Corporate Governance in Indian Context - PowerPoint Presentation

1. Corporate Governance in Indian ContextDate: 24-Mar-2018Jaipur

2. INDEXS No. Headings1Corporate Governance & Key Stakeholders for Corporate Governance2Historical Background of Corporate Governance2Corporate Governance, its Enablers & Structure3Corporate Governance – Why Important4Regulatory Framework & Other Developments5Setting Right Organisation Structure2

3. Historical Back Ground for Corp. Governance in IndiaRegulatory Development & YearObjectives1997 – CII Code on Corporate GovernanceCII was first to publish code of Corp. Governance where constitution of Audit Committee was recommended2000 – Kumarmangalam Birla CommitteeThis committee gave 25 recommendation of Corp. Governance for Listed Companies and to incorporate the same in Listing Agreement with the Stock Exchange2002 – Naresh Chandra CommitteeCommittee major recommendation were to form AC consisting of all independent directors, rotation of Auditors after 5 years term2003 – Narayan Murthy CommitteeThe review of the Scope of Audit Committee was deliberated and it was suggested to include the MDNA, reports related to compliance & risks and on Related Party Transaction2003-SEBIChanges in Clause 49 of Listing Agreement2011 – Co. BillIt brought about changes to bring Corporate Governance norms reporting mandatory 2013 – Co. Act, 2013NRC, Stakeholder Committee, Separate Committee Meeting of Independent Directors, CSR Provisions for social Outreach program was implement2015 – SEBI LODR, 2015With a view to align and simplify the Regulatory norms for Listed Entities, guidelines were consolidated in 1 set

4. Cont…Historical Back Ground for Corp. Governance in IndiaRegulatory Development & YearObjectives2017 – Uday Kotak Committee recommedation1. Panel suggested that it was the the right time to split chairman, MD-CEO role of listed companies 2. Panel suggested it should be mandatory for top 500 companies by market capitalization to undertake D&O insurance for its independent directors. D&O Insurance stands for Directors and Officers insurance3. Panel suggests minimum of 6 directors to be on board of listed entities; every listed entity to have at least 1 independent woman director4. Panel suggested more transparency on appointment of independent directors; wants them to play a more active role on the boards5. Panel suggested maximum number of listed entity directorship to be reduced to 8. At least half of every listed entities board to have independent directors6. Panel suggested Audit Committee must review use of loans/adv/ investment by holding co in arm over Rs 100 crore7. Panel suggested application to fill a casual vacancy of office of any Independent Director must be okayed by holders; minimum number of Audit Committee meetings be increased to five every year8. Panel suggested no person to be appointed as alternate director for an independent director of a listed company9. Panel suggested a formal induction should be mandatory for every new Independent Director appointed to the board10. Panel suggested BoD to be updated on regulatory & compliance changes at least once a year; as well as an interaction between NEDs & senior management2017-18Constitution of National Financial Reporting Authority to place monitoring mechanism over CA firm.Whip on Shell Companies and disqualification of Directors with 1.06 lakh (1,06,578) disqualified directors with association to ‘shell or on-paper companies’

5. Corporate Governance - MeaningCorporate governance is a process and mechanism set up for the corporations and firms based on certain guidelines and principles by which a company is controlled and directed. The underlying principles are there to ensure that the company is governed in a way that it is able to set and achieve its goals and objectives in the context of the social, regulatory and market environment in transparent manner, and is able to maximize shareholder’s value and benefit those whose interest is involved in it, in the long run.

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7. Corporate Governance EnablersAccounting & Financials ControlsInternal Audit and AssuranceRegulatory Compliances and ReportingRisk Management and IT SecurityRight Organisation Approach and Structure Simplified Corporate Governance Structure

8. Why Corporate Governance Important ?Promote the TRUST OF INVESTORSGood corporate governance has a POSITIVE LINK TO ECONOMIC DEVELOPMENT AND GOOD CORPORATE PERFORMANCEPromote the efficient use of scarce resourcesFunds will flow to entities which are seen to have INTERNATIONALLY ACCEPTED STANDARDS OF CORPORATE GOVERNANCEWhat if Corporate Governance is not there ?Financial scandals and crisisLoss of trust of investorsLoss due to Lack of ControlsLoss due to Lapses in the way IT and other Risks are managedLoss of Reputation due to incidents being report and Market CapMore than 1 Lac Cr. lost by Banking Sector itself (Fraud by Kingfisher, Geetanjali Gems, Saradha Group, Global Trust Bank, Rotomac, Totem Infra and Parekh Aluminex Ltd. and others)Wells Fargo: https://www.youtube.com/watch?v=sOBmn0xU7wY

