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CHAPTER – 4
CORPORATE GOVERNANCE IN SELECTED COMPANIES
Profiles and Scenario of Corporate Governance in Select Paper
Industries
The study is based on 12 select paper industries in India. Basing on
the scoring pattern adopted by Institute of Company Secretaries of India
(ICSI), corporate governance is measured in these units. The basis for
selection is on the basis of Information available on the Annual Returns
provided by these companies the scores are assigned.
The brief profiles of select paper units are as follows:
1. BILT (Ballarpur Industries Ltd.)
2. ITC
3. TNPL (Tanilanadu News Print Ltd.)
4. Sirpur Paper Mills Ltd
5. West Coast Paper Ltd.
6. Orient Papers
7. ABC Papers
8. Rain Bow Papers
9. Yash Papers
10. Emami Paper Mills
11. Star Paper Mills Ltd.
12. AP Paper Mills Ltd.
BILT (Ballarpur Industries Ltd.,):
Ballarpur Industries Limited (BILT) founded in 1945, with the name of
Ballarpur Paper and Straw Board Mills Limited. The company changed its
name to Ballarpur Industries (BILT) in 1975. BILT is the largest paper
manufacturing company in India. The company product portfolio includes -
coated wood free paper, uncoated hi-bright paper (Maplitho), business
stationery, copy paper, and speciality & fine paper.
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In 2006, BILT controlled approximately 21 % of Writing and Printing
Paper (WPP) market and approximately 53 % of the coated paper market.
The company is pursuing both organic and inorganic strategy to increase its
installed capacity to 1.0 million tonnes paper by 2010. In 2006, the
company acquired a paper manufacturing firm, Sabah Forest Industries, in
Malaysia. The acquisition not only help the company to secure the future
supply but also provide a platform to the company to enter the South-east
and east Asian market To maintains its leadership in the market, BILT is
focusing on 4 key areas: - Securing raw material supply - Rapidly developing
larger scale of operations - Continuously innovating to introduce new
products and grow new markets.
The company operations span across 6 units, together with a capacity
of 480,000 tonnes and a pulp mill of capacity 100,000 tonnes
manufacturing rayon grade pulp, in the state of Andhra Pradesh
(Kamlapuram Unit). BILT is also expanding its production capacity in both
coated and non-coated paper, to take its current capacity of 480,000 tonnes
in 2006 to around 1.0 million tonnes by 2009-10. With the increase in
overall capacity, the company expects to double its turnover by 2009-10. In
October 2007, the company announced to increase the capacity of its coated
wood free paper unit at Bhigwan in Pune by adding 190,000 tonnes. After
the expansion, the total unit capacity would increase to 315,000 tonnes. The
main plant and machinery and its installation would be supplied by Voith,
Germany, while some equipment will be sourced locally from suppliers like
L&T, etc. In July 2007, the company also initiated a restructuring plan,
under which it would transfer 3 manufacturing units at Bhigwan, Ballarpur
and Kamalapuram, to a separate company called BILT Graphic Paper
Products, which would be transferred to Ballarpur Paper Holdings BV (BPH)
after court approval. By this exercise, the company would transfer its
commodity business, which is capital-intensive and would focus on the
specialty and consumer-focused products business.
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ITC:
ITC’s paperboards and specialty paper unit was created after the
merger of ITC Bhadrachalam Paperboards Limited with ITC in 2002. The
company produces paperboards and specialty paper for all types of carton-
consuming segments including cigarettes, foods, beverages, pharma,
personal care & toiletries, durables and match shells. - ITC also makes some
of the premium graphic boards used for greeting cards , covers, sleeves, tags
and playing cards. - It produces both virgin and recycled boards spanning
the full requirement of a packaging customer. ITC paper unit exports nearly
15% of the coated papers to customer requirements in Malaysia, Sri Lanka,
Bangladesh, Iran, Australia, UAE, UK, Italy, Poland and Russia.
The paperboard, paper & packaging segment is one of main focus area
of the company, accounted for approximately 10% revenue of the ITC group.
The company wants to maintain its leadership in value-added coated boards
segment by using latest technology. ITC is also looking to integrate its
operation fully by creating in-house pulping capacity. In 2007, it has a
240,000 tonnes of Elemental Chlorine Free pulp capacity at Bhadrachalam
mill ITC Limited.
The company has four manufacturing units: - Bollaram unit is a value
addition plant, which gets paper from ITC & other units and adds value like
coating and polylaminating. Tribeni plant manufactures cigarette tissues to
fine papers, packaging papers and specialties. It has 3 paper machines
Bhadrachalam unit has 3 board machines and 2 smaller paper machines.
Kovai unit was acquired from BILT in 2004. It has a single board machine,
producing coated duplex boards greyback and white back made with 100%
recycled fibre.
ITC paperboards business has a manufacturing capacity of 352,000
tonnes per annum and it produced 390,000 tonnes of paperboards and
139,000 tonnes of value added paperboards in 2006-07. In 2007, the
company initiated 2 major capacity expansion projects - 90,000 tonnes
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paperboard machine and 100,000 tonnes paper machine for manufacturing
uncoated paper including branded copier grades.
TNPL:
Tamil Nadu Newsprint and Papers Limited (TNPL) was established by
the Government of Tami Nadu during early eighties to produce Newsprint
and Printing & Writing Paper using bagasse, a sugarcane residue, as
primary raw material. The Company commenced production in the year
1984 with a initial capacity of 90,000 tonnes per annum (tpa). Over the
years, the production capacity has been increased to 2,45,000 tpa and the
Company has emerged as the largest bagasse based Paper Mill in the world
consuming about one million tonnes of bagasse every year. The
Company completed a Mill Expansion Plan during December 2010 to
increase the mill capacity to 4,00,000 tpa.
TNPL exports about 1/5th of its production to more than 30
countries. Manufacturing of quality paper for the past two and half decades
from bagasse is an index of the company’s technological competence. A
strong record in adopting minimum impact best process technology,
responsible waste management, reduced pollution load and commitment to
the corporate social responsibility make the company one of the most
environmentally compliant paper mills in the world.
Sirpur Paper Mills Limited:
Sirpur Paper Mills (SPM) was incorporated in 1938 as an integrated
paper manufacturing Company, management was controlled by Hyderabad
Construction Company Ltd. In 1942 production commenced with 14 TPD. In
1953, Management was taken over by Birla Brothers. It is one of the largest
manufacturers of variety and colour paper in India. It is headquartered in
Sirpur Kaghaznagar. Manufacturing facility at Sirpur Kaghaznagar was
originally designed to manufacture 5,100 tonnes per anum of paper. With a
series of expansions taken place during these years it has increased the
installed capacity to 83,550 tonnes per annum. SPM also has a machinery
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division and a consultancy division. The other company in the Poddar group
includes the profitable flagship, Aravali Leasing (ALL). The company
manufactures all kind of paper products including writing paper, printing
paper, bank ledgers, Indian account book paper, imitation art, imitation laid
craft, typewriting paper, duplicating paper, wrapping paper, art paper,
chrome paper and bond paper. All its products are sold under the Sirpur
trade name. The company to improve its realisation is taking adequate steps
to cut manufacturing cost. In this direction it has installed 75 TPH FBC
Boiler and it is expected to result in consumption of cheaper varieties of coal
thus cost saving. The company sponsored a farm forestry scheme for raising
fast growing species of pulpwood plants under its social forestry programme.
