Corporate Governance

Presented to
MSOP Participants,
AHMEDABAD CHAPTER OF ICSI

by
Jaladhi Shukla, FCS
Ahmedabad

Jaladhi Shukla, FCS, Ahmedabad 1

Conceptualizing
Corporate
Governance

2
Conceptualizing Corporate Governance
 Corporate Governance means -
A set of standards, which aims to improve the
Company's image, efficiency, effectiveness and social
responsibility.

The concept of Corporate Governance primarily

emphasis on complete Fairness, Transparency,
and Accountability of the management, with an
increasingly greater focus on investor protection and
public interest.

Broader Perspective - Beneficiary of good

governance- Every Stakeholder

Jaladhi Shukla, FCS, Ahmedabad 3

 Key Stakeholders -

Board of Banks Suppliers Customers

Directors

Organisation
Govt. & Employees
Agencies Company

Promoters & Company Agent &

Services providers
Society
Shareholders

4
 COMPLIANCE
REQUIREMENTS

5
 Composition of Board
 At least one Women Director.
 At least fifty percent of the Board should be comprised of Non-
Executive Directors.
 If the chairman of the Board is Executive Director or Promoter, then at
least half of the Board should be comprised of Independent Directors.
 If the Chairman of the Board of Board is Non – Executive Director then
at least one – third of the Board should be comprised of Independent
Director.
6
 Board Meetings
 At least FOUR times a year with a
maximum time gap of one hundred
and twenty days between any two
meetings.
 Director – maximum membership
in TEN committees.
 Director – maximum Chairmanship
in FIVE COMMITTEES.
 Director to Notify committee
positions & changes to company.

7
Independent Director
 Non-Executive Director
 Nominee Director is excluded
 who, in the opinion of the Board, is
a person of integrity and possesses
relevant expertise and experience
 who is or was not a promoter of
the company or its holding,
subsidiary or associate company.
 who is not related to promoters or
directors in the company, its
holding, subsidiary or associate
company

8
Independent Director
 No pecuniary relationship apart from
Directors’ Remuneration.
 No KMP or employee in any of the three
preceding financial year.
 No employee, proprietor or partner of
Auditors, Secretarial Auditor or Cost Auditor.
 Holds 2% or more voting power.
 CEO of non-profit organisation.
 Material Supplier
 Less than 21 years of age.

9
 Independent Director
 No. of Directorships
maximum number of Boards an independent director
can serve on listed companies be restricted to 7.
Maximum number of directorship serving as Whole
Time Director is maximum 3.
 Tenure & formal letter of appointment as per
Companies Act 2013
 The terms and conditions of appointment shall be
disclosed on the website of the Company.

10
Separate Meeeting of Independent Director

 at least one meeting in a year.

 All the independent directors of the
INDEPENDENT company shall strive to be present
DIRECTORS ONLY at such meeting.
 to review the performance of non-
independent directors and the
Board as a whole.
 to review the performance of the
Chairperson of the company.
 to assess the quality, quantity and
timeliness of flow of information
between the company
management and the Board that is
necessary for the Board to
effectively and reasonably perform
their duties.
11
Vacancy of Independent Director

 Any Vacancy arising in the

office of any Independent
Director whether due to :
 Resignation, or
 Removal by Board
 Should be replaced at
earliest BUT Not later than
the immediate next Board
Meeting OR three months
from the date of such
vacancy (whichever is
later)
12
Person who reports the
following
• MISCONDUCT
• FRAUD
• ILLEGAL ACTIVITY
• MISAPPROPRIATION
happening
within the organization.

