18 developmentsincorporategovernance mr n k jain 120402000134 phpapp02

8/12/2019 18 Developmentsincorporategovernance Mr n k Jain 120402000134 Phpapp02

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ByCS N.K. JAIN

SECRETARY & CEO

22, Institutional Area, Lodi Road, New Delhi 110 003, INDIA

DEVELOPMENTS IN CORPORATEGOVERNANCE

Knowledge Partner


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GLOBAL DEVELOPMENTS IN CG

Revised UK CG Code, 2010 UK Stewardship Code, 2010

HKSE -Revised CG Code and

Associated Listing Rules.

New CG Code Singapore

KING III REPORT South Africa

CG Developments in India


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Recognised the value of diversity inboardrooms.

Evaluations of the board of FTSE 350

companies be externally facilitated every threeyears.

All directors of FTSE 350 companies be subjectto annual election by shareholders.

Levels of remuneration for NEDs should reflectthe time commitment and responsibilities.

REVISED UK CORPORATE GOVERNANCE CODE, 2010


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The UK Stewardship Code (2010) provides that Institutional

Investors should-

Publicly disclose their policy on how they willdischarge their stewardship responsibilities.

Have a robust policy on managing conflicts ofinterest in relation to stewardship and this policyshould be publicly disclosed.

Monitor their investee companies.

Be willing to act collectively with other investors.

Have a clear policy on voting and disclosure ofvoting activity.

UK Stewardship Code, 2010


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The findings of impact analysis of the UK CG andStewardship Codes by Financial Reporting Council in

December 2011:

80% of FTSE 350 companies put all their directors up for re -election in 2011

More companies are bringing in external advisers toassist with evaluation of the boards effectiveness;

As of December 2011 the Stewardship Code has

attracted 234 signatories. This is an indicationthat the market is willing to take the concept of stewardship seriously.


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Majority of a companys board be made up of independent directors, when thechairman and CEO is the same person or chairman is not independent

A director cannot be considered independentafter serving on a board for more than9 years

The board must be responsible for riskmanagement and internal controls.

New Corporate Governance Code Singapore


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The board should be led by anindependent non-executive chairman who

should not be the CEO of the company.

Training and development of directors

should be conducted through formalprocesses.

EMERGING GOVERNANCE PRINCIPLESINCORPORATED IN THE KING III REPORT


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The performance of the board, itscommittees and the individual directorsshould be evaluated annually.

The board should report on theeffectiveness of risk Management.

Sustainability Reporting and disclosureshould be formalised as part of thecompanys reporting processes.

EMERGING GOVERNANCE PRINCIPLESINCORPORATED IN THE KING III REPORT


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CORPORATE GOVERNANCE DEVELOPMENTS IN INDIA

MCA Corporate Governance Voluntary Guidelines,2009 mainly focus on-

Separation of Offices of Chairman & CEO

Constitution of Remuneration and NominationCommittees

Training of Directors

Board Evaluation

Rotation of Auditors

Secretarial Audit

Institution of mechanism for Whistle Blowing


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Corporate Governance developments in India.

New Companies Bill, 2011Separation of Role of Chairman & CEO in theprescribed class of companies.

Concept of independent directors introduced inCompany Law.

Constitut ion of Nominat ion and Remunerat ionCommittees made mandatory for listed /prescribedcompanies.

Secretarial Audit by a practicing Company Secretarymade mandatory for lis ted / prescribed companies.


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Corporate Governance developments in India .

New Companies Bill , 2011

At least one woman director mandatory in theprescribed companies.

CSR Committee to be constituted.

Board should make every endeavour to spendat least 2% of the average net profits of thecompany made during the three immediatelypreceding financial years, in pursuance of itsCorporate Social Responsibility Policy.


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SEBI vide its Circular dated 15 March, 2011mandated that the Institutional Investors (i.e.

AMCs) shall disclose their general policiesand procedures for exercising the votingrights on their website and in the Annual Reportfrom the financial year 2010-11.

