Corporates worldwide are now reeling from a new wave of ‘Shareholders activism’. There is a need to restore shareholder’s confidence and increase transparency in Corporate Governance. It is the right time for each of the companies whether a multinational or a regional player to seriously chart out the ways to improve Corporate Governance. Directors can no longer act passively. They need to be alert, responsible and active. The regulatory authorities are introducing new compliance and reporting requirements to enhance ‘Corporate Governance’
The regulators are working on identifying the sound practices which are necessary to strengthen the resilience of critical financial markets in the face of scandals in corporate world. SEBI has issued a statement regarding ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’; which suggests steps that companies should consider on meeting their disclosure obligations. The disclosure matters addressed are liquidity and capital resources including off-balance sheet arrangements; certain trading activities that include non-exchange traded contracts accounted at fair value; and effect of transactions with related and certain other parties.
In recent times Corporate Governance has emerged as a widely acclaimed conclusive niche for corporate success. We at Parsoli believes that Corporate Governance is vital to enable companies to compete globally in a sustained manner and to make them flourish.
It leads to higher degree of corporate excellence wherefrom enhanced success emanates yielding long-term value additions to the stakeholders. Corporate Governance is not merely about enacting legislations but about establishing a climate of trust, confidence and creativity among various constituents.
Strengthening Corporate Governance is fundamentally an ongoing process in which the Government, Corporate Sector and professionals have to synergize. Corporate dedicated towards enhancing stakeholder value need to adopt highest standards of transparency, accountability professionalism, social responsiveness and ethical business practices as a self disciplining code for corporate Governance.
Good Corporate Governance entails making a corporate a responsible corporate citizen that will not only augment the stakeholder wealth but also contribute towards social good. Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.
The Corporate Governance adopted by the company can be segregated in to the following areas:
Board Members : Roles and Responsibilities
There should be a shared understanding and agreement about key roles and responsibilities of Directors ‘individually’ and the Board as a ‘whole’. Internationally best practices should be adopted and key indicators on characteristics of a ‘high performing Boards’ should be identified.Steps should be undertaken to reduce conflict of interest.
The company should follow a code of conduct for all Board Members and Senior Management which shall be posted on the company website.
All Board Members and senior management shall affirm compliance with code on an annual basis. Annual report shall contain declaration to that effect signed by CEO. Senior management, normally would comprise of all members of management one level below the Executive Director, including all functional heads.
Role of the CEO/CFO
The role of the Board of members in setting goals for the CEO should be properly identified. Criteria should be evaluated for selection of the CEO. Most important responsibility of the Board is to have the best possible CEO. It can also be the most challenging task. Forward looking questions should be generated that address ways the CEO can take the organisation in the desired future.
They should provide proper certification to the Board regarding financial statements and compliances. They accept the responsibilities for establishing and maintaining internal controls and that they have evaluated the effectiveness of the internal control systems of the company and they have disclosed to the auditors and the audit committee, deficiencies in the design of operation of internal controls, if any of which they are aware and the steps they have taken or propose to take to rectify theses deficiencies.
The business strategy should be reviewed, monitored and ensured that it is implemented. The Board of members should be relentlessly focussed on the strategic direction of the organization. There should be a balance between strategic focus and operational management. Objectives should be to align the strategy throughout the organization. A framework should be established for ‘Annual Strategy review’ that includes scenario planning for the organization.
Performance of the Board
Periodic review should be made for the performance of the Board. Corporate reputation and image can be endangered which can have serious consequences. Time, energy, effort, and money are wasted if Board members do not fulfill their duties. A 360 degree Board performance feedback should be obtained which draws on the collective wisdom of ‘those who care’ about the organization.
The CEO, Board members and employees must work together as a ‘Team’ to achieve common goals. Effective communication skills should be identified and established at all levels, level ‘team effectiveness’ and ‘emotional intelligence’ should be periodically assessed.
The Directors should acknowledge the importance of the guidelines set out in the principles of Good Governance and the Code of Best Practice published by the Committee on Corporate Governance. The Directors intend to implement procedures to ensure that the Company complies with the Combined Code to the extent, which the Directors consider to be appropriate for the size of the company.
The Company should establish ‘Audit and Remuneration’ committees, both with formally delegated duties and responsibilities.
a). An Audit committee should be establish when appropriate, including Non-Executive Directors. All members shall be financially literate and one shall have atleast accounting and financial management expertise. It will be responsible both for ensuring that the financial information of the Company is properly reported on and monitored and for meeting the auditors and reviewing their reports relating to the accounts and internal control systems. It would be the responsibility of the Audit committee to periodically review compliance reports of all laws applicable to the company prepared by the company as well as steps taken by the company to rectify instances of non-compliance. Audit committee must mandatory review Management discussion and analysis of financial condition and result operation; Statement of significant related party transactions submitted by management; internal audit reports relating to internal control weaknesses.
b). The Remuneration Committee will review the scale and structure of the Executive Directors remuneration and the terms of their service contracts. The Board will set the remuneration and terms and condition of the appointment of the Non-Executive Directors.
c). The Directors recognise that the system of internal controls and reporting procedures is vital and will focus their efforts in implementing such systems as are required to control revenues, costs and quality thresholds at each of company’s locations.
d). In addition, the Directors have proposed to have fortnightly management meetings and quarterly Board meetings in which a formal agenda covering all aspects of business is followed and that accurate and timely records are maintained as well as timely implementation or fulfillment of agreed actions and measures is consistently achieved.
e).To ensure that the financial conduct of the company are at all times compliant with high ethical standards and all relevant statutory, contractual and regulatory requirements are adhered to, the Board has developed and accepted a robust financial management and control procedures.
About the Author
Talha Sareshwala is the M.D. & C.E.O. of the Paroli Motor Works Pvt Ltd. Born in the year 1966, He did his schooling from St Xavier’s school, Ahmedabad. Graduated in1986 with Bachelors of Science and then went on to complete Chartered accountancy in 1992. Additionally he also did a short term course in Portfolio and Investment management from N.I.I.T.E, Powai Mumbai.