Corporate Governance - In retrospect

Not long ago, when controlled economy was ruling the roost, it was known as Corporate Management. Today, in a globalised environment when economy is opened up for foreign competition, it is elevated to the status of Corporate Governance. What’s the difference between the two? In this women’s era, whence ladies are occupying higher echelons of society and at helm of affairs, they are perhaps a little allergic to the word ‘management’ since it smells something masculine! They may perhaps want a word more common in gender. It’s why ‘governance’ is more sought after! Joke apart, ‘management’ means a job given and got it done. It is managing an affair or a work entrusted. It is nothing more or less than that.

Need For governance

Today, when corporates are spreading their wings across the globe and their activities enlarge by leaps and bounds, investors need proper assurance and transparency for adequate returns on their investment to ensure that a mechanism is devised that’s known and branded as corporate governance. The importance of corporate governance is more felt and well pronounced today aftermath corporate scandals in U.S.A in the case of Enron and WorldCom.

What’s Governance?

The word ‘governance’ is used in wider spectrum. It includes ‘management’ and covers much more to deliver to the globalised environment. ‘Governance’ is more associated with running the affairs of a country. With reference to a country, Governance covers internal and external matters. ‘Internal’, with reference to a country covers rule of law, law and order, money matters and credit control, judiciary and proper devolution of powers.’ External’, on the other hand covers defense, diplomacy and foreign policy.

 Then, what’s ‘governance’ with reference to a corporate? —‘Internal’ with reference to a corporate includes maintenance of proper records; proper internal check, internal control, internal financial control, a new parlance in the new Companies Act and internal audit; and proper delegation as well devolution of powers. On the other hand, ‘external’ covers compliance of relevant laws, adhere to concerned regulatory authorities and take necessary steps to ward off any evil and adverse impact of  domestic and foreign competition, cut throat or otherwise.

In fact, the CARO Reports of auditors (under revision) that address 16 specific points as per the new dispensation are really forerunners to monitor various areas of corporate governance. Really, these are the pioneers or forefathers to the now famous USA’s Sarbanes-Oxle Act (SOXA).

Promise and Delivery

In ordinary parlance, governance is planning and implementation. The more a plan is implemented there is good governance. Governance, again, is related to promise and `delivery. The more a promise is delivered there is good governance. In Ramayana, there is a character by name Dasaradha. He gave a promise in haste only to repent at leisure, but his son Lord Ram took the entire ordeal to keep the promise not given to him but by his father to his stepmother that speaks volumes of governance. Therefore, we can say with pride governance is deep rooted in this country long before civilization dawned in other parts of the world.

History of Corporate governance in India:

The Confederation of Indian Industry first initiated the corporate governance with a voluntary code in 1998. SEBI subsequently introduced now famous Clause 49 of the listing agreement, based on Kumar Mangalam Birla committee Report. Next was from Naresh Chandra Committee in 2002 to be followed by Narayana Murthy Committee in the same year. After issuance of circular in August 2003 by SEBI, and based on the response in the form of suggestions and recommendations from the corporate and public, Clause 49 was further revised by SEBI through a circular dated 29th October’05 to be effective from 31st December 2005.SEBI go on updating the requirements to the increasing demands of the day in the context of the legal and other regulatory needs so as to serve the interest of various stakeholders spread across the globe.

SEBI rightly now in the band- wagon of Regulation:

As recently as September 2015, SEBI has changed the nomenclature into SEBI Regulation (Listing obligation & Regulatory requirement) 2015 (earlier known as Clause 49 of Equity Listing Agreement) to be in sync with time and echoes its exact role as Regulator. A time period of ninety days has been given for implementing the Regulations except for the two provisions of the regulations, which are facilitating in nature, are applicable with immediate effect. These pertain to (i) passing of ordinary resolution instead of special resolution in case of all material related party transactions subject to related parties abstaining from voting on such resolutions, in line with the provisions of the companies Act, 2013, and (ii) re-classification of promoters as public shareholders.

