Corporate Governance-Principles & Disclosure

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Principles of CG

• Equitable treatment to shareholders• Interests of other stakeholders to be kept in

mind• The Board should be of high quality• Ethical and responsible decision making• Timely and balanced disclosures to investors

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OECD (Organization for economic cooperation and development)

Principles of CG

• Ensuring the basis for an effective CG framework• Rights and equitable treatment of shareholders • Role of Stakeholders in CG• Disclosure and Transparency• Responsibilities of the Board

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Issues Related to CG• Relationship between CG, Transparency and

Financial disclosure• A need for good governance• Roles and Responsibilities of investors• Competency and Training

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4 P’s of CG

• People – Fair Treatment and just punishment• Purpose- Established, measurable,actionable and

communicated. Vision-Mission and Strategy• Process – Management, compliances and

innovation.• Performance – measured, analyzed

communicated to achieve growth through efficiency

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Clause 49 of Cos Act 1956• Management Discussion and analysis• Industry structure and developments• Segment wise and product wise performance• Market Price Data• Performance wrt indices like BSE 200• Matters to be placed before the board• Annual operating plans and budgets• Forex exposure• Default in financial obligation• Report on Risk Management – SWOT analysis

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Issue Price Disclosure (SEBI)• Fixation and justification of issue price• Risk Factors and management perception• Industry analysis report• Installed capacity and utilization• Past Track record and projected financial analysis• Comparison of financial data with industry averages• Stock Market Data analysis• Significant financial ratios• Profitability ratios• Earnings Per Share (EPS)• Return on Net Worth• P/E Ratio

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Disclosure & Transparency (OECD)• Financial and Operating Results• Company objectives• Major share ownership and voting rights• Remuneration policy for Board members and key

executives, including their qualifications, selection process and other company directorship and if they are independent.

• Related party transactions• Foreseeable risk factors• Issues regarding employees• Governance structures and Policies – any code of CG and

its implementation process8

Disclosure & Transparency (OECD)• Information – High quality standards of accounting and financial

disclosure• Annual audit to be conducted by independent, competent,

qualified auditors so as to provide assurance to the Board & stakeholders that the financial statements actually represent the financial position of the company

• External auditors should be accountable to the shareholders and owe a duty to the company

• Channels for disseminating information should provide for equal, timely and cost-efficient access to relevant information by users.

• The CG framework should be complemented by an approach that allows advice and analysis by analysts, brokers, rating agencies and others, free from material conflicts of interest.

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Independent Directors

• CII and Prime database maintain a large database of individuals who qualify to become independent directors

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Role of the Board (OECD)

• Members to act on fully informed basis, in good faith, with due diligence and care and in the best interest of the company and the shareholders

• The board should treat all shareholders fairly• The board should apply high ethical standards

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Key functions of the Board• Reviewing corporate strategy, action plans, risk policy,

annual budgets, performance objectives, monitoring performance, overseeing major capital expenditures, acquisitions and divestitures

• Monitoring the effectiveness of governance practices• Selecting, compensating, monitoring if required replacing

key executives and oversee succession planning.• Aligning key executive and board remuneration with the

long term interests of the co. and shareholders

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Key functions of the Board• Ensuring a formal and transparent board nomination and

election process.• Monitoring and managing potential conflicts of interest

of management, board, members and shareholders including misuse of corporate assets and abuse in related party transactions

• Ensuring integrity of co’s accounting and financial reporting systems, including audit and ensuring compliance with the law and the relevant standards.

• Overseeing the process of disclosure and communications

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Thank You

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