CORPORATE GOVERNANCE : It refers to joint responsibility imposed on the Board of Directors and management of the organization to protect shareholders’ right and enhance shareholders’ value. It involves carrying on the operations of the organization in such a way that gives a fair deal to the all the stakeholders. The Board of Directors, particularly in a widely held Public Limited Company, is the representative of the Shareholders and acts as a check against management. The Board is to ensure, among other things, that the organization is accountable to the Shareholders, gives equitable treatment to all it's owners and acts transparently. Corporate Governance determines whom the organization is there to serve and how the purpose and priorities of the organization are decided. Effective Corporate Governance can be ensured when all participating parties play their role effectively, ethically and legally. In addition to highest standards of integrity and ethical behaviour, the management is to ensure transparency and consistency in all their actions. BACKGROUND : The Corporate Governance has taken centre stage with the increasing corporatisation of business and growth of Mega Corporations. In US an intensive debate on Corporate Governance was initiated in 1980 during the period of wide spread corporate restructuring and take-overs. In UK Cadbury Committee (Dec 1992) was first serious attempt in framing a draft of Corporate Governance Code. The debate was carried forward because of series of financial scandals concerning large corporations like BCCI, Polly Peck and the pension funds of Maxwell Communication Group, as impact on the economy as well as on the society was quite severe. In India, Kumarmangalam Birla committee submitted a report to SEBI on code of governance in the year 2000 and some changes have been brought about consequent to that vide clause 49 of the Listing Agreement and Company Law Amendments. CONTENTIOUS ISSUES : 1. In the Indian context the conflict between the Majority Share Holders and Minority Share Holders is very conspicuous in three large categories of the Indian Companies, viz. PSUs where the Govt. is the dominant Shareholder, MNCs where the foreign parent is the dominant Shareholder, and typical Indian Business groups, where promoters along with their friends and relatives are dominant Shareholders with only a minority stake along with the Govt. owned FIs holding comparable stake. 2. Abuse of the dominant position for Governance through structuring of the business and transfer of the assets between group companies, preferential allotment of the shares to dominant Shareholders, and payment of services to the group Companies. 3. The existence of the parallel economy where under Black money, a corporate of dubious repute, may not only cheat the Government of it's legitimate dues, but may also cheat the minority Shareholders. Quite often the company may hide the real profit position. CORPORATE GOVERNANCE AND VARIOUS COMMITTEES: Corporate Governance is sought to be improved by institutionalizing three committees viz. Nomination Committee, Remuneration Committee and Audit Committees, which are regarded as pillars of the Corporate Governance. 1. Nomination Committee : Kumarmangalam Birla Committee has recommended a board with at least fifty percent independent Directors if the Chairman is an Executive, and alternatively, a Board with at least one third independent Directors if the Chairman is Non Executive. The term independent Directors means those who apart from receiving Director's remuneration, do not have any other pecuniary relationship or transaction with the company, its promoter, it's management it's subsidiaries, which in the judgment of the Board, may affect the independence of Director's judgment. This provision has given effect vide clause of listing Agreement which has become mandatory for the listed companies with minimum paid up capital of Rs 10 crore. The Committee did not favour the representation of the Financial Institutions in the Board unless warranted by the Credit Default. Kumarmangalam Birla Committee envisaged that a Nomination Committee be constituted comprising of 3-5 outstanding personalities in the area of economic accountancy, law and other related disciplines and it should invite nominations from shareholders (excluding top ten shareholders.) through postal ballots.
