Managing a Business/ms 91 2

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Question
Read the case study on 'corporate governance at TISCO'. Highlight the policies and practices adopted by TISCO which appeal to you most and what suggestions would you like to offer for TISCO to adopt good corporate governance practices.

Answer

HERE  IS  SOME  SOME  USEFUL MATERIAL.
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Q2
1.   The Company's Corporate Governance Philosophy
The Company has set itself the objective of expanding its capacities and becoming globally competitive in its business. As a part of its growth strategy, the Company believes in adopting the 'best practices' that are followed in the area of Corporate Governance across various geographies. The Company emphasises the need for full transparency and accountability in all its transactions, in order to protect the interests of its stakeholders. The Board considers itself as a Trustee of its Shareholders and acknowledges its responsibilities towards them for creation and safeguarding their wealth.
In accordance with the Tata Steel Group Vision, Tata Steel Group ('the Group') aspires to be the global steel industry benchmark for value creation and corporate citizenship. The Group expects to realise its Vision by taking such actions as may be necessary in order to achieve its goals of value creation, safety, environment and people.

CORPORATE GOVERNANCE
The Company has a Non-Executive Chairman and the number of Independent Directors is more than fifty percent of the total number of Directors in compliance with the Clause 49 of the listing Agreement. As on 31st March, 2013, the Company has 13 Directors on its Board, of which 7 Directors are independent. The number of Non-Executive Directors (NEDs) is more than fifty percent of the total number of Directors. The Company is in compliance with the Clause 49 of the Listing Agreements pertaining to compositions of Directors.
None of the Directors on the Board is a Member on more than 10 Committees and Chairman of more than 5 Committees (as specified in Clause 49), across all the companies in which he is a Director. The necessary disclosures regarding Committee positions have been made by the Directors.

Eight Board Meetings were held during the Financial Year 2012-13 and the gap between two meetings did not exceed four months.

3.   Audit Committee
The Company had constituted an Audit Committee in the year 1986. The scope of the activities of the Audit Committee is as set out in Clause 49 of the Listing Agreements with the Stock Exchanges read with Section 292A of the Companies Act, 1956. The terms of reference of the Audit Committee are broadly as follows:
a.   To review compliance with internal control systems;
b.   To review the findings of the Internal Auditor relating to various functions of the Company;
c.   To hold periodic discussions with the Statutory Auditors and Internal Auditors of the Company concerning the accounts of the Company, internal control systems, scope of audit and observations of the Auditors/Internal Auditors;
d.   To review the quarterly, half-yearly and annual financial results of the Company before submission to the Board;
e.   To make recommendations to the Board on any matter relating to the financial management of the Company, including Statutory & Internal Audit Reports;
f.   Recommending the appointment of cost auditors and statutory auditors and fixation of their remuneration.
g.   Review of Cost Audit Report.
h.   Reviewing the Company's financial and risk management policies.

4.   Remuneration Committee
The Company had constituted a Remuneration Committee in the year 1993. The broad terms of reference of the Remuneration Committee are as follows:
a.   Review the performance of the Managing Director and the Whole-time Directors, after considering the Company's performance.
b.   Recommend to the Board remuneration including salary, perquisites and commission to be paid to the Company's Managing Director and Whole-time Directors.
c.   Finalise the perquisites package of the Managing Director and Whole-time Directors within the overall ceiling fixed by the Board.
d.   Recommend to the Board, retirement benefits to be paid to the Managing Director and Whole-time Directors under the Retirement Benefit Guidelines adopted by the Board.
The Remuneration Committee also functions as the Compensation Committee as per SEBI guidelines on the Employees'  
Three meetings of the Remuneration Committee were held during the Financial Year 2012-13.
The composition of the Remuneration Committee and the details of meetings attended by the Directors are given below

