Corporate affairs ministry gears up for early detection of fraud

Technology will be at the forefront of efforts by India’s ministry of corporate affairs, or MCA, to detect corporate frauds, said an official at the ministry.

The ministry, according to this person who did not want to be identified, will mine its database of reports filed electronically by companies and their auditors, follow up on public complaints, media reports, and information from whistleblowers to detect corporate frauds early.

MCA has been at the forefront of recent investigations into Satyam Computer Services Ltd, whose founder admitted in January to having fudged the company’s accounts over the years to the tune of at least Rs7,136 crore. Even as these investigations continue, the company’s ownership has changed hands in a deal facilitated by the government, and it is now controlled by Tech Mahindra Ltd and goes by the brand name Mahindra Satyam.

Apart from using technology and following up on reports and complaints, MCA will also try to coordinate better with stock market regulator Securities and Exchange Board of India (Sebi) and banking regulator Reserve Bank of India (RBI), said a second MCA official, who, too, did not want to be identified.

All the new measures are part of MCA 21, the ministry’s e-governance initiative.

“Data mining is a focus area for the next generation MCA 21 programme where we plan to make the best use of technology and data to detect corporate frauds. The National Institute for Smart Government (NISG) is working on a concept paper on how to knit technology with the available data so that the ministry gets best information on every company registered with it,” said the first MCA official.

To be sure, the quality of the e-filings by companies and MCA’s own monitoring of these needs to improve. Pavan Kumar Vijay, managing director of Corporate Professionals (India) Pvt. Ltd, a Delhi-based research outfit dealing with corporate analysis, said: “Over 50% companies today don’t do e-filing. When MCA sends them notices, most often they are returned undelivered. Perhaps the ministry needs to start an operation to plug this loophole. One such move can be publishing defaulters’ lists in newspapers.”

Based in Hyderabad, NISG works with the Union and state governments with their e-governance initiatives.

The first MCA official said NISG would submit the concept paper on new generation MCA 21 before the end of this fiscal year and that the project would be launched sometime next year.

The second official said the ministry would start using the so-called extensible business reporting language (XBRL) in an effort to work closely with Sebi and RBI, which are also migrating to XBRL.

XBRL is an electronic format for communication of business and financial data that is becoming popular around the world. India, too, is working on moving on to XBRL.

While MCA maintains a database of all registered companies, Sebi deals with listed firms and RBI with banks and non-banking finance companies.

“Through e-filing, MCA has obtained a mass database which is available in public domain. So far its use is restricted to getting information on companies. But this data can be productively used for examining and analysing the direction in which companies are moving. XBRL, combined with a sophisticated technology, will further support these objectives,” said Ashok Haldea, former secretary, Institute of Chartered Accountants of India.

The second MCA official said tenders for providing software for MCA 21 would be called for sometime this fiscal year. Currently, the software for MCA 21 is provided by Tata Consultancy Services Ltd.


Source: http://www.livemint.com/2009/07/17010731/Corporate-affairs-ministry-gea.html?h=B

Safety net proposed for independent directors

Independent directors may breathe a sigh of relief as the government braces itself to protect them from being held responsible for the

wrong-doing of their company, through a number of proposed changes in the Companies Bill, 2008. The bill, which was introduced in the latter half of 2008 but eventually lapsed, will be re-introduced in the ongoing Parliamentary session.

The ministry of corporate affairs, is willing to introduce further changes to the Bill in respect of the provisions that will guide the performance of independent directors, a move that has been prompted by the large scale resignation of such directors over ambiguity on their role.

The government will set an outline as to what will be an independent directors’ role vis-a-vis his company’s decision-making process. The idea is to safeguard them against any legal action when they are not directly at fault for their company’s wrong-doing.

The Bill, which is set to be sent to the Parliamentary Standing Committee for a review, will look into the need for changes to give greater flexibility to these directors, and will send its proposal to the ministry. The ministry of corporate affairs, will thereafter introduce the changes to the bill before it is made enforceable.

The ministry, which in the Companies Bill 2008, first introduced the concept of independent directors and also made provisions for their mandatory one-third representation on company boards, is mulling changes into the proposed legislation so that such directors can have a defined role to play. Even as independent directors are expected to act in the interest of the company’s ordinary shareholders, the law does not specify the exact nature of their duties.

The ambiguity on the nature of duties of an independent director often leads to situations where they are blamed for all wrong-doings of the company, a government official said, adding that it was necessary to bring clarity to the law so that degree of accountability against those directors can be clearly drawn. The ministry has also invited recommendations from industry bodies such as CII and Ficci, and is considering to incorporate in the new Bill.

CII, for instance, has urged the ministry to clearly define an independent director and bring it in conformity with the definition under clause 49 of the equity listing agreements of stock exchanges.

It has also suggested that the need for appointment of such directors in closely-held public companies and subsidiaries of any public companies should be governed by the materiality and scale of operation of such companies.

Thus, in case of an unlisted public company or a private company, which is subsidiary of a public company, the requirement related to such appointments should only arise if they exceed the prescribed thresholds of size and scale.

Under the proposed changes, these directors can be held responsible only in those circumstances where the company takes a decision wherein they were actively involved. To put in simple words, independent directors may not be asked to serve as an overall watchdog of the company, a notion which the government now sees as overtly ambiguous.

The reason for the change has been a spurt in resignations by independent directors from the board of companies, that followed the Satyam financial scandal wherein such directors on the erstwhile Satyam’s board were blamed for their inaction to safeguard the company’s general interest. The idea is to provide independent directors with a clearly defined way of performance, so that they can not be acted against in case they are directly not at fault.

“We are aware of the fact that it is important to preserve the breed of independent directors by providing them adequate protection. They have an important role to play in good corporate governance,” Minister of Corporate Affairs Salman Khurshid had recently said at a CII seminar, where he met key industry officials.

Source:http://economictimes.indiatimes.com/Economy/Safety-net-proposed-for-directors/articleshow/4770371.cms

Revamp of corporate governance body planned

With a view to promote better corporate governance practices and check frauds, the ministry of corporate affairs has initiated the task of revamping the functioning of the corporate governance body under its aegis, National Foundation for Corporate Governance (NFCG). For this the ministry has appointed Kiran Karnik, former Nasscom president as the new co-vice chairman of the NFCG who has replaced NR Narayana Murthy, chairman and chief Mentor, Infosys.

The ministry is also planning to strengthen its NFCG office by employing more employees to work under its aegis. “For improving the efficiency of operations of the corporate governance body, the ministry is planning to recruit more officers”, said an official.

Corporate affairs minister, Salman Khurshid recently held a meeting with NFCG officials where issues such as the role and responsibilities of auditors and corporate governance were discussed. Apart from this, NFCG is also going to take up the issue of the independent directors and hold a discussion on strengthening their role in the corporate sector. Talking about the need of corporate governance, Salman Khurshid, minister of corporate affairs had earlier said, “The issues related to corporate social responsibility and exclusive growth as an extension of responsible corporate governance is engaging the attention of the ministry, the corporate sector and their stakeholders”. The ministry and industry chamber, Confederation of Indian Industry had set up NFCG in 2004 in partnership with the Institute of Chartered Accountants of India and Institute of Company Secretaries of India in order to improve implementation and enforcement of various laws related to corporate governance. NFCG was set up with a purpose to have better self-regulation in the Indian industry by paying importance to issues related to corporate governance and by providing training and research accordingly.

source:http://www.financialexpress.com/news/revamp-of-corporate-governance-body-planned/487383/#

MCA orders scrutiny of Subhiksha’s books

In another blow to the beleaguered discount retail chain Subhiksha, the Ministry of Corporate Affairs (MCA) has cleared the
recommendations of the Ministry of Corporate Affairs’ southern regional director for inspecting accounts of cashstrapped retail chain Subhiksha.

