Governance in PSUs

G. SRINIVASAN
CHAIRMAN CUM MANAGING DIRECTOR
THE NEW INDIA ASSURANCE COMPANY LTD.

19th July 2013

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What is Corporate Governance?

Corporate Governance is nothing but a step towards
strengthening of the organization so as to face the
challenges
It is stepping into the shoes of the shareholders,
stakeholders, vendors, suppliers & employees by the Top
Managers and CEO of the company
Process and mechanisms by which the capital market
monitors the actions of corporate management

THE HISTORICAL ROOTS OF CORPORATE

GOVERNANCE :

World wide privatization wave.

Mergers and takeovers.

Deregulation and capital market integration.

Scandals and failures at major corporations.

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Why Corporate Governance?

TRANSPARENCY

ACCOUNTABILITY

CONTROL

TRUSTEESHIP

ETHICS

Emergence of Corporate Governance in India

SEBI appointed in May 1997 the Kumar Mangalam Birla Committee

Companies Amendment Act, 2000 introduced

- Setting up of Audit Committee

- Directors Responsibility Statement

Kumar Mangalam Birla Committee recommendations adopted by SEBI in

2000

Clause 49 introduced in Listing Agreement

Narayana Murthy Committee recommendations revised Clause 49

Definition of independent directors

Certificate by CFO & CEO

Risk Assessment & Mitigation strategy of the company

Code of Conduct for top Management

SERIOUS ISSUES IN SOME COMPANIES

Recent Scandals

COMPANIES BILL 2012

Concept of Independent Directors introduced for

the first time.

A full-time director is also covered under the

definition of "key managerial personnel.

The auditor is to be rotated "at such interval" as

may be determined by resolution.

The limit of the number of companies for which a

person may be appointed as auditor is proposed
as 20 companies. In case of an audit firm, the
limit is applicable to each partner.
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Appointment of auditors for a five-year period

is subject to ratification at every annual
general meeting.

The bill proposes that corporates spend

certain percentage of three years average
profits towards CSR activities.

POSITION OF PUBLIC SECTOR :

Dominance of Public Sector in the

Financial and non financial sector.

75% banking space by PSBs

55% general insurance space by PSGICs.
85% life insurance space by LIC.

INHERENT STRENGTHS OF PUBLIC SECTOR

Multiple audits.
Control of Government.
Strong system and procedures.
Directors on the board, who are mostly not
promoters.
Statutory Auditors are appointed by CAG.
Faith of the public.

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Challenges
in PSUs

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Dominant shareholder

Interference of Govt. and others

Too much social orientation

Rapid changes in Information

Technology

Human resource challenges

Composition of the board

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Managing
Challenges
- Steps
to Shape
Future

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WAY FORWARD

Better process for appointment of Independent

Directors.

Board training programs.

Sub Committees of Board to be more active.

Administrative Ministry not to be on Board.

Segregation of Chairman and Managing Director

position.
Chairman to be a person of eminence.
Involvement
of
employees
stakeholders on board.

and

other

Independent Directors to be rotated every 3

years.
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GOVERNANCE IN INSURANCE INDUSTRY

Insurance industry is regulated by various regulators and

other laws and regulations.

IRDA in 2009 issued guidelines for corporate governance for

insurance companies.

The IRDA in its guidelines outlined in general terms,

governance responsibilities of the Board in the management
of the insurance functions under various regulations notified
by it covering different operational areas.

These guidelines are in addition to provisions of the

Companies Act 1956, Insurance Act 1938 and requirement
of any other laws or regulations framed thereunder.

MAJOR ELEMENTS OF CORPORATE

GOVERNANCE IN INSURANCE INDUSTRY
Governance structure
Board of Directors
Control Functions
Senior management
Disclosures
Outsourcing
Relationship with stakeholders
Interaction with the supervisor
Whistle Blowing Policy

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MANDATORY COMMITTEES

AUDIT COMMITTEE

INVESTMENT COMMITTEE

RISK MANAGEMENT COMMITTEE

POLICYHOLDER PROTECTION COMMITTEE

NON MANDATORY COMMITTEES

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

ETHICS COMMITTEE

Conclusion

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THANK YOU

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