...THE ROLE OF NON-EXECUTIVE DIRECTORS Essentially the non-executive director's (NED) role is to provide a creative contribution to the board by providing independent oversight and constructive challenge to the executive directors. NED could act as the 10th man in ‘10th man idea’ where his/her role is to disagree no matter how improbable the idea nine people agree on something. He/ She may present a case for an alternative viewpoint — no matter how ridiculous the idea sounds. If his evidence is still inferior and conflicts with the consensus of the other nine men, then they go through with their original plan. If the tenth man’s ideas prove to be superior, they explore his ideas further. Therefore, with NED argument and consultation, the decision that come out from boardroom has been consolidated and unbiased. The 1992 Cadbury Report initiated a debate about the main functions and responsibilities of non-executive directors. Today, it is widely accepted that non-executive directors have an important contribution to make to the proper running of companies and, therefore, more widely to the economy at large. As the Cadbury Report said, they: “should bring an independent judgement to bear on issues of strategy, performance and resources including key appointments and standards of conduct.” There is no legal distinction between executive and non-executive directors. As a consequence, in the UK unitary board structure, non-executive directors have the same legal duties,...
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...Corporate Governance Principles and Recommendations Principle 1: Establish clear roles and responsibilities Principle 2: Strengthen composition Principle 3: Reinforce independence Principle 4: Foster commitment Principle 5: Uphold integrity in financial reporting Principle 6: Recognise and manage risks Principle 7: Ensure timely and high quality disclosure Principle 8: Strengthen relationship between company and shareholders Table 1: Comparison between the MCCG 2012 and the 2007 Code 1 FOREWORD By TAN SRI ZARINAH ANWAR Chairman, Securities Commission Malaysia The Securities Commission Malaysia (SC) had in July 2011 released the Corporate Governance Blueprint 2011 (Blueprint) which sets out the desired corporate governance landscape going forward. The essence of the Blueprint is to achieve excellence in corporate governance through strengthening self and market discipline and promoting good compliance and corporate governance culture. Boards and shareholders must embrace the understanding that good business is not just about achieving the desired financial bottom line by being competitive, but by also being ethical and sustainable. The Malaysian Code on Corporate Governance (Code), first issued in March 2000, marked a significant milestone in corporate governance reform in Malaysia. The Code was later revised in 2007 (2007 Code) to strengthen the roles and responsibilities of the board of directors, audit committee and the internal audit function. The Malaysian Code on Corporate...
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...Corporate Governance Principles and Recommendations Principle 1: Establish clear roles and responsibilities Principle 2: Strengthen composition Principle 3: Reinforce independence Principle 4: Foster commitment Principle 5: Uphold integrity in financial reporting Principle 6: Recognise and manage risks Principle 7: Ensure timely and high quality disclosure Principle 8: Strengthen relationship between company and shareholders Table 1: Comparison between the MCCG 2012 and the 2007 Code 1 FOREWORD By TAN SRI ZARINAH ANWAR Chairman, Securities Commission Malaysia The Securities Commission Malaysia (SC) had in July 2011 released the Corporate Governance Blueprint 2011 (Blueprint) which sets out the desired corporate governance landscape going forward. The essence of the Blueprint is to achieve excellence in corporate governance through strengthening self and market discipline and promoting good compliance and corporate governance culture. Boards and shareholders must embrace the understanding that good business is not just about achieving the desired financial bottom line by being competitive, but by also being ethical and sustainable. The Malaysian Code on Corporate Governance (Code), first issued in March 2000, marked a significant milestone in corporate governance reform in Malaysia. The Code was later revised in 2007 (2007 Code) to strengthen the roles and responsibilities of the board of directors, audit committee and the internal audit function. The Malaysian Code on Corporate...
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...recommendations of the following reports: The Cadbury Report 1992 Recommended a ‘Code of Best Practice’ This was a voluntary code and its main proposals were related to: The composition of company boards The length of directors contracts Disclosure of remuneration packages Auditing matters Greenbury Report 1995 Reinforced the ‘Code of Best Practice’ recommended by Cadbury and made further recommendations regarding matters relating to directors’ remuneration. Hampel Report 1998 ‘Fine tuned’ the above reports. In particular, the points that: The roles of Chairman and Chief Executive should be separate Directors’ contracts should be for one year or less Remuneration committee should be made up of independent non-executive directors Non-executive directors may be paid in company shares although this not recommended A senior non-executive director should be nominated to deal with shareholders’ concerns Directors should be trained The Code proposes principles and code provisions under five headings: Directors Directors’ remuneration Relations with shareholders Accountability and audit Institutional shareholders Further guidance on accountability and audit is contained in the Turnbull Committee Report (1999) ‘Internal Control: Guidance for Directors of Listed Companies incorporated in the United Kingdom’ Corporate Governance – a brief history of the Cadbury Report The Cadbury Committee was set up in May 1991 largely as a result of highly public scandals such...