Acting on complaints filed by a clutch of investors and former employees alleging mismanagement of funds, the ministry on Monday instructed the regional director to go ahead with the inspection. “We have begun the enquiry and asked the company to furnish the requisite information,” the regional director told ET.

The company has a week’s time by which to submit the data called for by the regional director, including the balance sheets, books of accounts, the core activities of the company and members on the board of directors, he added. The regional director said although it wasn’t a time-bound process, the enquiry is being conducted on “priority basis” and would take about three months. The findings would be presented to the secretary of the corporate affairs ministry, he added.

When contacted, Subhiksha Trading Services managing director R Subramanian denied knowledge of any such move. “We have no intimation of any the ministry enquiry ... we have no comment on this as we have no knowledge of this... we cannot speculate on such matters.”

The MCA will check if all procedural norms under the Companies Act (maintaining accounts properly and conducting board meetings etc) are being complied with. In case of any procedural lapses, the managing director can be arrested. It will invite imprisonment of at least two years and a fine of Rs 1,000, a corporate lawyer who did not wish to be named told ET.

Meanwhile, a number of cases have been filed against the retail chain at the Madras High Court. Earlier, the court had appointed a provisional liquidator to control assets of the retail chain in response to a winding up petition filed by Kotak Mahindra Bank, which lent Rs 40 crore to Subhiksha.

It had later stayed the appointment when Subhiksha contended that such an appointment would hamper its corporate debt restructuring process, but asked the company to file financial details for the last three years and bank statements, which it did.

The petition against the amalgamation of Subhiksha Trading Services with Blue Green Construction and Investment filed by some of its creditor banks and investors will be heard on July 2.

TIGHTENING NOOSE



Who will inspect the accounts?



The south zone regional director will look into the account books. The company has a week’s time by which to submit the data called for by the regional director, including the balance sheets, books of accounts, the core activities of the company and members on the board. The MCA will check if all procedural norms under the Companies Act (maintaining accounts properly and conducting board meetings etc) are being complied with.

What is the status of cases against the company?



A number of cases have been filed against the retail chain at the Madras High Court. Earlier, the court had appointed a provisional liquidator to control assets of the retail chain in response to a winding-up petition filed by Kotak Mahindra Bank. But the court stayed the appointment when Subhiksha contended that such an appointment would hamper its corporate debt restructuring process. A petition against the amalgamation of Subhiksha Trading Services with Blue Green Construction and Investment filed by some of its creditor banks and investors will be heard on July 2.

When did Subhiksha land in a soup?



The retailer, founded in 1997, ran out of cash in October 2008 after relying on a ‘high level’ of debt. The unlisted company's operations are nearly at a standstill and it is undergoing a debt restructuring exercise.



source: http://economictimes.indiatimes.com/News/News-By-Industry/Services/Retailing/MCA-orders-scrutiny-of-Subhikshas-books/articleshow/4670317.cms

Corporate governance: A need for fresh perspectives

Over the past six years, Business in the Community’s CR Index has tracked attention by boards to sustainability and corporate responsibility. However, while progress is being made in getting discussions of issues such as climate change and ethical sourcing on to the agenda, BITC and others argue that it is also important to distribute responsibility for these issues across the board rather than relying on one or two individuals.

Executive discussions might even bring in external partners. “It takes enlightened leaderships and part of that is talking to a very broad range of people who monitor what’s happening in an external operating environment,” says Sophia Tickell, executive director of SustainAbility, the consultancy. “Companies need to bring in perspectives that are not necessarily all from inside, where they tend to be focused on the daily running of the business.”

At the same time, for many companies, sustainability is becoming part of daily business – whether that is cutting their energy bills or shoring up ethical sourcing guidelines – and therefore has a variety of implications for the management teams.

“As with any part of the responsible business agenda, we have to be able to explain this in terms of what it means for different business functions,” says David Grayson, head of Cranfield School of Management’s Doughty Centre for Corporate Responsibility. “So for a financial director, this is going to have some different dimensions from a logistics director or marketing director.”

And as companies start to see corporate responsibility not only as a case of simply introducing community investment programmes but also as part of how they operate their supply chains or manage their energy efficiency, a wider group of executives are participating in senior-level discussions.

“There is evidence that sustainability issues are being incorporated into strategy, research and development and other functions that already have strong board representation,” says Ms Tickell.

Nevertheless, for many companies, it remains important to have dedicated corporate responsibility teams with senior officers that report to the board. In a report conducted by Ipsos MORI released in October 2008, BITC found that the percentage of companies with corporate responsibility committees reporting to the board rose from 13 per cent in 2002 to 60 per cent in 2007.

The CR Index also reveals a connection between better performance and the number of individuals on the board with responsibility. For this reason perhaps, recent years have seen the emergence at large companies such as Google, AT&T and SAP of a new C-level position – the CSO or corporate sustainability officer.

Moreover, what is discussed at board meetings is changing. BITC found that in the past year, nine out of 10 companies participating in the CR Index had board-level discussions of sufficient depth to merit inclusion in the minutes, and the number of board members with responsibility for specific aspects of corporate responsibility has increased.

This activity is likely to intensify. “One of the consequences of the crises – financial, economic and in the long-term more severe sustainability crises in terms of water and climate change – is that these demand an improvement in governance,” says Prof Grayson.

Board-level engagement in corporate responsibility allows companies to manage these issues more strategically and to set standards and values and measure performance against targets. It also helps companies to look outward as well as inward, providing impetus for efforts to improve regulation in their sector.

And having an individual on the board with an overview of sustainability strategy can help advance sustainability strategies. An enlightened corporate responsibility officer can, for example, play an important convening role, bringing issues to the attention of the board and explaining their significance to the business.

“That person can play a very key role in enhancing the agenda and helping the board to understand it,” says Ms Tickell. “Because there’s no guarantee that the average board member is necessarily on top of these issues, they need someone to explain them and justify why they’re being addressed in this particular way.”

Companies also need to prevent corporate responsibility from becoming locked into an executive suite silo. “If that’s the case, everything tends to get diluted,” says Ms Tickell. “And it’s not looked at as a genuine threat and opportunity for the business.”

The opportunities look promising at a time when profit margins are under pressure. In its research with Ipsos MORI, BITC revealed that companies consistently participating in the CR Index outperformed their FTSE 350 peers on total shareholder return between 2002 and 2007 by between 3.2 per cent and 7.7 per cent a year.

However, to reap these business benefits, companies need to ensure employees throughout the organisation are aware of the need to improve performance in areas such as ethical sourcing and carbon reduction, says Prof Grayson.

“Leadership from the top is essential,” he says. “You need the top-down messages – but you also need an empowered workforce from which innovation and ideas can bubble up. It’s not a case of ‘either, or’, the genius is getting both.”
source: http://www.ft.com/cms/s/b992d6d4-548d-11de-a58d-00144feabdc0.html

Sustaining Investor Confidence: CD seminar on corporate governance

As the opening session on a series of discussions on corporate governance, it was only appropriate that it that focus on the most effective framework needed for organisational decision making. KMPG CEO Russell Parera said that what was needed was a culture that encouraged debate and dissent, something one doesn’t always see on Indian boards as people tend to belong to the same inner circle.

Following up on that, Zia Mody, managing partner, AZB Partners added that if a person was on the board of a company as an independent director, he or she was expected to ask awkward questions, which rarely was the case. “However, that in itself cannot help prevent a fraud as directors could be given wrong information,” she added. Of course, it takes a lot more than just having standards in place. It’s also about how these are implemented. It would, for instance, be almost pointless to have a whistleblower policy in place, and link it directly with the CFO. The panel agreed that it was best to give authority to an independent director or board member when it came to matters of compliance and governance.

Lakshminarayana KR, chief strategy officer, Wipro added that a lot also depended on how much time the board members had, to devote to each company on whose board they served, and the amount of access provided by the company to the mid and lower level of employees so that directors could truly get a sense of what was happening. Joseph Massey, MD & CEO of the Multi Commodity Exchange had a relevant point to make. “Corporate governance has to be treated as a normal part of life when running a company-it’s just one more add-on.