Wherever necessary, the provisions in Listing Regulations have been appropriately aligned with those of the Companies Act, 2013. The Listing Regulations have been sub-divided into two parts viz.(a) substantive provisions incorporated in the main body of Regulations (in line with IOSCO); (b) procedural requirements in the form of Schedules to the Regulations- principles for corporate governance (in line with OECD).  .

Role of the Companies Act 2013:

Since SEBI regulates only listed companies as spelt out in the Regulation, the Companies Act 2013 has also stepped in for a major overhaul in the Corporate Governance norms for all companies.  Rules pertaining to Corporate Governance were notified on March 27, 2014.  The requirements under the new Act and the rules there under would be applicable for every company or a class of companies (both listed and unlisted) as may be provided therein so as take care of the governance across companies listed or otherwise. Not only is that, under the new Companies Act, there is a provision for a woman director in the Board of the companies as specified.

Face of the Company

It is said face is the ‘index of the mind’. Most of the senses, the eyes to see, the tongue to taste and the ears to hear are on or on the hinterlands of the face. The brain in the realm that receives signals from the senses and gives directions is well protected in a skull to work with skill. Therefore, one could read a person through his face that reacts to a situation-popularly known as ‘face reading’. Then, what’s the face of the corporate? It is the Board of Directors of the company. By seeing the composition of the Board, it is easy to visualize the inherent strength of the company. If Mr. Narayana Muthy is on the board, there is an expectation of corporate excellence. If Ambanies and Birlas are on the board, there is an expectation of growth and development. If Tatas are on the board, fair play and equity are anticipated. It is why; corporate governance disclosure includes names of directors, which with the additional information as to their qualifications and experience reveals the personality of the board. On the top, the details as to the number of meetings attended by the members of the board portray their commitments to the board and the company.

Applicability of Corporate Governance under SEBI:

Corporate Governance norms specified in regulations 17 to 27 and clauses (b) to (i) of sub-regulation (2) of regulation 46 and Para C, D, E of Schedule V shall not apply in respect of

• Listed entity having paid-up equity share capital not exceeding Rs.10 crores and net worth not exceeding Rs.25 crores as on the last date of the previous financial year.

• In case to the aforesaid entities cross the specified limits they shall comply with the regulations within 6 months from the date they become applicable

• Entity which has listed its specified securities on the SME exchange.

Composition of the Board- (Regulation17):

SEBI has taken care to provide a correct composition of the board. 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, if he is an executive director, at least half of the board should comprise of independent directors.

The board of directors shall meet at least four times a year, with a maximum time gap of one hundred and twenty days between any two meetings; periodically review compliance reports pertaining to all laws applicable to the listed entity prepared by the listed entity as well as steps taken by the listed entity to rectify instances of non-compliances; satisfy itself that plans are in place for orderly succession for appointment to the board of directors and senior management: lay down a code of conduct for all members of board of directors and senior management of the listed entity, and the code of conduct shall suitably incorporate the duties of independent directors as laid down in the Companies Act, 2013; recommend all fees or compensation, if any, paid to non-executive directors, including independent directors for approval of shareholders in general meeting except for payment of sitting fees to non-executive directors made within the limits prescribed under the Companies Act, 2013; the approval of shareholders shall specify the limits for the maximum number of stock options that may be granted to non-executive directors (except for Independent directors who are not entitled), in any financial year.

