Following the Satyam revelations in January 2009, an urgent need was felt to analyze the regulatory provisions that exist. Accordingly, the Council of the Institute of Company secretaries of India constituted a Core Group to look into the issues and to, inter alia, make suitable recommendations for policy and regulatory changes in the legal framework. The Core Group undertook a detailed study of the prevailing corporate governance practices across the world, the recommendations of various committees and corporate governance codes, the best practices adopted by the industry and after benchmarking the best practices that can be mandated, made its recommendations. The Council of the Institute approved these ‘ICSI Recommendations to Strengthen Corporate Governance Framework’ after which they have been submitted to Shri Salman Khurshid, Minister for Corporate Affairs, for consideration.
Ministry of Corporate Affairs has placed these recommendations on their website www.mca.gov. in . The Ministry has sought comments by 14th December 2009 so that government can take a consolidated view on the recommendations. The gist of some of the important suggestions are as follows:
Maximum tenure of independent directors: A Maximum tenure of 6 years in aggregate should be specified for independent directors.
Attributes of Independent directors: Clause 49 needs to be suitably amended by specifying positive attributes for independent directors such as integrity, experience and expertise, foresight, managerial qualities and ability to read and understand financial statements etc.
Separation of roles of Chairman and CEO: There should be a clear demarcation of the roles and responsibilities of the Chairman of the Board and that of the Managing Director/ CEO. The Roles of Chairman and CEO should be separated to promote balance of power. A “comply or explain” approach should be adopted.
Directors’ Development: Induction Training of directors should be made mandatory covering roles, responsibilities and liabilities of a director. There should be a statement to this effect by the Board in Annual Report. Further, Boards should adopt suitable training programmes for enhancing their skills, etc.
Performance Evaluation of Directors : The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.
Individual evaluation should aim to show whether each director continues to contribute effectively and to demonstrate commitment to the role (including commitment of time for board and committee meetings and any other duties).
The chairman should act on the results of the performance evaluation by recognising the strengths and addressing the weaknesses of the Board and, where appropriate, proposing new members be appointed to the Board or seeking the resignation of directors.
Disclosure : The Board should state in the annual report how performance evaluation of the Board, its committees and its individual directors has been conducted.
Limit on number of Directorships: In case an individual is a managing or whole-time director in a listed company, the number of companies at which such an individual can serve as non-executive director, be restricted to 10, and the number of listed companies at which such an individual can serve as a non-executive director, be restricted to 2. The maximum number of listed companies in which an individual can serve as a director be restricted to 7.
Corporate Compliance Committee to be made mandatory: The constitution of Corporate Compliance Committee should be made mandatory in respect of all public limited companies having a paid-up capital of Rs.5 crores or more.
Directors’ Responsibility Statement to include Statement on Compliances: Directors’ Responsibility Statement should include a statement that proper systems are in place to ensure compliance of all laws applicable to the company.
Secretarial Audit: Secretarial Audit should be made mandatory in respect of listed companies and certain other companies. The report on the audit of secretarial records shall be submitted by the secretarial auditor to the Corporate Compliance Committee of the Board of Directors of the company. The Secretarial Audit Report should form part of the Board’s Report.
Audit Partner / Firm Rotation to be made mandatory: Periodicity of Rotation :
Audit Partner – Once every three years
Audit Firm – Once every six years.
Standardization of Presentation in Annual Report: To increase the readability of the Annual Report, there should be standard structure of the Annual Report.
Constitution of Investor Relations Cell: Constitution of Investor Relations Cell should be made mandatory for Listed Companies. The Investor Relations meet after declaration of financial results should be compulsorily webcast in case of companies having a market capitalization of Rs.1,000 Crores or more.