium and long-
term prospects.
GOVERNING
6. The governing body should serve as the focal point and custodian of
STRUCTURES
AND DELEGATION corporate governance in the organisation.
7. The governing body should comprise the appropriate balance of knowledge,
skills, experience, diversity and independence for it to discharge its
governance role and responsibilities objectively and effectively.
8. The governing body should ensure that its arrangements for delegation
within its own structures promote independent judgement, and assist with
balance of power and the effective discharge of its duties.
9. The governing body should ensure that the evaluation of its own

performance and that of its committees, its chair and its individual
members, support continued improvement in its performance and
effectiveness.
10. The governing body should ensure that the appointment of, and delegation
to, management contribute to role clarity and the effective exercise of
authority and responsibilities.
GOVERNANCE
FUNCTIONAL AREAS
11. The governing body should govern risk in a way that supports the
organisation in setting and achieving its strategic objectives.
12. The governing body should govern technology and information in a way that
supports the organisation setting and achieving its strategic objectives.
13. The governing body should govern compliance with applicable laws and
adopted, non-binding rules, codes and standards in a way that supports the
organisation being ethical and a good corporate citizen.
14. The governing body should ensure that the organisation remunerates fairly,
responsibly and transparently so as to promote the achievement of strategic
objectives and positive outcomes in
the short, medium and long term.

15. The governing body should ensure that assurance services and functions enable
an effective control environment, and that these support the integrity of
information for internal decision-making and of the organisation’s external reports.
STAKEHOLDER
RELATIONSHIPS
16. In the execution of its governance role and responsibilities, the governing
body should adopt a stakeholder-inclusive approach that balances the
needs, interests and expectations of material stakeholders in the best
interests of the organisation over time.
17. The governing body of an institutional investor organisation should ensure

that responsible investment is practiced by the organisation to promote the
good governance and the creation of value by the companies in which it
invests.
COPRORATE GOVERNANCE IN INDIAN ETHOS
Raksha – literally means protection, in the corporate scenario it can be equated

with the risk management aspect.
Vriddhi – literally means growth, in the present day context can be equated to
stakeholder value enhancement
Palana – literally means maintenance/compliance, in the present day context it
can be equated to compliance to the law in letter and spirit.
Yogakshema – literally means well being and in Kautilya’sArthashastra it is
used in context of a social security system. In the present day context it can be
equated to corporate social responsibility.

Advantages of family enterprises:
 It is believed that owners tend to take better care of their businesses as they have greater personal
stakes involved.
 Not having responsibilities towards any shareholders gives the family businesses greater flexibility
in terms of making decisions faster, improving the speed with which they launch new initiatives,
change operations, evaluate new business opportunities, etc.
 Family businesses gain significant experience and expertise as they typically work in one industry for
longer durations.
 Family businesses thrive on mutual trust and believe in maintaining long-term relationships by
providing a conducive, supportive and trusting work environment.
 Family businesses believe they are more entrepreneurial, they create more jobs and are able to
adjust or reinvent their business to suit each generation.

UNIT 2: LEGISLATIVE FRAMEWORK OF CORPORATE GOVERNANCE IN INDIA
PRINCIPLES OF CORPORATE GOVERNANCE
Regulation 4 of the Listing Regulations, 2015 provides for broad principles for periodic disclosures and for
corporate governance by listed entities:
(A) Principles for Periodic Disclosures: The listed entity which has listed securities shall make disclosures
and abide by its obligations under these regulations, in accordance with the following principles:
(a) Information shall be prepared and disclosed in accordance with applicable standards of
accounting and financial disclosure.
(b) The listed entity shall implement the prescribed accounting standards in letter and spirit in
the preparation of financial statements taking into consideration the interest of all
stakeholders and shall also ensure that the annual audit is conducted by an independent,
competent and qualified auditor.
(c) The listed entity shall refrain from misrepresentation and ensure that the information
provided to recognised stock exchange(s) and investors is not misleading.
(d) The listed entity shall provide adequate and timely information to recognised stock
exchange(s) and investors.
(B) Corporate Governance Principles: The listed entity which has listed its specified securities
shall comply with the corporate governance principles under following broad headings- :
(a) The rights of shareholders
(b) Timely information
(c) Equitable treatment

(d) Role of stakeholders in corporate governance
(e) Disclosure and transparency
(f) Key functions of Board:
 Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and
business plans, setting performance objectives, monitoring implementation and corporate
performance, and overseeing major capital expenditures, acquisitions and divestments.
o Monitoring the effectiveness of the listed entity’s governance practices and making changes
as needed.
o Selecting, compensating, monitoring and, when necessary, replacing key managerial

personnel and overseeing succession planning.
o Aligning key managerial personnel and remuneration of board of directors with the longer
term interests of the listed entity and its shareholders.
o Ensuring a transparent nomination process to the board of directors with the diversity of
thought, experience, knowledge, perspective and gender in the board of directors.
o Monitoring and managing potential conflicts of interest of management, members of the

board of directors and shareholders, including misuse of corporate assets and abuse in
related party transactions.
PROVISIONS OF CORPORATE GOVERNANCE UNDER COMPANIES ACT, 2013 AND SEBI (LODR) REGULATIONS,
2015
Sl No
Particulars Companies Act, 2013 SEBI (LODR) Regulations, 2015
1. Size of the Board Section 149(1) Regulation 17(1)(a)

It stipulates the minimum number of The board of directors shall have an
director as three in case of public optimum combination of executive and
company, two in case of private non-executive directors.
company and one in case of One
Person Company. The maximum
number of directors stipulated is 15.
2. Board Composition
Section 149(4) provides that every Regulation 17(1)
public listed company shall have at-
least one third of total number of  At least 50% of the board of directors
directors as independent directors shall comprise of non- executive
and Central Government may directors.
prescribe the minimum number of
independent directors in any class or  If the chairperson of the board of
classes of companies. directors is a non-executive director,
at least 1/3rd of the board of
Rule 4 of the Companies
directors shall comprise of
(Appointment and Qualification of
independent directors.
Directors) Rules, 2014 prescribes
that the following class or classes of  If the chairperson of the board of
companies shall have at least two directors is not a non-executive
independent directors: director, at least 50% of the board of

 Public Companies having paid- directors shall comprise of
up share capital of 10 crore independent directors.
rupees or more; or  If the regular non-executive
 Public Companies having chairperson is a promoter of the
turnover of 100 crore rupees or listed entity or is related to any
more; or promoter or person occupying
 Public Companies which have,
management positions at the level of
in aggregate, outstanding board of director or at one level
loans, debentures and below the board of directors, at least
deposits, exceeding 50 crore 50% of the board of directors of the
rupees. listed entity shall consist of
independent directors.
3. Appointment of Section 149(1) and Companies Regulation 17(1)(a)

Woman Director
(Appointment and Qualification of The Board of Directors of the listed entity
Directors) Rules, 2014 shall have at least one woman director.
Rule (3) read with Section 149(1) The Board of Directors of top 500 listed
provides that entities (with effect from April 1, 2019)
(i) every listed company; and top 1000 listed entities (with effect
from April 1, 2020) shall have at least one
(ii)every other public
independent women director.
company having -
1. paid–up share capital of

Rs.100 crores or more; or
2. turnover of Rs.300 crore or
more shall appoint at least
one woman director.
Any intermittent vacancy of a
woman director shall be filled up by
the Board at the earliest but not
later
than immediate next Board meeting
or three months from the date of
such vacancy whichever is later.

4. Maximum No. of
directorship of Section 165 Regulation 17A
Independent Directors A person shall not hold office as a
director, including any alternate A person shall not serve as an
directorship in more than 20 independent director in more than seven
companies at the same time. listed entities.
For reckoning the limit Any person who is serving as a whole time
of director in any listed entity shall serve as
directorships of 20 companies, the an independent director in not more than
three listed entities.
directorship in a dormant company
Regulation 25(1)
shall not be included.
The maximum number of public
No person shall be appointed or continue
companies in which a person can be
as an alternate director for an
appointed as a director shall not independent of a listed entity w.e.f.
exceed 10. 1st October 2018.

5. Maximum tenure of
Independent Directors Section 149(10) & (11) Regulation 25(2)
Subject to the provisions of Section It shall be in accordance with the

152(2), an independent director Companies Act, 2013 and rules made
shall hold office for a term up to five there under, in this regard, from time to
consecutive years on the Board of a time.
company, but shall be eligible for
reappointment on passing of a
special resolution by the company
and disclosure of such appointment
in the Board’s report.
No independent director shall hold
office for more than two
consecutive terms, but such
independent director shall be
eligible for appointment after the
expiration of three years of ceasing
to become an
independent director.
7. Separate meeting Section 149 read with Schedule IV Regulation 25(3)

of Independent
Directors Independent Directors of the Independent Directors of the listed entity
company shall hold at least one shall hold at least one meeting in a year,
meeting in a financial year, without without the attendance of non
the attendance of non independent independent directors and members of
directors and members of management.
management.
All the independent directors of the listed
All the independent directors of the entity shall strive to be present at such
company shall strive to be present meeting.
at such meeting.
8. Familiarisation Schedule IV Regulation 25(7)

Programme
fo The Independent Directors shall The listed entity shall familiarise the
r Independent undertake appropriate induction independent directors with the listed
Director and regularly update and refresh entity, their roles, rights, responsibilities
their skills, knowledge and in the listed entity, nature of the industry
familiarity with the company. in which the listed entity operates,
business model of the listed entity, etc.

9. Prohibited Stock Section 197(7) Regulation17(6)(d)
options
for Independent Directors shall not be Independent Directors shall not be
Independent entitled to any stock option. entitled to any stock options.
Directors
10. Filing of Casual

Vacancy of Second proviso to Rule 4 of the An independent director who resigns
Independent Companies (Appointment and or is removed from the Board of the
Directors Qualifications of Directors) Rules, listed entity shall be replaced by a new
2014 states that any intermittent independent director at the earliest
vacancy of an independent director but not later than the immediate next
shall be filled-up by the Board at the Board meeting or three months from
earliest but not later than the date of such vacancy, whichever is
immediate next Board meeting or later.
three months from the date of such
Where the listed entity fulfils the
vacancy, whichever is later.
requirement of independent directors
An independent director who in its Board even without filling the
resigns or is removed from the vacancy created by such resignation
Board of the company shall be or removal, as the case may be, the
replaced by a new independent requirement of replacement by a new
director within three months from independent director shall not apply.
the date of such resignation or
removal, as the case may be.
Where the company fulfils the
requirement of independent
directors in its Board even without
filling the vacancy created by such
resignation or removal, as the case
may be, the requirement of
replacement by a new Independent
Director shall not apply.
11. Succession There is no such provision. Regulation17(4)

planning
The Board of the listed entity shall
satisfy itself that plans are in place for
orderly succession for appointments
to the Board and to senior
management.
12. Code of Conduct Section 149(8) provides that the Regulations17(5)& 26(3)
of Board of Directors company and the independent
& Senior directors shall abide by the The board shall lay down a code of
Management provisions specified in Schedule IV. conduct for all Board members and
senior management of the listed
entity, which shall be posted on the
website of the listed entity.
13. Liability of Section 149(12) Regulation25(5)

Independent Directors
An independent director; a non An independent director shall be held
executive director not being promoter liable, only in respect of such acts of
or Key Managerial Personnel, shall be omission or commission by a listed
held liable, only in respect of such acts entity which had occurred with his
of omission or commission by a knowledge, attributable through
company which had occurred with his Board processes, and with his consent
knowledge, attributable through or connivance or where he had not
Board processes, and with his consent acted diligently with respect of the
or connivance or where he had not provisions contained in the listing
acted diligently. regulations.
Regulation 17(5)(b) states that the
Code of Conduct shall suitably
incorporate the duties of independent
directors as laid down in the
Companies Act, 2013.
14. Vigil mechanism Section 177(9)read with Rule 7 of Regulation22

Companies (Meetings of Board and its
Power) Rules, 2014 The listed entity shall establish a vigil
Every listed company and the mechanism for directors and
companies which accept deposits from employees to report concerns about
the public or which have borrowed unethical behaviour, actual or
money from banks and public financial suspected fraud or violation of the
institutions in excess of fifty crore listed entity code of conduct or ethics
rupees shall establish a Vigil policy.
mechanism for directors and This mechanism should provide for
employees to report genuine concern. adequate safeguards against
The details of establishment of Vigil victimization of director(s)/
mechanism shall be disclosed by the employee(s) who avail of the
company in the website, if any, and in mechanism and also provide for direct
the Board’s Report. access to the chairperson of the Audit
Committee in exceptional cases.
The details of establishment of such

15. Constituition of audit Section 177 of companies Act, 2013
committee Regulation 18
The listed entity shall constitute a

qualified and independent audit
committee, giving the terms of
reference subject to the following:
1. The audit committee shall have
minimum three directors as
members. Two-thirds of the
members of audit committee
shall be independent directors.
2. All members of audit committee
shall be financially literate and at
least one member shall have
accounting or related financial
management expertise.
3. The chairperson of the Audit
Committee shall be an
Independent Director.

16. Related party
Section 2(76) Clause 2(zb)
transaction
“Related party”, with reference to Such entity is a related party under the
a company, means— applicable accounting standards.
(i) a director or his relative Provided that any person or entity

belonging to the promoter or
(ii) a Key Managerial Personnel or
promoter group of the listed entity
his relative;
and holding 20% or more of the
(iii) a firm, in which a director, shareholding in the listed entity shall
manager or his relative is a be deemed to be a related party.
partner;
(iv) a private company in which a
director or manager or his
relative is a member or director;
(v) a public company in which a
director or manager is a director
and holds along with his
relatives, more than 2% of its
paid-up share capital;
(vi) anybody corporate whose Board
of Directors, managing director
or manager is accustomed to act
in accordance with the advice,
directions or instructions of a
director or manager;
(vii) any person on whose advice,
directions or instructions a
director or manager is
accustomed to act;
(viii) any body corporate which
is—
A. a holding, subsidiary or an
associate company of such
company;
B. a subsidiary of a holding
company to which it is also a
subsidiary; or
C. an investing company or the
venturer of the company.
(ix) such other person as may be
prescribed.

23. Stakeholders
Relationship Section 178(5)&(6) Regulation 20
Committee
The Board of Directors of a company A committee under the Chairperson of

which consists of more than one a non-executive director and such
thousand shareholders, debenture- other members as may be decided by
holders, deposit holders and any the Board of the listed entity shall be
other security holders at any time formed to specifically look into the
during a financial year shall various aspects of interest of
constitute a Stakeholders shareholders, debenture holders and
Relationship Committee consisting other security holders.
of a chairperson who shall be a non-
executive director and such other
members as may be decided by the
Board.
DISCLOSURES UNDER VARIOUS ACTS:

1. COMPANIES ACT, 2103
DIRECTOR’S RESPONSIBILITY STATEMENT
As per Section 134(5),the Directors’ Responsibility Statement referred to in clause (c) of sub-section (3)
shall state that—
(a) in the preparation of the annual accounts, the applicable accounting standards had been followed
along with proper explanation relating to material departures;
(b) the directors had selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view of
the state of affairs of the company at the end of the financial year and of the profit and loss of
the company for that period;
(c) the directors had taken proper and sufficient care for the maintenance of adequate accounting
records in accordance with the provisions of this Act for safeguarding the assets of the company
and for preventing and detecting fraud and other irregularities;
(d) the directors had prepared the annual accounts on a going concern basis;
2. COMPANIES (APPOINTMENT & REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014

(a) the ratio of the remuneration of each director to the median remuneration of the employees of the
company for the financial year;
(b) the percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive
Officer, Company Secretary or Manager, if any, in the financial year;
(c) the percentage increase in the median remuneration of employees in the financial year;
(d) the number of permanent employees on the rolls of company;
3. SEBI(SAST), 2011

Continual disclosures (Regulation 30)
1. Every person, who together with persons acting in concert with him, holds shares or voting rights
entitling him to exercise twenty-five per cent or more of the voting rights in a target company,
shall disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in
such target company in the prescribed format.
2. The promoter of every target company shall together with persons acting in concert with him,
disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such
target company in such form as may be specified.
The disclosures required under sub-regulation (1) and (2) shall be made within seven working days
from the end of each financial year to,—
(a) every stock exchange where the shares of the target company are listed; and
(b) the target company at its registered office.
3. SEBI(LODR), 2015
1. DISCLOSURE OF EVENTS OR INFORMATION [REGULATION (30)]
A. Disclosure of Material Events-
Regulation 30(1) and (2) of the Listing Regulations specifies that every listed entity shall make disclosures
upon occurrence of following events or information which are deemed to be material events as per Part ‘A’
of Schedule III. These events or information should be disclosed as soon as reasonably possible and not later
than 24 hours from the occurrence of event or information. In case the disclosure is made after 24 hours of
occurrence of the event or information, the listed entity shall, along with such disclosures provide explanation
for delay.
(i) Acquisition(s) (including agreement to acquire), Scheme of Arrangement (amalgamation/

merger/ demerger/restructuring), or sale or disposal of any unit(s), division(s) or subsidiary of
the listed entity or any other restructuring
(ii) Issuance or forfeiture of securities, split or consolidation of shares, buyback of securities, any
restriction on transferability of securities or alteration in terms or structure of existing
securities including forfeiture, reissue of forfeited securities, alteration of calls, redemption of
securities etc.
(iii) Revision in Rating(s)
(iv) Agreements (viz. shareholder agreement(s), joint venture agreement(s), family settlement
agreement(s) (to the extent that it impacts management and control of the listed entity),
agreement(s)/treaty(ies)/contract(s) with media companies) which are binding and not in
normal course of business, revision(s) or amendment(s) and termination(s) thereof.
(v) Fraud/defaults by promoter or key managerial personnel or by listed entity or arrest of key
managerial personnel or promoter.
(vi) Change in directors, key managerial personnel (Managing Director, Chief Executive Officer, Chief
Financial Officer , Company Secretary etc.), Auditor and Compliance Officer.
(vii) Appointment or discontinuation of share transfer agent.