The AMCs are also required to disclose thedetails of voting in AGMs/EGMs of theinvestee companies.

ROLE OF INSTITUTIONAL INVESTORS INCORPORATE GOVERNANCE


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CG SCORECARD OF INDIA INC.

ICSI Research Studies of TOP 50 participating companies inCG Award reveal the following CG developments in IndianCorporate Sector and the challenges ahead -

Rotation of Independent Director by Companies i n the

year 2010-11

- 20% of Cos rotated IDs in 6 years.

- 32% of Cos rotated IDs between 6-9 years.

- 52% of the Companies disclosed on rotation of

IDs in the year 2010-11 .

More than 50% of Companies have a policy for induction

of IDs.


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CG SCORECARD OF INDIA INC

Remuneration Committee in the year 2010-11

92% companies constituted RemunerationCommittee as compared to 88% in the year 2009-10 and 72% in the year 2008-09.

25% of the companies have constitutedRemuneration Committee with 100%independent directors.


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CG SCORECARD OF INDIA INC

Separate Meetings of Independent Directors

58% of Companies organiseseparate meetings of IDs.


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CHALLENGES

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Challenge IGender Diversity

The issue of gender diversity on boards has receivedincreasing attention globally.

While some countries like Norway, Spain and Iceland haveintroduced mandatory quotas (i.e. 40%), other countries areseriously discussing intervention to tackle this issue.

In India, women comprise only 5.3% per cent of BSE 100company boards.

This percentage compares unfavourably with Norway(40.1%), US (16.1%), UK (12.5%), Canada (10.3%), HongKong (8.9%) and Australia (8.4%).

Companies Bill-2011- At least one woman director mandatory

in the prescribed companies. 18


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Challenge IISeparation of roles of Chairman & CEO

UK Corporate Governance Code, 2010 The roles of chairman and chief executive should not be

exercised by the same individual .

South Africa

The Board should be led by an independent non-executiveChairman who should not be the CEO of the Company.

Australia The Roles of Chair and CEO should not be exercised by the

same individual.

Companies Bill, 2011 unless the articles of the company provide otherwise, an

individual shall not be the chairperson of the company as well

as the managing director or Chief Executive Officer of thecompany at the same time. 19


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Challenge IIIDevelopment of Board Members

ICSI Research study shows thatcompanies have started to focus on the

training/development needs of the Boardof Directors specially the new directorsinducted on the Board.

On an average 56% Companies haveprovided training to its Board Membersduring the years 2009-2011 as compared

to 40% in 2008-09. 20


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Challenge IVLead Independent Director

Good governance norms recommend appointment of Lead Independent Director on the Board, especially if the position of Chairman and CEO are held by thesame person.

Less than 5% of the top companies have appointedlead Independent Director (LID).

Companies like Infosys, Wipro, Vedanta ResourcesPlc have appointed Lead Independent Director.

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Challenge VPerformance Evaluation

ICSI Research Study shows that this is anarea where Indian companies need to

focus as only 15% companies provide themechanism for Board Evaluation.

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Performance Evaluation

Companies Bill 2011-Schedule IV (Code for Independent

Directors)

(1) The performance evaluation of independent directors shallbe done by the entire Board of Directors, excluding thedirector being evaluated.

(2) On the basis of the report of performance evaluation, itshall be determined whether to extend or continue the termof appointment of the independent director.

Report of Panel of Experts on Reforms in CPSEs

recommended that CPSE Boards evolve a system of annual self evaluations. This could first begin withMaharatna/Navratna companies. These evaluationsshould be done internally, commenting on the Boardsview on the effectiveness of its own functioning.

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"When it comes to the future, thereare three kinds of people: those who

let it happen, those who make ithappen, and those who wonder whathappened.

-John M. Richardson, Jr .


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The framework for Governancehas continually to evolve .

not simply to develop in parallelwith the developments of

business, but to keep one stepahead.

- Sir Adrian Cadbury


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Thank You

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