Is Corporate Governance Real, a Myth or is it to be practiced in Spirit or Letter? It is very difficult to conclude; the intention to implement and practice corporate governance seems to be the SPIRIT and to toe this line the regulators bring out legislation through LETTER for various disclosures which the corporates do not seem to be serious in following thereby making corporate governance a MYTH and with this the system of corporate governance seem to fail; thereby resulting in what is REAL - a Scam. Board Training seems to be one such issue of Corporate Governance in India Inc.
Board Training - The SPIRIT of Corporate Governance
Training is mandatory for directors in India. Every director of a listed Company is required to undergo training in a financial year and the same is required to be reported in the annual report of the Company. As per clause 49(I)(D)(3)(d) of the listing agreement, the Board should encourage continuing directors training to ensure that the Board members are kept upto date. An analysis of top 50 listed companies captures the dismal state of this initiative during the financial year 2014-15, which reveals that for most reputed companies training directors is not a requisite, this assumption is based on the annual report disclosures. The analysis reveals that only one director of a listed company has undergone a training program during the last financial year. Most companies have provided a general note on familarisation program, which is made available in the disclosure, but details on training undergone by the directors which is required to be disclosed in the annual report/ website are not mentioned in detail. In fact one company has reported that a reimbursement is available for these Independent directors to undergo training, but no one seems to have taken it seriously.
Board Training - The LETTER in Corporate Governance
Companies Act 2013
As per Schedule IV(III)(1), the independent directors shall undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company.
Listing Agreement
As per clause 49(I)(D)(3)(d), the Board should encourage continuing directors training to ensure that the Board members are kept upto date.
As per clause 49(II)(B)(7)(a), the company shall familiarize the independent directors with the company, their roles, rights, responsibilities in the company, nature of the industry in which the Company operates, business model of the company, etc., through various programmes.
As per clause 49(II)(B)(7)(b), the details of such familiarization programmes shall be disclosed on the company's website and a web link thereto shall also be given in the Annual Report.
Board Training - The REAL Corporate Governance
What to report:
As per clause 49(II)(B)(7)(b), the details of such familiarization programmes shall be disclosed on the company's website and a web link thereto shall also be given in the Annual Report.
Details of Familarisation/ Induction program:
As per clause 49(II)(B)(7)(a), the company shall familiarize the independent directors through various programmes that include:
i) their roles, rights, responsibilities in the company,
ii) nature of the industry in which the Company operates,
iii) business model of the company, etc.
Details of Continuous Training Program:
As per Schedule IV(III)(1)of the Companies Act that Company shall organize programs to its existing directors to regularly update and refresh the skills, knowledge and familiarity with the company
When to get trained;
Every director has to get trained during the financial year, as the details of such training have to be reported in the Boards’ report on an annual basis.
Who should get trained:
The legislations require every new joinee on Board and existing Board members to get trained:
New Joinees:
As per clause 49(ii)(B)(7)(b) every new joinee shall undergo a familiarisation program. Under Schedule IV(III)(1) of Companies Act these programs are referred to as Induction Program for new joinees.
Existing Board Member:
As per clause 49(ii)(B)(7)(d) every director is required to undergo continuous training.
Under Schedule IV(III)(1) of Companies Act these programs are referred to as course for updation.
What to get trained on:
In the familarisation program a director is required to get trained in their roles, rights, responsibilities in the company, nature of the industry in which the Company operates, business model of the company, etc. These programs help a new joinee to understand his scope and the various nuances of the industry in which the Company operates.
In the Refresher/ Continuous Training program a director is required to regularly update and refresh their skills, knowledge and familiarity with the company to ensure that the directors are kept up to date. This helps the existing directors to be updated on the various changes to the legislation and business issues.
How to train the directors:
Every company can devise its own induction program to train the directors who are new joinees. The Continuing education program can be a special session of 30 to 45 minutes every quarter or at least once in a year on specific subject by speakers who are specialist. Directors can also be sponsored to attend various program conducted by Institutions.
These initiatives will satisfy the requirement of training the directors and reporting the same in the annual report.