(viii) Corporate debt restructuring.

ANNUAL REPORT DISCLOSURES [REGULATION (34)]
 audited financial statements i.e. balance sheets, profit and loss accounts etc, and Statement on
Impact of Audit Qualifications as stipulated in regulation 33(3)(d), if applicable;
 consolidated financial statements audited by its statutory auditors;
 cash flow statement presented only under the indirect method as prescribed in Accounting Standard-
3 or Indian Accounting Standard 7, as applicable, specified in Section 133 of the Companies Act, 2013
read with relevant rules framed thereunder or as specified by the Institute of Chartered Accountants
of India, whichever is applicable;
 directors report;
 management discussion and analysis report - either as a part of directors report or addition thereto;
 Business Responsibility Reports.
MANAGEMENT DISCUSSION AND ANALYSIS:

This section shall include discussion on the following matters within the limits set by the listed entity’s
competitive position:
(i) Industry structure and developments.
(ii) Opportunities and Threats.
(iii) Segment–wise or product-wise performance.
(iv) Outlook
(v) Risks and concerns.
(vi) Internal control systems and their adequacy.
(vii) Discussion on financial performance with respect to operational performance.
(viii) Material developments in Human Resources / Industrial Relations front, including number of people
employed.
RELATED PARTY TRANSACTION
Regulation 2(1)(zc) of SEBI(LODR) Regulations, 2015 defines that “related party transaction” means a transfer
of resources, services or obligations between a listed entity and a related party, regardless of whether a price
is charged and a "transaction" with a related party shall be construed to include a single transaction or a
group of transactions in a contract.
Approval of Audit Committee
Audit committee may grant omnibus approval for related party transactions proposed to be entered into
by the listed entity subject to the following conditions, namely-
(a) the audit committee shall lay down the criteria for granting the omnibus approval in line with
the policy on related party transactions
(b) the audit committee shall satisfy itself regarding the need for such omnibus approval and that
such approval is in the interest of the listed entity;
(c) the omnibus approval shall specify:

(i) the name(s) of the related party, nature of transaction, period of transaction, maximum
amount of transactions that shall be entered into,
(ii) the indicative base price / current contracted price and the formula for variation in the price
if any; and
(iii) such other conditions as the audit committee may deem fit
(d) the audit committee shall review, at least on a quarterly basis, the details of related party
transactions entered into by the listed entity pursuant to each of the omnibus approvals given.
(e) Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh
approvals after the expiry of one year
VIGIL MECHANISM AND WHISTLE BLOWER POLICY
Whistle blowing means calling the attention of the top management to some wrongdoing occurring within
an organization. A whistleblower may be an employee, former employee or member of an organisation, a
government agency, who have willingness to take corrective action on the misconduct.
Whistle blowers are individuals who expose corruption and fraud in organizations by filing a law suit or a
complaint with Government authorities that prompts a criminal investigation in to the organizations alleged
behavior.
Types of Whistleblowers
1. Internal: When the whistleblower reports the wrong doings to the officials at higher position in
the organization. The usual subjects of internal whistle blowing are disloyalty, improper conduct,
indiscipline, insubordination, disobedience etc.
2. External: Where the wrongdoings are reported to the people outside the organization like
media, public interest groups or enforcement agencies it is called external whistle blowing.
3. Alumini: When the whistle blowing is done by the former employee of the organization it is
called alumini whistle blowing.
4. Open: When the identity of the whistleblower is revealed, it is called Open Whistle Blowing.
5. Personal: Where the organizational wrongdoings are to harm one person only, disclosing such
wrong doings it is called personal whistle blowing.
6. Impersonal: When the wrong doing is to harm others, it is called impersonal whistle blowing.
7. Government: When a disclosure is made about wrong doings or unethical practices adopted by
the officials of the Government.
8. Corporate: When a disclosure is made about the wrongdoings in a business corporation, it is

called corporate whistle blowing.

UNIT 3: Corporate governance for banks, NBFC and insurance companies
V CORPORATE GOVERNANCE FOR NBFC’s
NBFC
NBFC-D NBFC-ND
Deposits Assets above

above 20cr. 50 cr
appoint audit appoint audit

comm. commi.
NBFC
NBFC-D NBFC-ND
Deposits Assets above

above 20cr. 100 cr
appoint NR appoint NR
comm. commi.
1. Board committees
The Audit Committee of all NBFCs-ND and NBFCs-D must ensure that an Information Systems Audit of
the internal systems and processes is conducted at least once in two years to assess operational risks
faced by the company.
2. Fit and proper criteria of directors

i. A declaration and undertaking shall be obtained from the Directors by the NBFC.
ii. NBFCs shall furnish to the Reserve Bank a quarterly statement on change of Directors
certified by the auditors and a certificate from the Managing Director that fit and
proper criteria in selection of directors have been followed. The statement must reach
the Regional Office concerned of the Reserve Bank within 15 days of the close of the
quarter.
3. Disclosures in Financial Statements – Notes to Account
i. Registration/ licence/ authorisation obtained from other financial sector regulators;
ii. Ratings assigned by credit rating agencies and migration of ratings during the year;
iii. Penalties, if any, levied by any regulator;

iv. Information viz., area, country of operation and joint venture partners with regard to
Joint Ventures and Overseas Subsidiaries; and
v. Asset liability profile, extent of financing of parent company products, NPAs and
movement of NPAs, details of all off-balance sheet exposures, structured products
issued by them as also securitization/ assignment transactions and other
disclosures.
BANKING REGULATION ACT, 1944
(1) Not less than fifty-one per cent of the total number of members of the Board of Directors
of a banking company shall consist of persons, who—
(a) shall have special knowledge or practical experience in respect of one or more of the following
matters, namely:
(i) accountancy, (ii) agriculture and rural economy, (iii) banking, (iv) co-operation, (v)
economics, (vi) finance, (vii) law, (viii) small-scale industry, (ix) any other matter, the special
knowledge of, and practical experience in, which would, in the opinion of the Reserve Bank, be
useful to the banking company:
Provided that out of the aforesaid number of directors, not less than two shall be persons having
special knowledge or practical experience in respect of agriculture and rural economy, co-
operation or small-scale industry; and
(b) shall not––

(1) have substantial interest in, or be connected with, whether as employee, manager or
managing agent,–
(i) any company, not being a company registered under Sec. 25 of the Companies Act, 1956
(1 of 1956), or
(ii) any firm,
which carries on any trade, commerce or industry and which, in either case, is not a small-scale
industrial concern, or
(2) be proprietors of any trading commercial or industrial concern, not being a small-scale
industrial concern.
GANGULY COMMITTEE RECOMMENDATIONS ON CORPORATE GOVERNANCE IN BANKS

(i) Responsibilities of the Board of Directors:
 delegation of powers to various authorities by the Board,
 strategic plan of the institution
 organisational structure
 financial and other controls and systems
 economic features of the market and competitive environment.
(ii) Role and responsibility of independent and non-executive directors:

(a) In order to familiarise the independent /non-executive directors with the environment of the

bank, banks may circulate among the new directors a brief note on the profile of the bank, the
sub committees of the Board, their role, details on delegation of powers, the profiles of the top
executives etc.
(b) It would be desirable for the banks to take an undertaking from each independent and non-
executive director to the effect that he/she has gone through the guidelines defining the role
and responsibilities and enter into covenant to discharge his/her responsibilities to the best of
their abilities, individually and collectively.
(iii) Training facilities for directors:
(a) Need-based training programmes/seminars/ workshops may be designed by banks to acquaint

their directors with emerging developments/challenges
(b) The Board should ensure that the directors are exposed to the latest managerial techniques,
technological developments in banks, and financial markets, risk management systems etc. so
as to discharge their duties to the best of their abilities.
(iv) Submission of routine information to the Board: Reviews dealing with various performance areas
may be put up to the Management Committee of the Board and only a summary on each of the reviews
may be put up to the Board of directors at periodic intervals. This will provide the Board more time to
concentrate on more strategic issues such as risk profile, internal control systems, overall performance
of the bank, etc.
(v) Agenda and minutes of the board meeting:
(a) The draft minutes of the meeting should be forwarded to the directors, preferably via the
electronic media, within 48 hours of the meeting and ratification obtained from the directors
within a definite time frame. The directors may be provided with necessary technology
assistance towards this end.
(b) The Board should review the status of the action taken on points arising from the earlier
meetings till action is completed to the satisfaction of the Board, and any pending item should
be continued to be put up as part of the agenda items before the Board.
(vi) Committees of the Board:
(a) Shareholders' Redressal Committee: As communicated to banks vide circular DBOD

No.111/08.138.001/2001-02 dated June 4, 2002 on SEBI Committee on Corporate Governance ,
the banks which have issued shares,/debentures to public may form a committee under the
chairmanship of a non-executive director to look into redressal of shareholders’ complaints.
(b) Risk Management Committee: In pursuance of the Risk Management Guidelines issued by the
Reserve Bank of India in October 1999, every banking organisation is required to set up Risk
(c) Management Committee. The formation and operationalisation of such committee should be
speeded up and their role further strengthened.
(D) Supervisory Committee: The role and responsibilities of the Supervisory Committee as envisaged
by the Group viz., monitoring of the exposures (both credit and investment) of the bank, review
of the adequacy of the risk management process and upgradation thereof, internal control

system, ensuring compliance with the statutory/regulatory framework etc., may be assigned to
the Management Committee/Executive Committee of the Board.
(vii) Disclosure and transparency
The following disclosures should be made by banks to the Board of Directors at regular intervals as may
be prescribed by the Board in this regard.
 progress made in putting in place a progressive risk management system, and risk management
policy and strategy followed by the bank.
 exposures to related entities of the bank, viz. details of lending to/investment in subsidiaries, the
asset classification of such lending/investment, etc.
VI CORPORATE GOVERNANCE FOR INSURANCE COMPANIES

1. Governance Structure
The insurance companies presently could have different structures with the Board of
Directors headed by a Executive or Non-executive Chairman with distinct oversight
responsibilities over the other Directors and Key Management Persons. It is expected that
whatever form is taken, the broader elements of good Corporate Governance are present.
2. Board of Directors
(a) Composition
The Board of Directors and Key Management Persons should understand the operational
structure of the insurer and have a general understanding of the lines of business and
The Board of Directors of an insurer belonging to a larger group structure/ conglomerate should
understand the material risks and issues that could affect the group entities, with attendant
implication on the insurer.
 The Board of Directors is required to have a minimum of three “Independent Directors”.

However, this requirement is relaxed to ‘two’ independent directors, for the initial five years
from grant of Certificate of Registration to insurers. And in case of vacancy it shall be filled up
before the immediately following Board meeting or 3 months from the date of such vacancy,
whichever is later, under intimation to the Authority.
 Where the Chairman of the Board is non-executive, the Chief Executive Officer should be a
whole time director of the Board.
 As required under Section 149 of the Companies Act, 2013, there shall be at least one
Woman Director on the Board of every Insurance company.
(b) The Role and responsibility of the Board

(1) The Board should set the following policies in consultation with the Management of the
Company.
(a) Define and periodically review the business strategy.

(b) Define the underwriting policy of the insurer.
(c) Determine the retention and reinsurance policy and in particular, the levels of
retentions of risk by the insurer and the nature and extent of reinsurance protection to be
maintained by the insurer.
(d) Define the policy of the insurer as regards investment of its assets consistent with
an appropriate asset liability management structure.
(e) Define the insurer’s policy on appointments and qualification requirements for
human resources and ensure that the incentive structure does not encourage imprudent
behaviour.
(2) The Board should define and set the following standards:-
(a) Define the standards of business conduct and ethical behaviour for directors and
senior management.
(b) Define the standards to be maintained in policyholder servicing and in redressal
of grievances of policyholders.
the Board may delegate the responsibilities to other Committees of Directors while retaining its
primary accountability.
(c) Eligibility Criteria
 Number of meetings attended by the Directors and members of the Committee
 Details of the remuneration paid, if any, to all directors (including Independent Directors)
(d) Control Functions
Given the risks that an insurer takes in carrying out its operations, and the potential impact it has
on its business, it is important that the Board lays down the policy framework to put in place:
(i) Audit Committee (mandatory)
The Audit Committee shall comprise of a minimum of three directors, majority of whom shall be
Independent Directors.
(ii) Investment Committee (mandatory)
The Board of every Insurer shall set up an Investment Committee comprising of at least two Non-
Executive Directors, the Chief Executive Officer, Chief of Finance, Chief of Investment, Chief Risk
Officer and, the Appointed Actuary.
(iii) Risk Management Committee (mandatory)
The risk management function should be under the overall guidance and supervision of the Chief
Risk Officer (CRO) with a clearly defined role. It shall be organized in such a way that it is able to
monitor all the risks across the various lines of business of the company and the operating head has
direct access to the Board.
(iv) Policyholder Protection Committee (mandatory)

Committee shall be headed by a Non-Executive Director and shall include an expert/representative
of customers as an invitee to enable insurers to formulate policies and assess compliance thereof.
(v) Nomination and Remuneration Committee (mandatory)

The Nomination and Remuneration Committee shall be constituted in line with the provisions of
Section 178 of the Companies Act, 2013. Indian Insurance Companies which have constituted two
independent committees for Nomination and Remuneration separately may merge these two
Committees after seeking the Board approval, under intimation to the Authority, within a period of
180 days from the date of issue of these guidelines.
(vi) Corporate Social Responsibility Committee (‘CSR Committee’) (mandatory)
For Indian Insurance Companies, a CSR Committee is required to be set up if the insurance
company earns a Net Profit of Rs. 5 Crores or more during the preceding financial year.
In line with Section 135(5) of Companies Act, 2013, the Board of Directors of the Company shall
ensure that the Company spends not less than 2% of the three years’ average Net Profits as defined
above towards the CSR activities.
(8) Other Committees
The other Committees which can be set up by the Board, include the Ethics Committee and ALM
Committee (other than life insurers). In cases where Board decides not to constitute such
Committees, their functions and responsibilities can be addressed in such manner as the Board may
deem fit.
3. CEO/ Managing Director/ Whole-Time Director
The Chief Executive Officer/Whole Time Director/ Managing Director of the company and other key
functionaries are responsible for the operations and day to day management of the company and
prior approval of the Authority for appointment, re-appointment or termination of the Chief
Executive Officer and the Whole Time Directors.
Role of Appointed Actuaries

The Appointed Actuary shall provide professional advice or certification to the board with regard
to:-
○ Estimation of technical provisions in accordance with the valuation framework set up by the
insurer
○ Identification and estimation of material risks and appropriate management of the risks
○ Financial condition testing
○ Solvency margin requirements
○ Appropriateness of premiums (and surrender value)
○ Allocation of bonuses to with-profit insurance contracts
○ Management of participating funds (including analysis of material effects caused by
strategies and policies)
○ Product design, risk mitigation (including reinsurance) and other related risk management roles.

4. Disclosure Requirements
In the annual accounts:-
(i) Quantitative and qualitative information on the insurance company’s financial and
operating ratios, viz. incurred claim, commission and expenses ratios.
(ii) Actual solvency margin details vis-à-vis the required margin
Financial performance including growth rate and current financial position of the insurance company
(i) Description of the risk management architecture
(ii) Details of number of claims intimated, disposed off and pending with details of duration
(iii) All pecuniary relationships or transactions of the Non-Executive Directors vis-à-vis the
insurance company shall be disclosed in the Annual Report
(iv) Any other matters, which have material impact on the insurer’s financial position.
5. Outsourcing Arrangements
 All outsourcing arrangements of an Insurer shall have the approval of a Committee of Key
Management Persons and should meet the terms of the Board approved outsourcing policy.
 The Board or the Risk Management Committee should be periodically apprised about the
outsourcing arrangements entered into by the insurer
 An insurer shall not outsource any of the company’s core functions other than those that have
been specifically permitted by the Authority.
 Every outsourcing contract shall contain explicit safeguards regarding confidentiality of data
and orderly handing over of the data on termination of the outsourcing arrangement.
6. Whistle blower policy:

The Policy covers the following aspects:
 Awareness of the employees that such channels are available, how to use them and how their
report will be handled.
 Handling of the reports received confidentially, for independent assessment, investigation and
where necessary for taking appropriate follow-up actions.
 A robust anti-retaliation policy to protect employees who make reports in good faith.
 Briefing of the board of directors.
7. Meeting by Independent Directors

The independent directors shall meet at least once in a year to evaluate the performance of
other than independent Directors. Similarly, there shall be an evaluation of the Independent
Directors by the other members of the Board of Directors as required in the Schedule.
VII SALIENT FEATURES OF GUIDELINES ON CORPORATE GOVERNANCE FOR CENTRAL PUBLIC

SECTOR ENTERPRISES 2010:
(a) Board of Directors:
Composition of Board of Directors:

 The Board of Directors of the company shall have an optimum combination of Functional,
Nominee and Independent Directors
 The number of Functional Directors (including CMD/MD) should not exceed 50% of the
actual strength of the Board.
 The number of Nominee Directors appointed by Government/other CPSEs shall be
restricted to a maximum of two.
 In case of a CPSE listed on the Stock Exchanges and whose Board of Directors is headed
by an Executive Chairman, the number of Independent Directors shall be at least 50% of
Board Members; and in case of all other CPSEs (i.e. listed on Stock Exchange but without
an Executive Chairman, or not listed CPSEs), at least one-third of the Board Members
should be Independent Directors.
Part-time Directors’ compensation and disclosures: All fees/compensation, if any, paid to part-
time directors, including Independent Directors, shall be fixed by the Board of Directors subject
to the provisions in the DPE guidelines and the Companies Act, 2013.
Number of Board meetings:- The Board shall meet at least once in every three months and at
least four such meetings shall be held every year. Further, the time gap between any two
meetings should not be more than three months. A Director shall not be a member in more than
10 committees or act as Chairman of more than five committees across all companies in which
he is a Director.
Code of Conduct: The Board shall lay down a code of conduct for all Board members and senior
management of the company. The code of conduct shall be circulated and also posted on the
website of the company. All Board members and senior management personnel shall affirm
compliance with the code on an annual basis. The Annual Report of the company shall contain a
declaration to this effect signed by its Chief Executive.
(b) Audit Committee
Qualified and Independent Audit Committee:
 The Audit Committee shall have minimum three Directors as members. Two-thirds of the
members of audit committee shall be Independent Directors. The Chairman of the Audit
Committee shall be an Independent Director.
 The Chairman of the Audit Committee shall be present at Annual General Meeting to
answer shareholder queries.
 The Finance Director, Head of Internal Audit and a representative of the Statutory
Auditor may be specifically invited to be present as invitees for the meetings of the Audit
Committee as may be decided by the Chairman of the Audit Committee. The Company
Secretary shall act as the Secretary to the Audit Committee.
Role of Audit Committee: The role of the Audit Committee shall include the following:
 Oversight of the company’s financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.
 Recommending to the Board the fixation of audit fees.
 Approval of payment to statutory auditors for any other services rendered by the statutory

auditors.
 Reviewing, with the management, the annual financial statements before submission to the
Board for approval, with particular reference to: (a) Matters required to be included in the
Directors‟ Responsibility Statement to be included in the Board’s report (b) Changes, if any,
in accounting policies and practices and reasons for the same; (c) Major accounting entries
involving estimates based on the exercise of judgment by management; (d) Significant
adjustments made in the financial statements arising out of audit findings; (e) Compliance
with legal requirements relating to financial statements; (f) Disclosure of any related party
transactions; and (g) Qualifications in the draft audit report.
 Reviewing the adequacy of internal audit function, if any, including the structure of the
internal audit department, staffing and seniority of the official heading the department,
reporting structure, coverage and frequency of internal audit.
 Discussion with statutory auditors before the audit commences, about the nature and scope
of audit as well as post-audit discussion to ascertain any area of concern.
 To review the functioning of the Whistle Blower Mechanism.
 To review the follow up action on the audit observations of the C&AG audit.
 To review the follow up action taken on the recommendations of Committee on Public Undertakings
(COPU) of the Parliament.
 Provide an open avenue of communication between the independent auditor, internal auditor and
the Board of Directors
Powers of Audit Committee: Commensurate with its role, the Audit Committee should be invested
by the Board of Directors with sufficient powers, which should include the following:
 To investigate any activity within its terms of reference.
 To seek information on and from any employee.
 To obtain outside legal or other professional advice, subject to the approval of the Board of Directors.
 To secure attendance of outsiders with relevant expertise, if it considers necessary.
 To protect whistle blowers.

Meeting of Audit Committee: The Audit Committee should meet at least four times in a year and
not more than four months shall elapse between two meetings. The quorum shall be either two
members or one third of the members of the Audit Committee whichever is greater, but a minimum
of two independent members must be present.
The Revised Guidelines applicable to all CPSEs are generally in the nature of guiding principles. The
guidelines contain certain additional requirements as mentioned below:
1. It is mandatory for all profit making CPSEs to undertake CSR activities as per the provisions of
the Act and the CSR Rules. Even the CPSEs which are not covered under the eligibility criteria
based on threshold limits of net-worth, turnover, or net profit as specified by Section 135 (1) of
the Act, but which made profit in the preceding year, would also be required to take up CSR
activities as specified in the Act and the CSR Rules, and such CPSEs would be expected to spend
at least 2% of the profit made in the preceding year on CSR activities

2. All CPSEs must adopt a CSR and Sustainability Policy specific to their company with the approval
of the Board of Directors.
3. If the CPSEs feel the necessity of taking up new CSR activities / projects during the course of a
year, which are in addition to the CSR activities already incorporated in the CSR policy of the
company, the Board’s approval of such additional CSR activities would be treated as amendment
to the policy.
4. It would be mandatory for all CPSEs which meet the criteria as laid down in Section 135(1) of
the Act, to spend at least 2% of the average net profits of the three immediately preceding
financial years in pursuance of their CSR activities as stipulated in the Act and the CSR Rules.
5. In case a company fails to spend such amount, it shall have to specify the reasons for not
spending it. However, in case of CPSEs mere reporting and explaining the reasons for not
spending this amount in a particular year would not suffice and the unspent CSR amount in a
particular year would not lapse. It would instead be carried forward to the next year for
utilisation for the purpose for which it was allocated.
6. While selecting CSR activities / projects from the activities listed in Schedule VII of the Act,
CPSEs should give priority to the issues which are of foremost concern in the national
development agenda, like safe drinking water for all, provision of toilets especially for girls,
health and sanitation, education, etc
7. As far as possible, CPSEs should take up the CSR activities in project, which entails planning
the stages of execution in advance by fixing targets at different milestones, with pre-
estimation of quantum of resources required within the allocated budget, and having a
definite time span for achieving desired outcomes.

Unit 4: BOARD PROCESSES THROUGH SECRETARIAL STANDARDS.
ROLE OF DIRECTORS
Role of
Directors
Appointment
Establish Strategic Overse Ensuring
and evaluating Risk Procuring
Vision & Direction & eing imple- Stakeholder
CEO and senior Mitigation Resources
Mission advice mentation relations
staff
To establish the Vision & Mission Statement: The Board ensures that the company effectively and efficiently
works towards achieving its mission and is committed to continual quality improvement. Based
Strategic Direction and advice: By virtue of their position, they can also furnish input and advice to the CEO
and the top management regarding the company’s strategic direction and ensure that the organizational
structure and capability are appropriate for implementing those chosen strategies.
Overseeing Strategy Implementation and performance: Developing a valid strategy is only the first step in
creating an effective organization. Boards can best monitor strategy implementation by setting benchmarks
to measure progress and by drawing on objective sources of information.
Appointing and evaluation of CEO and Senior management: The board has responsibility for
→ Hiring the senior managerial personnel;
→ Giving direction to the senior managerial personnel, and;
→ Evaluating the senior managerial personnel.
Ensuring Stakeholder Relations and ensuring accountability towards them: To serve as a communications
link with members and other stakeholders of an organization - organization can accomplish this by informing
people of upcoming events, promoting items of interest and providing newsworthy information.
Risk Mitigation: In managing risk, directors have a responsibility to owners to foresee what could affect the
organization and to put in place plans that will minimize the impact of events or changes that will have a
negative effect.
Procuring resources: Financial resources, human resources, technological resources andbusiness relationship
are the key resources that are essential to an organization’s success. Boards play an important role in helping
the organization in procuring the resources.
Who are Board of Directors?
As per Section 2(10) of the Companies A board of directors is a body of elected or appointed
Act, 2013 “Board of Directors” or “Board”, in members who jointly oversee the activities of a company.
relation to a company means the collective They are also referred as board of governors, board of
body of directors of the company appointed managers, board of regents, board of trustees, or simply
to the Board of the Company referred to as "the board".

LIST OF GOVERNANCE FUNCTIONARIES
1. Executive Director
The term executive director is usually used to describe a person who is both a member of the board
and who also has day to day responsibilities in respect of the affairs of the company. Executive directors
perform operational and strategic business functions such as:
→ managing people
→ looking after assets
→ hiring and firing
→ entering into contract
2. Non Executive Director
They are not in the employment of the company. They are the members of the Board, who normally
do not take part in the day-to-day implementation of the company policy. They are generally appointed
to provide the company with the benefits of professional expertise and outside perspective to the board.
They play an effective role in governance of listed companies, but they may or may not be independent
directors.
3. Shadow Director
Shadow Director is a person who is not formally appointed as a director, but in accordance with whose
directions or instructions the directors of a company are accustomed to act.
4. Woman Director
Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014, prescribes the
following class of companies shall appoint at least one woman director-
(i) every listed company;

(ii) every other public company having :-
(a) paid–up share capital of one hundred crore rupees or more; or
(b) Turnover of three hundred crore rupees or more.
However any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not
later than immediate next Board meeting or three months from the date of such vacancy whichever is later.
Regulation 17(i) of the SEBI (LODR) Regulations also requires that at least one woman director shall
be appointed on the board of all listed entities. SEBI (LODR) (Amendment) Regulations, 2018 provides
that the top listed 500 companies shall have at least one independent woman director by 1 April 2019
and for the top listed 1000 entities by 1 April 2020.
5. Resident Director
Section 149 (3) of the Act has provided for residence of a director in India as a compulsory i.e. every
company shall have at least one director who has stayed in India for a total period of not less than 182 days
in the previous calendar year. MCA has also issued clarification with regard to Resident Directors.

6. Independent Director
An independent director in relation to a company, means a director other than a managing director
or a whole-time director or a nominee director,—
(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and
experience;
(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;
(ii) who is not related to promoters or directors in the company, its holding, subsidiary or
associate company;
(c) who has or had no pecuniary relationship, other than remuneration as such director or having
transaction not exceeding ten per cent. of his total income or such amount as may be prescribed,
with the company, its holding, subsidiary or associate company, or their promoters, or directors,
during the two immediately preceding financial years or during the current financial year; (This
provision does not apply to Government Companies)
(d) who, neither himself nor any of his relatives—holds or has held the position of a key managerial
personnel or is or has been employee of the company or its holding, subsidiary or associate company
in any of the three financial years immediately preceding the financial year in which he is proposed
to be appointed;
(e) Who possesses such other qualifications as may be prescribed.
However, the provision of independent director shall not apply to Section 8 companies, specified
IFSC public companies, unlisted public companies which are joint venture or wholly owned subsidiary
or dormant company.
Regulation 24 of SEBI (LODR) Regulations, 2015 (as amended) provide that at least one independent
director on the board of directors of the listed entity shall be a director on the board of directors of an
unlisted material subsidiary, whether incorporated in India or not.
What is the Tenure of an Independent Director?

An independent director with "externality" may lose his independence or may become not so
independent due to rapport established with the internal directors and the management. It is therefore
necessary to limit the tenure of an independent director. Excessively long tenure of independent directors
reflects
As per proviso 10 to Section 149 of the Companies Act, 2013, subject to provisions of Section 152, an
independent director shall hold office for a term up to five consecutive years on the Board of a company
and shall be eligible for reappointment for another term of up to five consecutive years on passing of a
special resolution by the company.
Detailed reasons for the resignation of an independent director who resigns before the expiry of his
tenure along with a confirmation by such director that there are no other material reasons other than those
provided have to be disclosed in the Corporate Governance Report of a Listed entity under SEBI (LODR), 2015.
As per Schedule IV of the Companies Act, 2013 an independent director who resigns or is removed
from the Board of the company shall be replaced by a new independent director within three months
from the date of such resignation or removal, as the case may be.
What are the provisions relating to remuneration of independent Directors?

Section 149(9) provides that notwithstanding anything contained in any other provision of this Act,
but subject to the provisions of sections 197 and 198, an independent director shall not be entitled to
any stock option and may receive remuneration by way of fee provided under sub-section (5) of section
197, reimbursement of expenses for participation in the Board and other meetings and profit related
commission as may be approved by the members.
How to evaluate Performance of an Independent director?
Section 178(2) read with Schedule IV: The Nomination and Remuneration Committee shall identify
persons who are qualified to become directors and who may be appointed in senior management in
accordance with the criteria laid down, recommend to the Board their appointment and removal and
shall specify the manner for effective evaluation of performance of Board, its committees and individual
directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by
an independent external agency and review its implementation and compliance. The performance
evaluation of independent directors shall be done by the entire Board of Directors, excluding the director
being evaluated. 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.
What is the Legal position of an Independent Director?

Independent directors are invited to sit on the board purely on account of their special skills and expertise in
particular fields and they represent the conscience of the investing public and also take care of public interest.
Independent directors bear a fiduciary responsibility towards shareholders and the creditors. The company
and the board are responsible for all the consequences of actions taken by the officers of the company.
As per Section 149(12), notwithstanding anything contained in this Act, an independent director;
shall be held liable, only in respect of such acts of omission or commission by a company which had
occurred with his knowledge, attributable through Board processes, and with his consent or connivance
or where he had not acted diligently.
As per Regulation 25 of (LODR) Regulation:
a. A person shall not serve as an independent director in more than seven listed companies.
b. Further, any person who is serving as a whole time director in any listed company shall serve as
an independent director in not more than three listed companies.
As per Regulation 17A of (LODR) Regulation:
The directors of listed entities shall also comply with the following conditions with respect to the
maximum number of directorships, including any alternate directorships.
(1) A person shall not be a director in more than eight listed entities with effect from April 1, 2019 and in
not more than seven listed entities with effect from April 1, 2020
Provided that a person shall not serve as an independent director in more than seven listed entities.
(2) Notwithstanding the above, any person who is serving as a whole time director / managing
director in any listed entity shall serve as an independent director in not more than three listed entities.
For the purpose of this sub-regulation, the count for the number of listed entities on which a person
is a director/independent director shall be only those whose equity shares are listed on a stock exchange.

The company shall also issue a formal letter of appointment to independent directors in the manner as
provided in the Companies Act, 2013. The letter of appointment along with the detailed profile of
independent director shall be disclosed on the websites of the company.
Separate meetings of the Independent Directors

a. The independent directors of the company shall hold at least one meeting in a financial year,
without the attendance of non-independent directors and members of management. All the
independent directors of the company shall strive to be present at such meeting.
b. The independent directors in the meeting shall, inter-alia:
i. review the performance of non-independent directors and the Board as a whole;
ii. review the performance of the Chairperson of the company, taking into account the views
of executive directors and non-executive directors;
iii. assess the quality, quantity and timeliness of flow of information between the company
management and the Board that is necessary for the Board to effectively and reasonably
perform their duties.
Liability of the Independent Director

An independent director shall be held liable, only in respect of such acts of omission or commission
by the listed entity which had occurred with his knowledge, attributable through processes of board of
directors, and with his consent or connivance or where he had not acted diligently with respect to the
provisions contained in these regulations.
A new requirement for top 500 listed entities to undertake Directors and Officers (D and O) Insurance for all
their independent directors of such quantum and for such risks as may be determined by its board of
directors. Market capitalization would be calculated as on 31 March of the preceding financial year for
determining top 500 listed entities. Companies will need to comply with the D and O Insurance requirement
with effect from 1 October 2018. (SEBI LODR)
7. Nominee Director
A nominee director belongs to the category of non-executive director and is appointed on behalf of
an interested party.
It is pertinent to mention here that there is a divergent view as to whether a nominee director can
be considered independent or not. Naresh Chandra Committee in its report stated that ‘nominee director’
will be excluded from the pool of directors in the determination of the number of independent directors.
In other words, such a director will not feature either in the numerator or the denominator.
Both Listing Obligations and section 149(6) of the Companies Act, 2013 specifically exclude nominee
director from being considered as Independent.
8. Chairman
The Chairman’s primary responsibility is for leading the Board and ensuring its
effectiveness. The role of the Chairman includes:
→ setting the Board agenda, ensuring that Directors receive accurate, timely and clear information
to enable them to take sound decisions, ensuring that sufficient time is allowed for complex or
contentious issues, and
→ encouraging active engagement by all members of the Board;
→ taking the lead in providing a comprehensive, formal and tailored induction programme for new
Directors, and in addressing the development needs of individual Directors to ensure that they
have the skills and knowledge to fulfill their role on the Board and on Board Committees;
→ evaluating annually the performance of each Board member in his/her role as a Director, and
ensuring that the performance of the Board as a whole and its Committees is evaluated annually.
→ ensuring effective communication with shareholders and in particular that the company
maintains contact with its principal shareholders on matters relating to strategy, governance
and Directors’ remuneration.
9. Chief Executive Officer (CEO)
His main responsibilities include developing and

implementing high-level strategies, making major corporate
As per Section 2(18) of the decisions, managing the overall operations and resources of a
Companies act, 2013, “Chief company, and acting as the main point of communication
Executive Officer” means an between the board of directors and the corporate operations.
officer of a company, who has He is involved
been designated as such by it.
with every aspect of the company’s performance. The CEO is supported and advised by a skilled board
and CEO is ultimately accountable to the board for his actions. The most important skill of a CEO is to
think strategically. His key role is leading the long term strategy and its implementation, it further
includes:
→ Developing implementation plan of action to meet the competition and keeping in mind the long
term existence of the company
→ Adequate control systems
→ Monitoring the operating and financial outcomes against the set plan
→ Remedial action
→ Keeping the Board informed
Separation of role of Chairman and Chief Executive Officer
A clear demarcation of the roles and responsibilities of the Chairman of the Board and that of the Managing
Director/CEO promotes balance of power. The benefits of separation of roles of Chairman and CEO can be:
1. Director Communication: A separate chairman provides a more effective channel for the board
to express its views on management

2. Guidance: A separate chairman can provide the CEO with guidance and feedback on his/her
performance
3. Shareholders’ interest: The chairman can focus on shareholder interests, while the CEO
manages the company
4. Governance: A separate chairman allows the board to more effectively fulfill its regulatory
requirements
5. Long-Term Outlook: Separating the position allows the chairman to focus on the long-term
strategy while the CEO focuses on short-term profitability
6. Succession Planning: A separate chairman can more effectively concentrate on corporate
succession plans.
10. Company Secretary
A Company Secretary, being a close confidante of the board will also be able to command confidence of
individual directors so as to ensure that the culture of independence is promoted at the board and committee
meetings and at the level of individual directors. Company Secretary:
 acts as a vital link between the company and its Board of Directors,
shareholders and other stakeholders and regulatory authorities
 plays a key role in ensuring that the Board procedures are followed
and regularly reviewed
 provides the Board with guidance as to its duties, responsibilities
and powers under various laws, rules and regulations
 acts as a compliance officer as well as an in-house legal counsel to
advise the Board and the functional departments of the company on
various corporate, business, economic and tax laws
 is an important member of the corporate management team and acts as conscience keeper of
the company
Functions and Duties of a Company Secretary