13
 Whistle Blower / Vigil Mechanism –

Whistle Blower Policy /

Vigil Mechanism

Audit Committee –
Chairman Redressal
of
genuine
Exceptional Concern
cases (Other than
Vigil Officer personal
grievances)

Whistle Blower
(Protected Disclosure)
 AUDIT COMMITTEE
 Constitution of a Qualified and Independent Audit Committee.
 MINIMUM : THREE DIRECTORS as members and Two – Third of
the members should be independent.
 All Members of Audit Committee shall be financially literate and at
least one members shall have accounting or related financial
management expertise.
 CHAIRMAN OF AUDIT COMMITTEE should be INDEPENDENT
DIRECTOR.
 CHAIRMAN should be present at the A.G.M. to answer shareholder
queries.
 Company Secretary shall act as the Secretary to the committee.
 MEETING OF AUDIT COMMITTEE :
– At least FOUR times in a year
– Maximum gap between two meeting : Four months
 QUORUM :
– TWO members OR one third of the members of the audit
committee ( whichever is greater)
– Minimum TWO INDEPENDENT DIRECTOR must be present.
15
 NOMINATION & REMUNERATION
COMMITTEE

 MINIMUM STRENGTH : at least THREE Directors.

 All the members should be of Non – Executive Category.
 At least half of them should be Independent.
 CHAIRMAN OF THE COMMITTEE should be INDEPENDENT
DIRECTOR.
 Chairperson of the Company may be appointed as a member of
the NRC but shall not chair such committee.
 Chairperson should be present at AGM
 Role – Remuneration Policy, Formulate evaluation criteria,
recommend appointment of Directors to the Board. 16
 Constitution of
Stakeholders’ Relationship Committee
 Under the chairmanship of
Non – Executive Director,
Stakeholders Relationship
Committee should be
constituted to resolve the
grievances of the security
holders of the company
including complaints
related to transfer of
shares, non-receipt of
balance sheet, non-receipt
of declared dividends.

17
 Subsidiary Companies
 Minutes of the Board meetings of the unlisted subsidiary
company shall be placed at the Board meeting of the listed
holding company for review.

 The company shall formulate a policy for determining ‘material’

subsidiaries and such policy shall be disclosed to Stock Exchanges
and in the Annual Report.

 At least one independent director on the Board of Directors of the

holding company shall be a director on the Board of Directors of
a material non-listed Indian subsidiary company.

 Audit Committee of the listed holding company shall also review

the financial statements, in particular, the investments made by
the unlisted subsidiary company.

 Prior Special Resolution required for disposal of more than 50%

shares or 20% assets of material non-listed Indian Subsidiary.
18
Risk Management
 The company shall lay down
procedures to inform Board
members about the risk
assessment and minimization
procedures.
 The Board shall be responsible for
framing, implementing and
monitoring the risk management
plan for the company.
 The company shall also constitute
a Risk Management Committee.
The Board shall define the roles
and responsibilities of the Risk
Management Committee and may
delegate monitoring and reviewing
of the risk management plan to the
committee
 The majority members of the RMC
19
shall be Board of Directors.
 MEANING :

 RELATED PARTY
TRANSACTION Transfer of
resources, services or obligations
between a company and a related
party, regardless of whether a price
is charged.

 RELATED PARTY - Entity related

under Section 2(76) of the
Companies Act 2013 or under
applicable accounting standards.

20
 WIDENED THE SCOPE OF RELATED PARTY
TRANSATION

AS – 18 Companies
Act, 2013

Definition of Related
Party
 Related Party Transactions
o The Company shall formulate a policy on material RPT and
also on dealing with RPTs.
o All RPTs shall require prior approval of Audit Committee.
• Omnibus approval subject to certain conditions. Valid for one year.
• Exemption for transactions of holding co. with its WOS.
o Quarterly review of all RPTs by Audit Committee
o All material related party transactions shall require
approval of the shareholders through ordinary resolution
and the related parties shall abstain from voting on such
resolutions.
• Exemption for transactions of holding co. with its WOS.
• Material if transaction or transactions during a FY, exceeds ten
percent of the annual consolidated turnover of the company as per
the last audited financial statements of the company.
• Quarterly disclosure in the CG report to Stock Exchanges.
22
 SEBI
(Listing Obligation and
Disclosure Requirements)
Regulations, 2015
(Listing Regulations)

23
 SEBI Listing Regulations - Introduction
• SEBI has recently notified the SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015 replacing the Listing Agreement.

