Professional Documents
Culture Documents
“CORPORATE GOVERNANCE”
A PROJECT REPORT
UNDER THE GUIDANCE OF
PROF.R.V. RAJWADE
SUBMITTED BY
SUCHITA JOSHI
M.B.A. (SEM. IV) 520857164
2009 - 2010
OF
MBA
IN
HUMAN RESOURCE MANAGEMENT
JULY 2010
Acknowledgement
I am grateful to Prof. R.V.Rajwade for his guidance and analysis, which has
contributed greatly in improving the quality of work done during the tenure of this
project.
I am also thankful to all those whose best wishes and support helped me in
completion of this project, especially my spouse, friends and my parents for guiding in
proper time.
BY
SUCHITA SIDDHARTH JOSHI
DECLARATION
SUCHITA S. JOSHI
(STUDENT)
BONAFIDE CERTIFICATE
bonafide work of “SUCHITA SIDDHARTH JOSHI”, who carried out the project
SIGNATURE SIGNATURE
In ancient India, the ruling emperors decided the concept and practice of governance.
The treatise on economic administration, Arthashastra, written roughly 315 years
before Christ, developed a complete structure of governance in a kingdom with clear
demarcation of authority, responsibility and accountability. In the Far East, Japan and
China also placed the governance in the hands of their kings.
In the post Christ period, with improved navigation and availability of vessels, the
traders from Europe, especially the Portuguese and the Dutch explored the known
expanse of the earth and gave rise to global trading entities. These entities reported to
the kings. This was the beginning of corporate governance. As we approach the 16th
century, the most powerful trading nation, England, formed a variety of regulations and
regulatory authorities such as joint stock companies and Bank of England to govern all
trading activities on a platform of accountability, efficiency, effectiveness and stake
holder’s satisfaction. The concept of corporate governance was the basic platform for
these regulations and regulatory authorities and over a period of time the concept and
its practice took a firm root for all activities.
Definition
The term Corporate Governance is not easy to define. The term governance relates to a
process of decision making and implementing the decisions in the interest of all
stakeholders. It basically relates to enhancement of corporate performance and ensures
proper accountability for management in the interest of all stakeholders.
The growing scale of corporations and their style of functioning have raised many new
issues that must be addressed by corporate governance. Some of these issues are:
• The growth of private companies
• Tire magnitude and complexity of corporate groups
• The importance of institutional investors
• Rise in hostile activities of predators (take over.)
• Insider trading
• Litigations against directors
• Need for restructuring of boards
• Changes in auditing practices
The emergence of private companies and the growing complexity of corporate groups
is one of the main concerns of corporate governance. Initially, limited liability
companies were incorporated to raise outside capital. Later, these corporations used
their powers as a legal person under law to acquire shares in other companies. This
resulted in the formation of new companies that took over the assets and liabilities of
the original companies before winding them up. This led to a spate of mergers and
acquisitions in the late nineteenth and twentieth centuries.
Corporate governance is also concerned with the growing influence of institutional
investors on the corporations. Issues concerning hostile takeovers particularly
management buy-outs, tire also addressed by corporate governance. Insider trading,
imbalanced boards and compliance with international accounting standards the other
issues that are addressed by corporate governance.
Jenson feels that corporations should incur some cost to ensure management
compliance. These costs result from setting up of monitoring mechanisms like boards,
which require appointment of outside independent directors to carry out checks like
audits to evaluate the performance of top management. These theories of corporate
governance laid the foundations for further studies in corporate governance.
The aim of "Good Corporate Governance" is to ensure commitment of the board in
managing the company in a transparent manner for maximizing long-term value of the
company for its shareholders and all other partners. It integrates all the participants
involved in a process, which is economic, and at the same time social.
The overall endeavour of the board should be to take the organisation forward so as to
maximize long term value and shareholders'
Evolution of corporate governance in India
Earlier the government was expected to ensure good corporate conduct. Most
shareholders believed that stringent government controls would prevent malpractices of
the corporations for fear of punishment. However, there was soon a growing realization
that government was not always the best guardian of public interest. Shareholders
began to feel the need for market driven corporate governance flint would be more
democratic and flexible. This led to the birth of self imposed corporate governance
within the corporate system. The active participation of various stakeholders like
shareholders, financial institutions, etc. have strengthened the corporate governance
mechanism and helped it to evolve beyond set of static rules.
Many factors have contributed to the evolution of corporate governance. Some of this
are-
• The responsibility for ensuring good corporate conduct shifted from
government to a free-market economy.
• Active participation of individual and institutional investors.
• Increasing competition in global economy.
With the relaxation of direct and indirect administrative controls by the government,
alternative mechanisms became necessary to monitor the performance of corporations
in free-markets. Shareholders believed that market forces could ensure good corporate
conduct (self imposed) by way of rewarding success and punishing failures of
corporations. Many free-market economies laid down effective regulations to monitor
the corporations. However, regulations alone do not ensure good governance. To
become effective, they must be enforceable by law.
The second factor that boosted corporate governance is the growth of global fund
management business. Institutional investors such as insurance companies, pension and
tax funds account for more than half the capital in the corporations of USA, This trend
is also growing in India. Earlier Institutional investors did not monitor the activities of
the corporations in which they invested. But the competition in the fund management
business has forced them to take an active role in governance in order to safeguard their
investments in the corporations. Now, many institutional investors express their views
strongly with regard to various matters such is financial and operational performance,
business strategy, remuneration of top-level managers etc. Along with the non-
executive directors, these institutional investors monitor the performance of
corporations.
The active investor demands good performance in the form of return oil investment and
they also expect timely and accurate information regarding the performance of the
company. Institutional investors can exert pressure on the management as they own a
considerable share in the capital and any criticism from these investors can have a
major impact oil the share prices. Investors believe that only strong corporate
governance mechanisms and practices can save them from the ever-growing power of
corporations, which call influence public policy to the detriment of investors.
