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Our views on few of the happenings due to slip in governance and how will the governance

shape up in the future.

1)We believe that no amount of regulation can eliminate completely the possibility of recurrence
of scams. However, we certainly can make efforts towards minimizing the probability of scams
and their size, by utilizing the twin tools of enhanced scrutiny and deterrent punishment.While I
do believe in self regulation, We also believe in strong industry regulators who can ‘police the
police'. Here we mean the auditors.

Make the watchdogs accountable for the theft: punishment should be substantial

Post few frauds in India SEBI had passed strictures against some prominent foreign banks some
time back due to their role in activities considered undesirable. This action by SEBI had indeed
led to a greater due diligence by their risk management and compliance departments and
certainly has led to a salutatory effect on these and other foreign banks in respecting the laws of
the land.

2)Auditors and Independent directors are the first line of defense against abuse for ordinary
investors. The best strategy would be to have one watchdog watch the other. At the end of his
tenure the auditor will have to hand over his assignment to a new auditor. The new auditor will
take a signoff from the previous auditor and it would be reasonably difficult for any auditor to
assist in perpetuating wrongdoings if there is a more than reasonable chance of being discovered
by the new incoming auditors. This could be a simple and effective deterrent against
wrongdoing.

3)The management has the prerogative of choosing the Independent directors. This in itself is a
contradiction with directors being called independent. More often than not, the Independent
directors chosen by the management are chosen because of their proximity to the controlling
management and are beholden to the management for choosing them to the Board of their
companies. This raises serious conflicts of interest in impartial discharge of their duties.

4)We see that in future the Independent Directors could be chosen from a pool of qualified
professionals who are known for their expertise and integrity. Further, like the auditors they
could be chosen for a fixed tenure of three years after which they should be replaced by other set
of independent directors from the identified pool of independent directors.

There should be clear guidelines for eligibility for admission to the proposed pool of
auditors and independent directors.. The list of eligible candidates and their resumes
and qualifications should be posted on the internet and public feedback invited. The
feedback so received should be considered on due merit

4)The compensation could be reviewed every three years to keep it in line with market
requirements.

5)Subsidiaries over a certain size to have different auditors than the parent company

Various activities are being undertaken by many companies in framing and enforcing codes of
conduct and honest business practices; following more stringent norms for financial and non-
financial disclosures, as mandated by law; accepting higher and appropriate accounting
standards; enforcing tax reforms coupled with deregulation and competition; etc.

6)Clause 49 – non-mandatory recommends evaluation of non-executive directors, by peer group


of rest of board excluding the persons to be evaluated (rarely done) but it will be made more
strict and some regulatory body may ask for documents of such proceedings

7)Clause 49 has no evaluation of full-time directors or of independent directors but it might be


included in the future

8)It could be made mandatory that public companies should have good internal controls over
financial reporting. In this case, what we really need is to form a body of
qualified professionals who can receive questions from the financial reporting world regarding
how to apply the proper internal control principles in various situations. An
appropriately skilled and supervised group would be able to publish case-study-like material
that could be applied effectively in the vast majority of real-world conditions.

Conlcusion point:

I believe the future of corporate governance, across the board,


will be found in the collaborative efforts of diverse yet qualified
professionals, many of whom will have different skills and even
agendas. If we agree to work together, openly, honestly and
with much effort, we will find our greatest successes

9)The Organisation for Economic Co-operation and Development (OECD) has identified
weaknesses in the work of boards of directors as one of the causes of the current
financial and economic crisis. It has clearly demonstrated that the board of directors
plays a key role in either the success or the failure of a company..
The future board of directors will take a closer look at the following issues:
 The board of directors is required to monitor the company's risks and the
effectiveness of the appropriate countermeasures critically and accurately, and to take
these into account in its decisions. The board of directors also owns the task of defining
the risk appetite and risk culture of the entire company.
 Due to the crisis, the remuneration and incentive structures for management will
also occupy more space on the board of directors' agenda. The board of directors will
have to create clear, comprehensible remuneration and incentive structures.
The crisis has not only changed the issues which the board of directors has to deal with
more closely. It is also becoming apparent that the way of working in many companies
is in the process of changing. All in all, the crisis has shown that the board of directors
has to take a very active approach to monitoring executive management or company
management. However, their duties are often very complex. Thus, board members who
carry out operational functions or board mandates in other companies must particularly
invest sufficient time into the individual mandates.
The crisis has shown that delegating too many tasks to committees can result in
important issues not receiving the attention of the entire board. This can also affect the
quality of decisions.

10)Furthermore, corporate governance reform will largely remain illusory under the presence of a large-
scale state enterprise sector. Policy makers and bureaucrats, who often sit in the Board
of Commissioners of state-owned enterprises will find it irresistible to treat state
enterprises better whenever they compete against their private counterparts for access
to public resources. Transparency, accountability and fairness are harder to pursue,
if policy makers are involved at the same time in corporate affairs.So governments will pass on rules
against this practice.

 
11)Fairness in inter-firm competition, fairness to workers, fairness to the local community, freedom from
corruption and compliance with formal rules may explicitly be included in the set of values that a firm
pre-commit itself to uphold. The strategic intents will be translated further into formalized systems and
procedures,including reward and penalty systems. Assuming effective communication to the entire people
in the internal hierarchy and periodic reviews, strategic management can help steer the firm toward the
direction of good corporate governance
12)In particular, the rights and duties of each board should be spelled out
in written form in company documents. The same applies to the rights and duties
of the Executive President and President Commissioner.What the law prescribes, however, can only serve
as guideline for the detailsof rights and obligations that come along with membership in one of the
management boards. Rules on decision making in each of the boards will also be put in written form as
detailed as possible. Criteria for membership in the boards should be disclosed and applied on a non-
discriminatory basis to all candidates. Each board member
should be allocated one vote. Decisions requiring a majority vote should be specified.
In case of deadlock, the President may be allowed to have an extra vote and dissenting
views should be recorded properly. Formalization may slow down the speed at which
decisions and actions are taken in a firm. However, a lower speed is a lesser evil than the incidence of
uncontrolled opportunism,

12)Nevertheless, rules of succession that might be included will certainly help in finding who is to take
over in case President Director is not available should be specified in advance rather than ex-post.

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