The company has acquired 100% shares of Sirpur Stationery Products Ltd
in 1999-2000, to establish a paper conversion unit. In 2003-04, the Andhra
Pradesh government disinvested its 6.34 percent stake in the Company
which was purchased by the promoters enhancing their stake in the
Company 43.25 percent.
West Coast Paper Mills:
The Company – promoted by Shree Digvijay Cement Company
Limited, Sikka, and Gujarat State in 1955 – is located at Dandeli in
Karnataka. The location of the factory – Dandeli - was opted as the most
suitable and advantageous, being situated in the heart of thick forests on
the banks of river Kali and the major factors that weighed in its favour were
the assurance of the then State Government of Maharashtra for continued
supply of forest-based raw materials, availability of water from the perennial
Kali river, assured power supply from the State Grid.
Initially, the plant was designed to manufacture 18,000 TPA of
writing, printing and packaging paper, the commercial production of which
commenced in May 1959. The Company obtained licence from the
Government of India in December 1964 for enhancing the production
capacity to 45,000 TPA by installing balancing equipments, which was
completed in 1972. Subsequently, the company had implemented Crash
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programme in 1974 to further increase the production capacity to 60,000
TPA against the licence issued in July 1972. The licenced capacity was re-
endorsed for 69,000 TPA in November 1991.
The production capacity has been increased to 1,19,750 TPA after
successful implementation of modernization/expansion programme in 1996-
97 diversifying into new product – duplex board – apart from the existing
varieties of paper and paperboard. This also included rebuilding of Paper
Machine No. III [by adding Trinip Press, Dryers and Calendar Stack, Size
Press, Colour Kitchen and Process Automation], balancing of Pulp Mill,
Power House and other sections of the Mills, besides setting up of 75 TPD
Duplex Board M/c. (Paper M/c No. V). After commissioning of 100 TPD
duplex board machine (PM IV), coupled with rebuilding of Paper M/c. No. II,
the total production capacity has further increased to 1,57,750 TPA in 2001-
02 and to 1,63,750 TPA in 2003-04 on rebuilding of PM I and achieving
higher production of duplex board on Paper M/c No. IV. The Company has
taken up in 2007 further expansion programme with a capital outlay of `
1375 Cr and completed it in May 2010, consequent to which present
production capacity is 3,20,000 TPA. The performance of the company
during the last 5 years period was as under (See Table 4.1):
TABLE – 4.1: PERFORMANCE OF WEST COAST PAPER MILLS
Year Ended
31st March
Production (Paper
& Board) [in M.T.]
Net Sales
with Excise Duty
Gross Profit
[` in Crores]
2006 1,76,221 606.84 69.22
2007 1,78,871 619.44 95.52
2008 1,69,891 653.52 114.38
2009 1,73,682 662.71 120.36
2010 1,73,638 650.50 105.24
Source: Company’s Web site
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The Company also has an excellent track record in timely repayment
of loans/lease rentals to financial institutions/leasing companies and
maintained the same even during recession period to which this industry
has been subjected many a time. This has been highly appreciated by the
financial institutions and lessors.
Orient Paper Mills:
Orient Paper Mills is an arm of premier and most dynamic business
houses of India G P Birla / C K Birla Group, which was incorporated on 25th
July 1936 with a single paper machine and now a multi-product, multi-
location company, that's much more than paper. That's Orient Paper and
Industries Limited (OPIL). No wonder then that in the Paper Industry, apart
from that, commands the status of a leader with a vision. In cement, it has
earned a solid reputation. In appliances, Orient, has become a household
name. And, all combined OPIL in seen as a company with a cutting edge. A
pilot pulp and paper plant of the company was commissioned in February of
the year 1978. The pulp mill was redesigned for production of bleached pulp
from rags, hemp, cotton, stalk, etc., as also from bamboo or other forest
and/or agricultural residents. The name of the company was changed from
Orient Paper Mills Limited to Orient Paper & Industries Limited with effect
from 31st September of the year 1978. In September 1982, a cement plant
was commissioned at Devapur (AP) with an annual capacity of 9 lakh
tonnes. The agreement with Panafrican paper Mills (E.A.) Limited for
providing technical know-how, management and other services was renewed
for a further period of 5 years with effect from 30th June 1989. In end of the
year 1990 the second unit of the cement factory was commissioned. In
1991, the company undertook to supply technical know-how for the
manufacture of paper in and outside India. The first stage of oxygen
bleaching was commissioned for improved brighteners of paper and the he
second stage of chlorine di-oxide bleaching were commissioned in the year
1992 and 1993 respectively. OPIL had granted technical and financial
collaboration to Panafrican Paper Mill (E.A.) Ltd., for setting up pulp and
paper mill in Kenya during the year of 1995. In 1996, the company's 6 MW
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Back Pressure Turbine was commissioned at Amlai to reduce power cost
and reduce dependence on outside supply. The new tissue plant at Amlai
was also commissioned in the year of 1997. Barajrajnagar plant of the
company was suspended since January of the year 1999. OPIL had decided
to sell its cement division in the year 2000. The Company bagged Gold
award for Environmental Excellence in 2001-02, 2002-03 and 2003-04 from
Greentech Foundation, Delhi for Best Environment Management practice
amongst Indian paper mills. In the year 2005, OPIL had introduced high
speed table fans under the appliances division. Amlai paper mill of the
company had installed and commissioned a fly ash brick making plant with
a capacity of 15,000 bricks per day in March of the year 2006. During the
year 2006-07, the cement division of the company d received the Phase-II of
TPM certification certified by ISO-9001 and also in the same year of 2007
OPIL had developed nine clones of eucalyptus suitable for semiarid regions
under paper division. In October 2007, the company had decided to diversify
its activities into manufacturing and marketing of CFL products at an
estimated investment of Rs 400 million. CARE assigned A+ rating to the
company's proposed Secured Redeemable Bonds/Non-Convertible
Debentures (NCD) issue of Rs 1 billion in November 2008.
ABC Papers:
ABC Group, which was earlier being carried on as a Division of Amrit
Corp. Ltd., has been vested in ABC Paper Ltd. under the Scheme of
Restructuring. The paper mill was set-up in the year 1980 in the State of
Punjab – 108 Kms from Chandigarh. As one of the largest wood-free paper
plant, ut uses only agro-wastes like wheat, rice-straw, kana grass etc. to
manufacture fine quality printing & writing paper. ABC Paper is focusing on
branded printing & writing paper, which is extensively used in the printing
of books, trade directories and even as newsprint.
The ABC Paper is located at Saila Khurd, Distt. Hoshiarpur, a small
village, which is a backward area, situated on the main National Highway
connecting Chandigarh – Hoshiarpur – Pathankot.
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The ABC Paper has in-built capacity of 100 TPD of finished paper. The
pulping & finishing section and ancillary facilities (steam, power, bleach and
storage) is over 150 TPD equivalent of paper. The pulping section, in
addition to facilities for straw and bagasse is equipped with a jute street to
handle upto 10% usage in the raw material furnish at 150 TPD paper
production levels. The paper making capacity is reckoned on 52 gsm output
basis. The first two Paper Machines (PM I & II) have a capacity of 15 TPD
each an the third machine (PM III) has a capacity of 70 TPD.