MINIMUM INFORMATION TO BE PLACED BEFORE BOARD OF DIRECTORS-Part A of Schedule II [See Regulation 17(7)]

A. Annual operating plans and budgets and any updates; B. Capital budgets and any updates. C. Quarterly results for the listed entity and its operating divisions or business segments. D. Minutes of meetings of audit committee and other committees of the board of directors. E. The information on recruitment and remuneration of senior officers just below the level of board of directors, including appointment or removal of Chief Financial Officer and the Company Secretary. F. Show cause, demand, prosecution notices and penalty notices, which are materially important. G. Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems. H. Any material default in financial obligations to and by the listed entity, or substantial non-payment for goods sold by the listed entity. I. Any issue, which involves possible public or product liability claims of substantial nature, including any judgment or order which, may have passed strictures on the conduct of the listed entity or taken an adverse view regarding another enterprise that may have negative implications on the listed entity. J. Details of any joint venture or collaboration agreement. K. Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property. L. Significant labour problems and their proposed solutions including significant development in Human Resources/ Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc. M. Sale of investments, subsidiaries, assets which are material in nature and not in normal course of business. N. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material. O. Non-compliance of any regulatory, statutory or listing requirements and shareholders service such as non-payment of dividend, delay in share transfer etc.

CEO/CFO Certification and Risk Management Disclosures (Regulation 17 (8) Part B of Schedule II.):

The following compliance certificate shall be furnished by chief executive officer and chief financial officer:

A. They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief: (1) These statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; (2) These statements together present a true and fair view of the listed entity’s affairs and are in compliance with existing accounting standards, applicable laws and regulations.

B. There are, to the best of their knowledge and belief, no transactions entered into by the listed entity during the year which are fraudulent, illegal or violative of the listed entity’s code of conduct.

C. They accept responsibility for establishing and maintaining internal controls for financial reporting and that they have evaluated the effectiveness of internal control systems of the listed entity pertaining to financial reporting and they have disclosed to the auditors and the audit committee, deficiencies in the design or operation of such internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies.

D. They have indicated to the auditors and the Audit committee: (1) Significant changes in internal control over financial reporting during the year; (2) Significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and (3) Instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the listed entity’s internal control system over financial reporting.

Further, the listed entity shall lay down procedures to inform members of board of directors about risk assessment and minimization procedures and the board of directors in turn shall be responsible for framing, implementing and monitoring the risk management plan for the listed entity. The performance evaluation of independent directors shall be done by the entire board of directors: Provided that in the above evaluation the directors who are subject to evaluation shall not participate (Regulation 17(9) & (10).

Audit Committee-Its Composition (Regulation 18 (1)):

· Minimum three directors.

· Two- thirds to be independent directors

· All members shall be financially literate, meaning ability to read and understand financial statements and at least one member shall have accounting or related financial management expertise.  

· The Chairman of the committee shall be an independent director-he shall attend AGM to answer shareholders quires The Audit Committee may invite such of the executives as it considers appropriate

· The Company Secretary shall act as the secretary to the committee.

· The audit committee at its discretion shall invite the finance director or head of the finance function, head of internal audit and a representative of the statutory auditor and any other such executives to be present at the meetings of the committee: Provided that occasionally the audit committee may meet without the presence of any executives of the listed entity- a welcome addition.

Meeting Of the Audit Committee Regulation 18(2):

The audit committee shall meet at least four times in a year and not more than one hundred and twenty days shall elapse between two meetings.  The quorum shall be minimum two or one-third of the members but a minimum two independent directors to be present.

Powers/ Role of the Audit Committee Regulation 18(3) to be read with Part C of Schedule II.:

The Audit Committee is vested powers

· To investigate activity within its terms of reference

· To seek information from any employee

· To obtain outside legal or professional advice

·  To secure attendance of outsiders with relevant expertise, if it considers necessary.

· Mandatorily review the statement of deviations: Quarterly statement of deviations including report of monitoring agency, if applicable, submitted to stock exchanges in terms of Regulation 32(1) & Annual statement of funds utilised for purposes other than those stated in the offer document/prospectus/notice in terms of Regulation 32(7)

The role of the committee has been enlarged among other things in the pre Revised and   strengthened to review matters to be included in the Directors Responsibility statement in the board Report.