The enhanced competition ill the global economy has compelled corporations to
perform better by going in for cost-cutting, corporate restructuring, mergers &
acquisitions, downsizing etc. All these activities can be carried out successfully only if
there is proper corporate governance. Thus, market forces, active individual and
institutional investor participation, and enhanced competition have helped corporate
governance to evolve beyond a set of static rules.
• Unlike South-East and East Asia, the corporate governance initiative in India
was not triggered by any serious nationwide financial, banking and economic
collapse
• The initiative in India was initially driven by an industry association, the
Confederation of Indian Industry
• In December 1995, CII set up a task force to design a voluntary code of
corporate governance.
• The final draft of this code was widely circulated in 1997.
• In April 1998, the code was released. It was called Desirable Corporate
Governance: A Code.
• Between 1998 and 2000, over 25 leading companies voluntarily
followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddy’s
Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and
many others
• Following CII’s initiative, the Securities and Exchange Board of India (SEBI)
set up a committee under Kumar Mangalam Birla to design a mandatory-cum-
recommendatory code for listed companies
• The Birla Committee Report was approved by SEBI in December 2000
• Became mandatory for listed companies through the listing agreement, and
implemented according to a rollout plan:
– 2000-01: All Group A companies of the BSE or those in the S&P CNX
Nifty index… 80% of market cap.
– 2001-02: All companies with paid-up capital of Rs.100 million or more
or net worth of Rs.250 million or more.
– 2002-03: All companies with paid-up capital of Rs.30 million or more
– Following CII and SEBI, the Department of Company Affairs (DCA) modified
the Companies Act, 1956 to incorporate specific corporate governance
provisions regarding independent directors and audit committees.
– In 2001-02, certain accounting standards were modified to further improve
financial disclosures. These were:
– Disclosure of related party transactions.
– Disclosure of segment income: revenues, profits and capital employed.
– Deferred tax liabilities or assets.
– Consolidation of accounts.
– Initiatives are being taken to (i) account for ESOPs, (ii) further increase
disclosures, and (iii) put in place systems that can further strengthen auditors’
independence.
With the goal of promoting better corporate governance practices in India, the Ministry
of Corporate Affairs, Government of India, has set up National Foundation for
Corporate Governance (NFCG) in partnership with Confederation of Indian Industry
(CII), Institute of Company Secretaries of India (ICSI) and Institute of Chartered
Accountants of India (ICAI).
The OECD Code also recognizes that different legal systems, institutional frameworks
and traditions across countries have led to the development of a range of different
approaches to corporate governance. However, a high degree of priority has been
placed on the interests of shareholders, who place their trust in corporations to use their
investment funds wisely and effectively is common to all good corporate governance
regimes.
One area of concern is whether the accounting firm acts as both the independent auditor
and management consultant to the firm they are auditing. This may result in a conflict
of interest which places the integrity of financial reports in doubt due to client pressure
to appease management. The power of the corporate client to initiate and terminate
management consulting services and, more fundamentally, to select and dismiss
accounting firms contradicts the concept of an independent auditor. Changes enacted in
the United States in the form of the Sarbanes-Oxley Act (in response to the Enron
situation as noted below) prohibit accounting firms from providing both auditing and
management consulting services. Similar provisions are in place under clause 49 of
SEBI Act in India.
In India, the concept of corporate governance is still in its nascent stage. The
recommendations of Kumaramangalam Birla and CII committees' reports are the first
steps in India towards ensuring better corporate governance. Prior to these
recommendations SEBI has take various steps to strengthen corporate governance in
India. Some of these steps are as follows:
• Strengthening of disclosure norms for Initial Public Offers following the
recommendations of the Committee set up by SEBI under the Chairmanship of Shri Y
H Malegam;
• Providing information in directors' reports for utilization of funds and variation
between projected and actual use of funds according to the requirements of the
Companies Act ' inclusion of cash flow and funds flow statement in annual reports
• Declaration of quarterly results;
• Mandatory appointment of compliance officer for monitoring the share transfer
process and ensuring compliance with various rules and regulations;
The underlying principles of corporate governance revolve around three basic inter-
related segments. These are:
Integrity and Fairness
Transparency and Disclosures
Accountability and Responsibility
The organizational framework for corporate governance initiatives in India consists of
the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of
India (SEBI). The first formal regulatory framework for listed companies specifically
for corporate governance was established by the SEBI in February 2000, following the
recommendations of Kumarmangalam Birla Committee Report. It was enshrined as
Clause 49 of the Listing Agreement.
Thereafter SEBI had set up another committee under the chairmanship of Mr. N. R.
Narayana Murthy, to review Clause 49, and suggest measures to improve corporate
governance standards. Some of the major recommendations of the committee primarily
related to audit committees, audit reports, independent directors, related party
transactions, risk management, directorships and director compensation, codes of
conduct and financial disclosures.
The Ministry of Corporate Affairs had also appointed Naresh Chandra Committee on
Corporate Audit and Governance in 2002 in order to examine various corporate
governance issues. It made recommendations in two key aspects of corporate
governance: financial and non-financial disclosures: and independent auditing and
board oversight of management.
The Main Constituents of Good Corporate Governance are:
Also, irrespective of the model, there are three different forms of corporate
responsibilities which all models do respect:
The structural framework of the Anglo-American model as laid down by the legal
system is shown in the Figure below. Employees, suppliers and creditors are
stakeholders in the corporation. The creditors have a lien on the assets of the
corporation The Board of Directors designs the policy of the corporation, which is then
implemented by the management, using a well-designed information system the board
monitors the implementation of this policy in the organization. This model is most
suitable for a production or manufacturing organization as it facilitates efficient
monitoring of production, exchange and performance.