The management of ABC Paper is undertaking a ` 156.93 Crores
expansion and modernization program by setting up
• Capacity Expansion
1. Installation of Paper Machine IV
2. Wood Pulp Street
• Chemical Recovery Plant
• Co-Generation Power Plant
• Power Grid upgradation
Rainbow Paper Mills:
Rainbow Papers commenced its journey with its first venture, a
creping and dyeing unit in 1981. Since then, there has been no looking
back. With two new units flourishing, Rainbow is producing almost 186
different varieties of paper, catering to the diverse segments of the Indian as
well as overseas usage market.
Rainbow, is one of the fastest growing corporations in the Indian
Paper Industry. RPL has marked its presence in the global market and is
currently exporting its products to various countries in the US, Middle East,
South Africa, South East Asia and U.K. We offer a plethora of world class
products ranging from Duplex to File Board, from writing paper to Art Card
and from packaging and Electric grade crepe to Decorative tissues crepe.
Rainbow does not only aim at manufacturing quality products but also has
a wide network of professional dealers and suppliers who strive to make
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sure the products reach the customers wherever they are. RAINBOW has
adhered to its philosophy of 'Ouality and Customer comes first' while facing
competition. 'Quality Consciousness along with Cost Competitiveness'; has
become an obsession with Rainbow. Rainbow is also accredited with ISO
9001, 14001 & OHSAS 18001.
Rainbow is committed to the society. In their quest to serve the needy,
it’s Chairperson and other Directors have joined hands with different trusts
which are running schools, hospitals and homes for senior citizens, thus
fulfilling their duties towards the upliftment of the society. Rainbow has a
dedicated Research & Innovation Team, working day and night to achieve
the organization's objectives and take the organization to far reaching
heights.
Yash Papers:
Yash Papers (located in Faizabad, India) is synonymous with machine-
glazed varieties of paper. Established in 1981, by entrepreneur-promoter KK
Jhunjhunwala - with an installed capacity of 1940 MT per annum in 1983,
Yash Papers started production of low grammage kraft grades. In the year
1991, the Company has set up its Paper Machine II, with a capacity of up to
6000 MTPA, taking the overall capacity to 10,000 MTPA. This machine also
specialized in low grammage kraft varieties.
In the year 1995, Yash Papers set up its own 2.5 MW Power Plant,
with an Extraction-cum-Condensation Turbine. This was a revolutionary
step for a mill of its size at that time. This lower cost of power gave it an
added advantage over other mills, and further helped brand Yash to become
established in the market. At the same time, the Company set up further
capacity enhancements to its Paper Machine II, and boosted total
production to 16,000 MTPA.
In 2007, Yash Papers, grew to more than double of its capacity, by
installing a totally new integrated plant, setting up a pulp mill, producing
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130 TPD, Paper Machine III, to produce bleached MG grades of papers with
a total capacity of 70 TPD, a chemical recovery unit, and a 6 MW Power
Plant.
At the present time, Yash Papers has grown into the largest
manufacturer of wrapping grades in India, with a present installed capacity
of 39,100 MT per annum. Yash Papers practices a singular discipline, focus
on specialty products and quality and has a culture of ploughing back
surpluses into additional capacity.
This preference for the value-approach is reflected in the Company’s
product mix - hard tissue, wrapping grades, packaging, and stationery
grades. These varieties are used in specialised downstream applications like
soap wrapping, food wrapping, pharmaceutical covers, interleaving sheets,
laminating sheets, paper bag, bidi wrapping, gum tape, notebook covering
paper, PE coating in mattress.
Emami Paper Mills:
Emami Paper is the largest newsprint manufacturer in India and has
embarked on an expansion to emerge as one of the largest in its industry in
India.
Emami Paper Mills Limited (established in 1982) is a paper mill based
on recycled - fiber located in Balasore (Orissa) and Kolkata (West Bengal).
The Company is a constituent of the Emami Group, which possesses
diverse business interests comprising FMCG, edible oil, writing instruments,
healthcare, retail departmental stores and real estate.
Star Paper Mills:
Star Paper Mills Limited operates in the Pulp mills sector. Star Paper
Mills Limited is an India-based company. The Company is an integrated
pulp and paper mill located in Saharanpur, Uttar Pradesh. It possesses an
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installed manufacturing capacity of 75,000 tons per annum of paper and
paperboard. It has a range of industrial and cultural paper. The Company
manufactures variety of industrial papers, such as Absorbent Kraft, Poster
ARSR, Ribbed Kraft and others. The Company produces a range of cultural
papers, such as SS Maplitho, Premier Maplitho Paper, MG cover Paper, Pulp
Board and business communication papers, such as Azurelaid and
copiervariety. Its clients include Hindustan Uniliver Limited, Greenply,
Eveready, Golden Laminates, Pearson Education (Singapore) Pte. Ltd.,
Century Laminating, Modecor-Saudi Arabia and publishers in India. Its
subsidiary includes Pallmall Edusystems and Medicare Services Private
Limited. It is a part of the Duncan Goenka Group of Companies.
AP Paper Mills:
The Company was incorporated on 29th June 1964 as "The Andhra
Pradesh Paper Mills Ltd." at Rajahmundry. The Certificate of
Commencement of business was obtained on 10th July 1964.
The Andhra Pradesh Paper Mills Ltd. was formed with infusion of
funds and high calibre management of the well-known industrial house of
Bangurs of Calcutta, who have interests in textile manufacturing, tea
plantation, wind energy generation and trading and investment business
other than paper. In 2001, Coastal Papers Ltd was taken over by the
company. The production capacity of both the units put together is 1,74,000
TPA. There are eight paper machines installed at the two locations which
produce papers of different M.F & M.G varieties in the range of 21 to 250
GSM as well as newsprint. With the commissioning of largest continuous
digester in the country, the total bleached pulp production at APPM (Unit
Rajahmundry) is 1,81,500 TPA. The paper production capacity will increase
to 2,41,000 TPA after commissioning of 67000 TPA paper machine which is
under erection.
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The company provides direct employment to over 4000 families.
Moreover, the company provides livelihood to over 10,000 families through
indirect job opportunities.
Scenario of Corporate Governance in select paper industries:
Against the background of the existing regulations laid down by the
companies Act, 1956 and SEBI – Clause 49 listing agreements, an attempt
is made to critically examine the corporate governance practices under
vogue among Indian companies. For the purpose of the same, initially the
Industrial sector with respect to Paper Industry is segregated into 12 paper
units and with a detailed case study on JK Paper Mills.
The important parameters for consideration are mainly drawn from
the various regulations and enactments made by the Companies Act, 1956
and Securities and Exchange Board of India (SEBI) which includes:
1. Statement of Company’s Philosophy on Code of Corporate
Governance
2. Board Structure
3. Position of the Chairman and CMD (duality)
4. Various other sub committees and their practices such as Audit,
Remuneration, Nominee, Compensation, Grievance redressal
HSEC, Code on Ethics, Share Transfers etc;
5. Annual General Body meetings and other disclosure practices and
6. Other practices towards stakeholder involving social
responsibilities
To examine the above issues, documents supplied at the time of
industrial visits with the available officials of the selected companies and
various reports were analysed to secure relevant data for analysis. Study
focused on 12 paper industries. (See Table 4.2) Criterion for analysis is
detailed under table 4.3. Methodology for ranking is given under table 4.4.
The detailed measurement for all the 12 paper industries is presented in
table 4.5.