‘A’ of Part C of Schedule II) may be visited upon that deals with copiously the ROLE REVIEW OF INFORMATION BYAUDIT COMMITTEE [See Regulation 18(3)]

Mandatory Review by the Audit Committee (Refer B Part C of Schedule II):

• Management discussion and analysis of financial condition and results of operations;
• Statement of significant related party transactions (as defined by the Committee) submitted by the management;
• Management letters/letters of internal control weakness issued by the statutory auditors;
• Internal audit reports on internal control weakness;
• The appointment, removal and terms of remuneration of the Chief Internal Auditor

 The Audit Committee has assumed a bigger role in delivering corporate governance.   What’s a white cell to bloodstream to fight the disease to flight is the Audit Committee to the governance.

Material events Schedule III – a bird’s eye view:

Events or information which is material in the opinion of the Board of Directors shall be disclosed

• Events specified in Para A of part A of schedule III are deemed to be material events and shall be disclosed

• Events specified in Para B of part A of schedule III shall be disclosed based on application of guidelines for materiality specified under sub-regulation 4 of Regulation 30

• Criteria for determination of materiality of event / information -

• Omission of an event or information, likely to results in discontinuity or alteration of an event or information already available publicly

• Omission of an event or information is likely to result in significant market reaction if the same come to light at a later date

• In the opinion of the board of directors of the listed entity, the event or information is considered to be material

• Listed entity shall frame a policy for determination of materiality, duly approved by the   board of directors and shall be disclosed on its website

Nomination and remuneration committee (Regulation (19)):

(1)The board of directors shall constitute the nomination and remuneration committee as follows: (a) the committee shall comprise of at least three directors; (b) all directors of the committee shall be non-executive directors; and (c) at least fifty percent of the directors shall be independent directors. (2) The Chairperson of the nomination and remuneration committee shall be an independent director: Provided that the chairperson of the listed entity, whether executive or non-executive, may be appointed as a member of the Nomination and Remuneration Committee and shall not chair such Committee. (3) The Chairperson of the nomination and remuneration committee may be present at the annual general meeting, to answer the shareholders' queries; however, it shall be up to the chairperson to decide who shall answer the queries.

The role of the nomination and remuneration committee includes as specified as in Part D of the Schedule II.

 (1) Formulation of the criteria for determining qualifications, positive attributes and independence of a director and recommend to the board of directors a policy relating to, the remuneration of the directors, key managerial personnel and other employees;(2) Formulation of criteria for evaluation of performance of independent directors and the board of directors; (3) Devising a policy on diversity of board of directors; (4) Identifying persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the board of directors their appointment and removal. (5) Whether to extend or continue the term of appointment of the independent director, on the basis of the report of performance evaluation of independent directors.

Stakeholders Relationship Committee Regulation (20):

(1) The listed entity shall constitute a Stakeholders Relationship Committee to specifically look into the mechanism of redressal of grievances of shareholders, debenture holders and other security holders. (2) The chairperson of this committee shall be a non-executive director. (3) The board of directors shall decide other members of this committee. (4) The role of the Stakeholders Relationship Committee is as specified as in Part D of the Schedule II, that is, to consider and resolve the grievances of the security holders of the listed entity including complaints related to transfer of shares, non-receipt of annual report and non-receipt of declared dividends.

Risk Management Committee (Regulation 21):

(1)The board of directors shall constitute a Risk Management Committee. (2) The majority of members of Risk Management Committee shall consist of members of the board of directors. (3) The Chairperson of the Risk management committee shall be a member of the board of directors and senior executives of the listed entity may be members of the committee. (4) The board of directors shall define the role and responsibility of the Risk Management Committee and may delegate monitoring and reviewing of the risk management plan to the committee and such other functions as it may deem fit. (5) The provisions of this regulation shall be applicable to top 100 listed entities, determined on the basis of market capitalisation, as at the end of the immediate previous financial year.

Vigil Mechanism (Regulation (22)):

(1)The listed entity shall formulate a vigil mechanism for directors and employees to report genuine concerns. (2) The vigil mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.