The focus should be on running the business, corporate governance just gets inculcated,” he said. While shareholder activism in India has still to take off, this is partly also because companies are shielded from the reputational risk that class action lawsuits bring with them. Parera mentioned that as companies would increasingly grow aware of this, shareholder activism too would rise in a healthy way. As the session ended, all the panellists agreed that there was no such thing as too much disclosure and while no one wanted more regulation in the wake of the Satyam scandal, what was needed was better implementation of existing regulations.

Issues in the implementation of the Corporate Governance Code

The moderator - Ganesh Ramamurthy, director, governance risk and compliance services, KPMG India, set the ball for the second session rolling, by establishing that while the corporate governance norms in India are at par with the best in the world, ensuring that these norms are always implemented is where the trouble comes in. Commenting on the difficulty of implementing these norms, Stephen Matthias, partner, Kochhar & Co said that it was important to have all the corporate governance codes together to ensure better implementation rather than have the implementation governed by multiple bodies.

source:http://economictimes.indiatimes.com/Features/Corporate-Dossier/Seminar-on-Corporate-Governance-/articleshow/4591408.cms

Independent director, anyone?

Corporate governance has been the buzzword ever since the Satyam fraud came to light in January. Companies, consultants and regulators have waxed eloquent about this concept, but now they face a serious issue: Independent directors are leaving in droves. So what is to be done?

Directorsdatabase.com, a joint venture of Prime Database and Bombay Stock Exchange, reports that 265 independent directors have quit 211 company boards since January. This mass exodus has spooked the market regulator, the Securities and Exchange Board of India (Sebi), which has now sought counsel from one of its advisory panels.
This is a thorny issue, one compounded by last month’s controversy surrounding investment banker Nimesh Kampani. Andhra Pradesh authorities have charged Kampani for the failure of Nagarjuna Finance, a company on whose board he served as an independent director, to pay back depositors. In most business circles, this charge is now being seen as a travesty. True or false, the charge has rejuvenated the question about independent directors, although from a different angle.
Satyam showed independent directors, who knew nothing or did nothing about the company’s fraud, in negative light, and provoked a media and public backlash against such directors. The scandal prompted an important question for regulators: Are the rules and regulations governing directors too lax? Kampani’s story prompts the opposite question: Are some rules too harsh?

Regulators will have to think through these questions. While independent directors can’t be held liable for matters that don’t reach the company’s board, holding them accountable for issues under the board’s purview is fair game. A recent Prime Database report noted that 75% of independent directors are the promoters’ relatives or friends.

This makes mockery of Sebi’s 2005 Clause 49 that underscored corporate governance, and later mandated that independent directors comprise as much as 50% of a board.
But this doesn’t mean such directors are useless. The Satyam scandal may have exposed flaws, but its recovery has shown that decent hands at its helm, à la Kiran Karnik and Deepak Parekh, can make a real difference.

source:http://www.livemint.com/2009/05/27213010/Independent-director-anyone.html?h=B

Unified approach needed from cos, regulators on governance: KPMG

With corporate governance practices of Indian companies coming under scanner, global consultancy KPMG believes industry bodies such as Nasscom, CII and regulators such as SEBI should have a more unified approach for developing benchmarks in go od governance practices.

“The industry bodies such as CII, Nasscom and regulators such as SEBI should look at a more unified approach towards handling corporate mis-governance and at developing benchmarks in good governance practices,” KPMG Director (Governance Risk and Complian ce Services), Mr Ganesh Ramamurthy said.

According to a survey of KPMG on the state of corporate governance in India, majority of respondents believe that while corporate governance should be practiced through principle-based standards and moderate regulations, there is a need for stronger regu latory review and exemplary enforcement.

The survey said that Indian companies believe that the spirit and practice of governance regulations and practices need to be intertwined.

One of the key concerns related to corporate governance is risk management, with nearly three-fourth survey respondents saying these practices need to be improved.

“Indian companies have some way to go when it comes to risk management measures. Also important to consider is impact of changes to strategies and priorities on risk profile,” Mr Ramamurthy said. - PTI

source:http://www.thehindubusinessline.com/blnus/14121713.htm

Anil Ambani firm smuggled in yacht

The customs department has alleged that Anil Dhirubhai Ambani Group (ADAG) company Ammolite Holdings has violated the Customs Act by “smuggling in” a luxurious yacht, which is believed to be a gift by Anil to his wife.

“The imported luxury yacht ‘Tian’ was imported in contravention of Section 111(m) of the Customs Act, hence is liable for confiscation,” Assistant Commissioner of Customs SR Vichare stated in reply to a petition filed by Ammolite Holdings challenging seizure of the yacht.

The court has given time to ADAG until on Friday to reply to the allegation.

source:http://www.hindustantimes.com

BSES asked to refund bill

Pulling up BSES Yamuna for sending an unaccounted bill of Rs 1.5 lakh to a consumer, the state consumer commission has slapped a fine
of Rs 50,000 on the discom and also directed it to refund the bill amount to the complainant.

Sardarni Harbans Kaur, a resident of village Kishan Garh in Vasant Kunj, complained that her meter was burnt and rendered dysfunctional in a fire caused by a high tension wire that passed over her house on July 9, 1999. A non-defaulting customer since 1985, she lodged a report with the junior engineer of the department but nobody turned up to rectify the damage or restore electric load for two years.

Then she requested BSES to replace the meter but the discom slapped a bill of Rs 1,52,927 alleging power theft by the consumer for 2 years. On BSES' threat that an FIR will be lodged in case the bill was not paid, she paid 50% of the amount on the very day and the balance was deposited in two instalments.

However, BSES said that on receiving the complaint, the premises of the consumer was inspected on September 1, 1999 and it was found that the seal of the meter was tampered with. Therefore, a case of Fraudulent Abstraction of Energy was registered.

Rejecting the discom's plea, Justice Kapoor said: "On receiving the complaint, the discom should restore electricity immediately and ensure that necessary action is taken at the site. The burnt meter should be removed and tested to see the cause of the fire. A new meter should be provided within three days. Thereafter, a bill based on the estimated energy consumption pattern of 6 months prior to and 6 months after the period during which meter remained defective has to be raised."
source:http://timesofindia.indiatimes.com/articleshow/2929868.cms

A case study on Satyam

Hopping jets, raising money for school, advising political leaders across the world, teaching courses, working with government agencies, writing books and articles, rubbing shoulders with corporate captains on boards, suggesting to students practical marriage strategies, and more…

Living a whole new life, after a quintuple bypass surgery (‘five for the price of one’), Bala V. Balachandran, Founder and Hon Dean of Great Lakes Institute of Management, Chennai (www.greatlakes.edu.in), is in no mood to slow down. “The more and more you think a job is a joy and not a job, five years or ten years become yesterday or five minutes,” begins Bala, when we meet on the eve of the big day when his ‘new green campus’ -- located in Manamai Village, Mamallapuram -- was to be inaugurated.

“Now that it is clear that the American model has problems, where do we go for solutions,” he demands? The answer can be from Indian education and moral leadership, Bala hopes.

Excerpts from the interview.

On academia included in corporate boards.

There are a few things that professors who act as independent directors can ensure. First, why should financial statements be discussed at short notice? Why not we insist that sufficient time be devoted, prior to the exercise – say, ten days?

Second, why should we not take an active role in educating the senior management, without taking a fee? Because, if you take a fee, and it is exorbitant, then there is a question of independence-impairment.

Thus, we need standards for independent directors. Also, we should be proactive, knowing that we have a fiduciary responsibility, despite not being privy to day-in-day-out activities.

I also don’t understand how somebody can be a director in twenty companies, while continuing as a full-time employee at some other place, or as an entrepreneur. You cannot do that. Such a director could be hurting. You don’t need a Sarbanes-Oxley Act or Clause 49 to tell you this. When I see a list of twenty board memberships, I wonder if he or she is taking a rubber-stamp position.

