Corporate Disclosures- Topic-wise

 The corporate disclosures regarding Corporate Governance generally revolve around Ethics, Executive Remuneration and Director's Responsibility Statement  and CEO/CFO Certification  as follows:

Ethics

A code of conduct creates a set of rules that become a standard for all those who participate in the group and exists for the express purpose of demonstrating professional behaviour by the members of the organization.The Naresh Chandra Committee for the first time recommended that companies should have an internal code of conduct. The Report by Narayana Murthy Committee further recommended that a company should have a mechanism (whistle blower) to report on any unethical or improper practice or violation of code of conduct observed and that Audit Committee would be entrusted with the role of reviewing functioning of the mechanism.

Clause 49 incorporated these recommendations further mandating directors of every listed company to lay down a Code of Conduct and post the code on their company’s website. The Board members and all senior management personnel are required to affirm compliance with the code annually and include a declaration to this effect by the CEO in the Annual Report. The recommendation of Narayana Murthy Committee to make Audit Committee responsible for reviewing the functioning of the whistle blower mechanism, where it exists, is incorporated in the Clause 49. The 2013 Act and revised Clause 49 mandate establishing Whistleblower mechanism to let employees and directors blow whistles on financial and non-financial wrong doings and also that such mechanism should provide protection to the whistle blower from victimization and provide direct access to the Chairman of the Audit Committee in exceptional cases.

Executive Remuneration

The overriding principle in respect of directors’ remuneration is that of openness and shareholders are entitled to a full and clear statement of benefits available to the directors. The 2013 Act and Revised Clause 49 mandate the formation of a Nomination & Remuneration Committee comprising of at least three directors, all of whom shall be non-executive directors and at least half shall be independent. The Nomination and Remuneration Committee is to ensure that the level and composition of remuneration is reasonable and sufficient; the relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and the remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals. There are also compulsory disclosures to be made in the section on corporate governance of the annual report - All elements of remuneration package of all the directors i.e. salary, benefits, bonuses, stock options, pension etc.; Details of fixed component and performance linked incentives, along with the performance criteria; Service contracts, notice period, severance fees; Stock option details, if any – and whether issued at a discount as well as the period over which accrued and over which exercisable.

Directors’ Responsibility Statement

To promote better disclosures and transparency, the 2013 Act, requires the company’s Annual Report to include a Director’s Responsibility Statement stating the following:

(a) Applicable accounting standards had been followed in the preparation of the annual accounts

(b) The directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company

(c) Proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities

(d) The annual accounts of the company are prepared on a going concern basis

(e) The directors have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively

(f) The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

CEO/CFO Certification

Internal control is a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

− Effectiveness and efficiency of operations,
− Reliability of financial reporting, and
− Compliance with applicable laws and regulations.

The Naresh Chandra Committee for the first time required the signing officers, to declare that they are responsible for establishing and maintaining internal controls which have been designed to ensure that all material information is periodically made known to them; and have evaluated the effectiveness of internal control systems of the company. Also, that they have disclosed to the auditors as well as the Audit Committee deficiencies in the design or operation of internal controls, if any, and what they have done or propose to do to rectify these deficiencies. Clause 49 requires the CEO and CFO to certify to the board the annual financial statements in the prescribed format and establishing internal control systems and processes in the company. CEOs and CFOs are, thus, accountable for putting in place robust risk management and internal control systems for their organization’s business processes. The 2013 Act and revised Clause 49 have also brought much rigour into internal controls certification by making it as one of the parts of Directors’ Responsibility Statement.


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