Narayan Murthi Committee

8/14/2019 Narayan Murthi Committee

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CORPORATE GOVERNANCE:Narayan Murthy Committee

Presented By:

Seema Sharma

Prashant TomarPankaj Kumar


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GENESIS of Clause 49 ofthe Listing Agreement

Prevent financial crisis in emerging markets.

Prevent financial reporting failures.

Control business failures.


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BACKGROUND

Setting up of the Kumar Mangalam BirlaCommittee by SEBI in May 1999.

Narayana Murthy Committee set up in 2002to review existing code on CorporateGovernance.

Passing of the SOX ( Sarbanes Oxley Act) inJuly 2002 by US.


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CORPORATE GOVERNANCE: MISSION

Align Corporate interests with Society.

Management to act as trustees of Business.

Protect interests of investors through good

governance practices and disclosures.


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MAIN PROVISIONS OF CLAUSE 49

1. Board of Directors

2. Audit Committee

3. Subsidiary Companies

4. Role of CEO/ CFO5. Disclosure

6. Corporate Governance/ Compliance Report


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1. BOARD OF DIRECTORS

a) Composition Optimum combination with not less than 50% independent

Directors.

If Board headed by non-executive Chairman, at least 1/3rd ofBoard should be independent Directors.

b) Non-Executive Directors Compensation and Disclosures Non-executive Directors (including Independent Directors)

compensation to be fixed by Board and approved by shareholders.

If Sitting fee within limits of the Companies Act, then shareholdersapproval not required.

Shareholding disclosure to be made in Annual Report.


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1. BOARD OF DIRECTORS

c) Board Meetings / Membership in Committees At least four meetings in a year.

Maximum gap between two meetings not over four months.

Across all Companies, Directors shall not be member of:

more than 10 Committees or

act as Chairman of more than 5 Committees

d) Code of Conduct To be laid down by the Board : -

For Board members & Senior Management. Annual

Compliance to be affirmed. CEO to sign compliance to Code by all in Annual Report.


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2 a) AUDIT COMMITTEE - Composition / Meetings

Minimum three financially literate members.

2/3rd to be independent Directors.

Chairman shall be independent Director & be present in theAGM.

Atleast one member to have knowledge of accounting /

financial management expertise.

To meet atleast four times a year with a maximum gap of 4months between two meetings.

Quorum

Greater of 2 members or 1/3rd Members.

Minimum 2 independent Directors .


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2 b) AUDIT COMMITTEE - Powers

Investigate any activity within its terms of reference.

Seek information from any employee.

Obtain outside legal / professional advice.


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2 c) AUDIT COMMITTEE- Role includes review of :

i. Accounting policies, Quarterly & Annual accounts before submissionto Board.

ii. Adequacy of Internal Control Systems.iii. Recommendation on appointment/ removal/ fixation of audit fee and

fee for other services rendered by Statutory auditors.

iv. Performance of Internal and Statutory Auditors & treatment of theirfindings / recommendations.

v. Quality & adequacy of Internal audit Personnel.vi. Whistle Blower Policy, if in existence.vii. Oversee correct financial reporting.

viii. Substantial defaults in payments to Depositors/ debenture holders/shareholders / creditors.


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3. SUBSIDIARY COMPANIES

a) At least one independent Director of Holding Company to be

on the Board of material non-listed Subsidiary Company.

b) Audit Committee to review financial investments and

statements of unlisted companies.

c) Board Minutes & significant transactions of unlisted company

to be placed in the Board meeting of the listed Holding

company.


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4. ROLE OF CEO/CFO:

(i) CEO/CFO CERTIFICATION TO BOARD

a) No material untrue fact in the financial statements.

b) No transaction which violates Companys Code of Conduct.

c) Accept responsibility for establishing and maintaining internalcontrols for financial reporting.


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(ii) DISCLOSURE BY CEO / CFO

a) To Audit Committee:

all significant changes in internal control

All cases of fraud that they are aware of

Significant changes in accounting policies

during the year.


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b) In Financial Statements:

Deviations from prescribed Accounting Standards.

Comprehensive Management discussion & analysis on:

- Industry development;

- Opportunity & threats;- Business Outlook;

- Risks & Concerns;

- Adequacy of Internal Control system;

- Developments in Industrial relations / Human resources.


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c) To Board :

Risk assessment & minimization procedures.

d) For Shareholders:

Grievance Committee under chairmanship of a non-executive Director to be formed for redressal of

complaints.


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6. CORPORATE GOVERNANCE / COMPLIANCE REPORT

Annual Report to contain:

a) A separate Corporate Governance Report.

b) Details of non-compliance of mandatory requirements aswell as compliance of non-mandatory requirements.

c) Sign off certificate from the CEO/ Practicing CompanySecretary or Statutory auditors.


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Sarbanes-Oxley Indian situation

Certification of annual accounts by

CEO, CFO

At least two directors must sign, of whom

one must be the Managing Director

Fully independent audit committees Fully non-executive, majority independentaudit committees

Prohibition of insider trading Prohibits insider trading

Prohibition of insider loans to

directors

Strict cap on insider loans to directors;

requires prior government approval

Comparison between Sarbanes-Oxley Act

and CG in India


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Sarbanes-Oxley Indian situation

Mandatory periodic review ofcompanys filings once every three

years

No such provision

Auditors to report to Audit Committee

on critical accounting policies

Mandated by the listing

agreement and the CompaniesAct amendments

Rotation of audit partners every five

years

No such provision exists

Up to 20 years in prison for fraud and

destruction of records

No such provision

Sarbanes-Oxley Act and CG Status in India


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Conclusion

Government or SEBI can at the most

ensure that formalities of CorporateGovernance are complied with.

Corporate Governance has to come

through conviction and self-discipline of

top management. Otherwise, it remains

an empty promise.


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THANK YOU

Narayan Murthi Committee

Documents

Transcript of Narayan Murthi Committee