On the Indian Institute of Corporate Affairs, the new school.

Working along with the Ministry of Corporate Affairs, we want to ensure that this new school takes as students, people with entrepreneurial talent from the rural poor, gives them all the academic and practical inputs to make them a Dhirubhai Ambani or Ratan Tata.

On a case study about Satyam.

The Union Minister for Corporate Affairs, Mr Prem Chand Gupta, and I are writing a case study, making a story of Satyam and Enron combined, and it will discuss the questions of fraud, corporate governance and so on. Deadline for the case is May 31. For the first time, a public servant, a Minister, is suddenly interested in coming up with a case to challenge the Harvard cases; it is great for this country.

Enron took two-and-a-half years to three years to go around. In the case of Satyam, the Government created a fantastic board with Deepak Parekh and others, and made sure the company could be sold to Tech Mahindra. Nowhere in the world have we seen such a swift action, resolving things in less than six months.

There is a general feeling that public servants are not so smart. I think they are smarter than some of the private entrepreneurs.

source: http://www.hindu.com/thehindu/holnus/006200904300931.htm

Relevance of IT and Software Asset Management in Corporate Governance

Corporate Governance is about principles, processes, systems and accountabilities that influence how business corporations take decisions, allocate resources/returns, execute responsibilities and undertake risk management, whether financial or otherwise, with an objective of protecting and promoting the interest of the shareholders, management, board of directors and the employees.

When we talk of accountabilities, risk management and allocation of resources from a corporate governance point of view, management of software as an asset and having a control on other IT and security related issues within an organization becomes relevant. Since the need for Software is all pervasive to any organization using computers to run its operations and that software distribution and usage is licensed (open or proprietary) and protected under IPR laws, IT governance becomes one of the integral parts of Corporate Governance.

Therefore, we can say that IT Governance is a framework for the organizational management to adopt industry standards and ethical practices to ensure a healthy, secure, productive and compliant IT infrastructure (both hardware and software), which enables an organization to achieve its business goals and objectives.

Businesses of all sizes benefit financially from IT governance. Research shows that:
• Businesses are 20 percent more profitable than similar firms with poorer governance.
• Investors pay 14 to 22 percent more for well-run, well governed companies.
• Top-rated corporate governance companies consistently return more than triple the profits to investors than that of lower-rated companies over 3, 5, and 10 years.

Ambani yacht ‘flounders’ on customs duty

A luxury yacht chartered by a subsidiary of the Reliance-Anil Dhirubhai Ambani Group (R-Adag) that was seized by Indian customs earlier this year will not be released until Rs28 crore customs duty is paid in full and a bank guarantee of an additional Rs15 crore is provided by the firm, a senior customs official said.

The luxury yacht named Tian, purportedly a gift for Tina Ambani from her husband, R-Adag promoter Anil Ambani, was seized in February by the central intelligence unit of the customs department in Mumbai following a probe that began in January. The customs official mentioned earlier, who declined to be identified because the matter has not yet been resolved, said the yacht had been seized “due to non-payment of duty. It was illegally brought to India and was used without paying duty.”
“Till now the department has received a draft of Rs25 crore from a representative of R-Adag,” the same official told Mint. “The investigation is still on and the department will release the yacht once the dues are recovered.” The department has also asked R-Adag to deposit a bank guarantee of Rs15 crore before it releases the yacht. The official said this was routine procedure pending a probe with the bank guarantee serving as collateral for any penalty that could be imposed.
The customs department has alleged that the yacht’s final destination according to its shipment papers was Colombo, Sri Lanka; it was to be unloaded at Mumbai from where it was to sail to Colombo.

According to the department’s investigation, the Tian was purchased in mid-2008 from an Italian yacht maker by Ammolite Holdings Ltd, a Channel Islands-based associate firm of Reliance Capital Ltd and brought to India on 31 October under a charter agreement with Reliance Transport and Travels Pvt. Ltd, an R-Adag company. The Channel Islands are located off the French coast of Normandy.
Reliance Transport and Travels later took permission from port authorities to park the yacht in Mumbai for a few days before it sailed to Colombo. The customs department has alleged that the yacht did not leave for Colombo for over three months and was instead being used in India without paying duty. Duty is usually paid at the destination—in this case, Colombo.

Another customs official familiar with the case and who also did not want to be identified alleged that Tina Ambani had taken the yacht to Goa during New Year celebrations. However, in its reply to the customs department, Reliance Transport and Travels has claimed that the yacht sailed to Goa to test a repaired generator in late December 2008 and returned on 2 January.

In response to Mint queries, an R-Adag spokesperson said: “We have already communicated our stance to the concerned authorities.”
The funds for the charter came from a Singapore-based firm, Gateway Net Trading Pte Ltd. Ammolite Holdings, according to the customs official mentioned in the first instance, is a small firm with “share capital of $100,000 (Rs50.4 lakh today),” while Gateway Net Trading is an associate firm of Reliance Communications Ltd, also an R-Adag company.
In a letter to the customs department dated 18 February 2009, Ammolite Holdings and Reliance Transport and Travels have denied evading customs duty. In the letter, which has been reviewed by Mint, Ammolite Holdings said: “The yacht was duly and validly brought into Indian waters in compliance with all laws and regulations with the permission of the customs department.”
Ammolite Holdings and Reliance Transport and Travels have also said the Rs25 crore paid was a voluntary deposit “to demonstrate bonafides and to avoid any unwarranted or unpleasant consequences”. The two firms have also requested the department to release the yacht and refund the money.
The yacht—a Custom Line 112 Next, 34m flying-bridge fibre glass vessel—has been valued at about Rs100 crore by customs authorities. A July 2008 report in this newspaper had estimated the price of the yacht at Rs200 crore.

source:http://www.livemint.com/2009/04/21234138/Ambani-yacht-8216flounders.html?h=B

Analysts express concern on R-Comm's accounting policies

It might turn out to be a good quarter in terms of subscriber additions for Reliance Communications, but when it comes to its consolidated profit and loss, analysts express concern on lack of clarity on its alleged below-the-line accounting policies. CNBC-TV18's Sajeet Manghat delves deeper.

Even though Reliance Communications' quarterly additions brought cheer to the street, analysts are still grappling with the below the line accounting practice that R-Comm follows for its consolidated accounts. Over the last three quarters, analysts have been raising questions seeking clarity on the financial charges on its consolidated financials. The concern is the alleged mismatch in its financial charges in its standalone and consolidated numbers.

R-Comm's standalone results for the nine months ending December 2008 had a financial charge of Rs 937.91 crore. While in the consolidated statement, it posted net interest income of Rs 618.86 crore. A clear difference of Rs 1556.77 crore.

Which, according to analysts, means on a standalone basis the company has an interest cost of Rs 937.91 crore. On the consolidated profit and loss which includes its subsidiaries, it gained Rs 1556.77 crore, thereby reflecting a net interest income of Rs 618.86 crore.

Analysts are finding it difficult to understand how a company could earn interest income when its net debt rose by Rs 3400 crore to Rs 18,600 crore in Q3. In a conference call, transcript of which is available on the R-Comm website, analyst Vinay Jaising raised a query on the same issue, "Firstly on the balance sheet, we have seen that net debt increased by Rs 34 billion up to Rs 186 billion, despite that we have net finance income coming in at Rs 1.5 billion. Last quarter, we were explained that there could be some derivative gains and higher other income on account of cash in hand. If you can throw some light out there?"

Satish Seth, Vice-Chairman, R-Comm, responded saying, "The finance charges comprise of interest income and expense, foreign exchange gains and losses, including foreign exchange gains on bank balances and financial investments and amounts receivable from foreign subsidiaries. A composition of this is giving a net result of income."

Analyst Vijay Jaising further probed saying, "Just on that, I understood the break up. But when you have such high net debt, how do we get interest income?"