Remuneration Policy
The Company while deciding the remuneration package of the senior management members takes into consideration the following items:
a.   employment scenario
b.   remuneration package of the industry and
c.   remuneration package of the managerial talent of other industries.
The annual variable pay of senior managers is linked to the performance of the Company in general and their individual performance for the relevant year measured against specific Key Result Areas, which are aligned to the Company's objectives.
The Non-Executive Directors (NEDs) are paid remuneration by way of Commission and Sitting Fees. In terms of the shareholders' approval obtained at the AGM held on 3rd August, 2011, the Commission is paid at a rate not exceeding 1% per annum of the profits of the Company (computed in accordance with Section 309(5) of the Companies Act, 1956). The distribution of Commission amongst the NEDs is placed before the Board. The Commission is distributed on the basis of their attendance and contribution at the Board and certain Committee Meetings as well as time spent on operational matters other than at the meetings.
The Company pays sitting fees of Rs. 20,000 per meeting to the NEDs for attending the meetings of the Board, Executive Committee of the Board, Remuneration Committee, Audit Committee, Safety, Health and Environment Committee, Nomination Committee, Committee of Investment & Projects and Committees constituted by the Board from time to time. For other meetings, viz. Investors' Grievance Committee and Ethics and Compliance Committee, the Company pays to the NEDs sitting fees of Rs. 5,000 per meeting.
The Company pays remuneration by way of salary, perquisites and allowances (fixed component) and commission (variable component) to Managing and Whole-time Directors. Salary is paid within the range approved by the Shareholders. Annual increments effective 1st April each year, as recommended by the Remuneration Committee, are approved by the Board. The ceiling on perquisites and allowances as a percentage of salary, is fixed by the Board. Within the prescribed ceiling, the perquisites package is approved by the Remuneration Committee. Commission is calculated with reference to net profits of the Company in a particular financial year and is determined by the Board of Directors at the end of the financial year based on the recommendations of the Remuneration Committee, subject to overall ceilings stipulated in Sections 198 and 309 of the Companies Act, 1956. Specific amount payable to such directors is based on the performance criteria laid down by the Board which broadly takes into account the profits earned by the Company for the yea

Ethics and Compliance Committee
In accordance with the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations,1992, as amended (the Regulations), the Board of Directors of the Company adopted the revised Tata Code of Conduct for Prevention of Insider Trading and the Code of Corporate Disclosure Practices (the Code) to be followed by Directors, Officers and other Employees. The Code is based on the principle that Directors, Officers and Employees of a Tata Company owe a fiduciary duty to, among others, the shareholders of the Company to place the interest of the shareholders above their own and conduct their personal securities transactions in a manner that does not create any conflict of interest situation. The Code also seeks to ensure timely and adequate disclosure of Price Sensitive Information to the investor community by the Company to enable them to take informed investment decisions with regard to the Company's securities.
In terms of the said Code, a Committee has been constituted on 30th May, 2002, called Ethics and Compliance Committee.
One meeting of the Ethics and Compliance Committee was held on 9th November, 2012 .

The Board has also appointed the Executive Director & Group Chief Financial Officer as the Compliance Officer to ensure compliance and effective implementation of the Regulations and also the Code across the Company.
During the year under review, the Compliance Officer submitted periodic Reports on the compliance of the Tata Code of Conduct for Prevention of Insider Trading.
Safety, Health and Environment Committee
The Safety, Health and Environment Committee of the Board was constituted on 25th June, 2009 to oversee the policies and their implementation across Tata Steel Group. The main remit of the Committee is to:
•   Review operational performance, anticipate potential issues and provide support in setting direction for improvements;
•   Reduce carbon emissions per tonne of steel produced; and
•   Functional health, safety and environmental team would provide a coordinated and effective specialist advisory support to the said Committee.
Three meetings of the Safety, Health and Environment Committee were held during the Financial Year 2012-13.
The composition of the Safety, Health and Environment Committee and the details of the meetings attended by the Directors are given below:
Date of Meeting   Mr. Jacobus Schraven
Chairman,
Independent, Non-Executive   Mr. S. M. Palia
Member,
Independent,
Non-Executive   Mr. B. Muthuraman
Member,
Not Independent,
Non-Executive   Mr. H. M. Nerurkar
Member,
Not Independent,
Executive   Dr. Karl-Ulrich Koehler
Member,
Not Independent,
Non-Executive
10th July, 2012   Yes   Yes   Yes   Yes   Yes
8th November, 2012   Yes   Yes   Yes   Yes   Yes
12th February, 2013   Yes   Yes   No   Yes   Yes

Company Secretary acts as the Secretary of the Safety, Health and Environment Committee.
Committee of Investments and Projects
The Committee of Investments and Projects was constituted on 11th July, 2012 to approve placing of large orders of equipment, plant and machinery relating to the projects and monitor the progress of the projects.
Six meetings of the Committee of Investments and Projects were held during the Financial Year 2012-13.
The composition of the Committee of Investments and Projects and the details of the meetings attended by the Directors are given below:
Date of Meeting   Mr. Ishaat Hussain
Chairman,
Not Independent,
Non-Executive   Mr.Cyrus P. Mistry
Member,
Not Independent,
Non-Executive   Mr. S. M. Palia
Member,
Independent,
Non-Executive   Mr. H. M. Nerurkar
Member,
Not Independent,
Executive   Mr. Koushik Chatterjee
Member,
Not Independent,
Executive
25th July, 2012   Yes   Yes   Yes   Yes   Yes
8th August, 2012   Yes   Yes   Yes   Yes   Yes
18th September, 2012   Yes   Yes   Yes   Yes   Yes
6th November, 2012   Yes   Yes   Yes   Yes   Yes
18th December, 2012   Yes   Yes   Yes   Yes   Yes
26th February, 2013   Yes   Yes   No   Yes   Yes

