| INTRODUCTION | | | | appointment, re-appointment and, if required, the |
| The concept of CG is no longer a fashion statement | | | | replacement or removal of the statutory auditor and |
| as it has been embedded in the statutes of many | | | | the fixation of audit fees. Approval of payment to |
| countries including India. The factors that gave rise to | | | | statutory auditors for any other services rendered |
| CG are: | | | | by the statutory auditors. Reviewing, with the |
| Business corporations are no longer small in size. | | | | management, the annual financial statements before |
| Multinational as their boundaries are not restricted | | | | submission to the board for approval, with particular |
| Resources tapped from large number of investors | | | | reference to: |
| across the world. | | | | Matters required being included in the Director’s |
| Companies are diverse, varied commanding large | | | | Responsibility Statement to be included in the |
| resources, both financial and human. | | | | Board’s report in terms of Clause 2AA of |
| Corporations Answerable not only to Government, | | | | Section 217 of the Companies Act, 1956.The term |
| suppliers’ lenders or their shareholders but also to | | | | “related party transactions” shall have the |
| the public at large (Social Responsibility) | | | | same meaning as contained in the Accounting |
| Cadbury Committee, UK defined “the system | | | | Standard 18, Related Party Transactions, issued by |
| by which companies are directed and controlled”. | | | | the Institute of Chartered Accountants of India. If |
| The major objectives of corporate governance are: | | | | the company has set up an audit committee pursuant |
| To fulfill the long term aims for which the company | | | | to provision of the Companies Act, the said audit |
| was incorporated | | | | committee shall have such additional functions/ |
| To ensure shareholder protection | | | | features as is contained in this clause. |
| To ensure employee protection | | | | The Audit Committee should have discussions with |
| To ensure that responsibilities to the society and | | | | the auditors periodically about internal control |
| environment are carried out | | | | systems, the scope of audit including the |
| To ensure compliance with laws and regulations | | | | observations of the auditors and review the |
| To ensure correct presentation of finances of the | | | | half-yearly and annual financial statements before |
| company | | | | submission to the Board and also ensure compliance |
| Why Corporate Governance? | | | | of internal control systems. The Audit Committee |
| India was previously a closed system of capital | | | | shall have authority to investigate into any matter in |
| market.But today it is transparent and inter | | | | relation to the items specified in this section or |
| connected globally. | | | | referred to it by the Board and for this purpose, shall |
| Supply of debt capital was almost from the public | | | | have full access to information contained in the |
| sector | | | | records of the company and external professional |
| Significant share capital held by domestic FIs who | | | | advice, if necessary |
| played a passive role | | | | Conclusion: |
| Consequently promoters with minority shareholding | | | | From the above discussions made, it is felt that, |
| have been able to influence governance structure. | | | | corporate governance is about commitment to values |
| Major economic reforms from 1991 | | | | and about ethical business conduct. This includes |
| Establishment of SEBI | | | | company in culture, policies, timely and accurate |
| Increase in amount of foreign investment | | | | disclosure of financial information. Hence the |
| Indian shares were sold to foreign institutional | | | | corporate sector needs resource persons to act as |
| investors | | | | independent director on who shoulder lies the |
| Indian companies began to face competition from | | | | responsibility to take the company in the right path. |
| foreign firms. | | | | Independence is a quality that a person nurtures |
| Lowering of trade barriers | | | | from the beginning of his life and as it is very |
| Demand for more disclosures transparency and | | | | difficult to acquire it by training. Moreover the |
| accountability and performance standards from | | | | compensation package is a pittance to the |
| investors and lenders. | | | | independent directors considering the draconic |
| Problem of dominant shareholders and limited | | | | attendant responsibilities and liabilities under various |
| protection for minority shareholders. | | | | statues. Needless to say that good corporate |
| Issues of insider trading | | | | governance starts from the top to percolate to |
| The role of the audit committee shall include the | | | | the bottom. The best example is Mr. N.R. Narayana |
| following: | | | | Murthy, Former Chairman and Chief Mentor, Infosys |
| Failure to notice of the | | | | Technology Limited. In a nutshell, The Auditors should |
| company’s financial reporting process and the | | | | act as the monitor to the whole system to ensure |
| disclosure of its financial information to ensure that | | | | adherence to ethical value, which is the backbone of |
| the financial statement is correct, sufficient and | | | | the corporate governance. |
| credible. Recommending to the Board, the | | | | |