Section 205 of the Companies Act, 2013 prescribes that the functions of the company secretary shall include,—
(a) to report to the Board about compliance with the provisions of this Act, the rules made
thereunder and other laws applicable to the company;
(b) to ensure that the company complies with the applicable secretarial standards;
(c) to discharge such other duties as may be prescribed.
Further, Rule 10 of the Companies (Appointment and Remuneration of managerial Personnel) Rules,
2014:-
 To guide the directors of the company regarding their duties, responsibilities and powers
 To facilitate the convening of meetings
 To attend Board Meetings, Committee Meetings and General Meetings

 To maintain minutes of the meetings
 To obtain the approvals from Board, General Meeting, Government and other authorities as required
 To represent before various regulators, and other authorities
 To assist the Board in the conduct of affairs of the company
 To assist and advise the Board in ensuring good corporate governance
 To assist and advise the Board in ensuring the compliance of corporate governance requirements
and best practices
 To discharge such other duties as specified under the Act or rules
 To discharge such other duties as may be assigned by the Board from time to time
Appointment of Company Secretary
Section 203(2) of Companies Act, 2013 provides that every whole-time key managerial personnel of a
company shall be appointed by means of a resolution of the Board containing the terms and conditions of
the appointment including the remuneration.Rule 8 and 8A of companies (Appointment and Remuneration
of Managerial Personnel) Rules, 2014
Rule 8 – Every listed company and every public company having paid up capital of 10 crore or more rupees
shall have whole- time Key Managerial personnel.
Rule 8A – Companies other than covered under rule 8 which has paid up capital of 5 crore or more shall have
a whole-time Company Secretary.
RELATIONSHIP BETWEEN DIRECTORS AND EXECUTIVE

The Executive Management can help the board govern more and manage less by adopting the following
three methods:
→ Use a comprehensive strategic plan that has been developed in conjunction with the board, and supplement
it with regular progress reports. This will keep the board's sights focused on the long term goals and mission
of the organization. Regular reports will keep board members apprised of progress toward organizational
goals, and provide part of the basis for evaluation of the executive management.
→ Provide the board with relevant materials before board meetings, and explain why the materials are coming
to the attention of the board. Let board members know how specific agenda items relate to the
organization's larger mission, and what kind of action or discussion is desired of the board on each item.
→ Facilitate board and board committee discussions so that the board stays focused on the larger issues. Refer
to set policies that define the limits of the board's decision-making power, and strive to engage the board
in a dialogue among themselves that leads to consensus-building.
THE KEY DIFFERENCE BETWEEN DIRECTORS AND

MANAGERS

There are many fundamental differences between being a director and a manager. The differences are
numerous, substantial and quite onerous. The table below gives a detailed breakdown of the major
differences between directing and managing:
Basis Directors Managers
Leadership It is the board of directors who must provide It is the role of managers to
the intrinsic leadership and direction at the carry through the strategy on
top of the organization. behalf of the directors.
Decision Making Directors are required to determine the Managers are concerned with
future of the organization and protect its Implementing the decisions
assets and reputation. They also need to and the policies made by the
consider how their decisions related to board.
‘Stake-holders’ and the regulatory
framework.
Duties Directors, not managers, have the ultimate Managers have far fewer legal
a responsibility for the long-term prosperity of responsibilities.
nd the company. Directors are required in law to
responsibilities apply skill and care in exercising their duty to
the company and are subject to fiduciary
duties. If they are in breach of their duties or
act improperly directors may be made
personally liable in both civil and criminal law.
On occasions, directors can be held
responsible for acts of the company.
Directors also owe certain duties to the
stakeholders of the company.
Relationship Directors are accountable to the Managers are usually
w shareholders for the company’s performance appointed and dismissed by
ith shareholders and can be removed from office by them or directors or management and
the shareholders can pass a special resolution do not have any legal
requiring the Directors to act in a particular requirement to be held to
way. Directors act as “Fiduciaries” of the account.
shareholders and should act in their best
interests by also taking into account the best
interests of the company (as a separate legal
entity) and the other stakeholders.
Ethics and Directors have a key role in the Managers must enact the
values determination of the values and ethical ethos, taking their direction
position of the company. from the board.

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Company Directors are responsible for the company’s While the related duties
Administration administration. associated with company
administration can be
delegated to managers, the
ultimate responsibility for
them resides with the
directors.
Statutory If a company becomes insolvent, law imposes These statutory provisions do
Provisions various duties and responsibilities on not affect managers.
directors that may involve personal liability,
on insolvency criminal prosecution and disqualification.
Statutory There are many other statutory provisions Generally managers are
Provisions in that can create offences on strict liability not responsible
under under the Statutory
general which Directors may face penalties if the Provisions.

company fails to comply. A very wide range
of statutes impose duties on Directors which
are numerous.
Disqualification Directors can be disqualified as Directors The control over the
under law. employment of a Manager
rests with the company.
Training of Directors
Director Induction
Induction procedures should be in place to allow new directors to participate fully and actively in board
decision-making at the earliest opportunity. To be effective, new directors need to have a good deal of
knowledge about the company and the industry within which it operates. It involves building up rapport,
trust, and credibility with the other directors so that the new director is accepted by and can work with
fellow directors.
Common methods of induction include:
 Briefing papers
 Internal visits
 Introductions
An induction programme should be available to enable new directors to gain an understanding of:
 the company’s financial, strategic, operational and risk management position

 the rights, duties and responsibilities of the directors
 the roles and responsibilities of senior executives
 the role of board committees.

An induction kit should be given to new directors which should contain the following:
CS SOMYA KATARIA-8461967667 INSPIRE ACADEMY-8888881719

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○ Memorandum and Articles of Association with a summary of most important provisions

○ Brief history of the company
○ Current business plan, market analysis and budgets
○ All relevant policies and procedures, such as a policy for obtaining independent professional advice for
directors;
○ Protocol, procedures and dress code for Board meetings, general meetings, , staff social events, site visits
etc including the involvement of partners;
○ Press releases in the last one year
○ copies of recent press cuttings and articles concerning the company
○ Annual report for last three years
○ Notes on agenda and Minutes of last six Board meetings
○ Board’s meeting schedule and Board committee meeting schedule
○ Description of Board procedures.
PERFORMANCE EVALUATION OF BOARD & INDIVIDUAL DIRECTOR
A formal evaluation of the board and the individual directors is one potentially effective way to respond
to the demand for greater board accountability and effectiveness. Feedback about the performance of
individual board members can help them enhance their skill as directors and can motivate them to be better
board members. Evaluations can provide an ongoing means for directors to assess their performance. Board
appraisals, if conducted properly produce a number of positive outcomes. In addition to the obvious benefit
of greater board accountability, four areas of performance
Major Factors for Evaluation:

 The quality of the issues that get raised, discussed and debated at the meetings of the Board and its
Committees.
 The guidance provided by the Board in the light of changing market conditions and their impact on the
organisation.
 The methodology adopted by the Board to solve issues referred to them such as, the homework done by
the Board on the problem presented to them, the information they seek to get a complete picture of the
situation, the points of view presented to solve the issue, the harmonization of remedial measures proposed
by the Board and ensuring the implementation of the solution by the management with appropriate and
timely review mechanism.
 The effectiveness of the directions provided by the Board on the issues discussed in meetings.
Parameters
→ Performance of the Board against the performance benchmarks set.
→ Overall value addition by the discussions taking place at the Board meetings.
→ The regularity and quality of participation in the deliberations of the Board and its Committees.
→ The answerability of the top management to the Board on performance related matters.
Performance Evaluation of the Non-Executive Director
The chairman and other board members should consider the following issues and the individual
concerned should also be asked to assess themselves. For each non-executive director:

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 How well prepared and informed are they for board meetings and is their meeting attendance
satisfactory?
 Do they demonstrate a willingness to devote time and effort to understand the company and its
business and a readiness to participate in events outside the boardroom, such as site visits?
 What has been the quality and value of their contributions at board meetings?
 What has been their contribution to development of strategy and to risk management?
 How successfully have they brought their knowledge and experience to bear in the consideration of
strategy?
 How effectively and proactively have they followed up their areas of concern?
 How effective and successful are their relationships with fellow board members, the company
secretary and senior management?
 Does their performance and behavior engender mutual trust and respect within the board?
 How actively and successfully do they refresh their knowledge and skills and are they up to date with:
 How well do they communicate with fellow board members, senior management and others, for
example shareholders. Are they able to present their views convincingly yet diplomatically.

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UNIT 5: BOARD EFFECTIVENESS: ISSUES AND CHALLENGES
BOARD COMMITTEE
A board committee is a small working group identified by the board, consisting of board
members, for the purpose of supporting the board’s work. Committees are generally formed to
perform some expertise work. Members of the committee are expected to have expertise in the
specified field.
Committees may be formed for a range of purposes, including:
• Selection Committee/Nomination Committee: to select Board members, to select a CEO, to select key
managerial and senior management personnel
• Board development or Governance Committee: to look after/ administer/support Board members

and committee members and other executive positions
• Investment Committee: For advising to the board for investments
• Risk Management Committee: To report to the board about potential risks factor and to suggest
action point for risk mitigation.
• Safety, Health & Environment Committee
• Committee of Inquiry – to inquire into particular questions (disciplinary, technical, etc.)
• Finance or Budget Committees – to be responsible for financial reporting, organizing audits, etc.
• Marketing and Public Relations Committees - to identify new markets; build relationship with media
and public, etc.
Committees thus have an important role -
• to strengthen the governance arrangements of the company and support the Board
in the achievement of the strategic objectives of the company ;
• to strengthen the role of the Board in strategic decision making and supports the
role of non-executive directors in challenging executive management actions;
• to maximize the value of the input from non-executive directors, given their limited
time commitment;
• to support the Board in fulfilling its role, given the nature and magnitude of the
agenda.
AUDIT COMMITTEE
The Committee is charged with the principal oversight of financial reporting and disclosure and aims to
enhance the confidence in the integrity of the company’s financial reporting, the internal control processes and
procedures and the risk management systems.

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The constitution of Audit Committee is mandated under the Companies Act 2013 and SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015.
CONSTITUTION OF AUDIT COMMITTEE:
Section 177(1) of the Companies Act, 2013 read with rule 6 of the Companies (Meetings
of the Board and is Powers) Rules, 2014 provides that the Board of directors of following
companies are required to constitute a Audit Committee of the Board-
1. All listed companies
2. All public companies with a paid up capital of 10 crore rupees or more;
3. All public companies having turnover of 100 crore rupees or more;
4. All public companies, having in aggregate, outstanding loans or borrowings or

debentures or deposits exceeding 50 crore rupees or more.
COMPOSTION OF THE AUDIT COMMITTEE

Sections 177 (2) of the Companies Act, Regulations 18 (1) of the SEBI (Listing Obligation
2013 and Disclosure Requirement)
Regulation, 2015

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• Audit Committee shall consist of a minimum • Audit Committee shall consist of a

of three directors Minimum three directors as members
• Independent directors should form a • Two-thirds (2/3rd) of the members shall be
majority. (Not applicable for Section 8 independent directors
companies vide notification no. GSR • All members of audit committee shall be
466(E), dated 5-6-2015) financially literate and at least 1 (one)
• Majority of members of Audit Committee member shall have accounting or related
including its Chairperson shall be persons financial management expertise.
with ability to read and understand the
financial statement • The chairperson of the audit committee
shall be an independent director and he
shall be present at AGM to answer
shareholder queries.
• The Company Secretary shall act as the
secretary to the audit committee
• The audit committee at its discretion shall
invite the finance director or head of the
finance function, head of internal audit and
a representative of the statutory auditor
and any other such executives to
• Be present at the meetings of the
committee. However, occasionally the
audit committee may meet without the
• Presence of any executives of the listed
entity.
POWERS OF THE AUDIT COMMITTEE
Section 177 (5) and (6) of the Companies Act, Regulation 18(2)(c) of the SEBI Listing Regulations,
2013 2015

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• The Audit Committee has the power to call The audit committee shall have powers to
for the comments of the auditors about investigate any activity within its terms of
internal control systems, the scope of audit, reference, seek information from any
including the observations of the auditors employee, obtain outside legal or other
and review of financial statement before professional advice and secure attendance of
their submission to the Board and may also outsiders with relevant expertise, if it
discuss any related issues with the internal considers necessary
and statutory auditors and the
management of the company.
• The Audit Committee has authority to
investigate into any matter in relation to
the items specified in terms of reference or
referred to it by the Board and for this
purpose the Committee has power to
obtain professional advice from external
sources.
• The auditors of a company and the key
managerial personnel have a right to be
heard in the meetings of the Audit
Committee when it considers the auditor’s
report but shall not have the right to vote
NUMBERS OF MEETINGS AND QUORUM
(i) The Audit Committee of a listed entity shall meet at least four (4) times in a year and not more
than 120 shall elapse between two meetings.
(ii) The quorum for audit committee meeting shall either be

● 2 members or
● 1/3rd of the members of the audit committee, whichever is greater;
● with at least 2 independent directors. [Regulation 18(2)(b)]
The requirement of minimum 2 independent directors in the meeting of Audit Committee is

new provision which must be complied by all the listed entities.
DISCLOSURE IN THE BOARD’S REPORT
Section 177(8) of the Act provides that the board’s report shall disclose following –
• Composition of an Audit Committee
(ii) Where the Board had not accepted any recommendation of the Audit Committee, the same shall
be disclosed in the report along with the reasons therefor.
STAKEHOLDERS RELATIONSHIP COMMITTEE

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COMPOSITION OF THE COMMITTEE
Section 178(5) of the Companies Act 2013 and Regulation 20 of SEBI (LODR) Regulations, 2015
provides that-
• Stakeholders Relationship Committee shall consist of a chairperson who shall be a

nonexecutive director
• Other members of the committee shall be decided by the Board.
The chairperson of the committees or, in his absence, any other member of the committee
authorized by him in this behalf is required under the section to attend the general meetings
of the company.
FUNCTIONS
The main function of the committee is to consider and resolve the grievances of security holders of
the company.
The role of the Stakeholders Relationship Committee shall be to consider and resolve the
grievances of the security holders of the listed entity including complaints related to transfer
of shares, non-receipt of annual report and non-receipt of declared dividends.
CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
Section 135 (1) read with rule 3 of Companies (Corporate Social Responsibility Policy) Rules,
2014, mandates that every company which fulfils any of the following criteria during any of the
three preceding financial years shall constitute a CSR Committee -
○ Companies having net worth of rupees five hundred crore or more, or

○ Companies having turnover of rupees one thousand crore or
more or ○ Companies having a net profit of rupees five crore or more.
COMPOSITION OF THE COMMITTEE
● The CSR Committee shall consist of three or more directors.
● Atleast one director shall be an independent director.
● Companies (Meetings of Board and Powers) Rules, 2014, however, provides that-
FUNCTIONS
In accordance with section 135 the functions of the CSR committee include:
(a) formulating and recommending to the Board, a CSR Policy which shall indicate the activities
to be undertaken by the company as specified in Schedule VII;
(b) Recommending the amount of expenditure to be incurred on the CSR activities.
(c) Monitoring the Corporate Social Responsibility Policy of the company from time to time.