2. Remuneration Committee : Issue of Managerial Remuneration in the Private Corporate Sector has a crucial factor wherein Pay- performance relationship is a major issue. Birla Committee recommended that ‘’ to avoid the conflict of the interest, the Remuneration Committee, which would determine the remuneration package of the executive directors should comprise minimum of three Non Executive Directors, the Chairman of the Committee being an independent Director. In India the Company Law indicates only upper limit of executive compensation. 3. Audit Committee : In India the Independent and qualified Audit system has already been formalized. This maintains the auditor's independence. The Kumarmangalam Birla Committee has recommended that Audit Committee should have minimum three Non Executive Directors, majority being independent, with at least one Director having financial and Accounting knowledge and the Chairman of the Committee should be an independent Director. These recommendations have been incorporated in the clause II of the SEBI Corporate Governance code and has been incorporated in the statute wherein it is provided that every public company with a paid up capital of not less than 5 crore shall constitute an Audit Committee comprising of not less than 3 Directors and the total number atleast2/3rd shall be the Directors other than the Managing or the Whole time Directors. The Committee is supposed to have periodic discussions with the Auditors about the Internal control systems, scope of audit including observations of auditors and review of the half yearly and annual statements before submission to the Board. Changes in the accounting procedures, major accounting entries, compliance with the stock exchange and other legal requirements and related party transactions that may have potential conflict with the Company at large are other areas that need to be monitored by the Audit Committee. CORPORATE GOVERNANCE AND COMPANY LAW The following changes have been brought about in the Company Law through Companies (Amendment) Act, 2000 for furthering the Corporate Governance; Section 292- Audit Committees Section 217- Directors responsibility statement Section 383A-Compliance Certification CORPORATE GOVERNANCE AND INDIAN BANKS In Indian Public Sector Banks the majority shareholding still continues to remain with the Govt. Historically good governance has not been a issue in the era of deregulation, globalisation and competitiveness, the PSBs have a formidable task to perform. There is need to take vital decision on the pricing of the products, develop corporate strategies for managing various risks and designing products to meet the emerging needs of the customers. MANAGEMENT STRUCTURE OF THE PSBs : There is a Board Of Directors (having Govt., RBI and a Shareholder's nominee in case of IPO Banks), Management Committee (having Govt. and RBI nominee), Audit Committee of the Board (having responsibility of ensuring the efficacy of the entire internal control and Audit functions), other Advisory Committees constituted by the Board. One whole time director assists the Chairman and the Govt appoints both of them. As a part of effective governance, various committees have also been formed. BOARD's RESPONSIBILITY : The Board lays down the policies in critical areas such as Investments, Loans, Asset Liabilities Management and Management and Recovery of NPAs, The CAMEL Rating system takes into account the working and effectiveness of the Board and its committees. DISCLOSURE AND TRANSPARENCY : The recent disclosure norms provide an opportunity to the stakeholders to evaluate the qualitative aspect of the Balance Sheet and have a fair idea of the impact of prevailing circumstances on the earning capacity of the Banks. IMPORTANT AREAS : Narsimham Committee had observed that as a result of Government ownership of PSBs, the market discipline tends to be weak. The Committee had suggested that Boards of the Banks should be free to take decision on the corporate strategy and all aspect of the business management and be responsible for the same to the stakeholders. The Board should be authorized to determine the remuneration structure applicable to their managerial and other staff
depending on the size, strength, business mix viability paying capacity etc. RBI should withdraw its Directors from the boards of PSBs and instead of two whole time Directors there should be three whole time directors. In the context of the PSBs, which have been listed in the Stock exchange, the issue of Corporate Governance assumes further significance. The appointment of stake holder's Directors can be considered as a step in the direction of the better Governance. Corporate Governance & PNB PNB made a public issue of 53,060,700 equity shares in March 2002 followed by that of 8 crore shares in March 2005 and are currently listed on the NSE and the BSE. Bank has compiled with SEBI Guidelines in respect of corporate governance specially with respect to broad basing of board, constituting following committees :— (i) Audit Committee o Providing direction and overseeing the total audit function of the Bank and follow up on the statutory / external audit of the Bank and inspections of RBI. o Obtaining and reviewing half yearly reports from the companies cell. o To interact with statutory auditors before finalization of annual/semi-annual/quarterly financial accounts and reports and also follow up on all the issues raised in the long form audit report. o To review the internal inspection / audit functons of the Bank namely the systems, its quality and effectiveness in terms of follow up. o Review of inspection reports of specialized and extra large branches and all the branches with unsatisfactory rating. o To act as per provisions of the listing agreements with the Stock Exchanges and in line with the RBI guidelines. (ii) Share Transfer Committee This committee approves and monitors share transfers, issue of duplicate share certificates and matters relating thereto. It comprises of chairman and an executive Director, an officer Director, and a non-executive Director. (iii) Shareholders / Investors Grievance Committee This committee looks into the redressal of shareholders' grievances. It comprises of a nonexecutive Director, who is also chairman of the committee, an executive Director and an officer Director.