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TABLE – 4.2: DETAILS OF UNITS FOR STUDY
No. of Units Name of the Paper unit
1. BILT
2. ITC
3. TNPL
4. SIRPUR PAPER MILLS
5. WEST COAST PAPER MILLS
6. ORIENT PAPER MILLS
7. ABC PAPER MILLS
8. RAIN BOW PAPER MILLS
9. YASH PAPER MILLS
10. EMAMI PAPER MILLS
11. STAR PAPER MILLS
12. AP PAPER MILLS
TABLE – 4.3: CRITERION FOR EVALUATION OF GOVERNANCE
STANDARD
Points S.
No. Governance Parameters
Assigned Scored
1 Statement of Code of Governance - 2
2 Structure and Strength of the
board
2
3 Chairman and CEO duality (Max)> 5
i Promoter Executive Chairman-
Cum-MD/CEO
1
ii Non-promoter Executive
Chairman-Cum-MD / CEO
2
iii Promoter Non-Executive Chairman 3
iv Non Promoter Non-Executive
Chairman
4
v Non-Executive Independent
Chairman
5
4 Disclosure of Directors Particulars - 2
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5 Disclosure of Age & Tenure - 3
i Definition of Independent Director 1
ii Definition of Financial Expert 1
iii Selection Criteria for BOD 1
6 Post-board meeting follow up - 2
7 Appointment of Lead Director - 2
8 Disclosure of other provisions
relating to BOD and committees
- 1
9 Disclosure of: - 2
i Remuneration Policy 1 -
ii Remuneration of Directors 1 -
10 Code of Conduct: - 2
i Information on Code of Conduct 1 -
ii Affirmation of compliance 1 -
11 Board Committees:
11-A Audit Committee: - 8
i Transparency in Composition of
audit committee
1 -
ii Compliance of minimum
requirement of the number of
independent directors
1 -
iii Compliance of minimum
requirements of the number of
meetings of the committee
1 -
iv Information about qualifications
and expertise of the members of
the committee
1 -
v Information about participation of
head of finance, statutory auditor
and chief internal auditor in the
committee meeting
2 -
vi Disclosure of audit committee
charter and terms of reference
1 -
viii Publishing of audit committee
report
1 -
11-B Remuneration / Compensation - 6
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Committee
i Formation of the committee 1 -
ii Information about number of
committee meetings
1 -
iii Compliance of minimum
requirement of number of Non-
Executive Directors in the
committee
- -
iv Compliance of the provision of
Independent Director as a
Chairman of the Committee
v Information about participation of
all members in the Committee
meetings
1
vi Publishing of Committee report 1 -
11-C Shareholders’/ Investors Grievance
Committee
- 5
i Transparency in composition of the
committee
1 -
ii Information about the nature of
complaints and queries received
and disposed item-wise
1 -
iii Information about committee
meetings
1 -
iv Information about action taken
and investors / shareholders
survey
1
v Publishing of Committee report 1 -
11-D Nomination Committee - 2
i Formation of the Nomination
Committee
1 -
ii Publishing of Committee Charter
and Report
1 -
iii Health, Safety and Environment
Committee
- 1
11-E Ethics and Compliance Committee - 1
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11-F Investment Committee - 1
11-G Share Transfer Committee - 1
12 Disclosure and Transparency - 25
A Significant transactions having
potential chance of conflicts with
the interest of the company
2 -
B Non-Compliance related to capital
market matters during last three
years
2 -
C Accounting Treatment 2 -
D Board Disclosure-Risk
Management
- -
i) Information to the board on
Risk Management
2
ii) Publishing of Risk
Management Report
1
E Management Discussion and
Analysis
2
F Shareholders’ Information - -
i) Appointment of new
Director/Re-appointment of
existing director
1 -
ii) Quarterly Results and
Presentation
1 -
iii) Share Transfers 1 -
iv) Directors’ Responsibility
Statement
1 -
G Shareholder Rights 2 -
H Audit Qualification 2 -
I Training of Board Members 2 -
J Evaluation of Non-Executive
Directors
2 -
K Whistle Blower Policy 2 -
13 General Body Meetings - 3
i Location and time of general
meetings held in last three years
1 -
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ii Details of Special Resolution
passed in last three AGMs / EGMs
1 -
iii Details of Resolution Passed in the
previous year
- -
iv Resolution through postal ballot, in
conducting official and voting
process
1 -
14 Means of communication and
general shareholder information
- 2
15 CEO / CFO Certification - 2
16 Compliance of Corporate
Governance Auditors’ Certificate
- 10
i Clean Certificate from Auditor 10
ii Qualified Certificate from auditors 5
17 Disclosure of Stakeholders’
interests:
- 10
i Environment, Health and Safety
Measures (EHS)
2 -
ii Human Resource Development
(HRD) Initiative
2 -
iii Corporate Social Responsibility
(CSR)
2 -
iv Industrial Relations (IR) 2 -
v Disclosure of Policies on EHS,
HRD, CSR and HR
2 -
Total - 100
TABLE – 4.4: METHODOLOGY FOR RANKING OF UNITS ON THE BASIS OF SCORES
Score Range Rank
86 – 100 Excellent
71 – 85 Very Good
56 – 70 Good
41 – 55 Average
Below 41 Poor
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TABLE – 4.5: MEASUREMENT OF CORPORATE GOVERNANCE IN SELECT PAPER MILLS
Points / Score S.
No.
Governance Parameters
Overall View (100) Assigned Score BIL
T
ITC
TN
PL
Sirp
ur
Wes
t
Coa
st
Orie
nt
AB
C
Rai
n
BoW
Yas
h
Em
ami
Sta
r
AP
Pap
er
1 Statement of Code of Governance 0 2 2 2 2 2 2 2 2 2 2 2 2 2
2 Structure and Strength of the board 0 2 2 2 2 2 2 2 2 2 2 2
3 Chairman and CEO duality 5
i Promoter Executive Chairman-Cum-MD /
CEO 1 1 1 1 1 1 1 1 1
ii Non-promoter Executive Chairman-Cum-
MD / CEO 2 2 2
iii Promoter Non-Executive Chairman 3 3 3
iv Non Promoter Non-Executive Chairman 4
v Non-Executive Independent Chairman 5
4 Disclosure of Age & Tenure of Directors 0 2 2 2 2 2 2 2
5 Disclosure of Directors Particulars 0 3
i Definition of Independent Director 1 1 1 1 1 1 1 1
ii Definition of Financial Expert 1
iii Selection Criteria for BOD 1 1 1 1 1 1 1 1 1 1 1 1 1
6 Post-board meeting follow up 0 2 2 2 2 2 2 2 2 2 2
7 Appointment of Lead Director 0 2
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8 Disclosure of other provisions relating to
BOD and committees 0 1 1 1 1 1 1 1 1
9 Disclosure with respect to compensation 0 2 2
i Remuneration Policy 1 1 1 1 1 1 1 1
ii Remuneration of Directors 1 1 1 1 1 1 1 1 1 1 1
10 Code of Conduct 2
i Information on Code of Conduct 1 1 1 1 1 1 1 1 1 1 1
ii Compliance to Clause to 49 1 1 1 1 1 1 1 1 1 1 1 1 1
11 Board Committees -
A Audit Committee 8
i Composition of Audit Committee 1 1 1 1 1 1 1 1 1 1 1 1 1
ii Compliance of minimum requirement of
the number of independent directors 1 1 1 1 1 1 1 1 1 1 1 1 1
iii Compliance of minimum requirements of
the number of meetings of the committee 1 1 1 1 1 1 1 1 1
iv Information about qualifications and
expertise of the members of the committee 1 1 1 1 1 1 1 1 1 1 1 1 1
v Information about participation of head of
finance, statutory auditor and chief internal
auditor in the committee meeting
2 2 2 2 2 2
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vi Disclosure of audit committee charter and
terms of reference 1 1 1
vii Publishing of audit committee report 1
B Remuneration/Compensation Committee 6