The Committee of Directors has been re-constituted on 26th May, 2010 to approve of certain routine matters such as Opening and Closing of Bank Accounts of the Company, to grant Powers of Attorney to the Officers of the Company, to appoint representatives to attend general meetings or through postal ballot on behalf of the Company etc.
The Members of this Committee as on 31st March, 2013 are – Mr. Cyrus P. Mistry (Chairman), Mr. S. M. Palia (Member), Mr. Ishaat Hussain (Member), Mr. H. M. Nerurkar (Member) and Mr. Koushik Chatterjee (Member).
Mr. R.N.Tata stepped down as Chairman of the Committee of Directors w.e.f. 28th December, 2012.
Mr. Cyrus P. Mistry was appointed as Chairman & Mr. Koushik Chatterjee was appointed as Member w.e.f. 12th February, 2013.
The business of the Committee is transacted by passing Circular Resolutions which are placed before the Board at its next meeting.
6.   General Body Meetings
a.   Location and time, where last three Annual General Meetings (AGMs) were held:
Financial Year   Details of Location   Date & Time
2011-12   Birla Matushri Sabhagar,   14th August, 2012 at 3.00 p.m.
2010-11   19, Sir Vithaldas Thackersey Marg,   3rd August, 2011 at 3.00 p.m
2009-10   Mumbai-400 020   13th August, 2010 at 3.30 p.m.

b.   No Extra-Ordinary General Meeting of the shareholders was held during the year.
c.   Special Resolutions passed in previous three Annual General Meetings:
1.   At the last Annual General Meeting held on 14th August, 2012, no Special Resolutions were passed.
2.   At the Annual General Meeting held on 3rd August, 2011, Special Resolution for commission to Directors other than the Managing and whole-time Directors was passed unanimously.
3.   At the Annual General Meeting held on 13th August, 2010, no Special Resolutions were passed.
None of the items to be transacted at the ensuing meeting is required to be passed by postal ballot.
7.   Disclosures
i.   The Board has received disclosures from key managerial personnel relating to material, financial and commercial transactions where they and/or their relatives have personal interest. There are no materially significant related party transactions which have potential conflict with the interest of the Company at large.
ii.   The Company has complied with the requirements of the Stock Exchanges, SEBI and other statutory authorities on all matters relating to capital markets during the last three years. No penalties or strictures have been imposed on the Company by the Stock Exchanges, SEBI or other statutory authorities relating to the above.
iii.   The Company has adopted a Whistle Blower Policy and has established the necessary mechanism in line with Clause 7 of the Annexure 1D to Clause 49 of the Listing Agreement with the Stock Exchanges, for employees to report concerns about unethical behaviour. No personnel has been denied access to the Ethics Counsellor/Chairman of the Audit Committee.
iv.   The Company has fulfilled the following non-mandatory requirements as prescribed in Annexure 1D to Clause 49 of the Listing Agreement with the Stock Exchanges:
a.   The Company has set up a Remuneration Committee. Please see para 4 for details.
b.   The Company has moved towards a regime of unqualified financial statements.
Reconciliation of Share Capital Audit
v.   Pursuant to Clause 47(c) of the Listing Agreement with the Stock Exchanges, certificates, on half-yearly basis, have been issued by a Company Secretary-in-Practice for due compliance of share transfer formalities by the Company.
vi.   A Company Secretary-in-Practice carried out a Reconciliation of Share Capital Audit to reconcile the total admitted capital with National Securities Depository Limited and Central Depository Services (India) Limited ("Depositories") and the total issued and listed capital. The audit confirms that the total issued/paid-up capital is in agreement with the aggregate of the total number of shares in physical form and the total number of shares in dematerialised form (held with Depositories).
8.   Means of Communication
Quarterly/Half-yearly results –
The quarterly/half-yearly and annual results of the Company are published in the newspapers and posted on the website of the Company. As a part of the Green initiative, the quarterly/half-yearly results are sent by email to Shareholders whose email ids are registered with the Depositories/Registrars and Transfer Agents of the Company.
Results –
The quarterly/half-yearly and annual results along with the Segmental Report are generally published in The Indian Express, Financial Express, Nav Shakti, Free Press Journal, Loksatta, Nav Bharat and also displayed on the website of the Companywww.tatasteel.com shortly after its submission to the Stock Exchanges.
Presentation to Institutional Investors or to analysts –
Official news releases and presentations made to Institutional Investors and analysts are posted on the Company's website.
Annual Report –
Annual Report containing inter alia, Audited Annual Accounts, Consolidated Financial Statements, Directors' Report, Auditors' Report and other important information is circulated to the members and others entitled thereto. The Annual Report is also available on the Company's website in a freely downloadable format.
Management Discussion & Analysis Report (MD&A Report) –
The MD&A Report forms a part of the Directors' Report. All matters pertaining to industry structure and developments, opportunities and threats, segment/product wise performance, outlook, risks and concerns, internal control and systems, etc. are discussed in the said Report.
Intimation to Stock Exchanges –
All price sensitive information and matters which are material and relevant to shareholders are intimated to all the Stock Exchanges where the securities of the Company are listed.
Corporate Filing and Dissemination System (CFDS) and NSE Electronic Application Processing System (NEAPS) -
In accordance with Clause 52 of the Listing Agreement, all disclosures and communications to BSE Limited and National Stock Exchange of India Limited are filed electronically through CFDS website www.corpfiling.co.in. The Company also submits to NSE all quarterly compliances, disclosures and communications through NSE's NEAPS portal.
Company's Corporate Website –
The Company's website is a comprehensive reference on Tata Steel's management, vision, mission, policies, corporate governance, corporate sustainability, investor relations, sales network, updates and news. The section on 'Investors' serves to inform the shareholders, by giving complete financial details, shareholding patterns, corporate benefits, information relating to stock exchanges, registrars & transfer agents and frequently asked questions. Investors can also submit their queries and get feedback through online interactive forms. The section on 'Media' includes all major press reports and releases, awards, campaigns.