To which Satish Seth replied, "Primarily depends between the cost of debt and income on cash balances. That's one difference. Secondly, on the foreign exchange gains and financial investments, because part of the interest also gets capitalized because it's part of the capital work in progress."
Not Just Vinay Jaising, other telecom analysts and CNBC-TV18 have raised similar concerns. CNBC-TV18's repeated attempts since March 26 on the same issue and reconciliation between standalone and consolidated profit and loss have elicited no response from the company.

source: http://www.moneycontrol.com/india/news/cnbctv18comments/relaincecommunicationsaccounting/analystsexpressconcernrcommsaccountingpolicies/market/stocks/article/393658

The Key to Successful Corporate Social Responsibility in India

Corporate social responsibility is a topic of keen discourse around the world and India is no exception. However, it appears to us that prevalent CSR practices – the organization of blood donation camps, to cite just one example -- are symptomatic of a failure of corporate governance.

It is a sign of bad corporate governance when managers donate to causes that their companies are in no way better positioned to address than individuals are.

As trustees of corporate assets, are managers not exceeding their brief when they divert resources in this fashion and pursue personal passions with corporate resources?

Would it not be better to distribute profits among the shareholders and employees and leave it to their discretion, as individuals, to contribute to the causes that they deem fit?

Again, CSR is sometimes treated as being no different from image building. But such an approach is short-sighted and therefore not good corporate governance.

"Hypocritical window-dressing" – to use the famous phrase coined by Milton Friedman -- of this kind is soon found out and has not been shown to be very effective for image building.

But when the "CSR strategy" of a company gets merged with its competitive strategy so as to become indistinguishable from it, it is a sign of good corporate governance taking shape. There is no more a need for CSR as a stand-alone activity.

source: http://online.wsj.com/article/SB124019930116534151.html

CII announces new corporate governance code

Concerned over corporate governance issues post-Satyam fiasco, industry body Confederation of Indian Industry (CII) on Friday announced the formulation of new corporate governance code for corporate sector to bring more transparency and better governance.

Chairman of CII special task force Naresh Chandra, while announcing the corporate governance norms, said that large and heavily publicised corporate frauds often provoke legislative and regulatory action, Satyam being the latest example.
However, for preventing such scandals, laws should be better managed and strengthened rather than imposing further regulations, he said while speaking at the annual summit of the industry body.

“The code would assist companies to take a voluntary step beyond the stated letter of law,” he said.

Present on the occasion, J J Irani, director Tata Sons, said that independent directors need to work with the management to prevent such happenings. Also, third party auditors can also play an important role in probing such frauds.
The companies should strengthen their corporate governance and separate the role of chief executive officer and chairman, which will bring in greater transparency, he said, adding that the internal audit system of the company should be made robust and as independent as possible.

source: http://www.livemint.com/

The fundamentals of corporate governance

The Satyam issue is a good opportunity to harvest rich insights into the fundamentals of corporate governance. In discussions on governance, one question that doesn’t normally get the attention it merits is: on whose behalf is the company governed? Whose company is it, really?

The top-of-the-mind response is that a company is governed on behalf of the shareholders.

The course of events at Satyam throws up enough doubts about this answer. First, there has been such a massive dumping of shares and change of ownership, that only a small percentage of those who held Satyam shares in November are shareholders today.

Second, it would be incorrect to think the government appointed an independent board only to protect the interests of shareholders, most of whom have bought shares relatively recently at a throw-away price.

Among the various stakeholders of any company, the shareholders tend to be the least loyal — selling their holdings at the first sign of trouble. It would be more appropriate to view shareholders as suppliers of money and liquidity rather than as owners. It is clear that the company is not governed only for the benefit of the shareholders.

Is the company then governed on behalf of the employees? Protecting the jobs and interests of the 53,000 employees at Satyam was clearly one driver for the quick government intervention.

However, providing employment cannot be the primary purpose of any organisation. As an example, suppose half of Satyam’s customers decide to cancel their contracts, will the Satyam board still continue employing all the staff?

So the company is not governed on behalf of its employees. How about the customers? Satyam has an impressive roster of international customers. The need to continue servicing large international clients as well as protect India’s IT reputation must have played a role in the government’s decision to act fast. Just as with employees, it is possible to build a case that a company does not exist purely for the benefit of the customers.

Whose company is it then? One view that has taken root of late is the concept of a stakeholder — a term encompassing the shareholders, customers, employees, suppliers and the society at large. It could be argued that the company is governed on behalf of all stakeholders.

While this idea holds some appeal, it fails on two counts. First, what happens if the interests of various stakeholders are in conflict? Second, there is a constant churn of shareholders, employees, customers and suppliers.

The nature of the company’s business constantly changes —requiring new employees as well as servicing new customers. When the composition of stakeholders is constantly evolving, how do the ‘governors’ actually decide the best interest of each of these stakeholders?

The only idea that appeals to me is that the company does not really belong to anyone. You govern the company for the company’s own benefit. This is justified based on a pure statutory position that the company is a distinct legal entity, independent of any shareholder or any other stakeholder (a principle established by the House of Lords in the famous case of Solomon vs Solomon & Company in 1897).

Arie de Geus in his book The Living Company takes this idea further. He is of the view that the only powerful way of looking at a company is as a ‘living organism’, an organism with its own destiny much the same as any living person.

The role of governance, then, is one of stewarding the company to achieve its full potential. This is quite similar to a parent guiding and shaping his or her children to be the best they can be in their chosen field of endeavour.

Borrowing these powerful ideas, the answer to the question ‘Whose company is it anyway’ is: no one’s. A company is a unique and distinct individual with its own DNA and destiny. The role of governance, according to me, is three-fold:
l Ensuring the long-term health and viability of the company;
l Stewarding the company to fulfil its potential and to become as great as it can be; and
l Adherence to the highest standards of ethics, statutory compliance and social responsibility

Governments function effectively by distributing power. Most evolved democracies distribute power between the legislature, the executive and the judiciary. Further, an independent press (the fourth estate) is critical to keep these institutions honest and functioning effectively. While this may impair speed and efficiency, it seems to be the most effective mechanism for running countries thus far.

So what are the parallels to corporate governance? In the case of Satyam, there was an undue concentration of power with the founders, disproportionate to their low shareholding. The board was far less independent than required.

The core issue, clearly, is balance of power. While individual leadership is a key ingredient of success, visionary leaders know how to enrol a larger team, not just within the company but also in the form of independent board members and advisors, to distribute power and empower their companies to grow independent of themselves.

They understand institutions can be built only if they become more important than their leaders. How then do we achieve balance of power within a corporate context? I see a clear parallel between the pillars of government — the legislature, executive and judiciary — and their corporate equivalents for good governance.

The board of the company is, in effect, the legislature. The board’s primary responsibility is to steward the company to achieve its full potential. While, in theory, the board is elected by the shareholders, its job goes beyond catering to only the shareholders. The board balances the needs of the shareholders, employees, customers, vendors and partners, and society at large.

This is similar to our expectation of an elected representative, say an MP. While the MP may have been elected from a specific constituency and a specific party, his responsibility goes beyond those constituencies to the country as a whole. Just as the legislature makes laws to govern a country and its people, the board lays down policies that govern the way the company is run.

The management of the company is obviously the executive branch, similar in role and function to that arm of the government. Working under the broad policy, vision and direction of the board, the management team is accountable for meeting the mutually agreed upon goals and objectives, in line with the ethics and values of the company.

While the legislature has a more broad-based structure ideal for policy making, the management team has to be more hierarchical and result-focused to ensure efficient execution. It is this separation that helps a company cater to the larger good while retaining execution disciplines.

The role of the judiciary is to interpret the laws laid down by the legislature and apply them to specific disputes. Currently this function is discharged by the board itself on internal company issues, and by the regulatory bodies and the courts when they relate to the laws of the land.

