CLAUSE 49 OF LISTING AGREEMENT-HAS IT BEEN EFFECTIVE?MATHANKIMYTHILISANTHOSH RAJ

• Clause 49 of the Listing Agreement to the Indian stock exchanges comes into effect from 31 December 2005. It has been formulated for the improvement of corporate governance in all listed companies.

• companies managed by Board of Directors, Managing Director, whole-time director or manager subject to the control and guidance of the Board of Directors

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Issues under clause 49• Board of directors• Audit committee• Subsidiaries• Disclosures• Whistle blowing policy• CEO/CFO certification

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Board of directors• The Board of directors of the company shall have an

optimum combination of executive and non-executive directors, with not less than fifty percent of the board of directors comprising of non-executive directors.

• Where the Chairman of the Board is a non-executive director, at least one-third of the Board should comprise of independent directors and in case of an executive director, at least half the Board should comprise of independent directors.

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• Independent director shall mean a non-executive director of the company who:

-Has not been an executive of the company in the immediately preceding three financial years.

• Code of conduct -The Board shall lay down a code of conduct for all

Board members and senior management of the company. The code of conduct shall be posted on the website of the company.

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Audit committee• The audit committee shall have minimum three

directors as members. Two-thirds of the members of audit committee shall be independent directors.

• All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise.

• The audit committee should meet at least four times in a year and not more than four months shall elapse between two meetings.

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Related party transactions• RPTs to require prior approval of the audit committee.• Material RPTs to require shareholder approval though

special resolution and concerned related parties to abstain from voting on such resolutions.

• Disclosure of all material RPTs on a quarterly basis with compliance report on corporate governance. Disclosure of policies on dealing with RPTs, in website and Annual Report.

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Disclosures• Disclosure of letter of resignation of directors along with

reasons, on the company website and stock exchange, within one working day of receipt of the letter.

• Letter of Appointment: Disclosure of letter of appointment of an ID along with detailed profile, on the company website and stock exchange, within one working day of date of appointment.

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• Disclosure of all pecuniary relationships of non-executive directors with the company.

• Disclosure of detailed information on remuneration to directors.

• Disclosure of criteria of making payments to non-executive directors.

• Disclosure of shares/other instruments held by non-executive directors.

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CEO/CFO Certification• In the absence of CEO or MD, CFO must certify that

they have reviewed the financial statements and the cash flow statements to the best of their knowledge.

• Also they have to certify that all transactions does not violate the Company’s Code of Conduct.

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Management• Management Discussion and Analysis report should

form a part of the Annual report of Share holders which containing discussions on the industry structure and developments, Product wise performance, Opportunities and threats, outlook, risks and concerns etc.

• Senior Management must every financial or commercial transaction where they have a personal interest which might conflict with the interest of the company. SANTHOSH RAJ

Shareholders

• Inter director relationships must be disclosed in the Annual report, Prospectus etc.

• Stakeholder Relationship committee must be constituted which would consider and resolve the security holder grievances.

• Lastly, proceeds from public issue, right issue, preferential issue must be disclosed.

• A statement of funds utilized for purposes other than those states in the offer document must be placed before the Audit committee.

Report on corporate governance• A separate section in the Annual Report on Corporate

Governance must be made along with the detailed compliance report on Corporate Governance.

• Any non compliance of any mandatory requirement must be highlighted.

• Company must submit a quarterly compliance report to the stock exchanges within 15 days from the close of quarter and such report must be signed by the Compliance officer or the CEO.

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Has it been effective?• YES• TATA MOTORS - The Code of Conduct in TATA, which articulates the values, ethics

and business principles, serves as a guide to the Company, its directors and employees is supplemented with an appropriate mechanism.

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Scandal In The Companies• The concept of corporate governance has gained

importance globally after the failure of big corporate giants in USA and UK namely Enron (2001), Xerox (2002), WorldCom (2002) and Tyco (2002).

• scams in India namely Hashed Mehta Scam (1992), Vanishing Company Scam (1994), M.S Shoes Scam (1994), CRB Scam (1997) and recently occurred Satyam Computers Services Ltd. Scam (2009).

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Sarbanes Oxley Act-2002• Enron, WorldCom, Satyam and other high profile scandals,

serving as the impetus to recent U.S. regulations as the Sarbanes-Oxley Act of 2002, which is considered to be the most sweeping Corporate Governance regulation in the past 70 years .

• The recommendations given by Naresh Chandra committee were in line with the Sarbanes Oxley Act, 2002 of USA. In the year 2002, another committee had been formed by SEBI under the chairmanship of Narayana Murthy to review the existing corporate governance code as suggested by Birla Committee and to give the recommendations for its further improvement.

HDFC-Bank• Mumbai: As a 33-year-old, Rajendra Ambalal Shah

who had a law degree, joined the board of consumer goods maker Procter and Gamble Hygiene and Healthcare Ltd (formerly Richardson Hindustan Ltd). after 50 years, he remains on its board and serves as chairman.

• Shah, who is a senior partner at law firm Crawford Bayley & Co., holds seven independent directorships, and the average tenure he has spent on those boards amounts to 41 years.

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• These examples show the tenure of independent directors has not been of much consequence in the history of corporate India, but the Companies Act of 2013 has changed that.

• the law has questioned the unchecked tenure of directors and has mandated two successive five-year terms, after which they can come up for a re-appointment only after three years.

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Infosys• Punita Kumar Sinha, wife of union Minister of State for Finance

Jayant Sinha, as an independent director on its board.• In a brief profile in the filing, the company, however, did not

mention that Punita's husband is a minister in the central government.

• Sinha is the son of former finance and external affairs minister Yeshwant Sinha in the previous NDA government (1999-2004) and Punita Sinha is former senior managing director at The Blackstone Group.

• Besides Punita, outgoing independent director Jeffrey S Lehman was re-appointed for a two-year term .

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Thank You