Transfer of Unclaimed Dividend to Investor Education and Protection Fund
Pursuant to the provisions of Sections 205A and 205C of the Companies Act, 1956, the dividend which remains unclaimed/unpaid for a period of seven years from the date of transfer to the unpaid dividend account is required to be transferred to the Investor Education and Protection Fund (IEPF) established by the Central Government.
The status of dividend remaining unclaimed is given hereunder:
Registrars and Transfer Agents
For Share related matters, Members are requested to correspond with the Company's Registrars and Transfer Agents – TSR Darashaw Private Limited quoting their folio no./DP ID & Client ID at the following addresses:
Share Transfer System:
Share Transfers in physical form can be lodged with TSR Darashaw Private Limited at the above mentioned addresses. The transfers are normally processed within 10-12 days from the date of receipt if the documents are complete in all respects. Certain Directors and the Company Secretary are severally empowered to approve transfers.
Distribution of Shareholding of Ordinary Shares as on 31st March, 2013.



10.   Other information to the shareholders
Green Initiative
As a responsible corporate citizen, the Company welcomes and supports the 'Green Initiative' taken by the Ministry of Corporate Affairs, Government of India, enabling electronic delivery of documents including the Annual Report, Quarterly, Half-yearly results etc. to shareholders at their e-mail address previously registered with the Depository Participants (DPs)/Company/Registrars & Transfer Agents.
Shareholders who have not registered their e-mail addresses so far are requested to register their e-mail addresses. Those holding shares in demat form can register their e-mail address with their concerned DPs. Shareholders who hold shares in physical form are requested to register their e-mail addresses with TSR Darashaw Private Limited, by sending a letter, duly signed by the first/sole holder quoting details of Folio No.
1.   
Principles
Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization.
Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.
Commonly accepted principles of corporate governance include:
•   Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.
•   Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders.
•   Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors.
•   Integrity and ethical behaviour: Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries.
•   Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.
Issues involving corporate governance principles include:
•   internal controls and internal auditors
•   the independence of the entity's external auditors and the quality of their audits
•   oversight and management of risk
•   oversight of the preparation of the entity's financial statements
•   review of the compensation arrangements for the chief executive officer and other senior executives
•   the resources made available to directors in carrying out their duties
•   the way in which individuals are nominated for positions on the board
•   dividend policy
Nevertheless "corporate governance," despite some feeble attempts from various quarters, remains an ambiguous and often misunderstood phrase. For quite some time it was confined only to corporate management. That is not so. It is something much broader, for it must include a fair, efficient and transparent administration and strive to meet certain well defined, written objectives. Corporate governance must go well beyond law. The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the board of Director (BOD) exercise their trustee responsibilities (largely an ethical commitment), and the commitment to run a transparent organization- these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements within the corporate sector. John G. Smale, a former member of the General Motors board of directors, wrote: "The Board is responsible for the successful perpetuation of the corporation. That responsibility cannot be relegated to management." However it should be noted that a corporation should cease to exist if that is in the best interests of its stakeholders. Perpetuation for its own sake may be counterproductive.
Mechanisms and controls
Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behaviour, an independent third party (the external auditor) attests the accuracy of information provided by management to investors. An ideal control system should regulate both motivation and ability.
Internal corporate governance controls
Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include:
•   Monitoring by the board of directors: The board of directors, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria.
•   Internal control procedures and internal auditors: Internal control procedures are policies implemented by an entity's board of directors, audit committee, management, and other personnel to provide reasonable assurance of the entity achieving its objectives related to reliable financial reporting, operating efficiency, and compliance with laws and regulations. Internal auditors are personnel within an organization who test the design and implementation of the entity's internal control procedures and the reliability of its financial reporting
•   Balance of power: The simplest balance of power is very common; require that the President be a different person from the Treasurer. This application of separation of power is further developed in companies where separate divisions check and balance each other's actions. One group may propose company-wide administrative changes, another group review and can veto the changes, and a third group check that the interests of people (customers, shareholders, employees) outside the three groups are being met.
•   Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behaviour, and can elicit myopic behaviour.
External corporate governance controls
External corporate governance controls encompass the controls external stakeholders exercise over the organisation. Examples include:
•   competition
•   debt covenants