As an example, if the company has disputes relating to income tax, the appellate authorities and the tribunals form the first level of judiciary, with the high courts and Supreme Court stepping in if the issues cannot be resolved.

In my view, the judicial role of the board is not as well-developed and is often at the root of many corporate governance failures. One possible approach is to strengthen the corporate governance committee and ensure its charter includes a systematic review of company performance on all fronts across stakeholders.

Given the size and complexities of today’s corporations, it may even be worthwhile, under the relevant legislation, to turn over the judicial role of the board to another body — the judicial board.

The governance committee can play the role of an independent press by taking a proactive approach in seeking stakeholder feedback, facilitated by external agencies. This goes beyond the whistleblower policies envisaged by today’s governance guidelines.

The Satyam episode has allowed us to look at the fundamental aspects of corporate governance: on whose behalf the company is governed, and how we can distribute power to ensure the longevity and effectiveness of the institution.

source:http://economictimes.indiatimes.com/Opinion/The-fundamentals-of-corporate-governance/articleshow/4269150.cms

ICAI to set up ratings system for corporate governance

The Institute of Chartered Accountants of India (ICAI) is planning to set up a rating system for corporate governance for listed and unlisted entities. It is aiming to bring in internationally best practices and new code of conduct. The apex statutory body of CAs, established under the Chartered Accountants Act, 1949, is in the process of forming a high-power committee to shape the model code of conduct. The proposed group will consist of 7-9 members from various fields, besides CAs.

ICAI is the world’s second-largest accountants’ body with membership base of 1.50 lakh professionals and 4.50 lakh students. The institute intends to take an aggressive stand after the Satyam Computer Services promoters and auditors were accused of misconduct. The new code of conduct would be primarily for its members who will implement it in their respective organisations and among clients. However, it will make an attempt to get recognition from regulators and authorities like Sebi, RBI and Irda, among others.

“Under different regulations, we have an existing framework for corporate governance. However, industry is following it for compliance purpose only and not in true spirit,” ICAI president Uttam Agarwal told ET. He added that the institute would conduct awareness programmes for its members, industry and even regulators.

It is learnt that ICAI is eyeing to tap the large section of industrial and financial houses that are not covered under the Clause 49 of the Listing Agreement to the Indian stock exchanges. The decisions regarding setting up a group for new code of conduct and rating system were taken during the recent meet of members of committee on corporate governance in Delhi. Mr Agarwal, who also heads the six-member special committee to look into the Satyam fiasco and role of auditors, also attended the meet.

“We already have different regulatory frameworks in place to ensure good corporate governance. However, we intend to keep pace with the changing time and have a better code of conduct in place. ICAI, being the apex body for CAs, can play an important role in ensuring good governance,” said ICAI’s committee on corporate governance chairman Pankaj Jain. He added that ICAI is already working closely with the Union ministry of corporate affairs’ National Foundation for Corporate Governance.

source: http://economictimes.indiatimes.com

ICSI panel to work on corporate governance norms

The Institute of Company Secretaries of India (ICSI) has formed a seven-member committee to look into ways to strengthen corporate governance norms in the aftermath of the Satyam scandal.

The ICSI Council, in its recent meeting, deliberated the matter in detail and constituted a core group consisting seven members to go into the issues arising out of the Satyam episode and suggest steps to strengthen the governance framework amongst corporates as well as changes in the legal policy framework regulating the corporates and professionals," its president Datla Hanumanta Raju said.

ICSI has also been assisting the government in its investigation into the Satyam scam and has sought answers from the scam-hit IT major's company secretary, asking him to furnish details related to adherence of corporate governance norms. "We have received a report from the company, but have sought more details," Raju said. ICSI had asked Satyam's company secretary to furnish the company's balance sheet
, annual report and corporate governance reports for the last few years.

ICSI's core group would look into a host of issues related to corporate governance compliance. "The primary area being looked into would be related to disclosure and transparency made in terms of board processes and agenda papers. Also, the core group would look into the role of independent directors and how they can be an effective tool against such frauds," ICSI CEO NK Jain said. Related-party transactions would also be an area on which the ICSI core group would deliberate, he added.

"The idea is to identify inherent weakness in the system and suggest ways to plug loopholes," he said. ICSI has also been training independent directors on how they should act as effective checks against any malpractice in a company. "This is certainly our core area. ICSI has already trained directors of LIC who are on the boards of various companies. Also, we are doing a similar program for directors of PNB

source: http://timesofindia.indiatimes.com

Rel Infra under ED scanner

India Inc. is going through tough economic conditions. The best strategy to survive and grow in these challenging times is to follow best industry practices. But to great dismay to India Inc. recently the minister of state for finance, Mr Pawan kumar Bansal, informed the Lok Sabha that Anil Ambani-led Reliance Infrastructure Ltd. had contravened the Foreign Exchange management Act (FEMA) and ECB guidelines in respect of two ECB transactions- one relating to ECB of $360 million in July 2006 and other of ECB of $150 million. This despicable action from ADAG has created repels in the corporate world. The government should learn from this corporate cheatings and should come up with full proof regulations to prevent this kind of cheatings.

The Anil Ambani-promoted Reliance Infrastructure (Rel Infra) violated overseas borrowing and foreign exchange rules by investing funds raised abroad in the domestic capital market, Minister of State for Finance Pawan Kumar Bansal said in Parliament today.

In a written response, Bansal said the Enforcement Directorate (ED) was now examining the violation for necessary action.

Bansal said the violation related to overseas borrowings of around $360 million by Rel Infra (then Reliance Energy) in July 2006. The company in April 2007 brought $300 million into India and invested it in debt mutual funds. It then remitted $500 million, including the “proceeds of the $300 million brought into India” in March 2008 to invest in an overseas subsidiary.

In addition, Rel Infra had availed of $150 million through the approval route and the amount was brought into India in November 2006. Here, too, the government said the company was using a portion of the proceeds in fixed deposits and debt mutual funds.

A Rel Infra spokesperson said, “As legally advised, there’s no Fema violation.” The company also said it had not received any notice from any agency so far on the issue.

The minister said the external commercial borrowing rules in force at that time required funds raised overseas to be kept outside India until they were actually needed and these couldn’t be used to invest in the capital market.

In August 2008 the Reserve Bank of India had imposed a penalty of Rs 125 crore on the company as compounding fees for parking its foreign loan proceeds in the country. However, the company in its third quarter report said its application "for compounding had been deemed by RBI as never to have been made, subsequent to withdrawal of the compounding application. Accordingly, there is no liability in respect of the compounding fee of Rs 125 crore specified by RBI."

The government today informed Parliament that Rel Infra did not pay the penalty and submitted a revised application in August 2008, seeking "compounding of the contraventions involved in both the ECBs of $360 million and $150 million".

The compounding application was found to be not in order and was returned to Rel Infra on September 30, 2008.

The ADAG company was, thereafter, given an option to make separate applications for compounding the contraventions, for which it did not approach RBI, said Bansal in his reply . Subsequently, the central bank referred the case to the Directorate of Enforcement on November 7, 2008.

source: http://www.business-standard.com/india/news/rel-infra-under-ed-scanner/00/30/349498/

Better implementation key to audit reform

In response to my previous column, a highly respected professional accountant, who was actively involved in the auditing profession for decades and who now sits on the boards of many companies as an independent director, wrote to me, “If auditors never (or let us be charitable and say almost never) discover fraud because an audit is not meant to do so, how should we redesign the audit so that those who read the reports obtain a greater degree of comfort? And I believe we should not aim at the analysts etc who have their own way of judging things but also keep in mind the proverbial and judicial ‘man in the street.” This is an important observation and every one of us who has an interest in corporate governance needs to ponder over it.

Audit has a long history. Over a period of more than 200 years, it has served members of Joint Stock Companies quite well on the whole, notwithstanding instances of audit failure. The concept of audit was in existence even when auditors, as we know them now, did not exist as a separate profession. All through it was believed that detection of fraud is not the aim of audit.