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RISK MANAGEMENT COMMITTEE

A company needs to have a proactive approach to convert a risk into an opportunity.
It is important for the company to have a structured framework to satisfy that it has sound
policies, procedures and practices in place to manage the key risks under risk framework
of the company. A risk management Committee’s role is to assist the Board in establishing
risk management policy, overseeing and monitoring its implementation.
Regulation 21 of the SEBI (LODR) Regulations, 2015 provides that the board of directors of top 100
listed entities, determined on the basis of market capitalization, as at the end of the immediate
previous financial year shall constitute a Risk Management Committee.
Major functions include:

• Assisting the Board in fulfilling its risk management oversight responsibilities with regard to
identification, evaluation and mitigation of operational, strategic and external environment
risks.
• To ensure that management has instituted adequate process to evaluate major risks faced by
the company
• Establishing the role and responsibilities of officers/team who shall be responsible for:
○ Facilitating the execution of risk management practices in the enterprise
○ Reviewing enterprise risks from time to time, initiating mitigation actions,
identifying owners and reviewing progress
Other Committees
 CORPORATE GOVERNANCE COMMITTEE

 REGULATORY, COMPLIANCE & GOVERNANCE AFFAIRS COMMITTEE
 SOCIAL, TECHNOLOGY & SUSTAINABILITY COMMITTEE

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UNIT 6: CORPORATE GOVERNANCE AND SHAREHOLDERS RIGHTS
RIGHTS OF SHAREHOLDERS
1. Rights of Shareholder under the SEBI (Prohibition of Insider Trading) Regulations 2015
An unpublished price sensitive information may be communicated that would:–
(i) entail an obligation to make an open offer under the takeover regulations where the board of
directors of the company is of informed opinion that the proposed transaction is in the best interests
of the company;
(ii) not attract the obligation to make an open offer under the takeover regulations but where the
board of directors of the company is of informed opinion that the proposed transaction is in the
best interests of the company and the information that constitute unpublished price sensitive
information is disseminated to be made generally available at least two trading days prior to the
proposed transaction being effected in such form as the board of directors may determine.
2. Rights of shareholders under SEBI (LODR) Regulations, 2015
The rights of shareholders: The listed entity shall seek to protect and facilitate the exercise of the
following rights of shareholders:
a. Right to participate in, and to be sufficiently informed of, decisions concerning fundamental
corporate changes.
b. Opportunity to participate effectively and vote in general shareholder meetings.
c. Being informed of the rules, including voting procedures that govern general shareholder
meetings.
d. Opportunity to ask questions to the board of directors, to place items on the agenda of
general meetings, and to propose resolutions, subject to reasonable limitations.
e. Effective shareholder participation in key corporate governance decisions, such as the
nomination and election of members of board of directors.
f. Exercise of ownership rights by all shareholders, including institutional investors.
g. Adequate mechanism to address the grievances of the shareholders.
h. protection of minority shareholders from abusive actions by, or in the interest of, controlling
shareholders acting either directly or indirectly, and effective means of redress.
i. Capital structures and arrangements that enable certain shareholders to obtain a degree of
control disproportionate to their equity ownership.
j. Rights attached to all series and classes of shares, which shall be disclosed to investors before
they acquire shares.
k. Effective shareholder participation in key corporate governance decisions, such as the

nomination and election of members of board of directors, shall be facilitated.
Role of stakeholders in corporate governance: The listed entity shall recognize the rights of its
stakeholders and encourage co-operation between listed entity and the stakeholders, in the

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following manner:
l. The listed entity shall respect the rights of stakeholders that are established by law or
through mutual agreements.
m. Stakeholders shall have the opportunity to obtain effective redress for violation of their rights.
n. Stakeholders shall have access to relevant, sufficient and reliable information on a timely and
regular basis to enable them to participate in corporate governance process.
o. The listed entity shall devise an effective whistle blower mechanism enabling stakeholders,
including individual employees and their representative bodies, to freely communicate their
concerns about illegal or unethical practices.
PROTECTION OF RIGHTS OF MINORITY SHAREHOLDERS
1. Unutilised amount raised through prospectus:
Where a company, which has raised money from public through prospectus and still has any unutilized
amount out of the money so raised and which proposes to change its objects, then the promoter and
shareholders having control of a company are required to provide an exit to the dissenting shareholders
in accordance with regulations to be specified by SEBI.
2. Benefit to promoter, director. KMP or its relatives

Where any benefit accrues to promoter, director, manager, KMP, or their relatives, either directly or
indirectly as a result of non-disclosure or insufficient disclosure in the explanatory statement annexed to
the notice of general meeting then such persons shall hold such benefit in trust for the company and shall
be liable to compensate the company to the extent of the benefit received by him.
3. Class action suit
In case of oppression / mismanagement, specified number of members or depositors is entitled to file

Class Action Suit before NCLT for seeking prescribed reliefs. They may also claim damages / compensation
for fraudulent / unlawful / wrongful acts from or against the company / directors / auditors / experts
/advisors etc.
SHAREHOLDERS ACTIVISM
The shareholder activism means
 Establishing dialogue with the management on issues that concern
 Influencing the corporate culture.
 Using the corporate democracy provided by law.
 Increasing general awareness on social and human rights issues concerning the organization
A share in a company is not only a share in profits but also a share in ownership. Shareholders must realize
that their active participation in the company’s operations ensures:
 better management,

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 less frauds and

 better governance
The purpose of shareholder activism is to
 Provide an overview of shareholder activist, and how it may influence a company’s behaviour,
 Identify what options are available for shareholders wishing to pursue an activist agenda, and
 Consider the legal framework in which UK public companies must operate when faced with
shareholder activism.
INVESTORS RELATIONS(IR)
“Investor Relations (IR) is a strategic management responsibility that integrates finance,

communication, marketing and securities law compliance to enable the most effective two-way
communication between a company, the financial community, and other constituencies, which ultimately
contributes to a company's securities achieving fair valuation.”
Investor Confidence: The responsibilities of the IRO, include:

 building interest in the firm on the buy side,
 anticipate market reaction towards M&As and divestitures,
 and building investor confidence in the firm.
I. The role of stakeholders in corporate governance:
The corporate governance framework should recognize the rights of stakeholders established by law or
through mutual agreements and encourage active co-operation between corporations and stakeholders in
creating wealth, jobs, and the sustainability of financially sound enterprises:
A. The rights of stakeholders that are established by law or through mutual agreements are to be
respected.
B. Where stakeholder interests are protected by law, stakeholders should have the opportunity
to obtain effective redress for violation of their rights.
C. Where stakeholders participate in the corporate governance process, they should have access
to relevant, sufficient and reliable information on a timely and regular basis.
D. Stakeholders, including individual employees and their representative bodies, should be

able to freely communicate their concerns about illegal or unethical practices to the board and
to the competent public authorities and their rights should not be compromised for doing this.
II. Disclosure and transparency:

The corporate governance framework should ensure that timely and accurate disclosure is made on all
material matters regarding the corporation, including the financial situation, performance, ownership, and
governance of the company:
A. Disclosure should include, but not be limited to, material information.

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B. Information should be prepared and disclosed in accordance with high quality standards of
accounting and financial and non-financial reporting.
C. An annual audit should be conducted by an independent, competent and qualified, auditor in
accordance with high-quality auditing standards in order to provide an external and objective
assurance to the board and shareholders that the financial statements fairly represent the
financial position and performance of the company in all material respects.
D. External auditors should be accountable to the shareholders and owe a duty to the company to
exercise due professional care in the conduct of the audit.
E. Channels for disseminating information should provide for equal, timely and cost-efficient access
to relevant information by users.
III. The responsibilities of the board:
The corporate governance framework should ensure the strategic guidance of the company, the effective
monitoring of management by the board, and the board’s accountability to the company and the
shareholders:
A. Board members should act on a fully informed basis, in good faith, with due diligence and care,
and in the best interest of the company and the shareholders.
B. Where board decisions may affect different shareholder groups differently, the board should
treat all shareholders fairly.
C. The board should apply high ethical standards. It should take into account the interests of
stakeholders.
D. The board should fulfil certain key functions, including:
1. Reviewing and guiding corporate strategy, major plans of action, risk management policies
and procedures, annual budgets and business plans; setting performance objectives;
monitoring implementation and corporate performance; and overseeing major capital
expenditures, acquisitions and divestitures.
2. Monitoring the effectiveness of the company’s governance practices and making changes as
needed.
3. Selecting, compensating, monitoring and, when necessary, replacing key executives and
overseeing succession planning.
4. Aligning key executive and board remuneration with the longer term interests of the
company and its shareholders.
5. Ensuring a formal and transparent board nomination and election process.
6. Overseeing the process of disclosure and communications.
E. The board should be able to exercise objective independent judgement on corporate affairs.
1. Boards should consider assigning a sufficient number of nonexecutive board members

capable of exercising independent judgement to tasks where there is a potential for conflict

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of interest. Examples of such key responsibilities are ensuring the integrity of financial and
non-financial reporting, the review of related party transactions, nomination of board
members and key executives, and board remuneration.
2. Boards should consider setting up specialized committees to support the full board in
performing its functions, particularly in respect to audit, and, depending upon the
company’s size and risk profile, also in respect to risk management and remuneration. When
committees of the board are established, their mandate, composition and working
procedures should be well defined and disclosed by the board.
3. Board members should be able to commit themselves effectively to their responsibilities.Boards
should regularly carry out evaluations to appraise their performance and assess whether they
possess the right mix of background and competences.
F. In order to fulfil their responsibilities, board members should have access to accurate, relevant
and timely information.
The Pros and Cons on the role of the institutional investors in promoting the good corporate
governance may be listed as under:
Pros Cons
The institutional investors have significant stakes in Mutual Fund Investors have the short term vision
the companies and so of the voting power. hence their performance measurement may not be
a significant evaluation in assessing the corporate
governance while making the investment decision.
They are in better position to have the access of The investment objectives are also a deciding
the information about the company. factor while making the investment decision.
The stock market performance can visualized with Institutional investors may off load the holding if
the adoption of the better corporate governance. there is mis-matching in their asset-liability /
liquidity position.
They may influence in attracting the Foreign Direct A common man’s investment portfolio is effected
Investment in India. with the decision of the investment by the
institutional investors.
Need For Committees:
Board committees are pillars of corporate governance. Board committees with formally established
terms of reference, criteria for appointment, life span, role and function constitute an important
element of the governance process and should be established with clearly agreed reporting procedures
and a written scope of authority. A Board can either delegate some of its powers to the committee,
enabling it to act directly, or can require the recommendations of the committee to be approved by the
Board. Committees thus enable better management of the board’s time and allow in-depth scrutiny
and focused attention.
The committees focus accountability to known groups. The Board will normally depend heavily on the
findings and recommendations of its committees, although final decisions to accept or reject these
recommendations will be made by the Board.
AUDIT COMMITTEE

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Audit Committee is one of the main pillars of the corporate governance mechanism in any company.
The Committee is charged with the principal oversight of financial reporting and disclosure and aims
to enhance the confidence in the integrity of the company’s financial reporting, the internal control
processes and procedures and the risk management systems.
Under the Companies Act, 2013, the Audit Committee’s mandate is significantly different from what
was laid down under Section 292A of the Companies Act 1956, and its scope and constitution have
also been broadened.
THE UK STEWARDSHIP CODE
The Stewardship Code is a part of UK company law concerning principles that institutional investors are
expected to follow. It was released in 2010 by the Financial Reporting Council, and is directed at asset
managers who hold voting rights on shares in United Kingdom companies. Its principal aim is to make
institutional investors, who manage "other people's money", be active and engage in corporate
governance in the interests of their beneficiaries (the shareholders).
Seven Principles:
Principle 1- Institutional investors should publicly disclose their policy on how they will discharge their
stewardship responsibilities.
Principle 2- Institutional investors should have a robust policy on managing conflicts of interest in relation
to stewardship which should be publicly disclosed.
Principle 3- Institutional investors should monitor their investee companies.
Principle 4 - Institutional investors should establish clear guidelines on when and how they will escalate
their stewardship activities.
Principle 5- Institutional investors should be willing to act collectively with other investors where
appropriate.
Principle 6- Institutional investors should have a clear policy on voting and disclosure of voting activity.
Principle 7- Institutional investors should report periodically on their stewardship and voting activities.
Principles for Responsible Investment (PRI)
The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an

international network of investors working together to put the six Principles for Responsible Investment
into practice. Its goal is to understand the implications of sustainability for investors and support
signatories to incorporate these issues into their investment decision making and ownership practices.
Principle 1: We will incorporate ESG(Environmental, social and corporate governance) issues into
investment analysis and decision-making processes.-
Principle 2: We will be active owners and incorporate ESG issues into ownership policies and
practices.-
Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which they invest.-

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Principle 4: We will promote acceptance and implementation of the Principles within the investment
industry.-
Principle 5: We will work together to enhance effectiveness in implementing the Principles.-
Principle 6: We will each report on their activities and progress towards implementing the Principles.
Code for Responsible Investing in South Africa (CRISA)
The Code for Responsible Investing in South Africa (CRISA) gives guidance on how the institutional
investor should execute investment analysis and investment activities and exercise rights so as to
promote sound governance.
CRISA applies to:

 Institutional investors as asset owners, for example, pension funds and insurance companies.
 Service providers of institutional investors, for example, asset and fund managers and consultants.
Purpose: The King Code was written from the perspective of the board of the company as the focal point of
corporate governance. CRISA is intended to give guidance on how the institutional investor should execute
investment analysis and investment activities and exercise rights so as to promote sound governance .The
objective of providing such a framework is to ensure that sound governance is practiced which results in
better performing companies that deliver both economic value as well as value within its broader meaning.
Principle 1: An institutional investor should incorporate sustainability considerations, including ESG, into
its investment analysis and investment activities as part of the delivery of superior risk-adjusted returns
to the ultimate beneficiaries.
Principle 2: An institutional investor should demonstrate its acceptance of ownership responsibilities in its
investment arrangements and investment activities.
Principle 3: Where appropriate, institutional investors should consider a collaborative approach to promote
acceptance and implementation of the principles of CRISA and other codes and standards applicable to
institutional investors.
Principle 4: An institutional investor should recognize the circumstances and relationships that hold a
potential for conflicts of interest and should pro-actively manage these when they occur.
Principle 5: Institutional investors should be transparent about the content of their policies, how the policies
are implemented and how CRISA is applied to enable stakeholders to make informed assessments.
Political stability encompasses:

a. Political risk: internal and external conflict; corruption; the military and religion in politics; law
and order; ethnic tensions; democratic accountability; bureaucratic quality.
b. Civil liberties: freedom of expression, association and organization rights; rule of law and human
rights; free trade unions and effective collective bargaining; personal autonomy and economic
rights.
c. Independent judiciary and legal protection: an absence of irregular payments made to the
judiciary; the extent to which there is a trusted legal framework that honors contracts, clearly

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delineates ownership and protects financial assets.

d. Freedom of the press: structure of the news delivery system in a country; laws and their
promulgation with respect to the influence of the news; the degree of political influence and
control; economic influences on the news; the degree to which there are violations against the
media with respect to physical violations and censorship.
e. Monetary and fiscal transparency: the extent to which governmental monetary and fiscal
policies and implementation are publicly available in a clear and timely manner, in accordance
with international standards.
f. Stock exchange listing requirements: stringency of stock exchange listing requirements with
respect to frequency of financial reporting, the requirement of annual independent audits, and
minimal financial viability.
g. Accounting standards: the extent to which U.S. Generally Accepted Accounting Principles, or
International Accounting Standards is used in financial reporting; whether the country is a
member of the International Accounting Standards Council.
Productive Labor Practices encompasses:

h. ILO ratification: whether the convention is ratified, not ratified, pending ratification or denounced.
i. Quality of enabling legislation: the extent to which the rights described in the ILO convention
are protected by law.
j. Institutional capacity: the extent to which governmental administrative bodies with labor law
enforcement responsibility exist at the national, regional and local level.
k. Effectiveness of implementation: evidence that enforcement procedures exist and are working
effectively; evidence of a clear grievance process that is utilized and provides penalties that have
deterrence value.
Corporate Social Responsibility – Eliminating Human Rights Violations:
Corporations should adopt maximum progressive practices toward the elimination of human rights
violations in all countries or environments in which the company operates. Additionally, these practices
should emphasize and focus on preventing discrimination and/or violence based on race, color, religion,
national origin, age, disability, sexual orientation, gender identity, marital status, or any other status
protected by laws or regulations in areas of a company’s operation.
Companies should operate in compliance, or moving toward compliance, with the Global Sullivan
Principles (Appendix B), or the human rights and labor standards principles exemplified by the United
Nations Global Compact Principles.
Market regulation and liquidity encompasses:

l. Market capitalization
m. Change in market capitalization
n. Average monthly trading volume
o. Growth in listed securities
p. Market volatility as measured by standard deviation
q. Return/risk ratio

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TOOLS USED BY INSTITUTIONAL INVESTORS
1. One-to-one meetings: A company will usually arrange to meet with its largest institutional investors
on a one-to-one basis during the course of the year.
2. Voting: The right to vote which is attached to voting shares (as opposed to non-voting shares) is a basic
prerogative of share ownership, and is particularly important given the division of ownership (shareholders)
and control (directors) in the modern corporation. The right to vote can be seen as fundamental tools for
some element of control by shareholders. The institutional investors can register their views by postal voting,
or, vote electronically where this facility is available.
3. Focus lists: A number of institutional investors have established ‘focus lists’ whereby they target
underperforming companies and include them on a list of companies which have underperformed a main
index, such as Standard and Poor’s.
After being put on the focus list, the companies often receive unwanted, attention of the institutional
investors who may seek to change various directors on the board.
4. Corporate governance rating systems: With the increasing emphasis on corporate governance
across the globe, it is perhaps not surprising that a number of corporate governance rating systems
have been developed. Examples of such firms which have developed corporate governance rating
systems are Deminor, Standard and Poor’s, and Governance Metrics International (GMI).

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UNIT 7: CORPORATE GOVERNANCE AND OTHER STAKEHOLDERS
INTRODUCTION TO STAKEHOLDER THEORY
Stakeholder theory suggests that the purpose of a business is to create as much value as possible for
stakeholders. In order to succeed and be sustainable over time, executives must keep the interests of
customers, suppliers, employees, communities and shareholders aligned and going in the same direction.
R. Edward Freeman’s view on Stakeholder Theory is that “Stakeholder is any group or individual which can
affect or is affected by an organization." Such a broad conception would include suppliers, customers,
stockholders, employees, the media, political action groups, communities, and governments. A more
narrow view of stakeholder would include employees, suppliers, customers, financial institutions, and local
communities where the corporation does its business
"What is a corporation, and what is the purpose of a corporation?"
A Stakeholder model of Company
RECOGNITION OF STAKEHOLDER CONCEPT IN LAW ( UK & INDIA)
1. Under the UK Companies Act, 2006:

Section 172: Duty to promote the success of the company
1. A director of a company must act in the way he considers, in good faith, would be most likely to
promote the success of the company for the benefit of its members as a whole, and in doing so
have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers, customers and others,
(d) the impact of the company’s operations on the community and the environment,

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2. The duty imposed by this section has effect subject to any enactment or rule of law requiring
directors, in certain circumstances, to consider or act in the interests of creditors of the
company.
2. Under the Indian Companies Act, 2013
(a) Section 135 Corporate Social Responsibilities:
Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand
crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate
Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one
director shall be an independent director.
With reference to the stakeholders’ interest, the role and functions of Independent Directors as specified
in Part II of Schedule IV mentions that the independent directors shall safeguard the interests of all
stakeholders, particularly the minority shareholders and balance the conflicting interest of the
stakeholders.
3. Under the Principles articulated under SEBI (LODR) Regulations, 2015:

(a) The listed entity should respect the rights of stakeholders that are established by law or
through mutual agreements.
(b) Stakeholders should have the opportunity to obtain effective redress for violation of their
rights.
(c) Stakeholders should have access to relevant, sufficient and reliable information on a timely
and regular basis to enable them to participate in Corporate Governance process.
(d) The listed entity should devise an effective whistle blower mechanism enabling
stakeholders, including individual employees and their representative bodies, to freely
communicate their concerns about illegal or unethical practices.
STAKEHOLDER ENGAGEMENT
Stakeholder engagement is the process by which an organization involves people who may be affected by
the decisions it makes or can influence the implementation of its decisions. It is an alliance-building tool.
Stakeholder engagement leads to increased transparency, responsiveness, compliance, organizational
learning, quality management, accountability and sustainability. Stakeholder engagement is a central feature
of sustainability performance. Stakeholder engagement is undertaken for numerous reasons which include:
 Improved corporate responsibility and financial performance across the globe.
 To avoid conflict through negotiation, mediation and collaborative learning.
 Development of a shared vision to direct future business decisions and operations.
 To innovate through collaboration.
Key principles of Stakeholder engagement

1. Communicate: Interactions from the various stakeholders should be promoted. Example: for
customers there should be dedicated customer care center
2. Consult, early and often: Always ask the right questions to get the useful information and ideas. To
engage their support ask them for advice and listen how they feel.
3. Remember, they are human: Operate with an awareness of human feelings.
4. Plan it: Time investment and careful planning against it, has a significant payoff.