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...stringent requirements of corporate governance to listed companies. The New Clause is based on the principle of ensuring equitable treatment to all shareholders and recognising the rights of all stakeholders in the company. The New Clause is attempting to achieve this object by setting up an effective corporate governance frame work within the company and providing for timely and accurate disclosures. The key aspects of the New Clause are discussed below: Independent Directors The New Clause confers greater power and responsibility on the independent directors to on matters relating to corporate governance. The Clause incorporates methods to ensure professional, independent and transparent approach for selection and appointment of independent directors. The Clause retains the requirement of having at least one third of directors as independent directors if the chairman of the board of directors is a non-executive director. If the company does not have a regular non-executive Chairman, at least half of the board of directors...
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...Delegated Authorities. These principles are reflected in the Standards of Business Conduct, which have been in place for many years and have recently been updated in order to ensure that they remain at the forefront of best business practice. Every Group company and every employee worldwide is expected to live up to them. In addition, the principles set out within the Statement of Business Principles are designed to help meet the expectations placed on the company by various stakeholders. Both documents are available from the Company Secretary and on batm.com. PRINCIPLE 1 Establish clear roles and responsibilities: Role of chairman and CEO There should be a clear division of the responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company’s business. No individual should have unfettered powers of decision. The roles of chairman and chief executive should not be exercised by the same individual. The division of responsibilities between the chairman and chief executive should be clearly established, set out in writing and agreed by the board. The Chairman and the Chief Executive are separate individuals (Datuk Mohamad Salim Bin Fateh Din - Chairman, Stefano Clini (effective...
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...LIMITED PARTICULARS OF FAMILIARISATION PROGRAMMES FOR INDEPENDENT DIRECTORS 1. The Company strives to familiarize all its non-executive Directors (including Independent Directors) with the Company, its business, its operating environment and the regulatory frame work within which it operates, including relating to corporate governance. 2. The Company’s familiarisation efforts encompass: 3. Nature of the industry in which the Company operates, major factors influencing the industry, major industry players, their market share etc. Business model of the Company, its major product lines, main competitors for major products, main geographical areas in which the products of the Company are sold; inputs, major sources of input supplies and input costs for products, prevailing market conditions, changes in prices of raw materials and intermediates, new products developed and being developed by the Company, efforts made in the areas of R&D, energy management, cost savings, new capacities, enhancement of existing capacities, debottlenecking, redeployment of manufacturing facilities etc. Roles, rights and responsibilities of non-executive Directors, including Independent Directors under the Companies Act, 2013, Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and other regulations. Changes in corporate governance and other regulatory requirements related to the Company and its Directors Other developments / information relevant and meaningful...
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...“Deconstructing Independent Directors”(*) María Gutiérrez Maribel Sáez Universidad Carlos III de Madrid and ECGI Universidad Autónoma de Madrid January 2012 Abstract In this paper we argue that boards of directors lack the mandate, the incentives and the ability to control insiders, especially in jurisdictions where the main agency problem arises between controlling and minority shareholders. We analyze the problems that render independents an inefficient monitoring device for companies with concentrated ownership structures and conclude that the current focus of the regulators and codes of best practice on empowering independents is ineffective and companies would be better off choosing their board members at liberty. Nevertheless, we also present two different proposals for reform: independents as gatekeepers for the regulator and independents as surrogates of the minority. Both proposals are based on the idea that if independent directors are expected to monitor controlling shareholders their most important characteristic should be accountability rather than mere independence. JEL Classifications: G32; G34; K22 Keywords: Independent directors, Board of directors, Concentrated ownership, Monitoring, Corporate Law (*)The authors wish to thank, Jesus Alfaro, Magda Bianco, Fernando Gómez Pomar and Assaf Hamdani and seminar audiences at AEDE 2010 and SIDE 2011 for many useful comments. The contents of this paper are the sole responsibility of...
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...revealed by the corporate scandals of recent times? Introduction> In UK there are the sole trader, the partnerships, the companies and the joint venture, structure businesses. For the sole trader and the partnerships because the businesses are controlled by the owners and they work for the benefit of the owners, it has not been necessary to have increased measures for the protection of the owners benefit. In the companies though that it is a different legal entity, not related to the persons that initially established it, there is a need for human representatives that would manage the company in benefit for the shareholders and stakeholders. The management of the company is on the hands of the board of directors and the general meeting. The problem is thought that the directors have extensive powers and they might use them in their benefit. Therefore rules are constructed by the companies themselves to control a...
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...1 Satyam Scam in the Contemporary Corporate World: A Case Study in Indian Perspective Introduction Satyam Computer Services Ltd was founded in 1987 by B.Ramalinga Raju. The company offers information technology (IT) services spanning various sectors, and is listed on the New York Stock Exchange and Euronext.Satyam's network covers 67 countries across six continents. The company employs 40,000 IT professionals across development centers in India, the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. It serves over 654 global companies, 185 of which are Fortune 500 corporations. Satyam has strategic technology and marketing alliances with over 50 companies. Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam. "The truth is as old as the hills" opined Mahatma Gandhi, christened the Father of the Nation by Indians. So a company named "Satyam" (Truth, in Sanskrit) inspired trust. The IT boom in India, was fuelled by young, middle-class, and educated, budding Indian entrepreneurs and Western firms anxious to outsource to take advantage of high-skill, low-wage worker. This trend created a new breed of businessmen for the 21st century and generated many fortunes literally overnight. The global corporate community was flabbergasted and scandalized when the Chairman of Satyam, Mr. Ramalinga Raju resigned...
