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Corporate Governance: A New Start for Corporates

Meaning of Corporate Governance:

The system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially takes care of the interests of all the stakeholders in a company i.e. its shareholders, management, customers, suppliers, financers, government and the community.
Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed to achieve their goals with legal compliance and social help.
Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, … Read more

Director Responsibility Statement

To promote better disclosures and transparency, the 2013 Act, requires the company’s Annual Report to include a Director’s Responsibility Statement stating the following:

Applicable accounting standards had been followed in the preparation of the annual accounts
The directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company
Proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company … Read more

Clause 49: Executive Remuneration

The 2013 Act and Revised Clause 49 mandate the formation of a Nomination & Remuneration Committee comprising of at least three directors, all of whom shall be non-executive directors and at least half shall be independent. The Nomination and Remuneration Committee is to ensure that the level and composition of remuneration is reasonable and sufficient; the relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and the remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company … Read more

Clause 49: Whistle Blowing Mechanism

The 2013 Act and revised Clause 49 mandate establishing Whistleblower mechanism to let employees and directors blow whistles on financial and non-financial wrong doings and also that such mechanism should provide protection to the whistle blower from victimization and provide direct access to the Chairman of the Audit Committee in exceptional cases.

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Role of Institutional Investors

Fast growing countries like India have attracted large shareholding by international investors and large Indian financial institutions with global ambitions.
So, if a company wants institutional investor participation, it will have to convincingly raise the quality of corporate governance practices. Indian companies thus need to adopt the best practices such as the OECD Corporate Governance Principles (revised in 2004) that serve as a global benchmark. In countries like India where corporate ownership still continues to be highly concentrated, it is important that all shareholders including domestic and foreign institutional investors are treated equitably.

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Clause 49: Stakeholders Relationship Committee

  • As one of its mandatory recommendations, the Kumar Mangalam Birla Committee propounded the need to form a board committee under the chairmanship of a non-executive director to specifically look into the redressing of shareholder complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc.
    The Committee believed that the formation of shareholders’ grievance committee would help focus the attention of the company on shareholders’ grievances and sensitize the management to redress their grievances. The 2013 Act as well as the revised Clause 49 now mandate the formation of such a committee with broader remit to cover

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Clause 49: Audit Committee

As per section 177 of the Companies Act, 2013 read with Rule 6 of Companies (Meetings of Board and its powers) Rules, 2014, every listed company and all other public companies with paid up capital of Rs. 10 Cr. or more; or having turnover of 100 Cr. or more; or having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs.50 Cr. or more, to have an Audit Committee which shall consist of not less than three directors and such number of other directors as the Board may determine of which two thirds of the total number of … Read more

Financial Reporting And the Independent Auditor

  • The board of directors has primary responsibility for the corporation’s internal and external financial reporting functions.
    The Chief Executive Officer and Chief Financial Officer are important people and boards usually have a high degree of reliance on them for the integrity and supply of accounting information.
    To reduce this risk and to enhance the integrity of financial reports, corporation financial reports must be audited by an independent external auditor who issues a report that accompanies the financial statements.
    In late 2009, Ministry of corporate governance issued voluntary guidelines over corporate governance in India. Many committees have been build to give
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