The auditor’s task is to provide a reasonable assurance that financial statements provide a true and fair view. He/she collects and verifies evidence with ‘scepticism’ but does not adopt the approach of a detective. Audit is not investigation. The auditor is not supposed to be a forensic expert. It is with this perception that audit tools and techniques and auditing standards have been developed over the years.

Audit techniques today are quite different from those in use even three decades ago. Auditors use cost-effective techniques that are adequate to form a judgement on whether financial statements provide a true and fair view. If we give the auditor the additional responsibility of detecting fraud, the cost of audit will go up very significantly.

The cost will have to be borne by the society in general and shareholders in particular. Therefore, the debate should focus on whether the benefits from that extension of auditor’s responsibility will exceed the incremental cost. In making the assessment we must keep in mind that audit failures are infrequent and generally regulators all over the globe have confidence in the profession.

Without carefully analysing costs and benefits, we may inappropriately widen the scope of audit and change the audit objective. The immediate need is to strengthen the system of audit and the institutions on which the auditor relies for planning and programming its audit.

There should be some agency, independent of The Institute of Chartered Accountants of India (ICAI) to audit the auditors. The decision of the Securities and Exchange Board of India (Sebi) to peer review the audit of listed companies might fulfil the present void in the system.

However, peer review will be effective only if the reviewer is selected on merit, is paid reasonable compensation, and if Sebi is empowered to impose sanctions on errant auditors and on the audit firm of which such auditors are partners or employees. ICAI already has a system of peer review. But we do not know whether the system is effective or not. ICAI should make public the outcome of peer review which is in place for more than five years.

Rotation of auditors may be an option to improve the quality of audit. Unfortunately the choice before companies is limited. For example, if a company wants to appoint one of the firms with international exposure, the choice is limited to the Big Four and a few Indian firms.

In India, there are not many firms big enough to invest in required technology and human resources, limiting the choice for a company that wants to appoint a big Indian firm. In this environment mandatory rotation of auditors might result in just the swapping of audit projects among the few big firms.

This will defeat the purpose of rotation of auditors. If the aim is to bring a new perspective, rotation of the lead partner will give the desired result without incurring additional cost that might arise from rotation of auditors.

Auditors, to a great extent, rely on the work of the internal auditor. Therefore, it is important to protect the independence of the internal auditor and to improve the quality of internal audit. It has been reported in the press that Sebi is contemplating framing external agencies to examine the work of internal auditors.

Currently, under the Companies Auditor’s Report Order (CARO) of 2003, the external auditor is supposed to report whether the company has an internal audit system commensurate with its size and nature of business. Therefore, there is already a system for review of the work of the internal auditor. The system might not have worked well.

The possible reason might be that auditors have benchmarked the audit function in a company with the prevalent practice which reflects poor appreciation of the potential of internal audit function by companies. It is now well accepted that the internal auditor’s independence is affected adversely if the chief of the internal audit function does not enjoy the status of a functional head (on a par , for e.g., with the finance director).

But, in most companies the chief of the internal audit function is placed at a level lower than the functional heads in the organisation hierarchy. Similarly, in most companies, the scope of internal audit does not include ‘management audit’. All these shows the lack of appreciation by Indian companies of the potential of internal audit.

Therefore, review of internal audit by an external agency will not serve any purpose unless internal audit standards are issued and those standards are made applicable to all listed companies by law. ICAI is now issuing internal audit standards. Sebi should explore the possibility of making those standards applicable to listed companies.

New laws cannot by themselves improve the independence and quality of internal audit. The present structure of corporate governance, if implemented correctly, is adequate to protect the independence of the internal audit and to improve the quality of audit.

Clause 49 requires the audit committee to review internal audit reports relating to internal control weaknesses and to review the appointment, removal and terms of remuneration of the chief internal auditor. Therefore, it is the responsibility of the audit committee that the company adopts the best practice to strengthen the internal control system. If the system of audit committee has not worked well, there is no guarantee that the new system will work any better.

Perhaps, the need of the moment is not to bring new rules and regulations. Rather, the need is to enhance the compliance of extant rules and rules and regulation and to strengthen the existing institutions. New rules and regulations should be brought in only after due deliberation involving a system analysis of costs and benefits rather than a knee-jerk reaction to the Satyam case, which is better seen as an aberration.

source:http://www.business-standard.com/india/news/better-implementation-key-to-audit-reform/00/27/349147/

Post-Satyam, SEBI calls for better corporate governance

The financial market regulator Thursday said corporate India had to be more transparent with shareholders and ensure corporate governance in the post Satyam scenario

“Two actions which are being regarded by SEBI are: to require all listed companies to obtain peer audit done, and in case of pledging of promoter shareholding, to make this price sensitive information available to all other shareholders,” said Securities and Exchange Board of India (SEBI) chairman C.B. Bhave here.

"We have to recognise that the issue of corporate governance is a journey, which has to be constantly examined and continuous efforts are necessary to make it fruitful," he said.

Bhave was speaking at a conference on corporate governance organised by the Confederation of Indian Industry (CII) in association with the ministry of corporate affairs and the National Foundation for Corporate Governance.

He said that after the revelation of the Satyam fraud, SEBI was actively considering introducing rules to ensure more rigorous audit and disclosures, such as having external agencies to conduct internet audit and rotational auditors.

He said SEBI could also consider a "whistleblower policy", under which employees of a company can report any wrongdoing to the firm's whistleblower committee without informing their supervisors or revealing their identities.

source: http://economictimes.indiatimes.com/

Chinks in corporate governance

The full story of Satyam is yet to emerge and if past corporate failures are anything to go by, it will take some time before it does. What is already clear is that it has raised many questions about corporate governance in India—the role of boards, of independent directors, of the auditors, of investors and of analysts. Many are suggesting that this is indicative of weak corporate governance standards in India and a failure to protect minority investors.

We should be cautious before we rush to conclusions about what needs to be done. On the other side of the world, the US is going through its own corporate governance crisis in the form of the Madoff scandal. Corporate governance in financial institutions in the US, the UK and continental Europe is coming under serious scrutiny. Countries with very different types of corporate governance systems, laws for protecting minority investors and different patterns of ownership of companies are facing similar crises of confidence.

Furthermore, this comes after an extensive tightening of corporate governance standards in the US in the face of the Enron and WorldCom scandals. The Sarbanes-Oxley Act was supposed to have plugged the loopholes in accounting and governance standards that previously existed. Many thought that it went too far and undermined the competitive position of the US.

The decline in foreign listings on the US stock exchanges was attributed to the unduly onerous regulatory standards that Sarbanes-Oxley imposed. Irrespective of whether this is correct, the legislation has not prevented major failures from occurring in financial institutions across the US.

The board of directors is frequently regarded as being central to good governance, and the role of the board has featured prominently in discussions about Satyam. The board is the body charged with having oversight of the operations of the firm and setting its strategy. The board should ensure that the company is upholding high standards of probity and conduct, and provide a probing analysis of the activities of management.

In particular, non-executive directors are supposed to give an independent assessment of the quality of management. But time and time again, failures of corporate governance suggest that they do not.

There are several reasons.

First, it is difficult to appoint truly independent directors. This is particularly hard to achieve in countries such as India where family ownership is widespread and there is a close-knit group of corporate leaders. Even in countries where family ownership is less prevalent, such as the UK, there are serious doubts about the independence of directors.

Further, it is unclear whether independence is a good thing. In terms of providing oversight of the activities of management it might be, but non-executive directors are supposed to perform an equally important function in guiding and advising management. They bring a degree of expertise from other companies, industries and countries that would not otherwise exist in the firm. In many cases, they are appointed to support rather than question and criticize management.

It is difficult for non-executive directors to perform a scrutiny objective at the best of times, but it is particularly difficult to do so when faced with a dominant chief executive who expects support not criticism from the company’s board. To some extent, the dominance of the chief executive can be moderated by appointing an independent chairman and ensuring a separation of functions between the two individuals.