9. Regulatory Framework & Other DevelopmentsCompanies ActChanges/DevelopmentsThe Companies Act, 2013 & Secretarial Standards 1Board constitution, Board meetings, Board processes, independent directors and general meetings Prior Approval of related party transactions, disclosure requirements in financial statements in Board’s reportSeparate Meeting of Independent Directors metingCSR Provisions for sustainability initiativesCorporate Social Responsibility PolicyWhistle Blower MechanismAnti-Bribery PolicyFormation of NCLT and NCALT for early resolution of NPA SEBI Guidelines on Performance Evaluation of BoardClause 35 B The e-voting facility has to be provided to the shareholder for any resolution is a legal binding for the company. SEBI Listing Obligations and Disclosure requirements, 2015 including Committee StructureOther Regulatory DevelopmentsImplementation of GSTBankruptcy CodeData analytics on credit flow for CIC Companies & CERSAI

10. BOARD & COMMITTEES REQUIRED UNDER LODR, 2015 Board/Committee & Activities (Reg. 17-21)ConstitutionBoardOptimum combination of executive and non-executive directorsAt least one woman director Not less than 50% non-executive directorsIndependent directorsShall meet at least four times a yearAudit Committee: Review of Financial Reporting and ControlsCompliance with Applicable accounting Standards and applicable LawsInternal Audit & Branch Audit ReportsThis committee should consist of at least 3 members & 2/3 of Directors should be Independent Directors & Chairman Should be Independent DirectorRisk Management Committee:Review of Bank’s risk management stratégies, processes and controlsReview of Credit Risk & NPA Management of (Retail & Wholesale) , Operational Risks, Information Technology & Security related Risk and ALM & Market related Risk.No Such RequirementsNomination & Remuneration Committee:Compensation policy for Directors, KMPs and other Sr. employees. Nomination and Succession Plan for above officialsEvaluation of performance of Directors, KMPs and other Sr. employees including Administration of ESOP PlansThis committee should consist of at least 3 Non-executive Directors as members and 50% of Members should be Independent DirectorsStakeholders’ Relationship Committee:Review and resolution of the grievances/ queries of the security holders of the Bank and ensures expedite resolution of grievances/ queries.No Minimum, Chairman shall be Non-Executive DirectorCorporate Social Responsibility Committee:Formulate and review the Corporate Social Responsibility (CSR) strategy for Social Outreach programs of the Bank> Co. Act, 2013 requirement> Minimum of 3 members > Chairman shall be Independent Director

11. Regulatory Framework & Other DevelopmentsOtherChanges/DevelopmentsAccounts and Financial controlsAdditional Disclosure in Director’s report under Section 134Section 129 of the New Companies Act inter alia provides that the financial statements shall give a true and fair view of the state of affairs of the companyInternal Audit & AssuranceLot of Emphasis being placed on Mandatory list of items to be reviewed by Audit committee and in Banking sector the Audit Committee calendar of reviews being fixedTerms of reference being covered under Companies Act, 2013 and LODR also to broaden its scope.Internal Audit is being developed as assurance job wherein various activities are being carried out in manner laid down in the process and suggest improvements.Audit has become more efficiency led approach then fault finding process.Risk ManagementRisk Management is focusing on taking advantage of Technological advancement both to curb the risk of IT fraud and also to improvement in areas of implementation of Risk Strategies.

12. Right Organisation Approach & Structure ApproachActionsKnowing what Governance Structure is With Evolving Business environment, Organisations are focusing more on what should be the Right Board and Management Structure should be and acting accordingly.Right Mix of Executive and Non-Executive DirectorsFocus on True Independence of DirectorsLinking of Executive Compensation & Performance EvaluationStrategic Alignment in Unity of Direction & of Command between CEO and Board and Sr. ManagementHow Business should be runClearly Articulated mission and visionAchievement oriented culture and fair treatment at all levelsWorkable Board SizeFocus on ImprovementsWorking on removing ambiguities and duplicationFair and Transparent Treatment of Employees at all levelsPolicies and “Zero Tolerance” Governance frameworkRisk Management & Assurance FunctionsStrong Risk Management and Responsive approach leads to strong message at all levelsInternal Audit department focusing on assurance and improvements

13. Thank You Manmohan Parnami manmohanparnami@gmail.com Linkedin@ Cell no. 9001111345