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UDAY TARDALKARHEAD OPERATIONS
TATA SECURITIES LIMITED
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Introduction
What is Corporate Governance ?
Corporate Governance - Conduct the business
in accordance with shareholders desires, To maximize profit,
Conforming to the Basic rules of the society
embodied in law and customs.
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Objectives
To promote corporate fairness, transparency andaccountability
To improve relations between companies and
shareholders; To ensure that information needs of all
Shareholders are met
To monitor the executive management in theinterest of shareholders.
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Historical perspective of Corporate
Governance Investigation : Watergate scandal Boom-to-bust decade of the 1980s
Polly Peck, British & Commonwealth, BCCIExplosive growth in earnings, decade disastrous
manner.Enrons accounting: intelligent gamblingDressing up the loan as an equity holding, without any capitalby bank hence a sham
Internal controls were illusory, Conflict of interestManipulation by SPEs, Concealment of debts.
Major Corporations making illegal politicalcontributions and bribing government
Securities and Exchange Commission proposals formandator re ortin on internal financial controls
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Indian Perspective Post Liberalisation
Mismanagement : Well-known and SeniorExecutives hauled up for non-performance
and/or non-compliance with legalrequirements.
TATA FINANCE FIASCO
GTB MERGER BRITANIA
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Domestic/Foreign: Demanding investors having
invested their funds.
Undermined Interests of non-promoter and small
shareholders. Indian companies : Raising funds GDR and in
India, for specific objectives.
Funds diverted elsewhere, without consultingthe Minority shareholders.
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Is Corporate Governance New to
India?
Nanda and Maurya Dynasties i.e. 198 BC -320BC. Kautilya (Chanakya) Says:
"Praja sukhe sukham ragyam,
Prajanan ca hite hitam,
Naatman priyam hitam ragyam
Parajanan tu priyam hitam
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Meaning
In the happiness and well being of the subjects,lies the well being of the king, in the welfare of
the subjects, is the welfare of the king, what isdesirable and beneficial to the subjects and nothis personal desires and ambition, is desirableand beneficial for the king
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Four Fold Duties
"Raksha - protection", "Vriddhi - enhancement", "Palana - maintenance", "Yogakshema - safeguarding". It is the duty of the king to protect the wealth of the
state and its subjects, to enhance the wealth, tomaintain it and safeguard it and the interest of the
subjects. The substitution of the STATE by theCORPORATION, the KING by the CEO or theBOARD OF A DIRECTORS and the SUBJECTS by theSHAREHOLDERS brings out the quintessence ofCorporate Governance
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Duties of the King toward wealth
ENHANCEMENT
PROPER MAITENANCE
UTILISATION
PREVENT DIVERSION TO UNDESIRABLEVENTURES
SAFEGUARD THE INTEREST OFSHAREHOLDERS.
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Constituents and Aspects
The three key constituents of CorporateGovernance:
1. Management
2. Board of Directors3. Share Holders
The three key aspects of Corporate Governance:
1. Accountability
2. Transparency
3. Equality of treatment for all Shareholders
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SEBI Initiatives
Utilization of funds and Variance Directors Report
Cash and funds flow statement in Balance Sheet
Declaration of unaudited quarterly results;
Compliance officer for monitoring the sharetransfer process and compliance with variousrules, regulations;
Timely disclosure of material and price sensitiveinformation
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SEBI Initiatives
Dispatch of one copy of complete balance sheetto every household and abridged balance sheetto all shareholders.
Guidelines for preferential allotment at marketrelated prices;
A Platform for a fair and transparent framework
for takeovers and substantial acquisitions. Strengthening of disclosure norms for IPOs
following the recommendations of the MalegamCommittee
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KEY Implementations
Independent directors
Independent directors have no material pecuniaryrelationship or transactions with the company, its
promoters, its management or its subsidiaries, whichin the judgment of the board may affect their
independence of judgment.
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CHAIRMANS Role
Effective participation of all directors, executiveand non-executive
Maintain a balance of power in the board, Receipt of advance and adequate information
Directors participation beyond their executive
duties and strive for governance..
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Audit Committee
Relationships of accountability between theprincipal actors of sound financial reporting
Board -Management and the Auditor.
Management accountable to the Board and theBoard accountable to the Shareholders. The AuditCommittee acts as a catalyst for effective financialreporting.
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Audit committee : Independent and
Expert Member Minimum three non Executive Directors, majority being
independent, with at least one director having financial andaccounting knowledge;
The chairman to be an independent director; The chairman to be present at AGM to answer shareholder
queries;
The finance director, head of Internal Audit and arepresentative of External Auditor to be present as inviteesand The Company Secretary to act as the secretary of thecommittee.
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To investigate any activity within its terms of
reference.
To seek information from any employee.To obtain outside legal or other professional
advice.To secure attendance of outsiders with relevant
expertise, if it considers necessary
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Role of Audit Committee 1
A bridge between the Board, the Statutory andInternal Auditors,
Oversight the reporting process and the disclosure ofits financial information
To ensure that the financial statement is correct,sufficient and credible.
Recommending the appointment and removal ofexternal auditor, fixation of audit fee and also approvepayment for any other services.
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Role of Audit Committee 2
FOCUS ON Changes in accounting policies and practices.
Major accounting entries based on exercise of judgmentby management.
Qualifications in draft audit report.
Adjustments arising out of audit.
Compliance with accounting standards and stock
exchange Related party transactions
Adequacy of internal control systems.
Discuss :Significant findings and follow-up thereon
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Role of Audit Committee 3
Review : The findings of investigations by the internalauditors
Matters of suspected fraud or irregularity
A failure of internal control systems. To decide the nature and scope of Internal audit.
Reviewing the companys financial and risk managementpolicies.
To probe the reasons for defaults in the payments to thedepositors, debenture holders, share holders (declareddividends) and creditors.
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Remuneration Committee
Brief description of terms of reference
Remuneration policy
Details of remuneration to all the directors, as per
format in main report.Shareholders Committee
Non-executive director heading the committee
Name and designation of compliance officer Monitoring of Shareholders complaints.
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General Body meetings
Location and time, where last three AGMs held.
Whether special resolutions were put throughpostal ballot last year
Details of voting pattern
Details of Person who conducted the postal ballotexercise
Procedure for postal ballot
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Disclosures
Disclosures on materially significant related partytransactions
Details of non-compliance by the company.
Penalties, strictures imposed on the company byStock Exchange or SEBI or any statutory authority,on any matter related to capital markets, during thelast three years
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Means of communication
Half-yearly report sent to each household ofshareholders.
Quarterly results
Name of the newspapers normally published in.
Any website, where displayed
Whether it also displays official news releases; and
The presentations made to institutional investorsor to the analysts.
Whether MD&A is a part of annual report or not.
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Conclusion
The primary goal:
The OPTIMISATION of the performance ofcorporate entities within the LIMITATIONS of
Regulations and ASPIRATIONS of Shareholderson one hand and the compulsions of PUBLICINTREST on the other.
Corporate governance :A working tool for
improving the overall effectiveness of corporateenterprises.
A time tested pragmatic approach towards thetackling of almost all long term as well as short
term crisis situations.
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THE END