Related party transactions Regulation (23):

·  Listed entities shall formulate a policy on materiality of related party transaction and on dealing with related party transactions

·  A transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds 10% of the annual consolidated turnover of the listed entity as per the latest audited financial statements

· Prior approval of the audit committee is required and omnibus bus approval may be given provided the conditions prescribed in the regulation (23) (3) are satisfied.

·  ll material related party transactions shall require approval of the shareholders through a resolution.

· Prior approval of Audit committee, grant of omnibus approval and approval of shareholders  may not be necessary  for a) transactions entered into between two government companies; (b)transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval

· Related parties shall abstain from voting on such resolutions, whether the entity is a related party to the particular transaction or not - Regulation 23(4)

· These provisions shall be applicable to all prospective transactions

·  As per Regulation 23 (8), all existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations

· Listed entities shall formulate a policy on materiality of related party transaction and on dealing with related party transactions

·  A transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds 10% of the annual consolidated turnover of the listed entity as per the latest audited financial statements

· Prior approval of the audit committee is required and omnibus bus approval may be given provided the conditions prescribed in the regulation (23) (3) are satisfied.

·  All material related party transactions shall require approval of the shareholders through a resolution.

·  Prior approval of Audit committee, grant of omnibus approval and approval of shareholders  may not be necessary  for a) transactions entered into between two government companies; (b)transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval( Regulation (23) (5).

· Related parties shall abstain from voting on such resolutions, whether the entity is a related party to the particular transaction or not - Regulation 23(4)

·  These provisions shall be applicable to all prospective transactions

·  As per Regulation 23 (8), all existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations

Corporate governance requirements with respect to subsidiary of listed entity Regulation (24):

(1) At least one independent director on the board of directors of the listed entity shall be a director on the board of directors of an unlisted material subsidiary, incorporated in India. (2) The audit committee of the listed entity shall also review the financial statements, in particular, the investments made by the unlisted subsidiary. (3) The minutes of the meetings of the board of directors of the unlisted subsidiary shall be placed at the meeting of the board of directors of the listed entity. (4) The management of the unlisted subsidiary shall periodically bring to the notice of the board of directors of the listed entity, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary. Explanation.-For the purpose of this regulation, the term “significant transaction or arrangement” shall mean any individual transaction or arrangement that exceeds or is likely to exceed ten percent of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the unlisted material subsidiary for the immediately preceding accounting year. (5) A listed entity shall not dispose of shares in its material subsidiary resulting in reduction of its shareholding (either on its own or together with other subsidiaries) to less than fifty percent or cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting except in cases where such divestment is made under a scheme of arrangement duly approved by a Court/Tribunal. (6) Selling, disposing and leasing of assets amounting to more than twenty percent of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by way of special resolution, unless the sale/disposal/lease is made under a scheme of arrangement duly approved by a Court/Tribunal. (7) Where a listed entity has a listed subsidiary, which is itself a holding company, the provisions of this regulation shall apply to the listed subsidiary in so far as its subsidiaries are concerned.

Obligations with respect to independent directors (Regulation (25):

SEBI has nearly followed the provisions of the new Companies Act as to the independent directors’ appointments and qualifications prescribed in section 149 of the Act. Rightly, the SEBI has aligned the term of the Independent Director to two consecutive terms of five years each.  Similarly, reappointment  of  such  independent director  after  the  completion  of aforementioned  period  of  two  terms  could  be made  only after a  cooling  off  period  of  three years as mentioned  in  the  Act. The criteria of ‘independence’ as provided in subsection (6) of section 149 is religiously followed  in SEBI Regulations .The  terms  and  conditions  of appointment of the independent directors shall have  to  be  placed  on  the  website  of  the company  as  against  the  earlier  norms  that required  firms  to  disclose  the  letter  of appointment  along  with  the  detailed  profile  of the director. SCHEDULE IV of the Companies Act 2013 with reference to section 149(9) of the Act deals with CODE FOR INDEPENDENT DIRECTORS- that is a guide to professional conduct for independent directors. Adherence to these standards by independent directors and fulfillment of their responsibilities in a professional and faithful manner will promote confidence of the investment community, particularly minority shareholders, regulators and companies in the institution of independent directors.