i Formation of the committee 1 1 1 1 1 1 1 1 1 1 1 1
ii Information about number of committee
meetings 1 1 1 1 1 1 1
iii Compliance of minimum requirement of
number of Non-Executive Directors in the
committee
1 1 1 1 1
iv Compliance of the provision of
Independent Director as a Chairman of the
Committee
1 1 1 1 1
v Information about participation of all
members in the Committee meetings 1 1 1 1
vi Publishing of Committee report 1 1 1 1 1 1 1 1 1 1 1 1 1
C Shareholders’/ Investors Grievance
Committee 5
i Transparency in composition of the
committee 1 1 1 1 1 1 1 1 1 1
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ii Information about the nature of complaints
and queries received and disposed item-
wise
1 1 1 1 1 1 1 1 1
iii Information about committee meetings 1 1 1 1 1 1 1 1 1 1 1 1
iv Information about action taken and
investors / shareholders survey 1 1 1 1 1 1 1 1 1 1 1 1
v Publishing of Committee report 1
D Nomination Committee 2
i Formation of the Nomination Committee 1
ii Publishing of Committee Charter and
Report 1
Other Committees 4
E Health, Safety and Environment
Committee 1
F Ethics and Compliance Committee 1
G Investment Committee 1
H Share Transfer Committee 1
12 Disclosure and Transparency
25 (6+3+2+4+2+2+2+2+2) 25
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A Significant transactions having potential
chance of conflicts with the interest of the
company
2 2 2 2 2 2 2 2 2 2 2 2
B Non-Compliance related to capital market
matters during last three years 2 2
C Accounting Treatment 2 2 2 2 2 2
D Board Disclosure-Risk Management
i. Information to the board on Risk
Management 2 2 2 2 2 2 2 2 2 2 2
ii. Publishing of Risk Management
Report 1
E Management Discussion and Analysis 2 2 2 2 2 2 2 2 2 2 2 2 2
F Shareholders’ Information 1 1
i. Appointment of new Director / Re-
appointment of existing director 1 1 1 1 1 1 1
ii. Quarterly Results and Presentation 1 1 1 1 1 1 1 1 1
iii. Share Transfers 1 1 1 1 1 1 1
iv. Directors’ Responsibility Statement 1 1 1 1 1 1 1 1 1 1 1 1
G Shareholder Rights 2
H Audit Qualification 2 2
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I Training of Board Members 2
J Evaluation of Non-Executive Directors 2
K Whistle Blower Policy 2 2
13 General Body Meetings 3
i Location and time of general meetings held
in last three years 1 1 1 1 1 1 1 1 1 1 1
ii Details of Special Resolution passed in last
three AGMs / EGMs 1 1 1 1 1 1 1
iii Details of Resolution Passed in the
previous year through postal ballot, incl.
conducting official and voting process
1 1 1 1
14 Means of communication and general
shareholder information 2 2 2 2 2 2 2 2 2 2 2 2
15 CEO / CFO Certification 2 2 2 2 2 2 2 2 2 2 2 2
16 Compliance of Corporate Governance
Auditors’ Certificate 10
i Clean Certificate from Auditor 10 10 10 10 10 10 10 10 10 10 10 10 10
ii Qualified Certificate from auditors 5 5 5 5 5 5 5 5 5 5
17 Disclosure of Stakeholders’ interests: 10
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i Environment, Health and Safety Measures
(EHS) 2 2 2 2 2 2 2 2 2
ii Human Resource Development (HRD)
Initiative 2 2 2 2 2 2 2 2
iii Corporate Social Responsibility (CSR) 2 2 2 2 2 2 2 2
iv Industrial Relations (IR) 2 2 2 2 2 2 2 2 2 2 2
v Disclosure of Policies on EHS, HRD, CSR
and HR 2
Total 100 72 52 64 75 52 60 53 59 47 48 53 66
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Analysis of Results on Corporate Governance Practices in the Selected
Paper Units:
With respect to analysis under the current study, the parameters
required for examination are given in the form of scores giving due weightage
to each and important parameter in the Corporate Governance system. In
order to examine the extent of compliance by each selected company, the
above point value system is applied and the total points obtained by each
selected unit out of 100 total points are considered. The discussion is
continued further by ordering the companies on the basis of points secured
by them and grading them. The list of selected units and their final score out
of analysis is given under table 4.6.
TABLE – 4.6: SHOWING THE FINAL SCORES OBTAINED IN SELECT
UNITS
S. No. Name of the Paper Unit Score obtained
1 BILT 72
2 ITC 52
3 TNPL 64
4 SIRPUR PAPER MILLS 75
5 WEST COAST PAPER MILLS 52
6 ORIENT PAPER MILLS 60
7 ABC PAPER MILLS 53
8 RAIN BOW PAPER MILLS 59
9 YASH PAPER MILLS 47
10 EMAMI PAPER MILLS 48
11 STAR PAPER MILLS 53
12 AP PAPER MILLS 66
The study observed some interesting points with respect to corporate
governance practices followed in paper industry India. Out of these 12 listed
companies no company obtained excellent category and only 2 companies
got very good ranking and 4 secured good and 6 companies are under the
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category average and quite surprisingly no company is poor with respect to
following of corporate governance practices.
In order to understand in a better fashioned way the results are
tabulated in table 4.7 as under:
TABLE – 4.7: RANKS OF COMPANIES
Score Range Rank No. of Units
86 – 100 Excellent 0
71 – 85 Very Good 2
56 – 70 Good 4
41 – 55 Average 6
Below 41 Poor 0
The analysis of results indicates that corporate governance practices
in paper industry are not upto mark in spite of various stipulations and
recommendations on Corporate Governance practices in Indian Industry. A
pictorial representation of the data better highlights the problem in an
understandable form (See Figure 4.1).
FIGURE – 4.1: THE STATE OF CORPORATE GOVERNANCE IN SELECT
UNITS
Where, E stands for Excellent,
VG stands for Very Good,
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G stands for Good,
Avg. stands for Average, and
P stands for Poor
Study Observations:
State of Corporate Governance in Indian Paper Industry:
The state of Corporate Governance in Indian Paper Industry as per the
study is not up to the mark. The results of scorings in select paper
companies not even a single company reached “Excellent” category, and only
2 found to be very good and 6 were average and 4 were poor in adoption of
corporate governance practices. However, in the year 2006 the major
tobacco giant ITC won the National Award for Excellence for Corporate
Governance from the Institute of Company Secretaries of India. However, the
present study is confined to Paper Industry alone and the scoring are given
sector wise and accordingly even ITC also not obtained “Excellent” ranking.
The same company also won the Golden Peacock Award for Corporate Social
Responsibility (Asia) in 2007, the award for “CSR in Emerging Economies
2005 “.
However, the point to notice here is that the erstwhile “Satyam” got
the Golden Peacock Award for excellence in Corporate Governance was
stripped off in the year 2008 after the scandals became visible to the world.
Therefore, awards may not be full proof of excellence.
Nomination Committee:
In majority of the select units the nomination committee and its role
in selecting competent, experienced, and expert professionals from outside
as truly independent directors in the board of a company is ignored.