•   demand for and assessment of performance information (especially financial statements)
•   government regulations
•   managerial labour market
•   media pressure
•   takeovers
Systemic problems of corporate governance
•   Demand for information: In order to influence the directors, the shareholders must combine with others to form a significant voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting.
•   Monitoring costs: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgements of larger professional investors.
•   Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process.
Rules versus principles
Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behaviour. Rules also reduce discretion on the part of individual managers or auditors.
In practice rules can be more complex than principles. They may be ill-equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose - this is harder to achieve if one is bound by a broader principle.
Principles on the other hand is a form of self regulation. It allows the sector to determine what standards are acceptable or unacceptable. It also pre-empts over zealous legislations that might not be practical.
Enforcement
Enforcement can affect the overall credibility of a regulatory system. They both deter bad actors and level the competitive playing field. Nevertheless, greater enforcement is not always better, for taken too far it can dampen valuable risk-taking. In practice, however, this is largely a theoretical, as opposed to a real, risk. There are various integrated governance, risk and compliance solutions available to capture information in order to evaluate risk and to identify gaps in the organization’s principles and processes. This type of software is based on project management style methodologies such as the ABACUS methodology which attempts to unify the management of these areas, rather than treat them as separate entities.
Action Beyond Obligation
Enlightened boards regard their mission as helping management lead the company. They are more likely to be supportive of the senior management team. Because enlightened directors strongly believe that it is their duty to involve themselves in an intellectual analysis of how the company should move forward into the future, most of the time, the enlightened board is aligned on the critically important issues facing the company.
Unlike traditional boards, enlightened boards do not feel hampered by the rules and regulations of the Sarbanes-Oxley Act. Unlike standard boards that aim to comply with regulations, enlightened boards regard compliance with regulations as merely a baseline for board performance. Enlightened directors go far beyond merely meeting the requirements on a checklist. They do not need Sarbanes-Oxley to mandate that they protect values and ethics or monitor CEO performance.
At the same time, enlightened directors recognize that it is not their role to be involved in the day-to-day operations of the corporation. They lead by example. Overall, what most distinguishes enlightened directors from traditional and standard directors is the passionate obligation they feel to engage in the day-to-day challenges and strategizing of the company. Enlightened boards can be found in very large, complex companies, as well as smaller companies.

A.  TOP  MANAGEMENT
Top Level of Management
It consists of board of directors, chief executive or managing director. The top management is the ultimate source of authority and it manages goals and policies for an enterprise. It devotes more time on planning and coordinating functions.
The role of the top management can be summarized as follows -
a.   Top management lays down the objectives and broad policies of the enterprise.
b.   It issues necessary instructions for preparation of department budgets, procedures, schedules etc.
c.   It prepares strategic plans & policies for the enterprise.
d.   It appoints the executive for middle level i.e. departmental managers.
e.   It controls & coordinates the activities of all the departments.
f.   It is also responsible for maintaining a contact with the outside world.
g.   It provides guidance and direction.
h.   The top management is also responsible towards the shareholders for the performance of the enterprise.
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AUDIT  COMMITTEES

The Audit Committee is formed to regularly review processes and procedures to ensure the effectiveness of internal control systems so that the accuracy and adequacy of the reporting of financial results is maintained at high level at all times. It is important for the members of Audit Committee to have formal knowledge of accounting and financial management or experience of interpreting financial statements.

Provisions of Audit Committees and Its Formation:
The provisions in respect of the same are as follows:
1)Committee members are drawn from members of the Company's board of directors, with a  Chairperson selected from among the members.
2)The Chairperson should be an independent Director.
3)The Committee shall have at least three (3) members (directors).
4)Two-third (2/3) of the members shall be non-executive directors.
5)The Board of Directors shall prescribe the Committee’s terms of reference in writing.
6)Auditors—internal and external—and Director (Finance) shall attend the meeting but not have right to vote.
7)The Chairman of the Audit Committee shall attend the annual general meeting to provide  clarifications on matters relating to audit.
8)The constitution and composition of the Audit Committee is to be disclosed in the annual  report of the Company.
9)Any default in complying with the provision of section 292A may attract imprisonment up to one year or fine up to Rs. XXXXX  or both. The prosecution lies against the company and every officer of the company who is in default. The offence is compoundable under section 621A.
10)The Listing Agreement requires at least one director having financial management and accounting knowledge expertise to be a member of Audit Committee while other members should be financially literate. Section 292A(5).