2] German model of corporate governance
In the Gentian model of corporate governance, even though the shareholders own the
corporation, they do not directly control the governance mechanism. Half of the
members on the supervisory board are elected by file labor unions while the remaining
are elected by the shareholders (owners). In this model the employees are not just
stakeholders, but also have a say in the governance mechanism.
Thus, employees become responsible for the policies that are to be implemented by
them for attaining the objectives (profit, market share, high volumes ... etc) of the
organization. Tire supervisory board, which is appointed jointly by the shareholders
and the labor unions (employees), appoints and monitors the management board. This
management board conducts the day-to-day operations of the organization
independently. But, it has to report to the supervisory board. One of the Unique features
of this model is that the labor relations' officer finds a place on the management board,
This ensures workers participation in the governance mechanism This model of
corporate governance and the relationship between various constituents is as shown in
Figure below.
3 ] Japanese Model
In the Japanese model of corporate governance, the financial institutions have a major
say in the governance mechanism. The shareholders, along with the banks, appoint the
members of the board. In this model even the president is appointed on the basis of a
consensus between the shareholders and the banks. The president consults the board
and their relation is hierarchical in nature. Usually the board ratifies whatever decisions
the president takes. The financial institutions that finance the business have a crucial
role in it even though the shareholders are the owners of the business. In this model, the
executive management (board of directors) carries out file management function.
Sometimes the financial institutions monitor the management function by nominating
the managerial personnel. The banks even have the power to suspend the board in case
of an emergency. This model is as shown in the Figure below.
4] Indian Model
RESPONSIBILITIES OF DIRECTORS
The company law lays down the duties and responsibilities of the board of directors.
Directors also have certain duties and responsibilities, which are embedded in the laws
of insolvency, consumer protection, employment act, mergers and monopolies, and
other securities and stock exchange rules. The responsibilities of the directors may
differ from country to country, but there are some responsibilities that are common to
directors all over the world. These are:
• Responsibilities to shareholders
• Obligation to maintain honesty and integrity.
The shareholders of a company appoint the directors. Hence, the basic responsibility of
the directors is towards the shareholders. Directors fulfill this responsibility by
providing strategic direction to the company by setting appropriate policies and
monitoring the performance of the top management. Directors are also accountable to
the shareholders. They have to give the shareholders regular reports and accounts,
which are duly audited, Directors are expected to be honest in their dealings with the
shareholders and to take decisions that will benefit the organization as a whole. All the
shareholders must be given adequate and accurate information regarding every issue
that could affect their interests.
Remuneration Committee
Shareholders are becoming concerned about the lack of transparency regarding the
remuneration of directors and top-level managers. The board sets up the remuneration
or compensation committee to objectively review the remuneration packages of the
executive directors and other top-level managers. This committee, which is made up of
independent directors, chalks out the remuneration policy. Such a policy checks the
unreasonable increase of executive remuneration.
The remuneration committee designs a transparent remuneration policy that can attract
and retain directors and top management and motivate them to achieve the long-term
goals of the organization.
Nomination Committee
These committee are usually set up to select the new non-executive directors. Usually,
it is headed by the chairman and it shortlists and interviews the final candidates.
A code is a set of rules, which are accepted as general principles, or a set of written
rules, which state how people in a particular organization or country should behave,
Thus, it is a set of standards agreed on by a group of people who do a particular job. A
regulation is an official rule that lays down how things should be done. Both codes and
regulations are "sets of rules" or "principles" or "standards" that are intended to control,
guide, or manage behavior or the conduct of individuals working in organizations, the
basic difference being that codes are "self-imposed or self regulated" sets of rules,
while regulations are "official," i.e. imposed by the State (government).
Many corporate governance codes were developed by non-governmental organizations.
Stock exchanges, investor groups and professional associations were responsible for
promoting and commissioning codes or principles for corporate governance. In addition
to the codes developed by non-governmental organizations, governments also issue
rules or guide lines on matters concerning, governance through capital market
regulatory organizations like SEBI.
REPORTS OF COMMITTEES ON CORPORATE GOVERNANCE
Losses suffered by investors and leaders in the recent past (throughout the world) raised
concern about standards of financial reporting and accountability of management.
Many believed that these losses could have been avoided if companies had transparent
reporting practices and good corporate governance. In recent e-governments and
corporates have made sincere efforts to design corporate codes govern the functioning
of corporations. Some of the important reports on corporate governance published in
India and abroad are:
Kumar Mangalam Birla Committees
CII Committee Report
Cadbury Committee Report
OECD Report
Cadbury Committee Report
A committee was set up under the chairmanship of Adrian Cadbury in July 1991 the
Financial Reporting Council, the London Stock Exchange and the accountant
profession to took into the financial aspects of corporate governance. The committee
first submitted its report for public scrutiny on 27 May, 1992. The recommendations
made by the Cadbury Committee are as follows
Decision -making power should not be vested in a single person. i.e. there
should be a separation of the roles of chairman and chief executive.
Non-executive directors should act independently while giving their judgment
issues of strategy, performance, allocation of resources and designing codes
conduct.
A majority of directors should be independent non-executive directors, i.e. III,
should not have any financial interests in the company.
The term of a director should not exceed three years. This can be extended on
with the prior approval of the shareholders.
There should be full transparency in matters relating to directors emoluments.
There should be a judicious mix of salary and performance related pay.
A Remuneration committee made up wholly or largely to non-executive
director should decide on the pay of the executive directors.
The Interim company report should give the balance street information and
should. be reviewed by the auditor.
The pension funds should be managed distinct from the company.
There should be a "professional and objective" relationship between the boar
and the executives.
Information regarding the audit fee should be made public and there should t
regular rotation of auditors.
The recommendations made by the Cadbury committee were widely accepted by
corporates in U.K. and they became a reference point for many other committees,
which were set up by various governments all over the world. Refer to Appendix II for
summary of the Cadbury report.