State of CSR in Paper Industries requires more concern:
Paper industries are highly pollute in nature and the output has a
great bearing on the environment. The adoption of clonal plantation may to
some extent make the green pastures alive, but majority of the paper
companies are not in a position to undertake drastic CSR activities due
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industrial sickness or for other reason. Purchasing of land is the serious
concern and in some cases outdated technology in minimizing the pollutant
level is another concern.
Paper Industries ranking and Measurement untapped:
With respect to measurement of financial position of company, it can
be done without much difficulty but the same is not possible with respect to
measurement of corporate governance, there is no universally accepted tool
available to measure the corporate governance. However, with the growing
awareness on the concept, there are some tools available to measure it. One
of such measurement is corporate governance scoring or rating, this is in
one way address much of the corporate problems and best practices.
The issue of Corporate Governance ratings was initiated by SEBI and
it called Credit Rating Information Services (CRISIL) and Investment and
Information and Credit Rating Agency (ICRA) to prepare a comprehensive
instrument for rating the corporate governance practices of listed
companies. A rating system enhances corporate performance and gives the
corporate where it stands.
The awareness level of corporate governance ratings as a tool for
measuring the effectiveness of corporate governance practices is generally
low in India as compared to other western markets. Though the valuation
techniques followed by much of the corporate are similar yet, there are
differences with respect to compilation, evaluation of information and the
scope of coverage.
The whole structure of corporate governance rating was questioned
starting from board of directors of a company and its auditors and
accordingly it can be said that “whether corporate governance rating
systems are another tool to exploit the innocent investors?”.
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Yet, the practice of measuring corporate governance in paper
industries is not upto mark in India during the interaction and visits to
select industries none of the industry has resorted to the practice of
measurement for corporate governance.
Protection to Whistle Blowers:
The concept of Whistle Blower is almost ignored in majority of the
paper companies. Majority of the paper companies should recognize the
“whistle blower” concept by introducing a separate section to provide for
protection to individuals who expose offences by companies, particularly
those involving fraud. Such protection should extend to normal terms and
conditions of service and from harassment.
Generally a whistle blower is likely to ostracized by other employees in
the organization and he/she may be isolated by the management. Further,
they may face dismissal, demotion, or relocation to a less favourable place.
Sometimes, the whistle blower himself/herself at fault thereby jeopardizing
his/her as well as the organization’s reputation for a very long time.
Code of Conduct:
There were no uniformities with respect to code conduct in paper
industry and the applicability is unknown. Whether it applies uniformly to
all employees including top managerial personnel is another observation.
Compliance to rules and regulations:
Compliance to rules and regulations appears to be on par with the
listing agreement and a surprising fact is duplication and overlapping
between SEBI regulations and the Companies Act have created not only
confusion and inconvenience to majority of select units but have also
increased the compliance cost, ultimately making the industry
uncompetitive all of these are going against the interest of shareholders. The
present situation needs to be rectified.
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APPENDIX – I
CORPORATE SOCIAL RESPONSIBILITY VOLUNTARY GUIDELINES, GOI,
MINISTRY OF CORPORATE AFFAIRS, 2009:
Fundamental Principle
Each business entity should formulate a CSR policy to guide its
strategic planning and provide a roadmap for its CSR initiatives, which
should be an integral part of overall business policy and aligned with its
business goals. The policy should be framed with the participation of various
level executives and should be approved by the Board.
Core Elements:
The CSR Policy should normally cover following core elements:
1. Care for all Stakeholders: The companies should respect the
interests of, and be responsive towards all stakeholders, including
shareholders, employees, customers, suppliers, project affected
people, society at large etc. and create value for all of them. They
should develop mechanism to actively engage with all stakeholders,
inform them of inherent risks and mitigate them where they occur.
2. Ethical functioning: Their governance systems should be
underpinned by Ethics, Transparency and Accountability. They
should not engage in business practices that are abusive, unfair,
corrupt or anti-competitive.
3. Respect for Workers' Rights and Welfare: Companies should
provide a workplace environment that is safe, hygienic and
humane and which upholds the dignity of employees. They should
provide all employees with access to training and development of
necessary skills for career advancement, on an equal and non-
discriminatory basis. They should uphold the freedom of
association and the effective recognition of the right to collective
bargaining of labour, have an effective grievance redressal system,
should not employ child or forced labour and provide and maintain
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equality of opportunities without any discrimination on any
grounds in recruitment and during employment.
4. Respect for Human Rights: Companies should respect human
rights for all and avoid complicity with human rights abuses by
them or by third party.
5. Respect for Environment: Companies should take measures to
check and prevent pollution; recycle, manage and reduce waste,
should manage natural resources in a sustainable manner and
ensure optimal use of resources like land and water, should
proactively respond to the challenges of climate change by adopting
cleaner production methods, promoting efficient use of energy and
environment friendly technologies.
6. Activities for Social and Inclusive Development: Depending
upon their core competency and business interest, companies
should undertake activities for economic and social development of
communities and geographical areas, particularly in the vicinity of
their operations. These could include: education, skill building for
livelihood of people, health, cultural and social welfare etc.,
particularly targeting at disadvantaged sections of society.
Implementation Guidance:
1. The CSR policy of the business entity should provide for an
implementation strategy which should include identification of
projects/activities, setting measurable physical targets with
timeframe, organizational mechanism and responsibilities, time
schedules and monitoring. Companies may partner with local
authorities, business associations and civil society/non-
government organizations. They may influence the supply chain for
CSR initiative and motivate employees for voluntary effort for social
development. They may evolve a system of need assessment and
impact assessment while undertaking CSR activities in a particular
area. Independent evaluation may also be undertaken for selected
projects/activities from time to time.
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2. Companies should allocate specific amount in their budgets for
CSR activities. This amount may be related to profits after tax, cost
of planned CSR activities or any other suitable parameter.
3. To share experiences and network with other organizations the
company should engage with well established and recognized
programmes/platforms which encourage responsible business
practices and CSR activities. This would help companies to improve
on their CSR strategies and effectively project the image of being
socially responsible.
4. The companies should disseminate information on CSR policy,
activities and progress in a structured manner to all their
stakeholders and the public at large through their website, annual
reports, and other communication media.
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APPENDIX – II
CORPORATE GOVERNANCE VOLUNTARY GUIDELINES ISSUED BY GOI,
MINISTRY OF CORPORATE AFFAIRS, 2009
The Ministry of Corporate Affairs has been working towards
strengthening of the Corporate Governance framework through a two
pronged strategy. Some aspects which needed to be incorporated in the law
have been included in the draft Companies Bill, 2009. However, keeping in
view the objective of encouraging the use of better practices through
voluntary adoption, the Ministry has decided to draft a set of voluntary
guidelines which not only serve as a benchmark for the corporate sector but
also help them in achieving the highest standard of corporate governance.
Preamble:
Corporate Governance Voluntary Guidelines provide for a set of good
practices which may be voluntarily adopted by the public companies. Private
companies, particularly the bigger ones, may also like to adopt these
guidelines. The guidelines are not intended to be substitute for or addition
to the existing laws but are recommendary in nature.