• SEBI Listing Regulations have come into force w.e.f. 1st December 2015

• The Regulations are consisting of 11 chapters and 10 schedules as against

55 clauses of the Listing Agreement.

• The Regulations have been structured by consolidating into one single

document across various types of securities listed on Stock Exchanges (i.e.
Equity Share, NCDs, NCRPS, IDRs, Debt Instruments etc)

• Shortened version of Listing Agreement required to be executed within 6

months from notification.
24
 SEBI Listing Regulations
• Salient Features – Prior Board Meeting intimations
SN Particulars Prior Intimation –
No. of days
1. Financial results viz. quarterly, half yearly or annually 5 days

2. Fund raising by way of any means (New) 2 days

3. o Declaration / recommendation of dividend, bonus shares 2 days

o issue of convertible securities including convertible debentures

or of debentures carrying a right to subscribe to equity shares
or the passing over of dividend. (New)

4. Intention to raise funds through new non-convertible securities or 2 days

non-convertible redeemable preference shares it proposes to list
either through a public issue or on private placement basis; prior
to issuance of such securities. (New)

5. Any alteration in the date on which, the interest on debentures or 11 days

bonds, or the redemption amount of amount of redeemable
shares or of debentures or bonds, shall be payable. (New)

25
 SEBI Listing Regulations
o Disclosure of events or information (Reg. 30)
 Entity to make disclosure of any events or information which, in the
opinion of Board is material.
 Events specified in Part A of Schedule III deemed to be material events.
Entity to make disclosure of same. In other cases, the Company to
authorise KMP to determine materiality.
 The guidelines for materiality to be approved by Board.
 Any disclosure to Stock Exchanges to be updated immediately on
company website & to be kept for 5 years.
 Disclosure of all events or information with respect to subsidiaries which
are material for the listed entity.
 Update material developments on regular basis.

26
 SEBI Listing Regulations
o Material Events

o Acquisition(s), Scheme of Arrangement, or sale or disposal of any unit(s),

division(s) or Subsidiary of the listed entity or any other restructuring

o Issuance of Securities (including debentures), split or consolidation of

shares, redemption of securities.

o Revision in Rating(s) – New rating, revision in rating etc. to any scheme

involving mobilization of funds whether in India or abroad.

o Schedule of analyst or institutional investor meet and presentations on

financial results made to analysts or institutional investors.

27
 SEBI Listing Regulations
o Material Events

o Agreements viz. shareholder agreement, joint venture agreement, family

settlement agreements, revision(s) or amendment(s) & termination(s)
thereof.
o Change in directors, Key Managerial Personnel, Auditor and Compliance
Officer
o Outcome of meetings of the board of directors held to consider or decide
dividend, buy-back of securities, fund raising proposed to be undertaken,
issue of bonus share, alteration of capital, financial results.
o Appointment or discontinuation of share transfer agent.
o Corporate debt restructuring
o Proceedings of AGM, EGM & Voting pattern

28
 SEBI Listing Regulations
o Dissemination of Information at Website of the Company
(Reg. 46)
• Schedule of analyst or institutional investor meet and presentations
made by the listed entity to analysts or institutional investors
simultaneously with submission to stock exchange.
• Details of agreements entered into with the media companies and / or
their associates, etc.
• Details of directors’ familiarization programmes.
• New name and old name of listed entity for continuous one year.
• Details of business, composition of board and committees, policies
• Financial information, Shareholding pattern, board meeting notice
• Contact information of designated officials. Investor e-mail id.
• All disclosures under Regulation 30 (material events) for 5 years.
• Update website within 2 working days of disclosure.
29
 SEBI Listing Regulations
o Salient Features – Other New Provisions

o Name Change (Reg. 45)

• Mandatory name change (within 6 months) in case company

change its activities which is not reflected in its name.