Number of directors
A public limited company should have at least three directors, whereas companies
should have at least two directors, However, the minimum and maximum number of
directors to be appointed is usually specified in file Articles of the company. According
to Section 314 Directors are not to hold office or place of profit.
Increasing the number of directors
The number of directors can be increased or decreased within the limits fixed in the
Articles of a company, by passing an ordinary resolution. If the company wants to
increase the number of directors beyond the limit specified in the Articles, it has to get
the central government's approval.
Powers of board of directors
The Board of Directors can exercise the following powers on behalf of the company:
a. The power to make calls on shareholders in respect of money unpaid on their
shares
b. The powers to issue debentures.
c. The power to borrow money otherwise than on debentures. However, a banking
Companies or from the Reserve Bank of India, the State Bank of India or any
other banks established by or under any Act.
d. The power to invest funds of the company. This power shall however be subject
to the provisions of Sections 293 and 372.
e. The power to grant loans. Again this power is subject to the provisions
contained in Sections 295 and 370.
The decisions mentioned in (c), (d) and (e) may, be delegated to any committee of
directors, managing director, the manager or any other principal officer of the
company or in the case of a branch office of the company or a principal officer of
its branch by a resolution passed at a meeting.
f. The power to fill casual vacancies in the Board.
g. The power to sanction a contract in which he is interested.
h. The power to recommend the rate of dividend to be declared by the company at
the Annual General Meeting, subject to the approval by the shareholders.
i. The power to appoint a person, a managing director or manager who is holding
either office in another company.
j. The power to invest in any share of any other body corporate.
In the last two cases, not only the powers be exercised at the boards' meeting but also
that every director present and entitled to vote must consent thereto.
Powers that can be only with the consent of the company at the general meeting:
a. The power to sell, lease, or otherwise dispose of the whole or part of the
undertaking of the company. Where the company's memorandum does not
empower it, it would be necessary for the company to alter the objects clause of
the Memorandum by passing a special resolution and also to obtain
confirmation of the Company Law Board.
b. Power to remit due by a director.
c. Power to borrow in excess of capital and reserves of the company.
d. Power to contribute to charities not directly, relating to the business of the
company, or the welfare of its employees any amount exceeding Rs.50,000 or
five percent of its average net profits of the last three financial years, whichever
is higher,
e. Power to invest compensation amounts received on compulsory acquisition of
any of its properties.
f. Power to appoint sole selling agents.
Appointment of directors
Directors may be appointed by
Subscribing to the memorandum of association; section 254, Regulation 64 of
Table A.
Shareholders in general meetings; section 255, 256, 257, 265
Board of directors
Central Government, Sections 408, 409
Third parties
Duties of a director
1. Fiduciary duties: It includes the following:
• Not to exceed their authority and powers and to act with honesty and good faith.
• To act honestly and with utmost good faith.
• Not to use unpublished and confidential information belonging to the company
for their own purpose.
2. Duties of Care:
Like any, other agent, the director must
• Exercise reasonable care in managing the affairs of the company
• To act with best of skill and expertise
• To exhibit in the performance of his duty the same degree of care and prudence
that he would exercise on his own affairs.
3. Statutory duties:
A director of a firm should not enter into a contract with a company (belonging to his
relatives) for sale, purchase or supply of any goods unless with the consent of the
Board of Directors (Section 297). But, this is allowed in case of urgency (section 297
(3)).
For Companies with rupees one crore or more should not enter into a contract with
Companies having connection to its directors without the prior approval of the central
government.
Every director should reveal his financial interest in the contract, if any to the board.
(Section 299).
Other duties include, duty not to delegate, duty to attend board meetings, duty to
convene annual general meeting.
Liability of directors:
Directors who do not carry out their duties diligently and honestly are subject to the
following liabilities:
Unlimited Liability: Section 322 and 323 states that, in a limited company, the liability
of all or any of the directors or managers may be made unlimited, if so provided by the
memorandum of association.
Liability for breach of fiduciary duty: A director, as a trustee for the company, may
incur liability for breach of his fiduciary duty to the company.
Personal Liabilities: The directors are liable to indemnify the company if its funds are
used by the directors for purposes that the company cannot sanction.
A director is personally liable for any losses incurred or profits forgone by the company
due to the acts of the directors, which are in breach of trust.
The directors are personally liable for the losses sustained by the company as a result of
their negligence in the discharge of their duties. In some cases, directors can be held
liable to third parties (e.g. in case of miss allotment of shares.)
Criminal Liability: Under the Companies Act, criminal proceedings against directors
may be instituted in pursuance of the provisions contained in various sections, resulting
in imprisonment.
Removal of directors
The Board of Directors can be removed by the shareholders, the Central government or
by the Company Law Board.
A company under Section 284 can remove a Director before the expiry of the
period of office by passing an ordinary resolution.
The Central Government, under Section 388B to 388E of the Companies Act
1956, can remove a Director on the recommendation of the Company Law
Board.
The Company Law Board can terminate a Director when it receives a
application for his removal, accusing the directors of mismangement.
Remuneration of directors:
The remuneration of the managing director and whole time director, will be determined
either by the articles, or by a resolution of the General body or by special resolution, if
required by, the articles (Section 309(1)). This remuneration will not include any
amounts paid to the director for services rendered in any other capacity if the services
are professional in nature and the director possesses the requisite qualification for
practice of the profession (Section 309(1))
Questionnaire:
2) Describe your Board composition. Is the Chairman and the CEO two different
persons?
3) Does the Board have an independent and transparent process to evaluate the
performance of all its members?
Ans. No, but minutes of the board meetings are recorded in detail.
Ans. Yes
5) Do the Raymond Ltd. board members get right information and enough time to
discharge their board duties?
Ans : Yes.
