Investor Protection and Corporate Governance-dissertation for Seminar Paper i (1)
INVESTOR PROTECTION UNDER CORPORATE GOVERNANCE
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Transcript of INVESTOR PROTECTION UNDER CORPORATE GOVERNANCE
INVESTORS’ PROTECTION UNDER CORPORATE GOVERNANCE
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SOUMITRA CHAWATHECompany Secretary, Pune
INTRODUCTION
Investors invest their hard earned money
Assurance about safety
Are investors innocent?
Past events have shook investor confidence
Increased need for corporate governance
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THE NEED FOR INVESTOR PROTECTIONCorporate Scams and Accounting ScandalsInsider TradingNon-disclosure of material factsVanishing Companies – Taking investors’ money and
disappearingTerrorist fundingMoney laundering
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EVOLUTION OF CORPORATE GOVERNANCE
• Corporate Governance principles by sages and hermits in ancient India – Have we forgotten these values?
• Kautilya has elaborated on four fold duties of a king
• Duties- Raksha (protection), Vrudhi (enhancement), Palana (maintenance), Yogakshema (safeguard)
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CORPORATE GOVERNANCE - WHAT DOES IT MEAN
The social, legal & economic process in which Companies function and are accountable
Conducting the affairs of the company in a manner that ensures fairness to the stake holders, i.e.Customers EmployeesInvestorsLenders and institutionsVendorsThe Government, andThe Society as a whole 5
ELEMENTS OF GOOD CORPORATE GOVERNANCE
• Transparency• Disclosures• Accountability• Equity• Compliance• Ethics• Share holder’s value
THE SEVEN COMMANDMENTSTHE SEVEN COMMANDMENTS6
MODERN DAY PRINCIPLES OF CORPORATE GOVERNANCE
Solid Foundations for management and oversight
Structure the Board to add value
Promote ethical and responsible decision making
Safeguard integrity in financial reporting
Timely & Balanced Disclosure
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MODERN DAY PRINCIPLES OF CORPORATE GOVERNANCE
Protection of stakeholders’ rights
Encourage and enhance performance
Recognize and manage risk
Remunerate fairly
Recognize legitimate interests of shareholders
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INVESTOR PROTECTION VIS-À-VIS CORPORATE GOVERNANCE
Investor Protection – Most important, yet neglected
Professional Ethics & Responsibility
Role of Market Regulators
Shareholders Activism – Healthy trend for Corporate Governance
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INVESTOR PROTECTION MEASURES IN INDIA
SEBI ESTABLISHED IN 1992
FUNCTIONS OF SEBI
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MEASURES INITIATED BY SEBIVetting Offer Documents
and Prospectus
Advertising Code for issues
IPO Grading
Improve functioning of Stock Exchanges
Securities Appellate Tribunal
Disclosure of NAV of Mutual Funds daily
Publications / Awareness Programmes
Stringent requisites for an intermediary
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EXPERT COMMITTEE (DR. J.J. IRANI COMMITTEE)
As per the new company law by the Expert Committee training of directors should be aimed at better discharge of fiduciary duties and value enhancing board activities
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KUMAR MANGALAM BIRLA COMMITTEE
Clause 49 was introduced in the Listing Agreement pursuant to the recommendations of the report of Committee
Constituted by SEBI in May 1999
Large number of complaints from the investors prompted the constitution
Recommended appointment of minimum number of independent directors in board
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I. Board of Directors
a) Composition of Board of Directors
b) Non Executive Director’s Compensation & Disclosures
c) Other Provisions as to Board of Directors
d) Code of Conduct
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II. Audit Committee
a) Qualified & Independent Committee
b) Meeting
c) Powers
d) Role
e) Review of information
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III. Subsidiary Companies
a) At least One Independent Director of holding Company on the Board of materially non listed subsidiary company
b) Audit Committee of Listed Company should also review the financial results of Materially non listed subsidiary company
c) Minutes of the non listed subsidiary company be placed and before the board of the listed company
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IV. Disclosures
a) Related Party Transactionsb) Accounting Treatmentc) Board Disclosuresd) Proceeds from public/ right issue/ preferential
allotments etc.e) Remuneration of Directorsf) Managementg) Shareholders
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V. CEO/ CFO Certification
a) Review and Declarations of Financial Results
b) Declaration as to no transactions of fraudulent, illegal or violative of code of conduct, are entered by the Company
c) Responsibility for establishing and maintaining internal controls for financial reporting
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VI. Report On Corporate Governance
a) Separate section in Annual Report of the Company with detailed report on compliance of corporate governance
b) Quarterly Compliance Report to be submitted to the Stock Exchange within 15 days of close of quarter.
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VII. ComplianceCompanies to obtain certificate from Auditors or PCS
regarding compliance of conditions of Corporate Governance as stipulated in this Clause.
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Shareholder Activism – Healthy trend for Corporate Governance
Shareholder Activism means the active involvement of stockholders in their Organization
Involvement can be done in various ways : Establishing dialogue with the management on issues that
concern you.Influencing the corporate culture.Using the corporate democracy provided by law.Increasing general awareness on social and human rights issues
concerning the organization. Internet and mass media are effective tools in building up pressure on the management.
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Shareholder Activism – Healthy trend for Corporate Governance
• Participation in the meetings• Concern over the financial matters• Proxy Battles • Publicity Campaigns• Shareholder Resolution• Litigation and Negotiation with the management
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IMPORTANCE OF CORPORATE GOVERNANCE
• Enhances the ethical value system
• Protects the rights of the shareholders by ensuring equitable treatment.
• Cope with the challenges of liberalization, privatization and globalization.
• Timely and accurate disclosure on all materials matters
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IMPORTANCE OF CORPORATE GOVERNANCE
• Corporate Excellence Through Transparency, Accountability and Responsibility.
• Compliance of All the Relevant Law and Regulations.
• Best Business Ethical Practices and Value Based System.
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ROLE OF COMPANY SECRETARIES• Governance architecture
• Board/Committee meeting
• Compliance officer: Ensure compliance of clause 49 and report to the Stock Exchanges.
• Annual Reports : Compile various reports and make necessary disclosure in Annual reports.
• Proactive initiative in good governance and monitoring governance practices
• Role of a Practicing Company Secretary26
Consequences of Investors Protection Two broad areas in which investor protection has an impact : Financial Markets
The most basic prediction of the legal approach is that investor protection encourages the development of financial markets. When investors are protected from expropriation, they pay more for securities, making it more attractive for entrepreneurs to issue these securities.
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Consequences of Investors ProtectionReal Consequences
Through its effect on financial markets, investor protection influences the real economy. Financial development can accelerate economic growth in three ways :
Enhance savings. It can channel these savings into real investment and thereby foster
capital accumulation.To the extent that the financiers exercise some control over the
investment decisions of the entrepreneurs, financial development improves the efficiency of resource allocation, as capital flows toward the more productive uses. All three channels can in principle have large effects on economic growth.
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CONCLUSION
• Corporate governance should not be followed just as set of rules and procedures.
• Can not be the same all the time.
• Well defined and well accepted accounting practices are pre-requisites in corporate governance.
• Corporate Governance is the key to Corporate Excellence
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NEVER MAKE A NEGLIGENCE
IN GOOD CORPORATE GOVERNANCE
IT REALLY MAKES TRUE SENSE
TO ACHIEVE CORPORATE EXCELLENCE
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