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5. Relationship: Try to engender trust with the stakeholders. Seek out networking opportunity.
6. Simple but not easy: Show your care. Be empathetic. Listen to the stakeholders.
7. Managing risk: Stakeholders can be treated as risk and opportunities that have probabilities and
impact.
8. Compromise: Compromise across a set of stakeholders' diverging priorities.
9. Understand what success is: Explore the value of the project to the stakeholder.
10. Take responsibility: Project governance is the key of project success. It's always the responsibility of
everyone to maintain an ongoing dialogue with stakeholders.
STAKEHOLDER ANALYSIS
“It is the process of identifying the individuals or groups that are likely to affect or be affected by a proposed
action, and sorting them according to their impact on the action and the impact the action will have on
them. This information is used to assess how the interests of those stakeholders should be addressed in a
project plan, policy, program, or other action.”
Benefits of stakeholder analysis
 draw out the interests of stakeholders in relation to the problems which the project is seeking to
address (at the identification stage) or the purpose of the project (once it has started)
 identify conflicts of interests between stakeholders
 help to identify relations between stakeholders which can be built upon, and may enable establish
synergies
 help to assess the appropriate type of participation by different stakeholders.
 Stakeholder analysis helps with the identification of Stakeholders' interests, Mechanisms to influence
other stakeholders, Potential risks, Key people to be informed about the project during the execution
phase and Negative stakeholders as well as their adverse effects on the project.
Types of
stakeholders
Primary Secondary
 Primary stakeholders are those whose continued association is absolutely necessary for a firm’s
survival; these include employees, customers, investors, and shareholders, as well as the
governments and communities that provide necessary infrastructure.
 Secondary stakeholders do not typically engage in transactions with a company and thus are not
essential for its survival; these include the media, trade associations, and special interest groups.
Both primary and secondary stakeholders embrace specific values and standards that dictate what
constitutes acceptable or unacceptable corporate behaviors. While primary groups may present more
day-today concerns, secondary groups cannot be ignored or given less consideration in the ethical
decision- making process.

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CAUX ROUND TABLE
Introduction: The Caux Round Table (CRT) is an international network of business leaders working to promote
a morally and sustainable way of doing business. The CRT believes that its Principles for Responsible Business
provide necessary foundations for a fair, free and transparent global society.
The CRT Principles for Responsible Business are supported by more detailed Stakeholder Management
Guidelines covering each key dimension of business success: customers, employees, shareholders, suppliers,
competitors, and communities.
CRT Principles for Responsible Business
These principles are rooted in two basic ethical ideals: kyosei and human dignity:
 Kyosei: The Japanese concept of kyosei means living and working together for the common good
enabling cooperation and mutual prosperity to coexist with healthy and fair competition.
 Human dignity: It refers to the sacredness or value of each person as an end, not simply as a mean
to the fulfilment of others purposes or even majority prescription.
CRT PRINCIPLES
PRINCIPLE 1 - RESPECT STAKEHOLDERS BEYOND SHAREHOLDERS

 A responsible business acknowledges its duty to contribute value to society through the wealth and
employment it creates and the products and services it provides to consumers.
 A responsible business maintains its economic health and viability not just for shareholders, but also
for other stakeholders.
 A responsible business respects the interests of, and acts with honesty and fairness towards, its
customers, employees, suppliers, competitors, and the broader community.
PRINCIPLE 2 – CONTRIBUTE TO ECONOMIC, SOCIAL AND ENVIRONMENTAL DEVELOPMENT
 A responsible business recognizes that business cannot sustainably prosper in societies that are
failing or lacking in economic development.
 A responsible business therefore contributes to the economic, social and environmental
development of the communities in which it operates, in order to sustain its essential ‘operating’
capital – financial, social, environmental, and all forms of goodwill.
 A responsible business enhances society through effective and prudent use of resources, free and
fair competition, and innovation in technology and business practices.
PRINCIPLE 3 – BUILD TRUST BY GOING BEYOND THE LETTER OF THE LAW
 A responsible business recognizes that some business behaviors, although legal, can nevertheless
have adverse consequences for stakeholders.
 A responsible business therefore adheres to the spirit and intent behind the law, as well as the letter
of the law, which requires conduct that goes beyond minimum legal obligations.
 A responsible business always operates with candor, truthfulness, and transparency, and keeps its
promises.
PRINCIPLE 4 –RESPECT RULES AND CONVENTIONS
 A responsible business respects the local cultures and traditions in the communities in which it
operates, consistent with fundamental principles of fairness and equality.
 A responsible business, everywhere it operates, respects all applicable national and international

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laws, regulations and conventions, while trading fairly and competitively.

PRINCIPLE 5 – SUPPORT RESPONSIBLE GLOBALISATION
 A responsible business, as a participant in the global marketplace, supports open and fair multilateral
trade.
 A responsible business supports reform of domestic rules and regulations where they unreasonably
hinder global commerce.
PRINCIPLE 6 – RESPECT THE ENVIRONMENT
 A responsible business protects and, where possible, improves the environment, and avoids wasteful
use of resources.
 A responsible business ensures that its operations comply with best environmental management
practices consistent with meeting the needs of today without compromising the needs of future
generations.
PRINCIPLE 7 – AVOID ILLICIT ACTIVITIES
 A responsible business does not participate in or facilitate transactions linked to or supporting
terrorist activities, drug trafficking or any other illicit activity.
 A responsible business actively supports the reduction and prevention of all such illegal and illicit
activities.
CRT Stakeholder Management Guidelines
The Caux Round Table’s (CRT) Stakeholder Management Guidelines supplement the CRT Principles for
Responsible Business with more specific standards for engaging with key stakeholder constituencies.
The key stakeholder constituencies are those who contribute to the success and sustainability of business
enterprise.
 Customers provide cash flow by purchasing good and services;

 employees produce the goods and services sold, owners and other investors provide funds for the
business;
 suppliers provide vital resources; competitors provide efficient markets;
 communities provide social capital and operational security for the business; and
 the environment provides natural resources and other essential conditions.

THE CLARKSON PRINCIPLES OF STAKEHOLDER MANAGEMENT
Origin: Max Clarkson (1922-1998) founded the Centre for Corporate Social Performance and Ethics in the
Faculty of Management, now the Clarkson Centre for Business Ethics & Board Effectiveness, or CC (BE) 2. Four
conferences hosted by the Centre between 1993 and 1998 brought together management scholars to share
ideas on stakeholder theory, an emerging field of study examining the relationships and responsibilities of a
corporation to employees, customers, suppliers, society, and the environment. The Alfred P. Sloan Foundation
funded the project, from which the Clarkson Principles emerged.
 Principle 1: Managers should acknowledge and actively monitor the concerns of all legitimate
stakeholders, and should take their interests appropriately into account in decision-making and
operations.
 Principle 2: Managers should listen to and openly communicate with stakeholders about their
respective concerns and contributions, and about the risks that they assume because of their
involvement with the corporation.

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 Principle 3: Managers should adopt processes and modes of behavior that are sensitive to the
concerns and capabilities of each stakeholder constituency.
 Principle 4: Managers should recognize the interdependence of efforts and rewards among
stakeholders, and should attempt to achieve a fair distribution of the benefits and burdens of
corporate activity among them, taking into account their respective risks and vulnerabilities.
 Principle 5: Manages should work cooperatively with other entities, both public and private, to
insure that risks and harms arising from corporate activities are minimized and, where they cannot
be avoided, appropriately compensated.
 Principle 6: Managers should avoid altogether activities that might jeopardize inalienable human
rights (e.g., the right to life) or give rise to risks which, if clearly understood, would be patently
unacceptable to relevant stakeholders.
 Principle 7: Managers should acknowledge the potential conflicts between (a) their own role as
corporate stakeholders, and (b) their legal and moral responsibilities for the interests of
stakeholders, and should address such conflicts through open communication, appropriate reporting
and incentive systems, and, where necessary, third party review.
GOVERNANCE PARADIGM AND VARIOUS STAKEHOLDERS
1. Employees:
Following are the some important example for ensuring good governance by employees:
 Right to consultation - where employees must be consulted on certain management decisions. This
right increases transparency of management decisions and allows employee opinion to ameliorate the
asymmetry of information between management and the market.
 Right to nominate/vote for supervisory board members - In many cases employee participation on
the board is mandated. This right creates a check and balance system between management and
the supervisory board, which in turn creates the perception of greater fairness.
 Compensation/privatization programs that make employees holders of shares, thereby
empowering employees to elect the board members, which, in turn holds management responsible.
 Participation in the capital: Employees may be partner in the capital contribution. They may be
given the shares under the ESOP scheme. This will create the belongingness of the ownership
concept among the employees meaning there by owner as well as employee
 Profit sharing: The profit-sharing plans should be broad-based (all or most employees) rather than
for executives only. This can be done in a variety of ways like: Cash-based sharing of annual profits,
Deferred profit-sharing.
 Whistle Blower Policy: A whistle blower is the one who exposes wrongdoing, fraud, corruption or
mismanagement in an organization. A whistle blower is a person who publicly complains/discloses
the concealed misconduct on the part of an organization or body of people, usually from within that
same organization. Whistle blowers are important stakeholders as they can work as a tool for
authorities to get information of deviant behaviour or practices in organizations.
2. Customers:
Governance plays a big role in improving the relation between the organization and the customer (building
customer trust and commitment) which eventually leads to better performance for the organization
especially if you take into consideration that the cost of new customer is five to six times more than
maintaining the current customer.

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3. Lenders:
Lenders normally are the banks and financial institutions. They provide the term loan as well as the
working capital. While giving the credit facilities to any concerns, apart from the financial strength, project
viability, income generation of the organization Lenders may include covenants relating to environment
and sustainability. The Equator Principles is a risk management framework, adopted by financial
institutions, for determining, assessing and managing environmental and social risk in projects and is
primarily intended to provide a minimum standard for due diligence to support responsible risk decision-
making.
4. Vendors:
Vendors play a key role in the success of an organization. However, a well-managed vendor relationship will
result in increased customer satisfaction, reduced costs, better quality, and better service from the vendor.
It ultimately contributes toward the good governance of an organization. A proper systematic approach of
vendor management will benefits all the employees, organization, customer and vendors.
5. Government:
Government is the largest stakeholder. Government policy and the legal environment set the tone
for the desired corporate governance practices by the corporate sector.
Further beyond the law, government may directly influence the corporate governance practices of the
corporate sector by providing voluntary measure and recognition in the respect of Corporate Governance
measures.
6. Society:
What society wants from good governance in the aggregate is maximum production of economic well-
being. This requires innovation and experimentation as well as it also requires control, probity, and risk
management to seize the activities involving hazard to the local community. Now a day’s Companies are
spending voluntarily for the social and community development which is well recognized by the society
and government as well.
DEALING WITH INVESTOR ASSOCIATIONS, PROXY ADVISORY FIRMS AND

INSTITUTIONAL INVESTORS
1. Investor Associations are with a common interest in promoting shareholder rights and
responsibilities. These associations contribute to investor protection a lot.
2. Proxy advisory firms are independent research outfits that evaluate the pros and cons of corporate
matters such as mergers, acquisitions, top appointments and CEO pay, which shareholders are
expected to vote on in AGMs, EGMs or court-convened meetings.
3. Institutional investors are financial institutions that accept funds from third parties for investment
in their own name but on such parties’ behalf. They include pension funds, mutual funds and
insurance companies. These pools a large capital and companies should always work with them
harmoniously.
The relationship between companies and their investors both individual and institutional is very crucial.
The companies should:
 encourage investors to communicate directly their preferences, expectations and policies to the
company;
 provide meaningful communications about strategy, long-term objectives and governance, and
encourage investors to actively listen to companies and review these communications;

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 establish and maintain meaningful, direct long-term relationships with significant investors and
encourage those investors to have the appropriate policies, personnel and procedures for
meaningful reciprocity in the relationship; and
 where companies are pursuing subpar strategies that are unlikely to bring long-term success,
encourage investors to use behind-the-scenes, direct engagement with the companies as a first
line of action.
UNIT 8: GOVERNANCE AND COMPLIANCE RISK
INTRODUCTION
“Governance is the culture, values, mission, structure, layers of policies, processes and measures by which
organizations are directed and controlled”
Governance defines how the organization should perform, describing through policies what is acceptable
and unacceptable and compliance is the area responsible for inspecting and proving that they are: adequate,
being implemented and followed.
Responsibility of Independent Director (IDs) to mitigate and detect fraud
Companies Act 2013 has defined fraud and outlines penalties for an act of fraud. It has enlarged the role,
duties and responsibilities of IDs with respect to fraud prevention and detection.
1. Covering malfeasance in public procurement:

The objective was to ensure transparency, accountability and integrity in the entire procurement process. It
was focused on fair and equitable treatment of bidders, promoting competition and enhancing efficiency. It
also included safeguarding the integrity of the process and enhancing public confidence in public
procurement. However, the bill was not passed by Parliament.
2. Non-interference of courts in arbitration proceedings
The Supreme Court adopted an interventionist approach in arbitration matters has substantially changed its
stance. Post the decision in the case of BALCO vs Kaiser Aluminium (2012, Supreme Court), it has been seen
that the Indian courts are now less keen to interfere in arbitration matters. Thus, they adopted a pro-
arbitration approach.
3. Antitrust compliance
The Commission functions as a market regulator for preventing and regulating anti-competitive practices in
the country and to carry on the advisory and advocacy functions in its role as a regulator. Objectives of the
Commission as given in the Act are:
(i) preventing practices having adverse effect on competition,
(ii) promoting and sustaining competition in markets,
(iii) protecting the interests of consumers and
(iv) ensuring freedom of trade carried on by other participants in markets in India.

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COMPLIANCE
According to OCEG, “compliance is the act of adhering to, and the ability to demonstrate adherence to,
mandated requirements defined by laws and regulations, as well as voluntary requirements resulting from
contractual obligations and internal policies”.
Compliance Vs Conformance
1. Conformance is voluntary adherence to a standard, rule, specification, requirement, design, process

or practice whereas Compliance is forced adherence to a law, regulation, rule, process or practice.
2. Conformance applies to strategies and plans that are adopted to be more productive or to improve
quality whereas Compliance applies to laws and regulations that one has no option but to follow or
face penalties. Such regulations may potentially be productive for society but don't necessarily
contribute to an organization's goals.
Aspects of
complainces
Legal compliance
Regulatory Corporate and case
management
1. Regulatory Compliance
Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications

relevant to its business. Violations of regulatory compliance regulations often result in legal punishment,
including penalties/ fines. Regulatory compliance varies not only by industry but often by location. The
financial, research, and regulatory structures in one country, for example, may be similar but with
particularly different in another country.
2. Corporate Compliance
A corporate compliance program is generally defined as a formal program specifying an organization’s

policies, procedures, and actions within a process to help prevent and detect violations of laws and
regulations. It goes beyond a corporate code-of-conduct since it is an operational program, not simply a code
of expected ethical behavior.
 A corporate compliance program is a magnet that brings all of a company’s compliance efforts
together.
 It is essentially a codification of applicable regulatory and internal compliance requirements, as well
as a roadmap to action.

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 A comprehensive program helps position a company to divert disasters, meet objectives, and grow
shareholder value.
Checklist to be followed for setting up a good compliance program:
(a) Understand the Scope
(b) Gather Internal and External Intelligence
(c) Define Objectives
(d) Conduct a Risk Assessment
(e) Align Controls
(f) Verify /Buy-In and Understandability
(g) Test Cultural Support
(h) Assess On-Going Compliance
(i) Train, Educate and Communicate
(j) Measure Results and Report to Board
3. Legal compliance
Legal compliance is the process or procedure to ensure that an organization follows relevant laws, regulations
and business rules. The definition of legal compliance, especially in the context of corporate legal
departments, has recently been expanded to include understanding and adhering to ethical codes within
entire professions, as well
CORPORATE COMPLIANCE MANAGEMENT
Corporate compliance management involves a full process of research and analysis as well as investigation
and evaluation.
An effective Compliance Management System includes :
— adhere to necessary industry and government regulations,
— Change business processes according to legislative change,
— Realign resources to meet compliance deadlines,
— React quickly and cost-effectively if regulations change.