Ans: No, they definitely try to make improvements in the overall functioning of the
company as well as implement corporate governance practice in spirit to make the
company Numero Uno in CG practice.
7) Does the Board have a process of conducting exclusive sessions with its
independent directors?
Ans. Yes
11) Have you faced any issues relating to CG and how were they resolved?
12) Do you conduct independent audit for Corporate Governance? If yes, what all
parameters are covered in this audit?
13) Has your company witnessed any incidents of Insider Trading? What action was
taken on it?
Ans. No, as no such incidents so far occurred in our company
14) Are the stakeholders satisfied with the C.G. application in your company?
Ans. Yes
15) How are the grievances of Share Holders addressed? Are the grievances
resolved in a timely and effective manner?
2. BOARD OF DIRECTORS:
None of the Directors on the Board is a member of more than ten Committees and
Chairman of more than five Committees (as specified in Clause 49), across all
companies in which they are Directors.
The composition of the Board of Directors, the number of other Directorship and
Committee positions held by each Director as on March 31, 2009 are as under:
BOARD PROCEDURE
The Board meets at least once a quarter to review the quarterly performance and the
financial results. The Board Meetings are generally scheduled well in advance and the
notice of each Board Meeting is given in writing to each Director. All the items or the
Agenda are accompanied by notes giving comprehensive information on the related
subject and in certain matters such as financial/business plans, financial results, detailed
presentations are made. The Agenda and the relevant notes are sent in advance
separately to each Director and only in exceptional cases; the some is tabled of the
meeting The Board is also free to recommend the inclusion of any matter for discussion
in consultation with the Chairman.
To enable the Board to discharge its responsibilities effectively, the members of the
Board are briefed at every Board Meeting, on the overall performance of the Company,
with presentations by Business Heads. Senior Management is invited to offend the
Board Meetings so as to provide additional inputs to the items being discussed by the
Board.
The Board's role, functions, responsibility and accountability are clearly refined. In
addition to matters statutorily requiring Board's approval, all major decisions involving
policy formulation, strategy and business plans, annual operating and capita
expenditure budgets, new investments, details of joint ventures, sale of business
unit/division, compliance with statutory/regulatory requirements, major accounting
provisions and write-offs are considered by the Board.
The Minutes of the Board Meetings are circulated in advance to all Directors and
confirmed at subsequent Meeting, The Minutes of Audit Committee and other
Committees of the Board are circulated in advance to all Directors, regularly placed
before the Board and noted by the Board.
Five Board Meetings were held during the Financial Year 2008-09on the following
dates: April 29, 2008, July 31, 2008, October 37, 2008, November 30, 2008 and
January 31, 2009. The gap between two Board Meetings did not exceed four months,
During the Financial year 2008-09 two Circular Resolutions were passed on August 13,
2008 and March 30, 2009 respectively.
The attendance of each Director at Board Meetings and the last Annual General
Meeting (AGM) is as under:
3. AUDIT COMMITTEE:
The Audit Committee, while reviewing the Annual Financial Statements also reviewed
the applicability of various Accounting Standards (AS) referred to in sub-section (3C)
of Section 211 of the Companies Act, 1956. Compliance of the Accounting Standards
as applicable to the Company has been ensured in the Financial Statements for the year
ended March 31, 2009.
COMPOSITION
The Audit Committee comprises of four Directors, all of whom are Non-Executive.
Three Members of the Audit Committee are Non-Executive Independent Directors
while one member is Promoter, Non-Executive. The Audit Committee is constituted in
accordance with the provisions of Clause 49 (11) (A) of the Listing Agreement and
Section 292A of the Companies Act, 1956 All these Directors possess knowledge of
corporate finance, accounts and company low. The Meetings of the Audit Committee
are attended by the Chief Operating Officer, the President Finance, the Director-
Finance, the Statutory Auditors, the Internal Auditors and the Company Secretary. The
Chairman of the Audit Committee, Shri Nabankur Gupta was present at the 83rd
Annual General Meeting of the Company held on June 18, 2008. The quorum for the
Audit Committee Meetings is two non-executive Independent members The Company
Secretary acts as Secretary to the Committee.
The Minutes of the Audit Committee Meetings are noted by the Board of Directors at
the subsequent Board Meeting.
The Audit Committee held four meetings during the financial year ended March 31,
2009 and the gap between two meetings did not exceed four months. The Audit
Committee Meetings were held on April 29, 2008, July 31, 2008, October 31, 2008 and
January 30, 2009.
INTERNAL AUDITORS
4. REMUNERATION COMMITTEE:
TERMS OF REFERENCE
- Reviewing the overall compensation policy, service agreements and other
employment conditions of Managing/Wholetime Directors.
- Reviewing the performance of the Managing/Wholetime Directors and
recommending to the Board, the quantum annual increments and annual
commission.
COMPOSITION
The Remuneration Committee presently comprises of four Directors, all of whom are
Non-Executive Directors, The Chairman the Committee is an Independent and Non-
Executive Director nominated by the Board.
REMUNERATION POLICY
A. Remuneration to Non-Executive Directors
The Non-Executive Directors are paid remuneration by way of Commission and Sitting
Fees. In the 83rd Annual General Meeting the shareholders' have approved payment of
commission of Rs.25 lakhs to the Non-Executive Directors of the Company to period
of three years for financial years commencing from April 1, 2008 to March 31, 2011.
Non-Executive Directors are paid sitting fees @ Rs.10,000 for each meeting of the
Board or any Committee thereof attended by them.
In accordance with the resolutions passed by the Board of Directors and the
shareholders of the Company at their respective meetings, appointing/revising the
remuneration payable to the Chairman end Managing Director and to the Wholetime
Director of the Company an application u/s 198, 309 and other applicable provisions of
the Companies Act, 1956, has been made by the Company seeking approval of the
Central Government for the payment of remuneration on the terms, as approved by the
shareholders at the Annual General
Meeting of the Company held on June 23, 2006, due to inadequacy/ absence of profits
for the Financial Year 2008-09. Two special resolutions in this respect are placed
before the shareholders for their approval at the 84th Annual General Meeting.