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...AGENDA FOR CORPORATE GOVENANC Agenda for corporate governance reforms The need for corporate governance reforms in India is call of the hour as scams have become almost as an annual feature ever since we had liberalisation from 1991. Just from last 4-5 days we had been hearing about yet another alleged fraud involving thousands of crores by Kolkata-based Saradha group which may be a case of misuse/laundering by money generated by duping of lakhs of investors & public at large by Saradha group through their chit-fund and other money-pooling activities in West Bengal Capital market regulator SEBI has already passed an order against one group entity, Saradha Realty India, asking it to wind up all collective investment schemes and refund the money collected from investors. Besides, SEBI is also probing at least ten other Saradha entities for raising funds without the regulator’s approval. But question arises how come SEBI ,IT deptt ,Ministry of Corporate affairs and other enforcement agencies having so many guidelines & so called checks & balances allowed it to happen . How can we enact laws like Chit Fund Act 1982 which may have so many loose ends .This is not one of its kind case in India in recent past . We had the Harshad Mehta Scam, Ketan Parikh Scam, UTI Scam, Vanishing Company Scam, Bhansali Scam ,2G scam ,Coal scam and the story goes on this front unabated. To cut a long story short there is immediate need to revitalize in-house system of...
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...CODE OF CORPORATE GOVERNANCE The need for a Code was inspired in part by a desire for the private sector to initiate and lead a review and to establish reforms of standards of corporate governance at a micro level. This is based on the belief that in some aspects, self-regulation is preferable and the standards developed by those involved may be more acceptable and thus more enduring. 1.3 The Code essentially aims to set out principles and best practices on structures and processes that companies may use in their operations towards achieving the optimal governance framework. These structures and processes exist at a micro-level which include issues such as the composition of the board, procedures for recruiting new directors, remuneration of directors, the use of board committees, their mandates and their activities. 1.4 The significance of the Code is that it allows for a more constructive and flexible response to raise standards in corporate governance as opposed to the more black and white response engendered by statute or regulation. It is in recognition of the fact that there are aspects of corporate governance where statutory regulation, is necessary and others where self-regulation, complemented by market regulation is more appropriate. 1.5 The impact the Code will have in raising standards of corporate governance can be seen from the experiences of other jurisdictions. To quote the Hampel Committee1, “... it is generally accepted that implementation of the...
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...of good corporate governance. Before investing money in any company people are quite concerned how companies are being managed. International organizations like IMF, WTO and World Bank are also insisting on transparency. All this has made Corporate Governance and transparency up the public agenda. Good Corporate Governance makes for good business sense. It increases confidence of shareholders in the company. This leads to better stock prices. Good disclosure practices lead to a more liquid market for the company. This lowers cost of debt for the company. Thus the CEOs of today, there is a clear business case for complying with principle of good Corporate Governance. In the era of Globalization & Liberalization market forces plays a crucial role. We know that liberalization in emerging economy has made access to foreign funds easier. Availability of foreign funds will lower the cost of capital. It is quite understood. All companies will like this to happen, but the international lenders will be careful. They will expect that the companies they lend to follow good Corporate Governance. These lenders will demand transparency. These factors force the companies to modify their behavior and values to meet the norms of Corporate Governance. It is critical for any company that people they recruit believe in the company in the company's values and takes in those values. For Example: Infosys group lays lot of emphasis on its values, integrity and transparency, while recruiting people in...
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...Koprat. 346.5950926 CONTENTS PAGES INTRODUCTION PART 1 PART 2 PART 3 PART 4 1-6 PRINCIPLES OF CORPORATE GOVERNANCE 7-8 BEST PRACTICES IN CORPORATE GOVERNANCE 9-15 PRINCIPLES AND BEST PRACTICES FOR OTHER CORPORATE PARTICIPANTS 16 EXPLANATORY 17-47 APPENDICES JPK WORKING GROUP 1 48-49 MEMBERSHIP OF THE COMMITTEE 50 GC GC INTRODUCTION The Code essentially aims to set out principles and best practices on structures and processes that companies may use in their operations towards achieving the optimal governance framework. These structures and processes exist at a micro-level which include issues such as the composition of the board, procedures for recruiting new directors, remuneration of directors, the use of board committees, their mandates and their activities. 1.4 The significance of the Code is that it allows for a more constructive and flexible response to raise standards in corporate...
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...dominant theoretical perspective applied in corporate governance studies. The assumption given in the agency theory is that those managers are self-interested, and a context in which those managers do not bear the full wealth effects of their decisions. The popularity of agency theory is likely due to two factors: first, it is an extremely simple theory, in which large corporations are reduced to tow participants—managers and shareholders---and the interests of each are assumed to be both clear and consistent. Second, the notion of humans as self-interested and generally unwilling to sacrifice personal interests for the interests of others is both age old and widespread. Stewardship Theory Whereas agency theorists view executives and directors as self-serving and opportunistic, stewardship theorists describe them as frequently having interests that are...
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