• Prior approval of SE is mandatory before application to ROC.

o Website link to be given in news paper publications (Reg. 47)

o Non compliance to be disclosed in Annual Report [Sch V(10)]

30
 SEBI Listing Regulations

• NEW POLICIES framed under LODR Regulations

Regulations Policies

Regulation 9 Policy on Preservation of Documents

Regulation 30 Material Events Policy

Regulation 30 Website content Archival

31
 SEBI Listing Regulations
o Liability for contravention of the Act, Rules or the Regulations
(Reg. 98)

o Liability for contravention of the Act, Rules or the

Regulations (Reg. 98)
• The listed entity or any other person thereof who contravenes
any of the provisions of these regulations, shall in addition to the
liability for action in terms of the securities laws, be liable for the
following actions by the SEs –
• Imposition of fines (daily basis)
• Suspension of trading
• Freezing of promoter / promoter group holding
• Any other action as may be specified by the Board
32
 Mapping of Listing Agreement with LR
Particulars Compliance Clause in LA Listing
Timeline Regulation
Book Closure / Event based Clause 16 42
Record date
Intimation of BM Event based 19 & 41 29

Outcome of BM Event based 20, 21 & 41 30 & 33

In-principle Event based 24(a) 28

approval
Scheme of Event based 24(f) & 24(g) 11 & 37
Arrangement
Change in KMP & Event based 30 30
Auditors
Annual Report Annually 31 34

Form A / B Annually 31 33

33
 Mapping of Listing Agreement with LR
Particulars Compliance Clause in LA Listing
Timeline Regulation
Name Change Event based 32 45

MOA / AOA Event based 33 30

Shareholding Quarterly & Event 35 31

pattern Based
Disclosure of voting Event based 35A 44
pattern & E-voting
Disclosure of Event based 36 30
Information
Payment of Listing Annually 38 14
Fees
Minimum Public Event Based 40A 38
Shareholding
Financial Results Quarterly / 41 33
Annually
34
 Mapping of Listing Agreement with LR
Particulars Compliance Clause in LA Listing
Timeline Regulation
Certificate from Half yearly 47C 40(9)
PCS

Corporate Quarterly & 49 & 31 17 to 27

Governance Annually

Website of the Continuous 54 46

Company Compliance

Agreement with Event based 53 30

media Company

BRR Annually 55 34

35
 Quick Takeaways

o Replacement of Listing Agreement with Listing Regulations

now provide for a more consolidated framework for the

disclosures to be made by all listed entities and give

statutory recognition to the listing norms in India.

36
PRACTICAL
ASPECTS

37
Shareholders

Board of Directors

Committees

Jaladhi Shukla, FCS,

Ahmedabad
 Appointment of two
Independent Directors in XYZ Ltd.
Name Particulars

Mr. A Non Executive Director. Receives sitting fees only.

Mr. B Ex. KMP upto 2012

Ms. C CEO - NGO

Mr. D Supplier

39
 Technical Scrutiny of
Related Party Transactions of ABC Ltd. –

Particulars Subsidiary Associate / Directors Relatives of

Companies / Joint Directors
WOS Control
Companies

Funds
Given / XYZ P. LTD. PQR LTD. MR. A MRS. A
Received MR. B MRS. B

Jaladhi Shukla, FCS,

Ahmedabad
 Practical Aspects
 Drafting of polices & code of conduct

 Tracking compliances & disclosures of leading companies –

• Corporate Websites,
• Annual Reports,
• Stock Exchange Announcements

 Meeting Management – attend General Meetings

 Professional reading – English newspapers, circulars etc

 Professional Networking
41
 Some Useful websites
 http://www.sebi.gov.in/ - Securities and Exchange
Board of India
 http://www.bseindia.com/ - Bombay Stock Exchange Limited
 http://www.nfcgindia.org/library_int.htm - National
Foundation for Corporate Governance
 http://www.ita.doc.gov/goodgovernance/ -International Trade
Administration
 http://www.oecd.org/ -Organisation for Economic
Co-operation and Development
 http://www.corpgov.net/ - Corporate governance network

Jaladhi Shukla, FCS, Ahmedabad 42

THANK YOU

43