FUNCTIONS
The Board of Raymond Limited has constituted a Committee of Directors, which inter
alia also functions as "Shareholders' /Investors' Grievances Committee", consisting of
three members, chaired by a Non-Executive, independent Director.
The Committee meets once a month and inter-alia , deals with various matters relating
to:
- transfer/ transmission/ transposition of shares;
- consolidation/splitting of shares/ folios;
- issue of share certificates for lost, sub-divided, consolidated, rematerialised, defaced,
etc.
- review of shares dematerialised end all other related matters; and
- investors' grievances and redressal mechanism and recommend measures to improve
the level of investor services,
The Share Department of the Company and the Registrar and Share Transfer Agent,
Link Intime India Private Limited attend to all grievances of the shareholders and
investors received directly or through SEBI, Stock Exchanges, Ministry of Corporate
Affairs, Registrar of Companies etc.
COMPOSITION
The composition of the Committee of Directors is us under
Name of the Director Position Category
COMPLIANCE OFFICER
The Board has designated Shri Thomas Fernandes, Director - Secretarial & Company
Secretary as the Compliance Officer.
7. SUBSIDIARIES :
The Company does not have any material non-listed Indian subsidiary whose turnover
or net worth (i.e. paid-up capital and free reserves) exceeds 20% of the consolidated
turnover or net worth respectively, of the listed holding company and its subsidiaries in
the immediately preceding accounting year.
8. CODE OF CONDUCT:
The Board of Directors has adopted the Code of Business Conduct and Ethics for
Directors and Senior Management. The Code has been communicated to the Directors
and members of the Senior Management. The Code has also been displayed on the
Company's website – www.raymond.in
9. INSIDER TRADING :
Code of Conduct for Prevention of Insider Trading :The Securities and Exchange
Board of India (SEBI) has over the years introduced various amendments to the Insider
Trading Regulations of 1992 which ordain new action steps by corporates and other
market intermediaries for the purposes of prevention of Insider Trading.
10. DISCLOSURES:
a. Disclosure On materially significant related party transactions that may have
potential conflict with the interests of the Company at large.
There are no materially significant related party transactions made by the
Company with its Promoters, Directors or Management their subsidiaries or relatives,
etc. that may have potential conflict with the interests of the Company at large.
c. Risk Management
Business risk evaluation and management is an ongoing process within the
Company. During the year under review, a detailed exercise on 'Risk Assessment and
Management' was carried out covering the entire gamut of business operations and the
Board was informed of the same.
e. Non-mandatory requirements
Adoption of non-mandatory requirements of Clause 49 of the Listing
Agreement are being reviewed by the Board from time to time.
DECLARATION
“We have always striven hard for respectability, transparency and to create an ethical
organisation. There are certain expectations that we have not fulfilled. But we are also a
very young organisation and in areas like track record of management, we may be low
because we are yet to show longevity.”
By 2001, Infosys Technologies Limited (Infosys) was one of the best managed
companies in India. Its corporate governance practices seemed to be better than those
of many other companies in India. Because of its good governance practices, Infosys
was the recipient of many awards. In 2001, Infosys was ranked number one among the
most respected companies in India by the Businessworld - IMRB Survey. Infosys was
also ranked second in corporate governance among 495 emerging companies in survey
conducted by Credit Lyonnais Securities Asia (CLSA) Emerging Markets. It was voted
India's best managed company five years in a row (1996-2000) by the Asia Money Poll.
In 2000, Infosys was awarded the "National Award for Excellence in Corporate
Governance" by the Government of India. In 1999, Infosys was selected as one of the
Asia’s leading companies in the Far Eastern Economic Review's REVIEW 2000
Survey. It was ranked first as "the Company that others try to Emulate." The same year,
Infosys was voted India's most admired company by The Economic Times survey of
"India's Most Admired Companies."
What made Infosys one of the most admired companies in India was its corporate
governance practices which it had benchmarked against those of the best managed
companies in the world. Infosys was one of the first companies in India to publish a
compliance report on corporate governance, based on the recommendations of a
committee constituted by the Confederation of Indian Industries (CII). Infosys also
provided all the information required by the Cadbury committee on corporate
governance even though this was not a legal obligation. The Cadbury Committee had
made nineteen recommendations, and by 2001, Infosys had complied with all of them.
In 2009, the board had fourteen directors. There was an appropriate mix of executive
and non-executive directors to maintain the independence of the board, and to separate
the board functions of governance and management. The Board consists of 14
members, five of whom are executive or whole-time directors, one is non-executive
and eight are independent directors. Infosys believed that the one thing that could help
them to improve corporate governance was to bring international professionals on
corporate boards. This was reflected in the composition of the board. The board
members were expected to possess the expertise, skills and experience required to
manage and guide a high growth, hi-tech software company.
The executive directors were not allowed to serve on the board of any other
company/body unless the said entity was an industrial body whose interests were
relevant to the business of the software industry, or government bodies that had a
relevance to the software industry, or bodies whose objective was the upliftment of
society. The non-executive directors were not expected to serve on the boards of
competing companies.
Composition of the Board, and directorships held as at March 31, 2010
Source. Annual Report, 2009-10.
Notes : There are no inter-se relationships between our Board members.
Normally, the board meetings were scheduled at least a month in advance. Most of the
meetings were held at the company's registered office at Electronics City, Bangalore,
India. The chairman of the board and the company secretary drafted the agenda for
each board meeting and distributed it in advance to the board members. Every board
member was free to suggest the inclusion of any item on the agenda. Normally, the
board met once a quarter to review the quarterly results and other issues. The board
also met on the occasion of the annual shareholders' meeting. If the need arose,
additional meetings were held. The non-executive directors had to attend at least four
board meetings in a year. The board had access to any information that it wanted about
the company.