In line with the schedule, SEBI also provides Performance evaluation of Independent Directors, Separate meetings of the Independent Directors and Training of Independent Directors so as to strengthen the corporate governance.

A person shall not serve as an independent director in more than seven listed entities: Provided that any person who is serving as a whole time director in any listed entity shall serve as an independent director in not more than three listed entities. (2) The maximum tenure of independent directors shall be in accordance with the Companies Act, 2013 and rules made thereunder, in this regard, from time to time. (3) The independent directors of the listed entity shall hold at least one meeting in a year, without the presence of non-independent directors and members of the management and all the independent directors shall strive to be present at such meeting. (4) The independent directors in the meeting referred in sub-regulation (3) shall, inter-alia- (a) review the performance of non-independent directors and the board of directors as a whole; (b) review the performance of the chairperson of the listed entity, taking into account the views of executive directors and non-executive directors; (c) assess the quality, quantity and timeliness of flow of information between the management of the listed entity and the board of directors that is necessary for the board of directors to effectively and reasonably perform their duties. (5) An independent director shall be held liable, only in respect of such acts of omission or commission by the listed entity which had occurred with his knowledge, attributable through processes of board of directors, and with his consent or connivance or where he had not acted diligently with respect to the provisions contained in these regulations. (6) An independent director who resigns or is removed from the board of directors of the listed entity shall be replaced by a new independent director by listed entity at the earliest but not later than the immediate next meeting of the board of directors or three months from the date of such vacancy, whichever is later: Provided that where the listed entity fulfills the requirement of independent directors in its board of directors without filling the vacancy created by such resignation or removal, the requirement of replacement by a new independent director shall not apply. (7) The listed entity shall familiarise the independent directors through various programmes about the listed entity, including the following: (a) nature of the industry in which the listed entity operates; (b) business model of the listed entity; (c) roles, rights, responsibilities of independent directors; and (d) any other relevant information.

Obligations with respect to directors and senior management (Regulation 26):

 (1) A director shall not be a member in more than ten committees or act as chairperson of more than five committees across all listed entities in which he is a director which shall be determined as follows: (a) the limit of the committees on which a director may serve in all public limited companies, whether listed or not, shall be included and all other companies including private limited companies, foreign companies and companies under Section 8 of the Companies Act, 2013 shall be excluded; (b) for the purpose of determination of limit, chairpersonship and membership of the audit committee and the Stakeholders' Relationship Committee alone shall be considered. (2) Every director shall inform the listed entity about the committee positions he or she occupies in other listed entities and notify changes as and when they take place. (3) All members of the board of directors and senior management personnel shall affirm compliance with the code of conduct of board of directors and senior management on an annual basis. (4) Non-executive directors shall disclose their shareholding, held either by them or on a beneficial basis for any other persons in the listed entity in which they are proposed to be appointed as directors, in the notice to the general meeting called for appointment of such director (5) Senior management shall make disclosures to the board of directors relating to all material, financial and commercial transactions, where they have personal interest that may have a potential conflict with the interest of the listed entity at large. Explanation.- For the purpose of this sub-regulation, conflict of interest relates to dealing in the shares of listed entity, commercial dealings with bodies, which have shareholding of management and their relatives etc.

Other corporate governance requirements (Regulation (27)):

(1) The listed entity may, at its discretion, comply with requirements as specified in Part E of Schedule II. (2) (a) The listed entity shall submit a quarterly compliance report on corporate governance in the format as specified by the Board from time to time to the recognised stock exchange(s) within fifteen days from close of the quarter. (b) Details of all material transactions with related parties shall be disclosed along with the report mentioned in clause (a) of sub-regulation (2). (c) The report mentioned in clause (a) of sub-regulation (2) shall be signed either by the compliance officer or the chief executive officer of the listed entity.

