{"id":34702,"date":"2018-10-31T12:57:29","date_gmt":"2018-10-31T07:27:29","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=34702"},"modified":"2018-10-31T12:57:29","modified_gmt":"2018-10-31T07:27:29","slug":"moving-towards-better-corporate-governance","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/moving-towards-better-corporate-governance\/","title":{"rendered":"Moving towards better corporate governance:\u00a0"},"content":{"rendered":"<p><a href=\"http:\/\/www.livemint.com\/Opinion\/pmbN8X6uzxHua6RtAKPP8K\/Moving-towards-better-corporate-governance.html\"><span style=\"font-weight: 400;\">Moving towards better corporate governance<\/span><\/a><span style=\"font-weight: 400;\">:\u00a0<\/span><\/p>\n<p><b>Context:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">21-member Committee on corporate governance headed by banker Uday Kotak has submitted its report to the Securities and Exchange Board of India (SEBI).<\/span><\/p>\n<p><b>Introduction:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The SEBI Panel recommendations on corporate governance will enhance transparency and effectiveness in the way boards of listed companies function.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The panel was constituted by SEBI in June 2017. It was given four months to submit its recommendations.<\/span><\/li>\n<\/ul>\n<p><b>Reasons of constituting panel:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Many Indian companies are groaning under the weight of excess debt.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Majority of banks also has a mountain of bad loans on its balance sheet.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Few of the expensive acquisitions made in the previous decade have paid off for shareholders.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Presently, the Indian economy is facing a problem of corporate governance as they are about the vagaries of the business cycle.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Enhancing transparency and effectiveness in the way boards of listed companies function.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Proper timelines for effective implementation and regulation.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">To protect the interest of small shareholders.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Achieving corporate governance.<\/span><\/li>\n<\/ul>\n<p><b>Key recommendations:<\/b><\/p>\n<p><b>1-<\/b><span style=\"font-weight: 400;\"> \u00a0\u00a0\u00a0\u00a0\u00a0<\/span><b>Improving governance:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has recommended changes that will make corporate affairs more transparent as well as improve the standard of corporate governance in listed companies.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Committee member Krishnamurthy Subramanian, suggest way to achieving this is by strengthening the three gatekeepers- the board, the auditors, and the regulator.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has made recommendations that will help improve governance and enhance investor confidence.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has focused on areas such as the size and composition of the board, number of independent directors, and their role, and disclosure and dissemination of information.<\/span><\/li>\n<\/ul>\n<p><b>2-<\/b><span style=\"font-weight: 400;\"> \u00a0\u00a0\u00a0\u00a0\u00a0<\/span><b>Independent directors:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has recommended that a listed company should have a minimum of six directors, at least one independent woman director, and a minimum 50% of the directors should be non-executive.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has also suggested measures so that independent directors inducted in the board.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Independent directors plays very important role because they protect the interest of all stakeholders, especially the small investors.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has recommended that at least half of the board members should be independent directors.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It has recommended that listed companies should have to give detailed reasons if an independent director resigns.<\/span><\/li>\n<\/ul>\n<p><b>3-<\/b><span style=\"font-weight: 400;\"> \u00a0\u00a0\u00a0\u00a0\u00a0<\/span><b>Chairperson and Managing director:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has also recommended the separation of roles of chairperson and managing directors, and the chairperson should be a non-executive director.<\/span><\/li>\n<\/ul>\n<p><b>4-<\/b><span style=\"font-weight: 400;\"> \u00a0\u00a0\u00a0\u00a0\u00a0<\/span><b>Board meetings:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has suggested that the number of board meetings in a year should be increased from four to five.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Aspects such a succession planning, strategy and broad evaluation should be discussed at least once a year.<\/span><\/li>\n<\/ul>\n<p><b>5-<\/b><span style=\"font-weight: 400;\"> \u00a0\u00a0\u00a0\u00a0\u00a0<\/span><b>Small investors:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has advocated several changes that will help small investors.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It has recommended that disclosures by companies to stock exchanges and on their own websites should be in a format that allows investor to find information with ease.<\/span><\/li>\n<\/ul>\n<p><b>6-<\/b><span style=\"font-weight: 400;\"> \u00a0\u00a0\u00a0\u00a0\u00a0<\/span><b>Listed companies:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has recommended that all listed companies should publish cash flow statements on a half-yearly basis.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This will help the common investors- who don\u2019t have access to financial databases.<\/span><\/li>\n<\/ul>\n<p><b>7-<\/b><span style=\"font-weight: 400;\"> \u00a0\u00a0\u00a0\u00a0\u00a0<\/span><b>Credit ratings:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Updated list of all credit ratings obtained by the listed entity must be made available at one place, which would be very helpful for investors and other stakeholders.