In 2009, the board had three committees - the nominations committee, the
compensation committee and the audit committee. To ensure independence of the
board, the members of the nominations committee, the compensation committee and
the audit committee were all non-executive directors.
The nominations committee had four non-executive directors who looked after the
issue of retirement of existing members and their re-appointment, on the basis of their
performance. The nominations committee constantly evaluated the contribution of the
members of the board and recommended to shareholders their re-appointment. The
executive directors were appointed by the shareholders for a maximum period of five
years, but were eligible for re-appointment upon completion of their term. The
nominations committee adopted a retirement policy for the members of the board under
which the maximum age of retirement of executive directors, including the CEO, was
60 years, which was the age of superannuation for the employees of the company.
Their continuation as members of the board upon superannuation / retirement was
determined by the nominations committee.
The compensation of the non-executive directors was approved at a meeting of the full
board. The components were a fixed amount, and a variable amount based on their
attendance of the board and committee meetings.
Cash compensation paid to directors in fiscal 2010 (in Rs. Crores)
The total compensation payable to all the non-executive directors together was limited
to a fixed sum per year determined by the board.
None of the directors gained financially from any other contract of significance which
the company or any of its subsidiary undertakings was party to the audit committee was
responsible for effective supervision of the financial reporting process, ensuring
financial and accounting controls and compliance with the financial policies of the
company. The committee periodically interacted with the statutory auditors and the
internal auditors to ascertain the quality of the company's transactions, to review the
manner in which they were performing their responsibilities and to discuss auditing,
internal control and financial reporting issues. The committee provided overall
direction on the risk management policies and also indicated the areas that internal and
management audits should focus on. The committee had full access to financial data.
The committee reviewed the annual and half yearly financial statements before they
were submitted to the board. The committee also monitored proposed changes in the
accounting policy, reviewed the internal audit functions and discussed the accounting
implications of major transactions. As per the recommendations of the Kumar
Managalam Committee, Infosys included a separate section on corporate governance in
its annual report, which disclosed the remuneration paid to directors in all forms,
including salary, benefits, bonuses, stock options. The annual report also carried a
compliance certificate from the auditors.
Infosys also laid emphasis on succession planning and management development. The
chairman reviewed succession planning and management development with the board
from time to time. The Chairman and CEO also managed all interaction with the
investors, media, and the government. Where necessary, he took advice and help from
the managing director, president, and COO as well as the CFO. The managing director
and COO managed all interactions with the clients, taking the advice and the help of
the CEO. Both the CEO and the COO handled employee communication.
The Reliance group, founded by Late Shri. Dhirubhai Ambani in 1932, is India’s
largest private sector enterprise with businesses in various sectors.
Dhirubhai Ambani created history with the Reliance Textile Industries’ IPO in 1977
which was oversubscribed 7 times.
The Company has adopted the Reliance Anil Dhirubhai Ambani Group – Corporate
Governance Policies and Code of Conduct which has set out the systems, processes
and policies conforming to international standards. As per clause 49 of the Listing
Agreement, a separate section on Corporate Governance forms part of the Annual
Report.
A certificate from the Auditors of the Company regarding compliance with the
conditions of Corporate Governance as stipulated under clause 49 of the Listing
Agreement is reproduced herein below.
In our opinion and to the best of our information and according to the explanations
given to us, we certify that the Company has complied with the conditions of Corporate
Governance as stipulated in the above mentioned Listing Agreements.
We further state that such compliance is neither an assurance as to the future viability
of the Company nor the efficiency or effectiveness with which the management has
conducted the affairs of the Company.
Facts: The promoters of Reliance Power Limited ("RPL") acquired shares at face value
through a High Court sanctioned merger 6 months prior to the IPO and by paying for
partly-paid shares issued previously to AAA Projects Ventures, i.e., the entity that
merged with RPL.
The appellants filed proceedings before SAT to prevent the IPO of RPL primarily
because public shareholders were offered 10.1 per cent stake for Rs. 102 billion,
whereas the promoters acquired 89.9 per cent stake in RPL by paying Rs. 34.4 billion
in the same year. In effect, the promoters acquired 9 times the public shareholders'
stake at one-third the price (during the course of the same year).
(i) shares acquired by the “promoters during the preceding one year [to an IPO], at a
price lower than the price at which they were offered to public, shall not be eligible for
computation of promoters’ minimum contribution of 20% unless such acquisition is in
pursuance of a scheme of merger or amalgamation approved by a High Court” (Clause
4.6.2);
(ii) the promoters’ contribution in a public issue by an unlisted company shall not be
less than 20% of the post issue capital (Clause 4.1.1).
Therefore, the High Court sanction permitted the promoters to factor-in the shares
allotted through the merger for calculating of the "minimum promoters’ contribution"
prior to the IPO.
(b) the partly paid-up shares should be considered as acquired only when they were
fully paid-up and not considered as part of promoters contribution. Moreover, the price
of these shares should match the price offered to the public shareholders, i.e., Rs. 450
per share;
(c) the post-issue capital should also include the share premium paid by the
shareholders and not be limited to the face value of the shares. This would require the
promoters to contribute 20 per cent of the face value plus the share premium of Rs.
440.
(a) “The share premium account cannot be taken as a part of the ‘post issue capital’
because the provisions of the Companies Act make a clear distinction between the
two.”
(b) “The provisions of sections 87 (1)(b) and 110 (2) of the Act clearly show that the
holders of the partly paid equity shares of a company are its legal members. These
shares were also fully paid by the promoters before 15.1.2008, the issue opening date
and this met with the requirements of clause 4.9 of the guidelines. In these
circumstances, we cannot agree with the appellants that the partly paid up shares should
be considered ineligible under clause 4.6.2 of the guidelines.”