—
SIGNIFICANCE OF CORPORATE COMPLIANCE MANAGEMENT
1. Better compliance of the law
2. Real time status of legal/statutory compliances
3. Safety valve against unintended non compliances/ prosecutions, etc.
4. Real time status on the progress of pending litigation before the judicial/quasi-judicial fora

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5. Cost savings by avoiding penalties/fines and minimizing litigation
6. Better brand image and positioning of the company in the market
7. Enhanced credibility/creditworthiness that only a law abiding company can command
8. Goodwill among the shareholders, investors, and stakeholders.
9. Recognition as Good corporate citizen.
COMPLIANCE RISK
Compliance risk is exposure to legal penalties, financial forfeiture and material loss an organization faces
when it fails to act in accordance with industry laws and regulations, internal policies or prescribed best
practices.
Even small businesses, non- profits, and government agencies are facing issues that only large companies had
to face in the past such as:
 Stakeholders demand high performance along with high levels of transparency
 Regulations and enforcement are ever-changing and unpredictable
 Exponential growth of third-party relationships and risk is a management challenge
 The costs of addressing risks and requirements are spinning out of control
 The harsh (and scary) impact when threats and opportunities are not identified
Various compliance risks are as follows:

1. Environmental Risk
2. Workplace Health & Safety
3. Corrupt Practices
4. Social Responsibility
5. Quality
6. Process Risk
What are the consequences of non-compliance?

(i) Roadblock in Funding
The pre-requisite of any funding exercise is the status of tax and regulatory compliances. Never has a
company got funded, even in the seed investment level, whose compliances are not upto date. Non-
compliant startups do not even live through the term sheet stage. Further, there is a severe negative marking
for compliances done post due date with additional fees.
(ii) Roadblock in availability of Bank loan
External angel/venture funding being out of question, next source of funding for any business is bank loan.
However, even banks require compliance documents like audited financials, auditor’s report, auditor’s
certificate for the last 3 years or as the case may be. Chances of a non-compliant company availing bank loans
are next to zero per cent.
(iii) Roadblock in availability of Govt. Tenders

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The pre-requisite of any such tender is a compliant business environment, where all reporting is upto date.
(iv) Stamp of a “Dormant” Company
Companies with a non-filing history of 3 years or more are often categorized by the Ministry as ‘dormant’
companies. These companies can never be eligible for any sort of Govt/institutional assistances/contracts.
Apart from that, these companies are vulnerable to RoC demand notices technically at any time.
(v) Liability of Directors
Simply closing down the inactive company or starting up a totally new company does not solve the problem.
A director of a company which has not filed its returns for 3 consecutive years is disqualified to become a
director in any other company as per the Companies Act, 2013. In other words, his DIN gets blocked and he
would not
MANAGING COMPLIANCE RISK

New ethics, compliance, and reputational risks appear each day and the recent global recession has forced many
organizational functions to closely examine their budgets and resources. Together, these factors have created a
tension between growing regulatory obligations and the pressure to do more with less. Therefore, compliance
professionals need to assess which risks have the greatest potential for legal, financial, operational, or
reputational damage and allocate limited resources to mitigate those risks.
Risk Management, Legal & Compliance

 Formal, robust and effective risk management within which the organisation’s policies and minimum
standards are set.
 Objective oversight and the ongoing challenge of risk mitigation, management and performance
while reporting is achieved across the business units.
 Overarching risk oversight across all risk types.
 The Legal and/or Compliance function should undertake the following:
 Compile and maintain a legislative universe for the organisation.
 Facilitate the risk prioritisation of all pieces of legislation in the regulatory universe. This should be
done working together with the Risk Management division and using the organisation’s risk
management framework.
 Initiate new legislative requirements within the organisation. Review the legislation to confirm
whether it affects the organisation, and how.
 Analyse and send out alerts on the new law to inform the organisation of the new requirements.
 Facilitate an executive review of the legislation by Legal analysts.
IDEAL COMPLIANCE RISK MANAGEMENT PROGRAMME:
Active board and senior management oversight: An effective board and senior management oversight is the
cornerstone of an effective compliance risk management process.

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Effective policies and procedures: Compliance risk management policies and procedures should be clearly
defined and consistent with the nature and complexity of an institution’s activities.
Compliance risk analysis and comprehensive controls: Organizations should use appropriate tools in
compliance risk analysis like self-assessment, risk maps, process flows, key indicators and audit reports; which
enables establishing an effective system of internal controls.
Effective compliance monitoring and reporting: Organizations should ensure that they have adequate
management information systems that provide management with timely reports on compliance like training,
effective complaint system and certifications.
Testing: Independent testing should be conducted to verify that compliance-risk mitigation activities are in
place and functioning as intended throughout the organization.
NEW DEVELOPMENTS- GOVERNANCE AND RISK COMPLIANCE (GRC)
 Good governance and compliance practices are not an endpoint, but a path towards creating a
corporate environment of trust, transparency, and accountability.
 This in turn promotes corporate access to capital, increased investment, sustainable growth and
financial stability.
 Making this system work effectively and efficiently requires flexible, principles-based approaches as
well as buy-in and participation from all financial reporting supply chain participants.
 Rules-based, prescriptive approaches that assume that one size can fit all, are just not appropriate in
today’s highly globalized and complex business environment in which success or failure hinge on the
ability to adapt business models and forms of capital to continuously evolving economic realities.

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UNIT 9: CORPORATE GOVERNANCE FORUMS
CORPORATE GOVERNANCE FORUMS

1 . ICSI
Vision: “To be a global leader in promoting Good Corporate Governance"
Mission: "To develop the high calibre professionals facilitating good Corporate Governance".
What is Corporate Governance?

“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.”
ICSI Initiatives
 Corporate Governance Research and Training
 ICSI National Award for Excellence in Corporate Governance
 Focus on Corporate Governance in the Course
 PMQ Course in Corporate Governance
 Secretarial Standards
 Corporate Governance Publications
 Directors Development and Capacity Building Programmes
 Investor Education and Awareness
 Repository of Independent Directors
 Customied Training Programme
 Founder member of National Foundation for Corporate Governance
2. NATIONAL FOUNDATION FOR CORPORATE GOVERNANCE (NFCG)
National Foundation for Corporate Governance (NFCG) was set up in the year 2003 by the Ministry of
Corporate Affairs (MCA), in partnership with Confederation of Indian Industry (CII), Institute of Company
Secretaries of India (ICSI) and Institute of Chartered Accountants of India (ICAI) to promote good Corporate
Governance practices both at the level of individual corporates and Industry as a whole. In the year 2010,
Institute of Cost Accountants of India (ICAI) and National Stock Exchange (NSE) and in 2013 Indian Institute
of Corporate Affairs (IICA) were included in NFCG as Trustees.
The internal governance structure of NFCG consists:
(i) Governing Council

(ii) Board of Trustees
(iii) Executive Directorate

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3. ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
It is one of the first non-government organizations to spell out the principles that should govern corporates.
The mission of the Organisation for Economic Co-operation and Development (OECD) is to promote policies
that will improve the economic and social well-being of people around the world.
The mission of the Organisation for Economic Co-operation and Development (OECD) is to promote policies
that will improve the economic and social well-being of people around the world.
4. INSTITUTE OF DIRECTORS (IOD), UK
The IOD is a non party-political business organisation established in United Kingdom in 1903. The IOD is
charged with promoting good corporate governance for UK business.
Objective
(a) to promote for the public benefit high levels of skill, knowledge, professional
competence and integrity on the part of directors, and equivalent office holders
however described, of companies and other organisations;
(b) to promote the study, research and development of the law and practice of corporate
governance, and to publish, disseminate or otherwise make available the useful results
of such study or research;
(c) to represent the interests of members and of the business community to government
and in all public forums, and to encourage and foster a climate favourable to
entrepreneurial activity and wealth creation; and
5. COMMONWEALTH ASSOCIATION
(d) to advance the OFmembers
interests of CORPORATE GOVERNANCE
of the (CACG)
Institute, and to provide facilities, services
and benefits for them.
The CACG had two primary objectives:
 to promote good standards in corporate governance and business practice throughout the
Commonwealth; and
 to facilitate the development of appropriate institutions which will be able to advance, teach and
disseminate such standards.
PRINCIPLES OF CACG
The CACG guidelines set out 15 Principles of corporate governance aimed primarily at boards of directors of
corporations with a unitary board structure, as will most often be found in the Commonwealth. The Principles
apply equally to boards of directors of all business enterprises – public, private, family owned or state-owned.
Principle 1: The board should exercise leadership, enterprise, integrity and judgment in directing the
corporation so as to achieve continuing prosperity for the corporation and to act in the best interest of the
business enterprise in a manner based on transparency, accountability and responsibility.

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Principle 2: The board should ensure that through a managed and effective process board appointments are
made that provide a mix of proficient directors, each of whom is able to add value and to bring independent
judgment to bear on the decision-making process
Principle 3: The board should determine the corporation’s purpose and values, determine the strategy to
achieve its purpose and to implement its values in order to ensure that it survives and thrives, and ensure
that procedures and practices are in place that protect the corporation’s assets and reputation
Principle 4: The board should monitor and evaluate the implementation of strategies, policies, management
performance criteria and business plans
Principle 5: The board should ensure that the corporation complies with all relevant laws, regulations and
codes of best business practice
Principle 6: The board should ensure that the corporation communicates with shareholders and other
stakeholders effectively
Principle 7: The board should serve the legitimate interests of the shareholders of the corporation and
account to them fully
Principle 8: The board should identify the corporation’s internal and external stakeholders and agree a policy,
or policies, determining how the corporation should relate to them
Principle 9: The board should ensure that no one person or a block of persons has unfettered power and that
there is an appropriate balance of power and authority on the board which is, inter alia, usually reflected by
separating the roles of the chief executive officer and Chairman, and by having a balance between executive
and non-executive directors
Principle 10: The board should regularly review processes and procedures to ensure the effectiveness of its
internal systems of control, so that its decision-making capability and the accuracy of its reporting and
financial results are maintained at a high level at all times
Principle 11: The board should regularly assess its performance and effectiveness as a whole, and that of the
individual directors, including the chief executive officer
Principle 12: The board should appoint the chief executive officer and at least participate in the appointment
of senior management, ensure the motivation and protection of intellectual capital intrinsic to the
corporation, ensure that there is adequate training in the corporation for management and employees, and
a succession plan for senior management
Principle 13: The board should ensure that all technology and systems used in the corporation are adequate
to properly run the business and for it to remain a meaningful competitor
Principle 14: The board should identify key risk areas and key performance indicators of the business
enterprise and monitor these factors
Principle 15: The board should ensure annually that the corporation will continue as a going concern for its
next fiscal year.

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6. INTERNATIONAL CORPORATE GOVERNANCE NETWORK (ICGN)
The International Corporate Governance Network (“ICGN”) is a not-for-profit company limited by guarantee
and not having share capital under the laws of England and Wales founded in 1995. ICGN's mission is to
promote effective standards of corporate governance and investor stewardship to advance efficient markets
and sustainable economies world-wide.
It has four primary

purposes:
(i) to provide an investor-led network for the exchange of views and information about corporate
governance issues internationally;
(ii) to examine corporate governance principles and practices; and

(iii) to develop and encourage adherence to corporate governance standards and guidelines;
(iv) to generally promote good corporate governance.
7. EUROPEAN CORPORATE GOVERNANCE INSTITUTE (ECGI)
The European Corporate Governance Institute (ECGI) was founded in 2002. It has been established to
improve corporate governance through fostering independent scientific research and related activities.
The ECGI is an international scientific non-profit association. It provides a forum for debate and dialogue
between academics, legislators and practitioners, focusing on major corporate governance issues and
thereby promoting best practice.
 Its primary role is to undertake, commission and disseminate research on corporate governance.
Based upon impartial and objective research and the collective knowledge and wisdom of its
members, it advises on the formulation of corporate governance policy and development of best
practice and undertake any other activity that will improve understanding and exercise of corporate
governance.
 It acts as a focal point for academics working on corporate governance in Europe and elsewhere,
encouraging the interaction between the different disciplines, such as economics, law, finance and
management.
8. CONFERENCE BOARD
The Conference Board is a global, independent business membership and research association working in the
public interest and is a not-for-profit organization. The Conference Board creates and disseminates
knowledge about management and the marketplace to help businesses strengthen their performance and
better serve society.
9. ASIAN CORPORATE GOVERNANCE ASSOCIATION (ACGA)
The Asian Corporate Governance Association (ACGA) is an independent, non-profit membership organisation
dedicated to working with investors, companies and regulators in the implementation of effective corporate
governance practices throughout Asia. ACGA was founded in 1999 from a belief that corporate governance
is fundamental to the long-term development of Asian economies and capital markets.

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10. CORPORATE SECRETARIES INTERNATIONAL ASSOCIATION (CSIA)
The CSIA an international federation of professional bodies that promotes the best practices in corporate
secretarial, corporate governance and compliance services. It is international federation of governance
professional bodies for corporate secretaries & governance professional and represents those who work as
frontline practitioners of governance throughout the world.
objectives:
▪ To promote throughout the world the professional status of suitably qualified chartered
secretaries, corporate secretaries, company secretaries, certified secretaries
▪ To raise awareness and visibility of secretaryship and its Practitioners
▪ To assist such organisations throughout the world to develop and improve their services and
professionalism of their members.
▪ To assist in the creation of such organisations in countries or regions in which they do not
currently exist.
▪ To promote the growth, development, study and practice of secretaryship
▪ To promote and recommend uniformity in governance standards.
▪ To promote and actively support good governance
▪ To promote and carry out research into good governance and secretaryship practices

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UNIT 10: PROMOTERS AND MINORITY SHAREHOLDERS
PROMOTERS
Who is a promoter?
Companies act, 2013: According to Sec 2 (69) of Companies Act, 2013 a promoter” means a person—
(a) who has been named as such in a prospectus or is identified by the company in the annual
return referred to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of Directors of the
company is accustomed to act:
SEBI (ICDR) 2009
In terms of Regulation 2(1)(za), "promoter" includes:
a. the person or persons who are in control of the issuer;
b. the person or persons who are instrumental in the formulation of a plan or programme
pursuant to which specified securities are offered to public;
c. the person or persons named in the offer document as promoters:
Provided that a director or officer of the issuer or a person, if acting as such merely in his professional
capacity, shall not be deemed as a promoter:
Role of Promoters
1. Role in Incorporation
2. Entrepreneur promoters continue to be involved in the day to day business of the company as
directors whereas professional promoters limit their role to setting up the company for a professional
fee.
3. Fiduciary Role
4. Execute Pre-incorporation Contracts
Remedies in case of Breach of Duties
When a promoter commits a breach of duties that he owed to the company, the company may either;
 Rescind the contract , or

 Recover secret Profits
LIABILITIES OF INDIAN PROMOTERS
1. Officers in default: Any person in accordance with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act can be treated as an officer in default. Thus

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promoter if found in default of provisions of the act may be penalised with fine or punished by
imprisonment.
 Incorrect information during incorporation: Promoters shall be liable if they furnish any false or
incorrect information in the documents filed at the time of registration of the company. (Sec 7)
 False or misleading Prospectus: Promoters who authorise a prospectus which is untrue or misleading
are subject to criminal liability (Sec 34) and civil liability and are required to pay compensation to
every person who has sustained loss or damage because of such prospectus. (Sec 35)
2. Contravention of Provisions of Raising Equity Capital:
 if a prospectus is issued in contravention of the provisions of this section, the companyor its
promoters and directors shall be punishable with fine which shall not be less than fifty thousand
rupees but which may extend to three lakh rupees and every person who is knowingly a party to
the issue of such prospectus shall be punishable with imprisonment for a term which may extend
to three years or with.
 if a company makes an offer or accepts monies in contravention of this section, the company, its
promoters and directors shall be liable for a penalty which may extend to the amount raised through
the private placement or two crore rupees, whichever is lower, and the company shall also refund all
monies with interest to subscribers within a period of thirty days of the order imposing the penalty.
3. Improper Notice of General Meeting:
If any default is made in complying with the provisions of section 102, every promoter, director, manager or
other key managerial personnel who is in default shall be punishable with fine which may extend to fifty
thousand rupees or five times the amount of benefit accruing to the promoter, director, manager or other key
managerial personnel or any of his relatives, whichever is more.
4. Co-operate with Official Liquidator
Where any Promoters, directors, etc., fails to cooperate with Company Liquidator or without reasonable
cause, fails to discharge his obligations he shall be punishable with imprisonment which may extend to six
months or with fine which may extend to fifty thousand rupees, or with both.
5. Fraudulent conduct of business:
At the time of winding up if it is found that promoters conducted business of the company with intent to
defraud creditors of the company or any other persons or for any fraudulent purpose the tribunal can hold
the promoters personally liable, without any limitation for all or any of the debts of the company.
6. Vacation of the office of director (Section 167) and Resignation of director (Section 168): Besides
the first directors, if all directors resign or their offices are vacated the promoters may appoint the
required directors till the next general meeting. (Sec 167 and Sec 168)
MAJORITY AND MINORITY SHAREHOLDERS
Who are majority shareholders? When an individual, organization or group of shareholders together hold
or control more than 50% shares of the company they are known as majority shareholders. This gives

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them absolute control over the operations of the company particularly selection of board by deciding who
will be appointed as directors.
Who are minority shareholders? If a company has a majority shareholder then all other shareholders
become minority shareholders as they hold less than 50% shares. Let’s say company Y has two
shareholders A with 51% and B with 49%, than A is the majority shareholder and B the minority
shareholder. On the other hand company X has shareholder C with 51% and 49 more shareholders with
1% shareholding each. Then C is the majority shareholder and all other are minority shareholders.
Minority Shareholders’ Rights:
As an equity shareholder, minority have the right to:
 participate in the profits of the company

 information about the company
 participation in general shareholder meetings and influence corporate actions through voting on
proposals
Special rights
1. Representation on Board
2. E-Voting
3. Exit Rights
4. Related Party Transactions
5. Oppression and Mismanagement
Application for Relief: Not less than 100 shareholders or one-tenth of the shareholders in case of a
company having share capital or one-fifth members when the company has no share capital can
apply to the National Company Law Tribunal for relief, if they are of the opinion that they are being
oppressed or company is being mismanaged.
Powers of NCLT
If the Tribunal is of the opinion that oppression or mismanagement has taken place it may either order
winding up if that is just and equitable and if it is not appropriate to wind up the company, it may order:
(a) the regulation of conduct of affairs of the company in future;
(b) the purchase of shares or interests of any members of the company by other members thereof
or by the company;
(c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction
of its share capital;
(d) restrictions on the transfer or allotment of the shares of the company;
(e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between
the company and the managing director, any other director or manager, upon such terms and
conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of
the case;