Guidelines:
I. Board of Directors
II. Responsibilities of the Board
III. Audit Committee of Board
IV. Auditors
V. Secretarial Audit
VI. Institution of mechanism for Whistle Blowing
Details of these Guidelines:
I. Board of Directors:
A. Appointment of Directors
A.1 Appointments to the Board
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i. Companies should issue formal letter of appointment to Non-
Executive Directors (NEDs) and Independent Directors – as is
done by them while appointing employees and Executive
Directors. The letter should specify:
• The term of the appointment
• The expectation of the Board from the appointed director; the
Board-level committee(s) in which the director is expected to
serve and its tasks.
• The fiduciary duties that come with such an appointment
along with accompanying liabilities;
• Provision for Directors and Officers (D&O) insurance, if any;
• The Code of Business Ethics that the company expects its
directors and employees to follow
• The list of actions that a director should not do while
functioning as such in the company
• The remuneration, including sitting fees and stock options
etc, if any
ii. Such formal letter should form a part of the disclosure to
shareholders at the time of the ratification of his / her
appointment or re-appointment to the board. This letter should
also be placed by the company on its website, if any, and in case
the company is a listed company, also on the website of the
stock exchange where the securities of the company are listed.
A.2. Separation of Offices of Chairman & Chief Executive Officer:
To prevent unfettered decision making power with a single
individual, there should be a clear demarcation of the roles and
responsibilities of the Chairman of the Board and that of the
Managing Director/Chief Executive Officer (CEO). The roles and offices
of Chairman and CEO should be separated, as far as possible, to
promote balance of power.
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A.3 Nomination Committee
i. The companies may have a Nomination Committee comprising
of majority of Independent Directors, including its chairman.
This Committee should consider:
• Proposals for searching, evaluating, and recommending
appropriate Independent Directors and Non-Executive
Directors (NEDs), based on an objective and transparent set
of guidelines which should be disclosed and should, inter-
alia, include the criteria for determining qualification,
positive attributes, independence of a director and
availability of time with him or her to devote to the job
• Determining processes for evaluating the skill, knowledge,
experience and effectiveness of individual directors as well as
the Board as a whole
ii. With a view to enable Board to take proper and reasoned
decision, Nomination Committee should ensure that the Board
comprises of a balanced combination of Executive Directors and
Non-Executive Directors.
iii. The Nomination Committee should also evaluate and
recommend the appointment of Executive Directors.
iv. A separate section in the Annual Report should outline the
guidelines being followed by the Nomination Committee and the
role and work done by it during the year under consideration.
A.4. Number of Companies in which an individual may become a Director:
i. For reckoning the maximum limit of directorship, the following
categories of companies should include:-
• Public limited companies
• Private companies that are either holding or subsidiary
companies of public companies
ii. In case an individual is a Managing Director or Whole-time
Director in a public company the maximum number of
companies in which such an individual can serve as a Non-
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Executive Director or Independent Director should be restricted
to seven.
B. INDEPENDENT DIRECTORS
B.1 Attributes for Independent Directors
i. The Board should put in place a policy for specifying positive
attributes of independent directors such as integrity, experience
and expertise, foresight, managerial qualities and ability to read
and understand financial statements. Disclosure about such
policy should be made by the Board in its report to the
shareholders. Such a policy may be subject to approval by
shareholders.
ii. All independent Directors should provide a detailed Certificate of
Independence at the time of their appointment, and thereafter
annually. This certificate should be placed by the company on
its website, if any, and in case the company is a listed company,
also on the website of the stock exchange where the securities of
the company are listed.
B.2 Tenure for Independent Director
i. An individual may not remain as an Independent Director in a
company for more than six years
ii. A period of three years should elapsed before such an individual
is inducted in the same company in any capacity
iii. No individual may be allowed to have more than three tenures
as Independent Director in the manner suggested in ‘I’ and ‘ii’
above.
iv. The maximum number of public companies in which an
individual may serve as an independent director should be
restricted to seven.
B.3 Independent Directors to have the option and freedom to meet
company management periodically
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i. In order to enable independent directors to perform their
function effectively, they should have the option and freedom to
interact with the company management periodically
ii. Independent directors should be provided with adequate
independent office space and other resources and support by
the companies including the power to have access to additional
information to enable them to study and analyze various
information and data provided by the company management.
C. Remuneration of Directors
C.1 Remuneration
C.1.1 Guiding Principles-Linking Corporate and Individual
Performance
i. The companies should ensure that the level and composition of
remuneration is reasonable and sufficient to attract, retain and
motivate directors of the quality required to run the company
successfully. It should also be ensured that relationship of
remuneration to performance is clear. Incentive schemes should
be designed around appropriate performance benchmarks and
provide rewards for materially laid down by the company should
be disclosed to the members annually.
ii. Remuneration Policy for the members of the Board and Key
Executives should be clearly laid down and disclosed.
Remuneration packages should involve a balance between fixed
and incentive pay, reflecting short and long term performance
objectives appropriate to the company’s circumstances and goal.
iii. The performance-related elements of remuneration should form
a significant proportion of the total remuneration package of
Executive Directors and should be designed to align their
interests with those of shareholders and to give these Directors
keen incentives to perform at the highest levels.
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C.1.2. Remuneration of Non-Executive Directors (NEDs):
i. The companies should have the option of giving a fixed
contractual remuneration, not linked to profits, to NEDs. The
companies should have the option to:
• Pay a fixed contractual remuneration to its NEDs, subject to
an appropriate ceiling depending on the size of the company;
or
• Pay upto an appropriate percent of the net profits of the
company
ii. The choice should be uniform for all NEDs, i.e.some should not
be paid a commission on profits while other are paid a fixed
amount.
iii. If the option chosen is ‘i(a)’ above, then the NEDs should not be
eligible for any commission on profits.
iv. If stock option are granted as a form of payment to NEDs, then
these should be held by the concerned director until three years
of his exit from the Board.
C.1.3. Structure of Compensation to NEDs
i. The companies may use the following manner in structuring
remuneration to NEDs:
• Fixed component: This should be relatively low, so as to align
NEDs to a greater share of variable pay. These should not be
more than one-third of the total remuneration package.
• Variable component: Based on attendance of Board and
Committee meetings (at least 75% of all meetings should be
an eligibility pre-condition)
• Additional variable payment(s) for being:
i. The chairman of the Board, especially if he/she is a non
executive chairman
ii. The chairman of the audit committee and/or other
committees
• Members of board committees
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iii. If such a structure (or any similar structure) of
remuneration is adopted by the board, it should be
disclosed to the shareholders in the Annual Report of the
company.
C.1.4 Remuneration of Independent Directors (IDs)
i. In order to attract, retain and motivate Independent Directors of
quality to contribute to the company, they should be paid
adequate sitting fees which may depend upon the twin criteria
of Net Worth and Turnover of companies.
ii. The IDs may not be allowed to be paid stock options or profit
based commission, so that their independence is not
compromised.
C.2. Remuneration Committee:
i. Companies should have Remuneration Committee of the Board.
This committee should comprise of at least three members,
majority of whom should be non executive directors with at least
one being an Independent Director
ii. This committee should have responsibility for determining the
remuneration for all executive directors and the executive
chairman, including any compensation payments, such as
retirement benefits or stock options. It should be ensured that
no director is involved in deciding his or her own remuneration
iii. This committee should also determine principles, criteria and
the basis of remuneration policy of the company which should
be disclosed to shareholders and their comments, if any,
considered suitably. Whenever, there is any deviation from such
policy, the justification / reasons should also be indicated /
disclosed adequately
iv. This committee should also recommend and monitor the level
and structure of pay for senior management, i.e. one level below
the Board.