Functions of Audit Committee under Section 292A
The Audit Committee constituted under this section shall act in accordance with terms of reference to be specified in writing by the Board. The Audit Committee should have periodic discussions with the auditors about the following matters:
(a) Internal Control System.
(b) Scope of audit including the observation of auditors.
(c) Review the half-yearly and annual financial statement before submission to the Board.
(d) Compliance of internal control system.
The Audit Committee shall also have authority to investigate into the matters in relation to the items specified in this section or matters referred to it by the Board of Directors. To carry out such investigation the Audit Committee will have full access to information contained in the records of the Company and external professional advice, if necessary.
The recommendations of the Audit Committee on any matters relating to financial
management including the audit report shall be binding on the Board. In case the Board does not agree with the recommendations made by the Audit Committee, the Board shall record the reasons for disagreement and communicate the same to the shareholders to be reported in Annual General Meeting.

Functions of Audit Committee under
• Financial Management including responsibility, integrity, objectivity of information of
financial reports and transparency in disclosures.
•Auditing –
- Internal
- External
•Legal compliance to ensure –
- Legal compliance
- Charter compliance
- Audit independence
- Review and assessment of financial implications of litigations and claims against the
Company
- Ensuring security of assets accounting standards and going concern.
•  Communication and quality assurance–
-         With shareholders
- Presentation of Board of Directors
- Quarterly reviews
- Compliance of Accounting Standards
- Preparation and improvement in the Audit Committee charter
- Selection of members of the Audit Committee
- Appraisal and performance review

Generally the major Functions of Audit Committee are as follows:
* overseeing the Company’s financial reporting process and disclosure of financial information to  ensure that the financial statements are correct, sufficient and credible,
* recommending the appointment and removal of external auditor, fixation of audit fee and approval  for payment of any other services,
* reviewing with the Management the annual financial statements before submission to the Board,
* reviewing with the Management the annual financial statements of the subsidiary companies,
* reviewing with the Management and the external and internal auditors, the adequacy of internal control systems,
* reviewing the adequacy of internal audit function,
* discussing with internal auditors any significant finding and follow up on such issues,
* reviewing the findings of any internal investigations by the internal auditors in matters where there is suspected fraud or irregularity, or a failure of internal control systems of a material nature, and then  reporting such matters to the Board,
* discussing with external auditors before the audit commences on the nature and scope of audit, as  well as having post-audit discussion to ascertain any area of concern,
* reviewing the Company’s financial and risk management policies; and
* examining reasons for substantial default in the payment to depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors, if any.
In addition to the areas noted above, the Audit Committee looks into the controls and security of the Company’s critical IT applications, internal and control assurance audit reports of all the major divisions and deviations from the Code of Business Principles, if any
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STATUTORY   AUDITORS
The statutory auditors participate in the meetings of the Board of Directors and the Executive Committee, and receive information from the corporate bodies with delegated powers.
The Board of Statutory Auditors
•   verifies compliance with the law, bylaws and principles of correct administration of the operations of greatest economic, financial and balance sheet significance;
•   verifies respect of the self-regulatory principles and procedures adopted for undertaking transactions with related parties and their compliance with the Company’s interests;
•   supervises compliance with the principles of correct administration and the adequacy of the Company’s organizational structure.
It likewise supervises the internal control system and the administrative and accounting mechanisms, as well as the reliability of the latter in correctly representing transactions. The Board of Statutory Auditors draws up proposals for the shareholders’ meeting for the appointment of the external auditors and monitors the independence of the auditing firm over time.
The audit committee must also adopt formal procedures for receiving and handling complaints from third parties, as well as the concerns of employees regarding accounting and auditing; it must have economic independence and be able to acquire technical and professional consultancy. In relation to this role, among other things, it has adopted a procedure governing the acceptance, retention and handling of complaints and concerns.

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include labor(employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large.
Corporate governance is a multi-faceted subject.An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis shareholders' welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world .

Definition
In A Board Culture of Corporate Governance  could  be   defined as  corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'.
The perceived quality of a company's corporate governance can influence its share price as well as the cost of raising capital. Quality is determined by the financial markets, legislation and other external market forces plus how policies and processes are implemented and how people are led. External forces are, to a large extent, outside the circle of control of any board. The internal environment is quite a different matter, and offers companies the opportunity to differentiate from competitors through their board culture. To date, too much of corporate governance debate has centred on legislative policy, to deter fraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause.'
It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.
It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.