Who can train the directors:
Induction / Familarisation program can be addressed by the Chief Executive Officer/ Chief Financial Officer / Company Secretary and one other Independent director.
The Refresher / Continuous Learning program can be addressed by a person in-house or external speaker.
Where to train the directors:
The training programs can be done before or after board meetings or if the company is looking to do training outside the Boardroom it can be a retreat for boards away from home.
Directors- Nothing more to learn:
Training is not entertained inside boardrooms on account of seniority that comes along with age and experience coupled with ego, where the directors seem to tell themselves – there is nothing more for me to learn. The other factor seems to be the openness in most of these programs that brings out the shortcoming of the functioning of the Boards. These seem to be reasons for not introducing training inside boardrooms for most of the experienced current directors on board of listed entities.
Who can impart training:
Institute of Directors, Institute of Company Secretaries, Chartered Accountants, Corporate Affairs, Science & Technology and Management Institutes can take the lead and there are other institutions that can impart training.
Any individual can address the Board:
i) Director
ii) Chief Financial Officer
iii) Company Secretary
iv) Expert in any field
v) CEO Coach
vi) Board Trainers
Topics for imparting training:
The topics can be issues that are relevant and current those affect the interest of the company and the list can include:
i) Corporate Laws
ii) Fiscal Laws
iii) Any legislation that is applicable to company
iv) Board Strategy
v) Business Strategy
vi) Governance, Risk & Compliance
vii) Leadership Program
viii) Board Evaluation, Reporting
ix) Science & Technology
x) Information Technology & Cyber Laws
Is Training mandatory:
Yes it is mandatory to go through training at least once in a year as there is a reporting requirement in the Annual Report under clause 49 of the listing agreement.
Reporting on training:
In India it is mandatory to report the various programs undertaken by directors for familiarization and continuous development. As per clause 49(II)(B)(7)(b), the details of such familiarization programmes shall be disclosed on the company's website and a web link thereto shall also be given in the Annual Report.
Current State of Training
The Companies seem to have disclosed the facts relating to Board Training only for the sake of disclosure and many companies seem to have misused the provision of disclosing through a web link to their advantage, the analysis of these disclosures shows the following result:
i) In some cases the link provided under this disclosure failed to open
ii) In some cases the link provided lead to irrelevant information other than training
iii) Many companies have described the induction program
iv) Only few companies have given some details that are required by law
REGULATORS should have prescribed this format for Disclosure
It is surprising that a regulator requires the company to disclose many issues in the Annual Report but have not specified any format; it is a free fall for disclosures. The onus of noncompliance is on the regulators, as they have not prescribed a specific format in which details of training program for its directors are to be disclosed. The format that could have been prescribed is:
1. Name of the Director
2. Designation at the time of training – fresh appointment/ existing director
3. Type of Training undergone – familarisation / development program
4. Details of Program – In-house/ External (brief details)
The MYTH
India Inc. has ensured that this initiative of Board Training is just yet another voluntary compliance and has resorted to a “comply or manage” approach rather than the “comply or explain” approach of UK but this initiative can only be successful if regulators adopt the “comply or prosecute” approach of US.
Transparency that is not revealing facts is of no use to any one. The regulators should not only prescribe but also subscribe to the various requirements of disclosure by providing the details of disclosure. This will ensure self-regulation and infuse lot of positive approach by companies and make this initiative of comply or explain, a success.
Today the plight is Companies are not disclosing real facts and not complying in spirit, they are not explaining in letter which is leaving stakeholders to feel that Corporate Governance is just a MYTH.
The details of Training Program listed in the Annual report for 2015-16 of some companies is provided herein. Check the link and evaluate the details of training to directors.
Reported in ITC
http://www.itcportal.com/about-itc/leadership/board-ofdirectors.aspx.
Reported in Infosys
http://www.infosys.com/investors/corporate-governance/Pages/policies.aspx.
Reported in Mahindra & Mahindra Limited
http://www.mahindra.com/Investors/Mahindra-and-Mahindra/Governance
Reported in Kotak Mahindra Bank
URL:http://ir.kotak.com/governance/policies.html
CAclubindia
