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Corporate governance JJ Irani v. Clause 49

Applicability. Clause 49Listed companies. JJILarge size causing ?public interest potential'.. Corporate Governance. Need forBerle and MeansDivorce of control from ownershipAgency problemProblem faced only where ownership is diffused and thus divorced from controlHow to identify divorceNot si

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Corporate governance JJ Irani v. Clause 49

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    1. Corporate governance JJ Irani v. Clause 49

    2. Applicability Clause 49 Listed companies JJI Large size causing ‘public interest potential’.

    3. Corporate Governance Need for Berle and Means Divorce of control from ownership Agency problem Problem faced only where ownership is diffused and thus divorced from control How to identify divorce Not size of company Probably not number of shareholders Definitely not a vague concept like ‘public interest’ Addressing non existent problem – huge burden on economy

    4. Comparisons between clause 49 and JJ Irani report Independent Dir – number of Definition of Independence Audit Committee Board procedure Shareholder rights Disclosures

    5. Independent Directors Clause 49 50% where executive chairman 33% where chairman is non-exec FI representatives independent JJI Maximum of 33% for companies with ‘public interest’ FI representatives not independent

    6. Independence defined Clause 49 No pecuniary relationship with Company Promoters Management Subsidiaries Relative of above Supplier etc. 2% shareholder 3 year cooling off (auditor /lawyer/consultant) JJI No pecuniary relationship with Company Promoters Management Subsidiaries Relative of above Supplier etc. 2% shareholder 1 year cooling off (auditor /lawyer/consultant)

    7. Audit committee Clause 49 Min 3, majority indep One expert Financial oversight Appointment of auditor Internal controls Internal investigations 4 meetings/year JJI Majority indep One expert Financial oversight Appointment of auditor

    8. Board Procedure At least 4 meetings/yr Minimum information Code of conduct (to be disclosed) Max 10 committees (5 as chairman) MD&A compulsory At least 4 meetings/yr Minimum information Code of conduct (to be disclosed) Maximum 15 directrsh Remuneration commt Electronic meetings allowed Of public companies (listed or not)Of public companies (listed or not)

    9. Shareholders’ rights Investor grievance committee Director information when appointed Disclosures – on websites Stakeholders’ relatn committee Director information when appointed Electronic voting

    10. Disclosures Board remuneration Related party deals Accounting treatment Risk management Use of issue funds Auditor compliance Certificate Board remuneration Related party deals (shareholder approval beyond a limit)

    11. Other requirements Whistle-blowing policy (optional) CEO/CFO certification Material non-listed 20% subsidiary Whistle-blowing policy CEO/CFO/CS certification Auditor disqualification for non audit services

    12. Way forward Need to rethink Corp Gov in unlisted companies Need to make most standards voluntary A means of value creation Not a compliance burden

    13. Thank you Sandeep Parekh P.H. Parekh & Co. Visiting Faculty, IIM, Ahmedabad

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