Corporate governance is the system by which companies are directed and controlled. The board of directors is responsible for the governance of the company. The legal framework for the registration and running of companies is provided as per the act 1956. For instance the law provides that not less than two-thirds of the total directors in a public limited company should be appointed by the general meeting of shareholders. The law does not provide what should be the status of the directors, namely, whether they can be relatives or associates of the promoters or those managing independent business of their own called business friends or whether the board should include professionally qualified persons.
Modern trend in companies
Gone are the days when the company affairs were the close preserves of the members of a family or the members of associated families and the financial needs were met by few persons. Now a days no individual or group of individuals has or have the financial strength to enter the industrial field without outside help. It is common knowledge that a public limited company is in a far better position to source outside funds that any other form of business organization.
Borrowings from abroad
An added advantage of the latest trend is the ability of successful companies to obtain funds from abroad-investors and institutions. In order to maintain free flow of funds from abroad, the level of corporate governance in our companies should be improved so as to reach globally acceptable levels of corporate governance.
SEBI’S Initiatives in improving corporate governance
SEBI as the apex regulatory body in our country in respect of stock exchanges and the various intermediaries connected with them, has introduced various steps since its inception in 1992 to improve the disclosure requirements when companies, listed or proposed to be listed, offer securities to the public. SEBI has also introduced various measures, which have to be taken by the issuer companies, to increase the protection for investors. The measures worthy of mention are those introduced by SEBI for the protection of investors who subscribe to debentures offered to the public by companies.
It is applicable for private and public sector banks, financial institutions, insurance companies, etc.
It has been recognized all over the world that the composition of the board of directors of any public limited company, more particularly of a listed public company shall be well-balanced as to have a good representation of outside directors having necessary knowledge and expertise apart from the inside directors who may be executive directors or who may be promoters and their nominees. Clause 49 of the listing agreement has taken the lead even before the statutory law has been recognized this principle and has prescribed that a listed public company shall have at least one-third of the board or one-half of the board comprising independent directors in companies having non-executive or executive chairman, as the case may be.
Code of conduct for directors
Pursuant to item (D) key of conduct for directors in sub-clause I of clause 49, the board shall lay down a key of conduct for all board members and senior management of the company and the key of performance shall be posted on the website of the company. It is also provided that all board members and senior management personnel shall affirm compliance with the code on an annual basis and that the annual report of the company. It shall have a statement to this effect signed by the CEO. The following model code is suggested with such modification as may be necessary to suit the company needs.
Code of conduct for members of the board and senior management
For the purpose of this code, “senior management” means that the company is excluding their board of directors. To devote their utmost to obtain the plans of the company and the standards set before themselves. To handle on the business of the company regulations. To create all required declarations to the company in terms of the act 1956..