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Kumar Mangalam Birla Committee on Corporate Governance The Securities and Exchange Board of India (SEBI) formed a committee

in 1999 to promote and raise the standard of corporate governance in listed companies in India. Mr. K M Birla headed this committee and it is known by his name. SEBI accepted the recommendations of this committee in January 2000 and to implement them, a new clause - Clause 49 - was inserted into the listing agreement for new companies. For existing companies, a phased schedule for compliance till March 2003 was announced and implemented. The committee's report discusses corporate governance under the following main headings: 1 2 3 4 5 6 7 8 Board of Directors Audit Committee Remuneration of Directors Board Procedures Management Shareholders Report on Corporate Governance and Compliance

In addition to specific mandatory prescriptions in the above eight areas, the committee have also listed the following non-mandatory requirements: a) All companies should set up remuneration committees of Board of Directors, b) The half-yearly declarations of financial performance should be sent to each household of shareholders, c) A non-executive chairman of the board should be entitled to maintain his/her office at company expense, d) To make corporate democracy real, shareholders who are unable to attend general meetings should be able to vote by postal ballot so far as key decisions are concerned. Committee's main recommendations are summarized below: A Board of Directors Not less than 50 per cent of the board would comprise non-executive directors. The number of independent directors would depend upon whether the chairman is an executive or non-executive. In the case of a non-executive chairman, at least one-third of the board should comprise independent directors and in the case of an executive chairman, at least one-half of the board should comprise independent directors. (Independent directors are directors who, apart from their directors' remuneration, do not have any material pecuniary relationship or transaction with the company)

2. All pecuniary relationships or transactions of non-executive directors


with the company should be disclosed in the annual report. B Audit Committee 1. It will consist of minimum 3 non-executive directors and majority of them will be independent. The chairman of the committee shall be an independent director. He will attend the AGM to answer shareholders' queries. 2. The audit committee will meet at least thrice a year. 3. Role of the audit committee will include, inter alia, matters such as appointment/removal of external auditors, oversight of financial reporting system, review of financial statements, discussions with internal auditors etc. C Remuneration of Directors 1. Board of Directors shall decide remuneration of non-executive directors. 2. In the annual report's corporate governance section, the following disclosure on details of directors' remuneration will be made: remuneration package of all directors fixed portion of remuneration and performance-linked incentives service contracts, notice period and severance fees stock options, if any. D Board Procedures 1. Board meetings will be held at least 4 times in a year. (Minimum information to be given to the board for a meeting is given in detail.) 2. A director shall not be a member in more than 10 committees or act as chairman of more than 5 committees across all companies in which he is a director. Under the remaining headings, the committee's main recommendations are: a. A management discussion and analysis report should form a part of the annual report to shareholders. This report will include discussion on the following points, within limits set by a company's competitive position: Industry structure and developments Opportunities and threats Segment wise or product wise performance Outlook Risks and concerns Internal control systems and their adequacy Financial performance with respect to operational matters Material developments in human resource industrial relations front including number of persons employed, b. Shareholders'/investors' grievance committee to be formed, c. In the annual report of the company, there will be a s separate section on corporate governance. (Suggested list of items to be given in the section

is separately indicated) Non-compliance with any mandatory requirement will be highlighted there. d.Statutory auditors of the company shall give a compliance certificate regarding conditions of corporate governance. This certificate will be sent, along with annual returns, to the stock exchange.