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v. This committee should make available its terms of reference, its
role, the authority delegated to it by the Board, and what it had
done for the year under review to the shareholders in the
Annual Report.
II. Responsibilities of the Board
A. Training of Directors
i. The companies should ensure that directors are inducted
through a suitable familiarization process covering, inter-alia,
their roles, responsibilities and liabilities. Efforts should be
made to ensure that every director has the ability to understand
basic financial statements and information and related
documents / paper. There should be a statement to this effect
by the Board in the Annual Report
ii. Besides this, the board should also adopt suitable methods to
enrich the skills of directors from time to time
B. Enabling Quality Decision making
The Board should ensure that there are systems, procedures
and resources available to ensure that every Director is supplied, in a
timely manner, with precise and concise information in a form and of
a quality appropriate to effectively enable/discharge his duties. The
Directors should be given substantial time to study the data and
contribute effectively to Board discussion.
C. Risk Management
i. The Board, its Audit Committee and its executive management
should collectively indentify the risks impacting the company’s
business and document their process of risk identification, risk
minimization, risk optimization as a part of a risk management
policy or strategy.
ii. The Board should also affirm and disclose in its report to
members that it has put in place critical risk management
framework across the company, which is overseen once every
six months by the Board. The disclosure should also include a
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statement of those elements of risk, that the Board feels, may
threaten the existence of the company.
D. Evaluation of Performance of Board of Directors, Committees thereof
and of individual Directors
The Board should undertake a formal and rigorous annual
evaluation of its own performance and that of its committees and
individual directors. The Board should state in the Annual Report how
performance evaluation of the Board, its committees and its individual
directors has been conducted.
E. Board to place Systems to ensure Compliance with Laws
i. In order to safeguard shareholders’ investment and the
company’s assets, the Board should, at least annually, conduct
a review of the effectiveness of the company’s system of internal
controls and should report to shareholders that they have done
so. The review should cover all material controls, including
financial, operation and compliance controls and risk
management systems.
ii. The Directors’ Responsibility Statement should also include a
statement that proper systems are in place to ensure
compliance of all laws applicable to the company. It should
follow the “comply or explain” principle.
iii. For every agenda item at the Board meeting, there should be
attached an “Impact Analysis on Minority Shareholders”
proactively stating if the agenda item has any impact on the
rights of minority shareholders. The independent directors
should discuss such impact analysis and offer their comments
which should be suitably recorded.
II. Audit Committee of Board
A. Audit Committee -- Constitution
The companies should have at least a three-member Audit
Committee, with Independent Directors constituting the majority. The
Chairman of such Committees should be an Independent Director. All
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the members of audit committee should have knowledge of financial
management, audit or accounts.
B. Audit Committee – Enabling Power:
i. The Audit Committee should have the power to –
• Have independent back office support and other resources
from the company
• Have access to information contained in the records of the
company; and
• Obtain professional advice from external sources
ii. The Audit Committee should also have the facility of separate
discussions with both internal and external auditors as well as
the management.
C. Audit Committee – Role and Responsibilities
i. The Audit Committee should have the responsibility to –
• Monitor the integrity of the financial statements of the
company
• Review the company’s internal controls, internal audit
function and risk management systems
• Make recommendations in relation to the appointment, re-
appointment and removal of the external auditor and to
approve the remuneration and terms of engagement of the
external auditor
• Review and monitor the external auditor’s independence and
objectivity and the effectiveness of the audit process
ii. The Audit Committee should also monitor and approve all
Related Party Transactions including any
modification/amendment in any such transaction
iii. A statement in a prescribed/structure format giving details
about all related party transactions taken place in a particular
year should be included in the Board’s report for that year for
disclosure to various stakeholders
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Auditors
A. Appointment of Auditors
i. The Audit Committee of the Board should be the first point of
reference regarding the appointment of auditors
ii. The Audit Committee should have regard to the profile of the
audit firm, qualification and experience of audit partners,
strengths and weaknesses, if any, of the audit firm and other
related aspects
iii. To discharge its duty, the Audit Committee should:
• Discuss the annual work programme and the depth and
detailing of the audit plan to be undertaken by the auditor,
with the auditor
• Examine and review the documentation and the certificate
for proof of independence of the audit firm, and
• Recommend to the board, with reasons, either the
appointment / re-appointment or removal of the statutory
auditor, along with the annual audit remuneration
B. Certificate Independence
i. Every company should obtain a certificate from the auditor
certifying his/its independence and arm’s length relationship
with the client company
ii. The Certificate of Independence should certify that the audit
together with its consulting and specialized services affiliates,
subsidiaries and associated companies or network or group
entities has not/have not undertaken any prohibited non-audit
assignments for the company and are independent vis-à-vis the
client company
C. Rotation of Audit Partners and Firms
i. In order to maintain independence of auditors with a view to
look at an issue (financial or non-financial) from a different
perspective and to carry out the audit exercise with a fresh
outlook, the company may adopt a policy of rotation of auditors
which may be as under:-
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• Audit partner – to be rotated once every three years
• Audit firm – to be rotated once every five years
ii. A cooling off period of three years should elapse before a partner
can resume the same audit assignment. This period should be
five years for the firm.
D. Need for clarity on information to be sought by auditor and/or
provided by the company to him/it:
i. With a view to ensure proper and accountable audit, there should
be clarity between company management and auditors on the
nature and amount of information / documents / records etc and
periodicity / frequency for supply / obtaining such information /
documents / records etc.
ii. In any case the auditor concerned should be under an obligation to
certify whether he had obtained all the information he sought from
the company or not. In the latter case, he should specifically
indicate the effect of such non receipt of information on the
financial statements
E. Appointment of Internal Auditor
In order to ensure the independence and credibility of the
internal audit process, the Board may appoint an internal auditor and
such auditor, where appointed, should not be an employee of the
company.
Secretarial Audit
Since the Board has the overarching responsibility of ensuring
transparent, ethical and responsible governance of the company, it is
important that the Board processes and compliance mechanisms of
the company are robust. To ensure this, the companies may get the
Secretarial Audit conducted by a competent professional. The Board
should give its comments on the Secretarial Audit in its report to the
shareholders.
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Institution of Mechanism for Whistle Blowing
i. The companies should ensure the institution of a mechanism
for employees to report concerns about unethical behavior,
actual or suspected fraud, or violation of the company’s code of
conduct or ethics policy
The companies should also provide for adequate safeguards against
victimization of employees who avail of the mechanism, and allow direct
access to the Chairperson of the Audit Committee in exceptional cases
References:
1. Field visits and interactions
2. Annual Report of BILT for the assessment year 2009-10
3. Annual Report of ITC for the assessment year 2009-10
4. Annual Return of TNPL for the assessment year 2009-10
5. Annual Return of Sirpur Paper Mills for the assessment year 2009-10
6. Annual Return of West Coast Paper Mills for the assessment year 2009-
10
7. Annual Return of Orient Papers for the assessment year 2009-10
8. Annual Return of ABC Paper for the assessment year 2009-10
9. Annual Return of Rainbow for the assessment year 2009-10
10. Annual Return of Yash for the assessment year 2009-10
11. Annual Return of Emami for the assessment year 2009-10
12. Annual Return of Star Paper Mills for the assessment year 2009-10
13. Annual Return of AP Paper Mills Ltd. for the assessment year 2009-10
14. Analysis through structured Questionnaire
15. Websites of the concerned companies