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2. Remuneration Committee : Issue of Managerial Remuneration in the Private Corporate Sector has a crucial factor wherein Pay- performance relationship is a major issue. Birla Committee recommended that ‘’ to avoid the conflict of the interest, the Remuneration Committee, which would determine the remuneration package of the executive directors should comprise minimum of three Non Executive Directors, the Chairman of the Committee being an independent Director. In India the Company Law indicates only upper limit of executive compensation. 3. Audit Committee : In India the Independent and qualified Audit system has already been formalized. This maintains the auditor's independence. The Kumarmangalam Birla Committee has recommended that Audit Committee should have minimum three Non Executive Directors, majority being independent, with at least one Director having financial and Accounting knowledge and the Chairman of the Committee should be an independent Director. These recommendations have been incorporated in the clause II of the SEBI Corporate Governance code and has been incorporated in the statute wherein it is provided that every public company with a paid up capital of not less than 5 crore shall constitute an Audit Committee comprising of not less than 3 Directors and the total number atleast2/3rd shall be the Directors other than the Managing or the Whole time Directors. The Committee is supposed to have periodic discussions with the Auditors about the Internal control systems, scope of audit including observations of auditors and review of the half yearly and annual statements before submission to the Board. Changes in the accounting procedures, major accounting entries, compliance with the stock exchange and other legal requirements and related party transactions that may have potential conflict with the Company at large are other areas that need to be monitored by the Audit Committee. CORPORATE GOVERNANCE AND COMPANY LAW The following changes have been brought about in the Company Law through Companies (Amendment) Act, 2000 for furthering the Corporate Governance; Section 292- Audit Committees Section 217- Directors responsibility statement Section 383A-Compliance Certification CORPORATE GOVERNANCE AND INDIAN BANKS In Indian Public Sector Banks the majority shareholding still continues to remain with the Govt. Historically good governance has not been a issue in the era of deregulation, globalisation and competitiveness, the PSBs have a formidable task to perform. There is need to take vital decision on the pricing of the products, develop corporate strategies for managing various risks and designing products to meet the emerging needs of the customers. MANAGEMENT STRUCTURE OF THE PSBs : There is a Board Of Directors (having Govt., RBI and a Shareholder's nominee in case of IPO Banks), Management Committee (having Govt. and RBI nominee), Audit Committee of the Board (having responsibility of ensuring the efficacy of the entire internal control and Audit functions), other Advisory Committees constituted by the Board. One whole time director assists the Chairman and the Govt appoints both of them. As a part of effective governance, various committees have also been formed. BOARD's RESPONSIBILITY : The Board lays down the policies in critical areas such as Investments, Loans, Asset Liabilities Management and Management and Recovery of NPAs, The CAMEL Rating system takes into account the working and effectiveness of the Board and its committees. DISCLOSURE AND TRANSPARENCY : The recent disclosure norms provide an opportunity to the stakeholders to evaluate the qualitative aspect of the Balance Sheet and have a fair idea of the impact of prevailing circumstances on the earning capacity of the Banks. IMPORTANT AREAS : Narsimham Committee had observed that as a result of Government ownership of PSBs, the market discipline tends to be weak. The Committee had suggested that Boards of the Banks should be free to take decision on the corporate strategy and all aspect of the business management and be responsible for the same to the stakeholders. The Board should be authorized to determine the remuneration structure applicable to their managerial and other staff
depending on the size, strength, business mix viability paying capacity etc. RBI should withdraw its Directors from the boards of PSBs and instead of two whole time Directors there should be three whole time directors. In the context of the PSBs, which have been listed in the Stock exchange, the issue of Corporate Governance assumes further significance. The appointment of stake holder's Directors can be considered as a step in the direction of the better Governance. Corporate Governance & PNB PNB made a public issue of 53,060,700 equity shares in March 2002 followed by that of 8 crore shares in March 2005 and are currently listed on the NSE and the BSE. Bank has compiled with SEBI Guidelines in respect of corporate governance specially with respect to broad basing of board, constituting following committees :— (i) Audit Committee o Providing direction and overseeing the total audit function of the Bank and follow up on the statutory / external audit of the Bank and inspections of RBI. o Obtaining and reviewing half yearly reports from the companies cell. o To interact with statutory auditors before finalization of annual/semi-annual/quarterly financial accounts and reports and also follow up on all the issues raised in the long form audit report. o To review the internal inspection / audit functons of the Bank namely the systems, its quality and effectiveness in terms of follow up. o Review of inspection reports of specialized and extra large branches and all the branches with unsatisfactory rating. o To act as per provisions of the listing agreements with the Stock Exchanges and in line with the RBI guidelines. (ii) Share Transfer Committee This committee approves and monitors share transfers, issue of duplicate share certificates and matters relating thereto. It comprises of chairman and an executive Director, an officer Director, and a non-executive Director. (iii) Shareholders / Investors Grievance Committee This committee looks into the redressal of shareholders' grievances. It comprises of a nonexecutive Director, who is also chairman of the committee, an executive Director and an officer Director.
doc_611036189.doc