Impact of Corporate Governance
The positive effect of corporate governance on different stakeholders ultimately is a strengthened economy, and hence good corporate governance is a tool for socio-economic development.
Role of Institutional Investors
Many years ago, worldwide, buyers and sellers of corporation stocks were individual investors, such as wealthy businessmen or families, who often had a vested, personal and emotional interest in the corporations whose shares they owned. Over time, markets have become largely institutionalized: buyers and sellers are largely institutions (e.g., pension funds, mutual funds, hedge funds, exchange traded funds, other investor groups; insurance companies, banks, brokers, and other financial institutions).
The rise of the institutional investor has brought with it some increase of professional diligence which has tended to improve regulation of the stock market (but not necessarily in the interest of the small investor or even of the naïve institutions, of which there are many). Note that this process occurred simultaneously with the direct growth of individuals investing indirectly in the market (for example individuals have twice as much money in mutual funds as they do in bank accounts). However this growth occurred primarily by way of individuals turning over their funds to 'professionals' to manage, such as in mutual funds. In this way, the majority of investment now is described as "institutional investment" even though the vast majority of the funds are for the benefit of individual investors.



Parties to corporate governance
Parties involved in corporate governance include the regulatory body (e.g. the Chief Executive Officer, the board of directors, management and shareholders). Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large.
In corporations, the shareholder delegates decision rights to the manager to act in the principal's best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse.
A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities.
The Company Secretary, known as a Corporate Secretary in the US and often referred to as a Chartered Secretary if qualified by the Institute of Chartered Secretaries and Administrators (ICSA), is a high ranking professional who is trained to uphold the highest standards of corporate governance, effective operations, compliance and administration.
All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organisation. Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital.
A key factor is an individual's decision to participate in an organisation e.g. through providing financial capital and trust that they will receive a fair share of the organisational returns. If some parties are receiving more than their fair return then participants may choose to not continue participating leading to organizational collapse.

CORPORATE  GOVERNANCE   Principles
Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization.
Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.
Commonly accepted principles of corporate governance include:
•   Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.
•   Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders.
Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. The key roles of chairperson and CEO should not be held by the same person.
•   Integrity and ethical behaviour: Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries.
•   Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.
Issues involving corporate governance principles include:
•   internal controls and the independence of the entity's auditors
•   oversight and management of risk
•   oversight of the preparation of the entity's financial statements
•   review of the compensation arrangements for the chief executive officer and other senior executives
•   the resources made available to directors in carrying out their duties
•   the way in which individuals are nominated for positions on the board
dividend policy
Nevertheless "corporate governance," despite some feeble attempts from various quarters, remains an ambiguous and often misunderstood phrase. For quite some time it was confined only to corporate management. That is not so. It is something much broader, for it must include a fair, efficient and transparent administration and strive to meet certain well defined, written objectives. Corporate governance must go well beyond law. The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the board of Director (BOD) exercise their trustee responsibilities (largely an ethical commitment), and the commitment to run a transparent organization- these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements within the corporate sector.

Mechanisms and controls
Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behaviour, an independent third party (the auditor) attests the accuracy of information provided by management to investors. An ideal control system should regulate both motivation and ability.

Internal corporate governance controls
Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include:
Monitoring by the board of directors: The board of directors, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance.[5] Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria.
•   Balance of power: The simplest balance of power is very common; require that the President be a different person from the Treasurer. This application of separation of power is further developed in companies where separate divisions check and balance each other's actions. One group may propose company-wide administrative changes, another group review and can veto the changes, and a third group check that the interests of people (customers, shareholders, employees) outside the three groups are being met.
•   Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behaviour, and can elicit myopic behaviour.

External corporate governance controls
External corporate governance controls encompass the controls external stakeholders exercise over the organisation. Examples include:
•   competition
•   debt covenants
•   demand for and assessment of performance information (especially FINANCIAL  STATEMENTS)
•   government regulations
•   managerial labour market
•   media pressure
•   takeovers

Rules versus principles
Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behaviour. Rules also reduce discretion on the part of individual managers or auditors.
In practice rules can be more complex than principles. They may be ill-equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose - this is harder to achieve if one is bound by a broader principle.
Principles on the other hand is a form of self regulation. It allows the sector to determine what standards are acceptable or unacceptable. It also pre-empts over zealous legislations that might not be practical.

THE  BIGGEST  CHALLENGE  IS  Enforcement.
Enforcement can affect the overall credibility of a regulatory system. They both deter bad actors and level the competitive playing field. Nevertheless, greater enforcement is not always better, for taken too far it can dampen valuable risk-taking. In practice, however, this is largely a theoretical, as opposed to a real, risk.