Many countries have sought to separate the roles of chairman and CEO. However, it can inhibit firms from implementing effective strategies, especially in companies operating with new technologies, such as Indian information technology firms, that require visionary strategies. In any event, separation (sometimes with independent deputy chairmen as well as chairmen) has not prevented some of the most prominent failures of financial institutions over the past few months.

Can the role of the board be strengthened? The answer is yes. Tighter rules regarding the appointment and rotation of independent directors can be introduced. There can be rules relating to the credentials, experience and training of members of the board. The requirements on members of the board to provide oversight can be clarified.

Reporting by the independent members to external investors can be strengthened and attention can be given to the remuneration and incentives of non-executive as well as executive directors.

All of this is important. But will it solve the problem? The answer is almost certainly not. Many countries have played around with these rules to limited effect. Boards are a focus of much discussion about corporate governance, but they are not a solution. Effective corporate governance requires the direct involvement of investors, and attention is increasingly being focused on shareholder activism as an alternative to a reliance on boards.

source: www.livemint.com

Satyam Saga: What about India Inc's corporate governance?

If you spend days diving into annual reports while researching Indian boards and corporate governance standards, here are some questions you are
bound to ask. IT major Infosys’ nomination committee chose yet another co-founder as CEO— is it dynastic succession of another kind?

Was renowned Professor Krishna Palepu in the know of the financial misadventures of Satyam’s Ramalinga Raju? What value do gents like Prof. Mohammed Salahuddin Ansari, Principal, Madhupur College, Jharkhand and Dr Deva Nand Balodhia , free lance journalist, ex Officer on Special Duty to CM Uttarakhand add to the State Bank of India board that they sit on?

What are people like Shahrukh Khan, Yash Chopra, and Javed Akhtar doing on the board of Jet Airways? How does leading lawyer Suresh Talwar, manage to find a place on more than 50 boards of listed and unlisted companies? Why do many large Reliance ADAG companies like Reliance Capital, Reliance Communication, Reliance Natural Resources , and Adlabs, have just five (Chairman Anil Ambani plus four non executive directors) people on their boards while the Andhra Bank board seems to require 19 members?

Hidden in some of these questions are the reasons that have led to corporate governance being reduced to mere lip service in most Indian companies. But exceptions remain. In response to the Infosys succession question above, Co-Chairman NR Narayana Murthy demonstrated why his company is considered the gold standard in corporate governance: he got Claude Smadja, the then chairman of the nomination committee to send a detailed answer to explain the procedure of election of Kris Gopalakrishnan as CEO.

And yes, Mr Palepu wrote back too, defending his actions as an independent director. His note said: “During my tenure as a director with Satyam, I fulfilled my responsibilities fully and appropriately. I look forward to providing my complete co-operation to regulatory agencies as they investigate this matter. The actions of Mr. Raju and his brother have caused Satyam, thousands of Satyam employees , customers and investors, and India, enormous damage,”

While in this sea of stink there are shining examples like Infosys, Wipro, Mahindra and Mahindra, Godrej, Bharti, ICICI Bank, HDFC Bank that have set themselves apart, they are few and far between. As one moves down the ET 500 ranking, the standards begin to fall. No doubt, corporate governance standards are far too complex a matter to be captured in plain numbers, but numbers do tell a story.

More than 70% of ET 100 boards don’t have women in their boards and of the 2211 BSE listed companies that have filed data with the Exchange only 4.9% of all directors are women. More than 70% of the ET 100 boards still haven’t split the Chairman and CEO posts. More than 80% of ET 100 boards still don’t have lead independent directors in place. The fact remains that hundreds of listed companies still have to comply with clause 49 norms; in BSE itself there are 390 companies still to file data.

Governing The Corporate

And now research by an investment bank proves what industry watchers have suspected all along: large-scale manipulation of accounting standards. A report by the Noble group says that one in five BSE 500 firms has accounting issues — companies tamper with revenues, manipulate sales and play around with cash. So are the members of auditing committees of these companies sleeping?

No, the independent directors say, they have to rely on the management for information, and often information and time is short supply in board meetings. “For some promoters , revenues are a matter of opinion not fact and somehow they always have to rush to meetings after the board meetings . We have no choice but to take the management’s word for most issues,” says the CEO of a company who is on prominent boards.

The fact remains that all three pillars of protection for investors — the independent directors, the auditors and the regulators are misaligned. “The institutions of corporate governance are not good enough. We have to reapply ourselves to restructure the institutions of corporate governance,” says Arun Maira, Senior Advisor, BCG who is on five boards.

And corporate governance (which in its true form starts after basics like board composition, size, committees, systems of check and balances, have been put in place) is often just reduced to meeting the minimum legal requirements in most cases. “Only the ritualistic portions of corporate governance are being met with, I haven’t seen a material change in thinking towards corporate governance,” says N Vaghul, Chairman , ICICI Bank, one of India’s most respected business leaders.


The promoters’ play


Boards historically have been networks of influence for promoters, so family and businessmen friends are often nominated, leading to a cosy relationship in which both objectivity and independence are lost. Indian promoters, unlike in the West, hold large equity stakes and to quote a well known CEO of a FMCG company who is on several boards himself, still have an ‘I know what’s best for my company’ attitude.

source: http://economictimes.indiatimes.com/

Corporate Governance

Tata Company is committed to maintaining the highest standards of corporate governance in its dealing with its various stakeholders. It is an integral part of the Company's core values which include transparency, integrity, honesty and accountability. Your Company follows the philosophy of working towards the creation of wealth by enhancing the value of stakeholders, meeting the needs of customers and employees and the community at large.

The Company attaches great importance to investor relations. With a view to enhance shareholder participation in corporate affairs, the Company follows the policy of keeping its shareholders informed by putting up relevant information on its corporate website www.tatapower.com, by issuing public notices of meetings and informing stock exchanges of new developments.

The Company also lays great stress on risk management and internal controls. The internal audit department reviews the effectiveness of the risk management system and internal controls and the Audit Committee oversees the same.

With a view to ensuring excellence in its functioning, Your Company has adopted the Tata Business Excellence Model for introducing systemic changes in all areas of its functioning. Your Company has also adopted the Tata Code of Conduct which serves as a guide to uphold the highest levels of business ethics. Your Company is in compliance with the conditions of corporate governance stipulated in Clause 49 of the Listing Agreement entered into with the Stock Exchanges.
Tata Code of Conduct

The fountainhead of the corporate governance of the Tata Power Company is the Tata Code of Conduct. The Company is committed to abide by it, in its letter and spirit. And the Company has earned the Tata Brand name by virtue of this commitment. It draws its strength from the five Tata values:

* Integrity
* Understanding
* Excellence
* Unity
* Responsibility

In Tata parlance they stand for –
Integrity

We must conduct Your business fairly, with honesty and transparency. Everything we do must stand the test of public scrutiny.

Understanding

We must be caring, showing respect, compassion and humanity for Your colleagues and customers around the world, and always working for the benefit of India.

Excellence

We must constantly strive to achieve the highest possible standards in Your day-to-day work and in the quality of the goods and services we provide.
Unity

We must work cohesively with Your colleagues across the group and with Your customers and partners around the world, building strong relationships, based on tolerance, understanding and mutual cooperation.

Responsibility

We must continue to be responsible, sensitive to the countries, communities and environments in which we work, always ensuring that what comes from the people goes back to the people many times over.

The name of TATA says it all. It encompasses the lowest common Tata denominator – the way others see the Tata Group.

Trust

Acceptability

Transparency

Accountability

Management Practices

For consistency and faithful implementation of the corporate objectives of Tata Power, the Board has followed certain management practices even prior to the same being made mandatory, viz., Constitution of an Audit Committee, Remuneration Committee, etc.

source:http://www.tatapower.com/aboutus/corporate-governance.aspx