<\/span><\/li>\n<\/ul>\n<p><b>8-<\/b><span style=\"font-weight: 400;\"> \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><b>Risk management and IT committee:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Top-500 listed companies should have risk management committee of boards for cyber security. In addition, listed \u00a0entities must constitute an information technology committee that will focus on digital and \u00a0technological aspects<\/span><\/li>\n<\/ul>\n<p><b>9-<\/b><span style=\"font-weight: 400;\"> \u00a0\u00a0\u00a0\u00a0\u00a0<\/span><b>Miscellaneous:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The committee has also recommended that SEBI should have the power to act against auditors if the need arises.<\/span><\/li>\n<\/ul>\n<p><b>What is corporate governance?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Corporate governance<\/span> <i><span style=\"font-weight: 400;\">is <\/span><\/i><i><span style=\"font-weight: 400;\">about promoting corporate fairness, transparency and accountability.<\/span><\/i><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Corporate Governance deals with how a <\/span><i><span style=\"font-weight: 400;\">corporate is governed<\/span><\/i><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It is a set of system, processes and principles which ensure that a company is governed in the best interest of all stakeholders.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It also helps in protection of shareholders interest, commitment of values and ethical conduct of business.<\/span><\/li>\n<\/ul>\n<p><b>What are Objectives of Corporate Governance?<\/b><\/p>\n<p><strong>The objectives of the corporate governance include:<\/strong><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Attaining disclosure and transparency in corporate structures as well as organizations.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Fixing accountability of the controllers and managers towards the shareholders and others. This also includes bringing the interests of investors and manager into line and ensuring that firms are run for the benefit of investors.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Fixing the corporate responsibility towards various stakeholders<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Create a framework for long term trust between the corporate and external providers of capital<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Rationalize the management and risk monitoring<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Efficient decision making<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Integrity and probity in the financial reports.<\/span><\/li>\n<\/ul>\n<p><b>Corporate Governance and India:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Corporate Governance was launched in India in the mid 1990\u2019s.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Confederation of Indian industry came up with the first voluntary code of corporate governance, followed by <\/span><b>Kumar Mangalam Birla committee<\/b><span style=\"font-weight: 400;\"> constituted by SEBI, <\/span><b>Naresh Chandra committee report 2002<\/b><span style=\"font-weight: 400;\"> and <\/span><b>Narayana Murthy committee report submitted in 2003.<\/b><\/li>\n<\/ul>\n<p><b>What need to be done in order to bring corporate governance into play?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\">Corporate social responsibility is important in this regard.<span style=\"font-weight: 400;\"> It helps in bringing social accountancy of firms towards the society at large while in turn pitching in their bit to help the government achieve socio-economic-political goals. It is significant in the following manner:<\/span><\/li>\n<\/ul>\n<ol>\n<li><b>Clarity<\/b><span style=\"font-weight: 400;\">: Regarding the priorities of government thereby enabling corporates to channel the funds accordingly<\/span><\/li>\n<li><b>Autonomy<\/b><span style=\"font-weight: 400;\">: To direct the receive to spend the fund<\/span><\/li>\n<li><b>Incentives<\/b><span style=\"font-weight: 400;\">: Lack of incentives for complying with mandated provision.<\/span><\/li>\n<li><b>Cooperation:<\/b><span style=\"font-weight: 400;\"> Lack of cooperation and guidance from local bureaucracy to enhance the effectiveness of funds.<\/span><\/li>\n<\/ol>\n<p><strong>However, there are certain reinforcements that CSR bring in for corporates:<\/strong><\/p>\n<p><span style=\"font-weight: 400;\"><strong>1.<\/strong>\u00a0<\/span><b>Goodwill<\/b><span style=\"font-weight: 400;\">: helps in brand building and loyal customers and greater retention of employees<\/span><\/p>\n<p><span style=\"font-weight: 400;\"><strong>2.<\/strong>\u00a0<\/span><b>No penalization<\/b><span style=\"font-weight: 400;\">: Government has not enforced any penalties in case of breach of targets thus avoided hurting the interests of donors.<\/span><\/p>\n<p><b>Conclusion:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Corporate governance is very essential for overall growth of the companies. Therefore, CSR is noble initiative to improve societal conditions especially to foster unity and inclusivity. Greater synergy by addressing the concerns of donor will go a long way in making far more effective.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Moving towards better corporate governance:\u00a0 Context: 21-member Committee on corporate governance headed by banker Uday Kotak has submitted its report to the Securities and Exchange Board of India (SEBI). Introduction: The SEBI Panel recommendations on corporate governance will enhance transparency and effectiveness in the way boards of listed companies function. The panel was constituted by&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/moving-towards-better-corporate-governance\/\">Continue reading <span class=\"screen-reader-text\">Moving towards better corporate governance:\u00a0<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-34702","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":103,"cached_at":""},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/34702","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=34702"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/34702\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=34702"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=34702"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=34702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}