VALUES

What are Values?
Values are ideals that guide or qualify your personal conduct, interaction with others, and involvement in your career. Like morals, they
•   help you to distinguish what is right from what is wrong and
•   inform you on how you can conduct your life in a meaningful way.
Values can be classified into four categories:
•   Personal Values
•   Cultural Values
•   Social Values
•   Work Values
Personal Values
Personal values are principles that define you as an individual. Personal values, such as honesty, reliability, and trust, determine how you will face the world and relate with people.
-caring
-courage
-creativity
-friendliness
-honesty
-honour
-independent
plus  others
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Cultural Values
Cultural values, like the practice of your faith and customs, are principles that sustain connections with your cultural roots. They help you feel connected to a larger community of people with similar backgrounds.
-roots  in  tradition
-faith
-linguistic - tie
plus  others
--------------------------------
Social Values
Social values are principles that indicate how you relate meaningfully to others in social situations, including those involving family, friends, and co-workers.
-equality
-fairness
-reliability
-family  oriented
-environment  conscious
-diversity
plus  others
-------------------------------------
Work Values
Work values are principles that guide your behaviour in professional contexts. They define how you work and how you relate to your co-workers, bosses, and clients. They also reveal your potential for advancement.
-autonomy
-competitiveness
-conscientiousness
-dedication
-loyalty
-punctuality
-teamwork
plus  others.
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Identify and Live Your Personal Values
Values are traits or qualities that are considered worthwhile; they represent your highest priorities and deeply held driving forces. When you are part of any organization, you bring your deeply held values and beliefs to the organization. There they co-mingle with those of the other members to create an organization or family culture.
Value statements are grounded in values and define how people want to behave with each other in an organization, an institution, a company, or a family. They are statements about how the organization will value customers, suppliers, and the internal community. Value statements describe actions which are the living enactment of the fundamental values held by most individuals within the organization.
Why Identify and Establish Your Values?
Your values are made up of everything that has happened to you in your life and include influences from: your parents and family, your religious affiliation, your friends and peers, your education, your reading, and more. Effective people recognize these environmental influences and identify and develop a clear, concise, and meaningful set of values/beliefs, and priorities. Once defined, values impact every aspect of your life.
•   You demonstrate and model your values in action in your personal and work behaviors, decision making, contribution, and interpersonal interaction.
•   You use your values to make decisions about priorities in your daily work and home life.
•   Your goals and life purpose are grounded in your values.
Choose the values that are most important to you, the values you believe in and that define your character. Then live them visibly every day at work and at home. Living your values is one of the most powerful tools available to you to help you be the person you want to be, to help you accomplish your goals and dreams, and to help you lead and influence others. Don't waste your best opportunity.
===================================================
The following table provides examples of each type of values.
Values Sampler
Personal Values    Cultural Values
   Social Values    Work Values
Caring    Celebration of Diversity    Altruism    Autonomy
Courage    Ethnic roots    Diversity    Competitiveness
Creativity    Faith    Eco-consciousness    Conscientiousness
Friendliness    Linguistic ties    Equality    Dedication
Honesty    National ties    Fairness    Equanimity/Ethics
Honour    Regional ties    Family closeness    Loyalty
Independence    Tradition    Lovingness    Professionalism
Integrity       Morality    Punctuality
Spirituality       Reliability    Remunerative worth
        Team player

Identify and Live Your Personal Values
Values are traits or qualities that are considered worthwhile; they represent your highest priorities and deeply held driving forces. When you are part of any organization, you bring your deeply held values and beliefs to the organization. There they co-mingle with those of the other members to create an organization or family culture.
Value statements are grounded in values and define how people want to behave with each other in an organization, an institution, a company, or a family. They are statements about how the organization will value customers, suppliers, and the internal community. Value statements describe actions which are the living enactment of the fundamental values held by most individuals within the organization.
The following are examples of values
You might use these as the starting point for thinking about and articulating your values as a human being.
Examples of Values
ambition, competency, individuality, equality, integrity, service, responsibility, accuracy, respect, dedication, diversity, improvement, enjoyment/fun, loyalty, credibility, honesty, innovativeness, teamwork, excellence, accountability, empowerment, quality, efficiency, dignity, collaboration, stewardship, empathy, accomplishment, courage, wisdom, independence, security, challenge, influence, learning, compassion, friendliness, discipline/order, generosity, persistency, optimism, dependability, flexibility
Why Identify and Establish Your Values?
Your values are made up of everything that has happened to you in your life and include influences from: your parents and family, your religious affiliation, your friends and peers, your education, your reading, and more. Effective people recognize these environmental influences and identify and develop a clear, concise, and meaningful set of values/beliefs, and priorities. Once defined, values impact every aspect of your life.
•   You demonstrate and model your values in action in your personal and work behaviors, decision making, contribution, and interpersonal interaction.
•   You use your values to make decisions about priorities in your daily work and home life.
•   Your goals and life purpose are grounded in your values.
Choose the values that are most important to you, the values you believe in and that define your character. Then live them visibly every day at work and at home. Living your values is one of the most powerful tools available to you to help you be the person you want to be, to help you accomplish your goals and dreams, and to help you lead and influence others. Don't waste your best opportunity.
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Managing a Business

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