PART E: DISCRETIONARY REQUIREMENTS [See Regulation 27(1)]

A. The Board: A non-executive chairperson may be entitled to maintain a chairperson's office at the listed entity's expense and also allowed reimbursement of expenses incurred in performance of his duties.

B. Shareholder Rights: A half-yearly declaration of financial performance including summary of the significant events in last six-months, may be sent to each household of shareholders.

C. Modified opinion(s) in audit report: The listed entity may move towards a regime of financial statements with unmodified audit opinion.

D. Separate posts of chairperson and chief executive officer:  The listed entity may appoint separate persons to the post of chairperson and managing director or chief executive officer.

E. Reporting of internal auditor: The internal auditor may report directly to the audit committee.

Regulation46 (2)(b-i) on the website of the company The Board shall lay down code of conduct for all Board Members and senior management of the company that will be posted on the website of the company, besides affirming compliance with the code on annual basis. The Annual Report shall contain a declaration to the effect signed by the CEO. Whether the Company listed disseminated the following information on its website: terms and conditions of appointment of independent directors; composition of various committees of board of directors; code of conduct of board of directors and senior management personnel; details of establishment of vigil mechanism/ Whistle Blower policy; criteria of making payments to non-executive directors , if the same has not been disclosed in annual report; policy on dealing with related party transactions; policy for determining ‘material’ subsidiaries; details of familiarization programs imparted to independent directors including the following details:-(i) number of programs attended by independent directors (during the year and on a cumulative basis till date), (ii) number of hours spent by independent directors in such programs (during the year and on cumulative basis till date), and (iii) other relevant details

Corporate Governance Report Para C Schedule V:

The section on the corporate governance of the annual report shall make the disclosures as spelt out in in Para C of Schedule V as to (1) A brief statement on listed entity’s philosophy on code of governance (2) Board of Directors (3) Audit Committee (4) Nomination and remuneration Committee (5) Remuneration of Directors (6) stake holders Grievance Committee (7)General Body Meetings (8)Means of Communications (9) General Shareholders Information (10) Other Disclosures.

Besides, non-compliance of any requirement of corporate governance report of Sub-pares (2) to (10) above, with reasons thereof, the extent to which the discretionary requirements as specified in Part E of Schedule II have been adopted shall be disclosed, apart from the disclosures of the compliance with corporate governance requirements specified in regulation 17 to 27 and clauses (b) to (i) of sub-regulation (2) of regulation 46..

Para D Schedule V deals with declaration to be signed by the chief executive officer stating that the members of board of directors and senior management personnel have affirmed compliance with the code of conduct of board of directors and senior management.

Para E Schedule V deals with compliance certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance that shall be annexed with the directors’ report.

Conclusion:

One of the major changes is rightly as regards tightening the definition of ‘Independent Director’. By mere definition, independence of a director is neither vouched nor assured. Independence should be in letter and spirit, as well in thought, action and delivery. Technically, one may be an Independent Director within the definition; still he may be far away from independence, if he is not of the above mettle and if he owes his present position to the promoters. Therefore, shareholders are to be alert to ensure the independence of an independent director! In fact, it would look radical, if it were suggested that it is high time a Board of Independent Directors was constituted industry wise to draw the talents to deliver governance.

Another major change is as to strengthening the quality and creditability of the Audit Committee   by enlarging its scope to cover hitherto unchartered territory to ensure corporate governance  

Corporate governance is a sine qua non. It is a must in a globalised environment. But, the real test is in its implementation both in letter and spirit. Regulations should not be reduced to a farce to prepare some checklists for compliance. Regulations should deliver governance and should not over board. Corporate and governance should move in pairs, as we can ware shoes in pairs, lest will be reduced to despair or at times even may disappear. Corporate without governance will be grounded as birds without feathers; will be deserted as rivers without water; will not create goodwill or brand as flowers without fragrance may not invigorate. Corporate without governance would be like a heart without beats—as good as dead.