(c) “There is no material before us to say that the order of the High Court was obtained
by fraud and, in any case, we cannot go behind the order and hold that it was obtained
by keeping the High Court in the dark”.
(d) “The case of the appellants is that the innocent public shareholders were cheated by
RPL. We cannot accept this. RPL had furnished all the relevant and detailed
information in the Red Herring Prospectus as required by law…..On the basis of the
information furnished in the prospectus, the public shareholders had taken an informed
commercial decision when they applied for shares in the IPO. In these circumstances,
we fail to understand as to how RPL can be faulted after it had furnished information as
required by law in the Red Herring Prospectus”.
SEBI norms to tackle issue of unlisted subsidiaries
Reliance Infocomm and Reliance Communication Infrastructure, in the eye of a storm
over parent Reliance Industries’ investments worth Rs 12,000 crore — have managed
to avoid shareholders’ scrutiny so far. But they may not be able to dodge corporate
governance standards any longer.
Effective April 1, 2005, Sebi said in an order dated October 29, 2004, all listed
companies’ subsidiaries must have at least one independent director from the holding
company’s board of directors on the board of a ‘material non-listed’ Indian subsidiary
company.
Following a report prepared by Infosys Chief Mentor N.R. Narayana Murthy, Sebi said
the audit committee of the listed holding company will review all the financial
statements, in particular, the investments made by the unlisted subsidiary company.
This order is mandatory for all Indian listed companies.
RIL has 45 per cent (direct and indirect) stake in Reliance Infocomm and RCIL.
Mukesh Ambani and associates hold the balance stake. But even if the 2003-04
balance-sheet of Reliance Industries is taken into account, no financial details of
Reliance Infocomm has been provided to RIL’s 35-lakh shareholders. RCIL owns 65
per cent (direct) in Reliance Infocomm.
The Sebi order plugs a loophole, which Reliance Industries exploited by not giving any
details on the investments made in Infocomm.
- that was the first reaction of many market watchers when Reliance suddenly
announced its decision to sell its 10.05 per cent stake in Larsen & Toubro on November
18, 2001.
Until a few weeks leading to the sale by Reliance, the L&T scrip price was languishing
so badly on the bourses that an investor called Ravindra Mehta complained to the
Securities and Exchange Board of India. His letter (dated October 22, 2001), said
shareholder value had eroded because L&T's management was 'dilly-dallying' over the
demerger of its cement division.
Within a matter of days, the share price was electrified. The stock rose from under Rs
150 and was at Rs 208.50 when Reliance announced it sale on November 18. Yet,
Grasim paid Reliance a hefty Rs 306 for its 10.05 per cent stake or 2.5 crore shares.
Was there insider trading? Who knew about the deal? Who profited from the
information and who was buying the shares before the sale?
The answer is -- Reliance Industries. As this column will show, the SEBI investigation
(documents relating to which is available with this columnist) so far seems to establish
a clear case of insider trading based on information collated from the bourses, from
Reliance and Grasim.
SEBI's investigators confirm all that and worse. They now need to wrap it up with
specific questions and corroborating information such as telephone records to prove
their case. Kumar Mangalam Birla wrote SEBI's corporate governance report, he
probably owed it to Grasim's shareholders to conduct such due diligence, instead of
paying a premium on a ramped up price for shares that had been hurriedly purchased in
the market to be dumped on him. But Grasim's shareholders are not asking Birla any
questions either.
Whichever way one looks at it, the deal probably for the first time provides ample
evidence of price manipulation as well as insider dealing by a large business house. It
now remains to be seen how SEBI rules on the issue. In an interview to a business
newspaper, SEBI chairman D R Mehta recently lamented that corporate houses have
become very powerful and exert a lot of pressure on the regulator.
Conclusion:
From above discussion it is clear that Reliance is not following SEBI’s guidelines and
guidelines given by different reports on CG. One feels that it is re-writing the rules of
Corporate Governance to suit its own convenience. Government has now looking at
taking action against RIL. The action raises important issues about corporate
governance and the responsibility of senior management towards the company as well
as its shareholders.
CONCLUSION
Corporate governance, a system that helps firms control and direct operations, is in the
spotlight as key parts of the governance framework such as audit and finance functions
have failed to check the promoter-driven agendas. A well-balanced board of directors,
proactive shareholders and swift action against malpractices could restore market
confidence.
Future outlook
My study and interview indicates that a majority of BSE Sensex companies are
perceived to be above average in terms of corporate governance practices. It is now
necessary that corporate governance norms must be redefined in light of the Satyam
episode. While the corporate governance framework in the country is seen at par with
other developed markets, the same has to be implemented in 'letter as well as spirit'.
While things have improved substantially over the last five years, experts believe that
more needs to be done, which will further improve disclosure levels and make
managements accountable, transparent.
My field work in Raymond Ltd. indicates that the company follows the principles of
corporate governance in a major way and aim to be at par with industry leaders in
corporate governance in the near future.
At the retail shareholder level, one could look at a company's past track record
(including significant events that reflect management excesses), qualitative and
quantitative disclosures (vis-a-vis peers) and consistency in delivering on promises.
Experts believe that more rigorous vetting is needed when small and medium
companies are considered for investment.
Eventhough our compliance norms are the best in the world, we fail miserably on
prosecution whereas in markets such as the US, action is swift and the penalties severe.
In this is seen in the case study on Reliance Industries Ltd.
Hence, there is a greater need to increase awareness among entrepreneurs about the
various aspects of corporate governance. There are some of the areas that need special
attention, namely:-
WEBSITES
1. http://www.articlesbase.com/business-articles
2. http://indiacorplaw.blogspot.com
3. http://www.gcg.org.in
4. http://www.oppapers.com
5. http://business.gov.in/corporate_governance