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(f) the termination, setting aside or modification of any agreement between the company and any
person other than those referred to in clause (e):
(g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to
property made or done by or against the company within three months before the date of the
application under this section, which would, if made or done by or against an individual, be
deemed in his insolvency to be a fraudulent preference;
(h) removal of the managing director, manager or any of the directors of the company;
(i) recovery of undue gains made by any managing director, manager or director during the period
of his appointment as such and the manner of utilisation of the recovery including transfer to
Investor Education and Protection Fund or repayment to identifiable victims;
(j) the manner in which the managing director or manager of the company may be appointed
subsequent to an order removing the existing managing director or manager of the company
made under clause (h);
(k) appointment of such number of persons as directors, who may be required by the Tribunal to
report to the Tribunal on such matters as the Tribunal may direct;
(l) imposition of costs as may be deemed fit by the Tribunal;
(m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision
should be made.
6. Class Action Suit:
For companies with a share capital, 100 members or 10% shareholders whichever is less or member(s)
holding at least 10% shareholding in the company and for a company without share capital, 1/5th total
members can collectively approach the NCLT if they find that the company’s affairs are not being managed
in its best interests for redressing the situation. Remedies available are to prevent:
(a) the company from committing an act which is ultra vires the articles or memorandum of the
company;
(b) to restrain the company from committing breach of any provision of the company’s
memorandum or articles;
(c) to declare a resolution altering the memorandum or articles of the company as void if the
resolution was passed by suppression of material facts or obtained by mis-statement to the
members or depositors;
(d) to restrain the company and its directors from acting on such resolution;
(e) to restrain the company from doing an act which is contrary to the provisions of this Act or any
other law for the time being in force;
GOVERNANCE OF CORPORATE GROUPS

Monitoring subsidiaries in India:
1. Board: At least one independent director on the board of directors of the listed company shall be a
director on the board of directors of any unlisted material subsidiaries including foreign companies.
The minutes of the meetings of the board of directors of the unlisted subsidiary shall be placed at the

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meeting of the board of directors of the listed company

2. Consolidated Financial Statements: If a company has one or more subsidiaries, associate companies
or Joint Ventures, it shall prepare a consolidated financial statement of the company and of all the
subsidiaries, associate companies and joint venture in the same form and manner as that of its own.
3. Audit and Audit Committee: The statutory auditor of a listed entity shall undertake a limited review
of the audit of all the entities/ companies whose accounts are to be consolidated with the listed
entity. Besides audited annual consolidated statements at least eighty percent of the quarterly
consolidated financial results, of each of the consolidated revenue, assets and profits, respectively,
shall have been audited or subjected to limited review.
4. Material Subsidiary: The listed company shall not dispose of shares in its material subsidiary which
would reduce its shareholding (either on its own or together with other subsidiaries) to less than 50%
or cease the exercise of control over the subsidiary without passing a special resolution in its General
Meeting.
NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA)
The NFRA is an independent regulator established under Section 132 of the Companies Act, 2013 to oversee
the auditing profession. It is similar to the Public Company Accounting Oversight Body set by in the USA by
the Sarbanes Oxley Act 2002.
Powers and Functions of NFRA
(A) NFRA may investigate either suo-motu or on a reference made by the Central Government in
matters of professional misconduct committed by any member or Chartered Accountants firm.
(B) To make recommendations to the Central Government on formulation and laying down of
accounting standards and auditing policies for adoption by companies or their auditors.
(C) To monitor and implement compliance relating to accounting standards and auditing policies
as prescribed
(D) To oversee the quality of service of professions associated with compliance of accounting
standards and auditing policies and suggest measures for improvement
(E) NFRA shall have equivalent powers as a civil court under the Code of Civil Procedure, 1908. It
can exercise the powers related to:-
(i) discovery and production of books or other documents as specified by NFRA;
(ii) summoning and enforcing the attendance of persons and examining them on oath;
(iii) inspection of books, registers and other documents of any person;
(iv) issuing commissions for examination of witness or other documents.

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UNIT 11: RISK MANAGEMENT
Risk Management is a logical and systematic process of establishing the context, identifying, analysing,
evaluating, treating, monitoring and communicating risks associated with any activity, function or process, in
a way that enables an organisation to minimise losses and maximise opportunities.It is a continuous process
of identifying, evaluating and assessing the inherent and potential risk, adopting the methods for its
systematic reduction in order to sustainable business development.
RISK MANAGEMENT PROCESS
I. RISK IDENTIFICATION
Risk identification is the first stage of the risk management strategy. By risk identification the organization
is able to study the activities and places where its resources are placed to risk. Correct risk identification
ensures effective risk management. If risk managers do not succeed in identifying all possible losses or gains
that challenge the organization, then these non-identified risks will become non manageable.
Purpose:
The objective of the risk identification process is to ensure that all potential project risks are identified and
to minimize the negative impact of project hiccups and threats, and to maximize the positive impact of project
opportunities. Awareness of potential project risks reduces the number of surprises during the project
delivery and, thus, improves the chances of project success, allowing the team to meet the time, schedule
and quality objectives of the project.
TOOL FOR RISK IDENTIFICATION
I. SWOT ANALYSIS:
A useful tool for systematic risk identification is SWOT analysis. It consisting of four elements:
 Strengths - Internal organizational characteristics that can help to achieve project objectives.
 Weaknesses - Internal organizational characteristics that can prevent a project from achieving its
objectives.
 Opportunities - External conditions that can help to achieve project objectives.
 Threats - External conditions that can prevent a project from achieving its objectives.
II. RISK ANALYSIS
After identification of the risk parameters, the second stage is of analyzing the risk which helps to identify
and manage potential problems that could undermine key business initiatives or projects. To carry out a
Risk Analysis, first identify the possible threats and then estimate the likelihood that these threats will
materialize. The analysis should be objective and should be industry specific.
III. RISK ASSESSMENT
After analysing the risk, the third step is to have an assessment of each of the risk in terms of quantitatively
and qualitatively. In judging the quantitative aspects the tools of the statistical methods may be used.

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IV. RISK MITIGATION
Risk mitigation is defined as taking steps to reduce adverse effects. Risk mitigation is the process by which
an organization introduces specific measures to minimize or eliminate unacceptable risks associated with its
operations
CLASSIFICATION OF RISK
controllability
Systematic(Uncontrollable) Unsystematic(Controllable)
1. Systematic Risk:
 It is uncontrollable by an organisation.
 It is not predictable.
 It is of Macro nature.
 It affects a large number of organisations operating under a similar stream.
 It cannot be assessed in advance.
 It depends on the influence of external factors on an organisation which are normally
uncontrollable by an organisation.
The example of such type of risk is Interest Rate Risk, Market Risk, Purchasing Power Risk.
2. Unsystematic Risk:
 It is controllable by an organisation.
 It is predictable.
 It is Micro in nature.
 It affects the individual organisation.
 It can be assessed well in advance and risk mitigation can be made with proper planning
and risk assessment techniques.
The example of such risk is Business Risk, Liquidity Risk, Financial Risk, Credit Risk, and Operational Risk.
Basis Systematic Risk Unsystematic Risk

Scope This type of risk is associated with the This type of risk is associated with a
whole market or market segment. particular industry or security.
Controllability It is uncontrollable It is controllable.

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Result Systematic risk affects the overall market Unsystematic risk affects a particular
and is difficult to predict. industry hence it is easy to predict.
Cause The systematic risk is a result of external The unsystematic risk is the result of
and uncontrollable variables. internal hence may be controllable.
1. Financial Risk: The risk which has some financial impact on the business entity is treated as financial risk.
These risks may be market risk, credit risk Liquidity risk, Operational Risk, Legal Risk and Country Risk.
The following chart depicts the various types of financial risks.
2. Non-Financial Risk: This type of risk do not have immediate financial impact on the business, but its
consequence are very serious and later may have the financial impact. This type of risk may include,
Business/Industry & Service Risk, Strategic Risk, Compliance Risk, Fraud Risk, Reputation Risk,
Transaction risk, Disaster Risk.

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Advantages of Risk Management

 Risk Management always results in significant cost savings and prevents wastage of time and
effort in firefighting. It develops a Robust contingency planning.
 It can help plan and prepare for the opportunities that unravel during the course of a project or
business.
 Risk Management improves strategic and business planning. It reduces costs by limiting legal
action or preventing breakages.
 It establishes improved reliability among the stake holders leading to an enhanced reputation.
 Sound Risk Management practices reassure key stakeholders throughout the organization.
 Risk Management strongly favours for a focused internal audit programme.
RISK GOVERNANCE= RISK MANAGEMENT + CORPORATE GOVERNANCE
Risk governance includes the skills, infrastructure (i.e., organization structure, controls and information
systems), and culture deployed as directors exercise their oversight. Good risk governance provides clearly
defined accountability, authority, and communication/reporting mechanisms.
For risk governance, boards should review risk oversight policies and procedures at the board and committee
levels and assess risk on an ongoing basis. It’s helpful to familiarize the board with expectations within the
industry or regulatory bodies that the organization operates in by arranging for a formal presentation on risk
management best practices. The annual risk management review by the board should include
communication from management about lessons learned from past mistakes. Risk oversight is the
responsibility of the entire Board and the same can be achieved through a review mechanism which inter-
alia could include:
1. Developing policies and procedures around risk those are consistent with the organization’s
strategy and risk appetite.
2. Taking steps to foster risk awareness.

3. Encourage an organizational culture of risk adjusting awareness
4. Maintenance of a Risk Register
5. A compliance certificate on the identification of risks and establishment of mitigation measures.
Principles on Risk oversight
 Proactive oversight: The board should proactively oversee, review and approve the approach to risk
management regularly or with any significant business change and satisfy itself that the approach is
functioning effectively.

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▪ Comprehensive approach: The board should adopt a comprehensive approach to the oversight
of risk which includes all material aspects of risk including financial, strategic, operational,
environmental, and social risks (including political and legal ramifications of such risks), as well
as any reputational consequences.
▪ Risk culture: The board should lead by example and foster an effective risk culture that
encourages openness and constructive challenge of judgment’s and assumptions. The
company’s culture with regard to risk and the process by which issues are escalated and de-
escalated withinthe company should be evaluated at intervals as appropriate to the situation.
▪ Dynamic process: The board should ensure that risk is appropriately reflected in the company’s
strategy and capital allocation. Risk should be managed accordingly in a rational, appropriately
independent, dynamic and forward-looking way. This process of managing risks should be
continual and include consideration of a range of plausible impacts.
▪ Risk committee: While ultimate responsibility for a company’s risk management approach rests
with the full board, having a risk committee(be it a stand-alone risk committee, a combined risk
committee with nomination and governance, strategy, audit or other) can be an effective
mechanism to bring the transparency, focus and independent judgment needed to oversee the
company’s risk management approach.
FRAUDS RISK MANAGEMENT
The Fraud Risk Management Policy will help to strengthen the existing anti-fraud controls by raising the
awareness across the Company and (i) Promote an open and transparent communication culture (ii) Promote
zero tolerance to fraud/misconduct (iii) Encourage employees to report suspicious cases of
fraud/misconduct. (iv) Spread awareness amongst employees and educate them on risks faced by the
company.
Such a policy may include the following:

 Defining fraud
 Defining Role & responsibilities
 Communication channel
 Disciplinary action
 Reviewing the policy
Reporting of fraud under Companies Act 2013
According to Section 143 of the Companies Act, 2013, if an auditor has reason to believe that an offence of fraud
involving such amount exceeding 1 cr. has been committed in the company by its officers or employees, the
auditor shall report the matter to the Central Government
Secretarial Audit
Secretarial Audit is a process to check compliance with the provisions of all applicable laws and
rules/regulations/procedures; adherence to good governance practices with regard to the systems and
processes of seeking and obtaining approvals of the Board and/or shareholders for the business and activities
of the company, carrying out activities in a lawful manner and the maintenance of minutes and records
relating to such approvals or decisions and implementation.

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Section 204 of Companies Act 2013 provides for Secretarial audit for bigger companies.
(1) Every listed company and a company belonging to other class of companies as may be prescribed
shall annex with its Board’s report made in terms of sub-section (3) of section 134, a secretarial
audit report, given by a company secretary in practice, in such form as may be prescribed. Rule
9 of Companies (Appointment and Remuneration of Managing Personnel) Rules, 2014 provides
that for the purposes of sub-section (1) of section 204, the other class of companies shall be as
under-
 every public company having a paid-up share capital of fifty crore rupees or more; or
 every public company having a turnover of two hundred fifty crore rupees or more.
(2) The Board of Directors, in their report made in terms of sub-section (3) of section 134, shall explain
in full any qualification or observation or other remarks made by the company secretary in practice
in his report
REPUTATION RISK MANAGEMENT
Reputation Risk as the risk arising from negative perception on the part of customers, counterparties,
shareholders, investors, debt-holders, market analysts, other relevant parties or regulators that can
adversely affect a bank’s ability to maintain existing, or establish new, business relationships and continued
access to sources of funding
RISK GOVERNANCE
1. risk management committees would be responsible for defining the company’s overall risk appetite;
approving major transactions above a company’s risk threshold, and; establishing limit structures and
risk policies for use within individual businesses.
2. Presence of a Chief Risk Officer (CRO) is expected to strengthen the risk management framework. The
CRO must report directly to the CEO and the Board and be responsible for all risks, risk management
and control functions
3. Risk – and return on risk – need to be core component of any performance measure, and should be
explicitly factored into incentive and compensation schemes.
4. Remuneration must be formally aligned with actual performance, such as through adding more
rigorous risk-based measures to scorecards.
RISK MATRIX
Risk Matrix is a matrix that is used during Risk & Control Self Assessment (RCSA)activity to define the various
levels of risk at each stage, activity, process and sub process.
Risk Matrix comprises of:
1) Impact analysis
2) Likelihood
3) Operating Effectiveness
4) Design Effectiveness
Ratings are assigned to all above categories, pre and post control environment. Based on the ratings a
Gross/Inherent Risk Level and Residual Risk level is determined (HIGH/MEDIUM/LOW), respectively.

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In the event where Residual Risk level is HIGH and/ or a particular control environment is weak, these are
mitigated with additional controls.
MODEL RISK MANAGEMENT POLICY

A risk management policy serves two main purposes: to identify, reduce and prevent undesirable incidents or
outcomes and to review past incidents and implement changes to prevent or reduce future incidents. A risk
management policy should include the following sections:
 Statement of the attitude of the organisation to risk (risk strategy)

 Description of the risk aware culture or control environment
 Level and nature of risk that is acceptable (risk appetite)
 Risk management organisation and arrangements (risk architecture)
 Details of procedures for risk recognition and ranking (risk assessment)
 List of documentation for analysing and reporting risk (risk protocols)
 Risk mitigation requirements and control mechanisms (risk response)
 Allocation of risk management roles and responsibilities

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CORPORATE GOVERNANCE. RISK

CORPORATE + GOVERNANCE= CORPORATE GOVERNANCE

FEATURES OF CORPORATE GOVERNANCE

1. Good corporate governance ensures corporate success and economic growth.

Enhanced Reduced Risk of Enhancing Combating Better Access

CORPORATE GOVERNANCE THEORIES

(a) Agency Theory

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(b) Stockholder/shareholder Theory

(c) Stakeholder Theory

(d) Stewardship Theory

EVOLUTION OF CORPORATE GOVERNANCE

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 the CEO and Chairman of companies should be separated;

 each board should have an audit committee composed of non-executive directors.

 Constitution of a Remuneration Committee comprising of Non Executive Directors

 Responsibility of the committee in determining the remuneration policy. Level of disclosure to

shareholders regarding the remuneration of directors’.

 Remuneration should be linked more explicitly to performance.

 at least half of a board (excluding the Chair) be comprised of non-executive directors

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 Improving safeguards and disclosures pertaining to Related Party Transactions;

 Issues in accounting and auditing practices by listed companies;

 Improving effectiveness of Board Evaluation practices;

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the short, medium and long term.

17. The governing body of an institutional investor organisation should ensure

COPRORATE GOVERNANCE IN INDIAN ETHOS

Raksha – literally means protection, in the corporate scenario it can be equated

CS Somya Kataria (8461967667) Inspire academy

CS Somya Kataria (8461967667) Inspire academy

PRINCIPLES OF CORPORATE GOVERNANCE

(b) Timely information

(c) Equitable treatment

(e) Disclosure and transparency

(f) Key functions of Board:

o Selecting, compensating, monitoring and, when necessary, replacing key managerial

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1. Size of the Board Section 149(1) Regulation 17(1)(a)

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3. Appointment of Section 149(1) and Companies Regulation 17(1)(a)

1. paid–up share capital of

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CS Somya Kataria (8461967667) Inspire academy

Subject to the provisions of Section It shall be in accordance with the

7. Separate meeting Section 149 read with Schedule IV Regulation 25(3)

8. Familiarisation Schedule IV Regulation 25(7)

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10. Filing of Casual

11. Succession There is no such provision. Regulation17(4)

13. Liability of Section 149(12) Regulation25(5)

14. Vigil mechanism Section 177(9)read with Rule 7 of Regulation22

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The listed entity shall constitute a

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(i) a director or his relative Provided that any person or entity

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The Board of Directors of a company A committee under the Chairperson of

DISCLOSURES UNDER VARIOUS ACTS: