-:PROJECT REPORT ON CORPORATE GOVERNANCE:-

Name KRISHNA ULHAS PRABHU

Registration number 450106771/11/2013

Address Bh 11, Balama Heritage,Opp

Chinmaya Mission, Housing
Board, Margao-403602- Goa

Submitted to Mr. Thirupal Gorige,

Practicing Company Secretary
and Insolvency professional
No. 87, 2nd Floor, 21st Cross, 7th
Main ,NS Palya, BTM 2nd Stage,
Bangalore, 560076
 ACKNOWLEDGEMENT

With immense pleasure I would like to present this project on

“CORPORATE GOVERNANCE” and I would like to thank “The
Institute of Company Secretaries of India” for providing me the
opportunity to present this project.

This report is prepared as per the requirement of our regular

curriculum of undergoing “12 Months Apprenticeship Training” as
prescribed by The Institute of Company Secretaries of India.

I have put in the best of my efforts in preparing this report so as to

ensure it covers all the aspects relevant to CORPORATE
GOVERNANCE”. It would be nothing less than an honor to me if
this report is helpful to any one referring it. The data contained herein
is on the basis of information collected & collated from various
sources as per the latest amendments.

“I sincerely thank CS. Thirupal Gorige (Practicing Company

Secretary) under whom I got the privilege of serving the 12 months
training as required under the course, for his valuable guidance, co-
operation and for taking time out of his busy schedule to help me for
completion of this project. This tenure under him has been full of
learning & understanding in depth the great & noble profession of
Company Secretaries”. Acknowledgement is due to my parents,
family members, friends who have helped me directly or indirectly in
the successful completion of the project.

KRISHNA ULHAS PRABHU

450106771/11/2013
 -:TABLE OF CONTENT:-

Page Contents
No
1 What is corporate governance
2 The Historical Roots of Corporate
Governance
3 Why Corporate Governance?

4 Recent Evolution Of Corporate

Governance in india

5 Major features of the Corporate

Governance in India

6 International Scenario Of Corporate

Governance

7 SATYAM FRAUD AND THE FAILURE OF

CORPORATE GOVERNANCE IN THIS CASE

8 KOTAK COMMITTEE ON CORPORATE

GOVERNANCE, 2018

9 Global View ABOUT CORPORATE

GOVERNANCE

10 Emerging Challenging and Looking

ahead
 WHAT IS CORPORATE GOVERNANCE?

 Which means that the company is required to comply to

the listing agreement of Stock Exchanges and other
monitoring agency like SEBI *

 “Corporate Governance is nothing but a step towards

strengthening of the organization so as to face the
challenges”
This means the challenges that are posed by increasing competition at
Domestic and International level

 “It is stepping into the shoes of the shareholders,

stakeholders, vendors, suppliers & employees by the Top
Managers and CEO of the company”

This would imply that as stakeholders, vendors, suppliers & employees

have invested either their money, material, effort, faith in the company,
one should try to give prime importance to these business pillars and
identify the areas where the show pinches.

 “Process and mechanisms by which the capital market

monitors the actions of corporate management”

Which means that the company is required to comply to the listing

agreement of Stock Exchanges and other monitoring agency like SEBI
THE ROOTS AND CAUSES OF CORPORATE
GOVERNANCE

 Worldwide privatization wave.

[[[

 Mergers and takeovers.

 Deregulation and capital market integration.

 Scandals and failures at major corporations.

 Irrationality of the management decision making and failure

of the corporate in the global level.
 Why Corporate Governance?

 (i) Separation of ownership from management:

A company is run by managers. Corporate governance ensures

that managers work in the best interests of corporate owners
(shareholders).

 (ii) Global capital:

In the globalized world, global capital flows in markets which

are well- regulated with high standards of efficiency and
transparency. Good corporate governance gains credibility and
trust of global market players.

 (iii) Investor protection:

Investors are educated and enlightened of their rights. They

want their rights to be protected by companies in which they
have invested money. Corporate governance is an important
tool for protecting investors’ interest by improving efficiency
of corporate enterprises.

 (iv) Foreign investments:

Significant foreign institutional investment is taking place in

India. The investors expect companies to adopt globally
accepted practices of corporate governance and well-
developed capital markets. Demanding international
standards of corporate governance and greater
 professionalism in management of Indian corporates
substantiates the need for good corporate governance.

 (v) Financial reporting and accountability:

Good corporate governance ensures sound, transparent and
credible financial reporting and accountability to investors
and lenders so that funds can be raised from capital markets.

 (vi) Banks and financial institutions:

Banks and financial institutions give financial assistance to
companies. They are interested in financial soundness of
companies which can be provided through good corporate
governance,

 (vii) Globalisation of economy:

Globalisation and integration of India with the world economy

demands that Indian industries conform to the standards of
international rules. Corporate governance helps in doing this.

 (vii) Inherent objectives as its main benefit:

 To align corporate goals with goals of its stakeholders
(society, shareholders etc.).
 To strengthen corporate functioning and discourage
mismanagement.
 To achieve corporate goals by making investment in
profitable outlets.
 To specify responsibility of the board of directors and
managers to ensure good corporate performance
 :RECENT EVOLUTION OF CORPORATE
GOVERNANCE IN INDIA:

CII Voluntary Code of The first of the voluntarily

CorporateGovernance, evolved codes in India
1998
Kumara Mangalam The mandatory
Birla Committee, recommendations of the
India, 1999 Kumar Mangalam committee
include the constitution of
Audit Committee and
Remuneration Committee in
all listed companies,
appointment of one or more
independent directors in them,
recognition of the leadership
role of the Chairman of a
company, enforcement of
Accounting Standards, the
obligation to make more
disclosures in annual
financial reports, effective use
of the power and influence
of institutional shareholders,
and so on. The Committee also
recommended a few provisions,
which are non- mandatory

Sarbanes-Oxley Act, A major initiative of corporate

2002 compliance, the Sarbanes-
Oxley Act of 2002, is also
known as the Public Company
 Accounting Reform and
Investor Protection Act of 2002
is a US federal law that has
main features such as ;
establishment of the Public
Company Accounting
Oversight Board (PCAOB/)
auditors independence,
corporate responsibility,
enhanced financial disclosures,
analyst conflict of interest,
commission resources and
authority, corporate and
criminal fraud accountability,
while collar crime penalty
enhancement, corporate tax
returns and corporate fraud
accountability

Narayana Murthy The key mandatory

Committee, 2000 recommendations focus on
strengthening the
responsibilities of audit
committees; improving the
quality of financial disclosures,
including those pertaining to
related party transactions and
proceeds from initial public
offerings; requiring corporate
executive boards to assess and
disclose business risks in the
annual reports of companies;
introducing responsibilities on
boards to adopt formal codes of
 conduct; the position of
nominee directors; and stock
holder approval and improved
disclosures relating to
compensation paid to non-
executive directors. Non-
mandatory recommendations
include moving to a regime
where corporate financial
statements are not qualified;
instituting a system of training
of board members; and the
evaluation of performance of
board members
Naresh Chandra The auditor-company
Committee,2003 relationship, Auditing the
auditors Independent directors:
Role, remuneration and training.

OECD Principles,2004 The OECD Principles cover

five aspects of governance
(a) the rights of shareholders
(b) the equitable treatment
of shareholders
© the role of stakeholders
(d) disclosure and transparency
(e) the responsibilities of the
board
J.J Irani Committee, Adoption of Internationally
2004 accepted best practices in India
Commerce
Clause 49 of the A major compliance directive
Listing that came into force from the
Agreement, 2005 quarter ended June 2005, it has
 major aspects of compliance by
listed companies that include;
definition of independent
directors; Non-Executive
Director’s compensation and
disclosures, other provisions as
to Board and Committees, Code
of Conduct, Composition of
Audit Committee, Meeting
of Audit Committee,
Subsidiary Companies,
Disclosures pertaining to:

(a) basis of related transactions

(b) accounting treatment
(c) risk management
(d) proceeds from
public/rights/preferential
issues
(e) remuneration of directors
and management discussion
and analysis, CEO/CFO
Certification, report on
corporate governance, auditors
certificate on compliance etc
Kotak Committee on Separation of the roles
Corporate Governance, Minimum board strength...
2018 Shareholder meeting and cash
flow statement...
Minimum remuneration...
Risk management and IT
committee...
Independent Directors...
 :Major features of the Corporate
Governance in India:

Legal Companies Act, 2013 and Clause 49 of

Framework the Listing Agreement of Stock
Exchange

Voting Rights All shareholders have the right to vote.

Proxy voting allowed. Companies
allowed to issue shares with multiple
voting rights or dividends

Firm Capital Requires board/shareholder approval

Structure to change capital structure. A
merger needs 75% of the
shareholder vote

Shareholder It is required to hold AGM

Meetings every year. Allows shareholders
controlling 10% of voting rights or paid
up capital to call a special or Extra
Ordinary General Meeting

Board Structure One third of the board should be non

executive and a majority of these
independent. In case where the
Chairman of the board is an executive,
50 % of the One third of the board
should be non executive and a
majority of these independent. In
 case where the Chairman of the board
is an executive, 50 % of the board be
comprised of independent directors

Board The Board should meet at least four

Meetings times a year. 33% of the board
members or two members,
whichever is greater, be present.
All fees and compensation paid to
the non-executive directors require
prior approval of the shareholders in the
AGM

Election of The directors of the Board be

Directors approved and appointed by the
company in the Annual General
Meeting

Board Every board is required to have

Committees a shareholder grievance committee
and an audit committee.
Remuneration committee is non-
mandatory

Disclosure Every company to have a

compliance officer responsible for
setting policies, procedures and
monitoring adherence. SEBI has
established an insider trading
committee to monitor the same.
Companies required to disclose
information through annual
reports/websites etc. Management
Discussion Analysis, a part of the
 Annual Report

Accounting Shareholders to appoint an

independent auditor, certified by
Institute of Chartered Accountants
of India. Accounting standards comply
with International Accounting
Standards (IAS) and International
Financial Reporting Standards
(IFRS). Companies conduct
comprehensive audits annually
Audit Audit Committee to have a
Committees minimum of three members, of
which two-thirds be independent
directors and at least one members
should have accounting/finance
background. Audit Committee
also reviewed internal control systems

Related Party Clause 49 required listed companies

Transactions to disclose material significant
related party transactions to
Shareholders
Whistle Blower Right of access to all employees.
Policy Direct access to audit committee
without informing the superiors.
Submissions Quarterly Compliance Report within 15
days from the end of the quarter.
(Format revised)Annual Compliance by
the separate section in the Annual
report. Compliance Certificate from
the auditors of the company
:INTERNATIONAL SCENARIO OF CORPORATE
GOVERNANCE:

1995 Cadbury Report, The objective of the Cadbury

United Kingdom committee was to investigate
how large public
companies should adopt
corporate governance
guidelines with a focus on
the procedures of
Financial report production
and the role of the
accounting Profession.
Issues included the role of
the board of directors,
standards of financial
reporting, accountability of
the auditors and directors
pay.
1995 Greenbury The report dealt with the
Report, United remuneration of executives
Kingdom and non-executives board
members and
recommended the setting
up of a remuneration
committee in each public
company to determine
remuneration packages for
the board members. It also
provided suggestions on the
disclosure of remuneration
 and the setting up of
remuneration policy and
service contracts and
compensation.
1998 Hampel Report, Four major issues were
United Kingdom discussed with practical
guidelines offered;
(a) the role of directors
(b) directors compensation
(c) the role of shareholders
(d) accountability and audit.
Improving the effectiveness
of Corporate audit
committees
1999 OECD & CACG Principles of Good
Corporate governance in
Commonwealth
2003 Higgs Report On non-executive directors.
2003 Smith Report On Audit Committees
2003 ASX Corporate Principles of Good
Governance Corporate governance and
Council, best practice
recommendations
Australia
: SATYAM FRAUD AND THE FAILURE OF CORPORATE
GOVERNANCE IN THIS CASE:

 THE INTRODUCTION:

 The company was formed in 1987 in Hyderabad (India) by

Mr. Ramalinga Raju. The firm began with 20 employees and
grew rapidly as a “global” business. It offered IT and business
process outsourcing services spanning various sectors. Satyam
Computers Services Ltd. was one of the pioneers in the field
of Information Technology and it was ranked fourth in the
India in the business of computers and information technology
services.

 AWARDS AND APPRAISALS:

 Satyam won numerous awards for innovation, governance, and

corporate accountability. “In 2007, Ernst & Young awarded
Mr. Raju with the „Entrepreneur of the Year‟ award. In
2008, Satyam won awards from MZ Consult‟ s for being a
„leader in India in Corporate Governance and accountability.
 In September 2008, the World Council for Corporate
Governance awarded Satyam with the Global Peacock Award
for global excellence in corporate accountability”. By 2003,
Satyam’s IT services businesses included 13,120 technical
associates servicing over 300 customers worldwide. At that
time, the total service market of IT Sector was estimated
to be $400 billion and it was estimated that it will continue
to grow with a compound growth rate of 6.4%.

 Satyam has won the Golden Peacock Award for the best
Governance in the year 2007 and again in 2009. It is a
matter of great irony that the company which has “Satyam”
word in its name means “Truth” as per ancient Indian
Language has presented all the lies in its financial Statements
and other records and there by failed to follow the proper
Corporate Governance

 Mr. Ramalinga Raju and the Satyam Scandal:

 The time for Satyam Computers and the life of Mr.

Ramalingam Raju going very smoothly without any
interruption by regulators like SEBI, Ministry of Company
affairs etc. The Scam was exposed from the point where,
Satyam planned to acquire Maytas Infrastructure Limited,
One of best infrastructure development and Construction
Company for $300 million. Satyam Director Mr. Ramalingam
Raju has already 37% stake in that company. Raju’s also had
a 35% share in Maytas Properties, another real-estate
investment firm. Satyam Computers Services Limited was
the first Indian company to publish its financial statements
by following International Financial Reporting Standards.
Satyam board of Directors had approved the deal of buying
the entire stake in Maytas Infrastructure Ltd and Maytas
Properties Ltd. Without any consent of the shareholders,
the board went ahead for their decision. However the dream
of Satyam Board remains the dream only when investors sold
the Satyam’s stock and warned the management for action
against them. In US the stakeholders filed law-suits for
aborting the Maytas deal. Mr. Raju want that deal to bridge
the gap between real figures and faked figures when every
attempt to do this is failed, then Raju’s by writing a letter
to board members and SEBI had to confess that Accounts of
Satyam Computers Services Limited has Irregularities. The
facts presented by MR. Raju in his letter to SEBI have
shocked everyone including Stakeholders and all Government.

PUNISHMENT THAT RAJU FACED FOR THE ABOVE FRAUD

  FINANCIALS AND MONETARY
OBSERVATIONS:

 FABRICATED BALANCE SHEET AND INCOME STATEMENT OF

SATYAM AS SEPTEMBER 30, 2008:
(Rupees in crores)
PARTICULARS ACTUAL REPORTED DIFFERENCE

CASH AND BANK BALANCES 321 5361 5040

ACCRUED INTEREST ON BANK FIXED Nil 376.5 376

DEPOSITS
UNDERSTATED LIABILITY 1230 None 1230

OVERSTATED DEBTORS 2161 2651 490

TOTAL Nil Nil 7136

REVENUES ( QUARTER 2 FY 2009) 2112 2700 588

OPERATING PROFITS 61 649 588

 OBSERVATIONS AND SHORTCOMINGS LIABLE TO FRAUD:

1. The major difference is created between Actual cash and Bank

Balance and Faked Balance i.e. `5040 Crores by creating
numerous bank statements by using his personal computer.

2. He also had shown interest of ` 376 Crores on those fake

deposits.

3. He understated the Liability side of the balance sheet by

`1230 crores.

4. He has overstated the Debtors by `490 Crores.

 5. He overstated its revenue of by `588 crores for the Quarter
II in Financial year 2009- 10 for meeting the analyst
expectation Satyam by creating fake customers and fake
invoices in their names.

6. By doing so the operating profits for the quarter were also

overstated by `588 crores.

7. He claimed that he overstated the company Balance sheet by

$1.47 billion nearly $1.04 Billion in Bank Loans and the cash
the company claimed to own was nonexistent.

 Failure of Corporate Governance in case Satyam

Computers Services Ltd.:

Following were the failures of Corporate Governance in case of

Satyam Computer Services Limited

A. FAILURE OF CONCEPT OF INDEPENDENT AUDITORS:

At the time of Application of Concept of Corporate

Governance, SEBI has highlighted the role of Independent
Directors in the presentation of Financial Figures before
Government that Independent Directors will present the
true and fair view of financial figures and take the active
part in audit process of Companies better than Traditional
Directors, but here in this case, this concept was a total
failure.
B. FAILURE OF THE ROLE OF AUDIT COMMITTEE:

A. Audit Committee of the Satyam Computers played

hardly any role in curbing the financial misrepresentation
of facts. So, another important pillar of Corporate
Governance has shattered in this case.

C. FAILURE OF THE ROLE OF CEO/CFO:

It is presented in the concept of Corporate Governance

that the CEO/CFO of the company will certify about
the truthfulness and fairness of Financial Statements of
the Company but in this case the CEO/CFO of the
Company Mr.Ramalingam Raju/ Srinivas Vadlamani has
certified the wrong financial position of the Company.
D. Failure of presenting the true report on compliance
of Corporate Governance in the Financial Statements of
the Company. In case of Satyam Computers, the Annual
Report of this company included the report on the
Compliance of Corporate Governance but hardly any fact
of that report was true in real sense

D. FAILURE OF SEBI IN TIMELY DETECTION OF THIS FINANCE

SCAM:

The Security Exchange Board of India is the most powerful

regulating agency of the Government of India which has
the full powers in intervening in any of the Financial
Affairs of the Companies regarding the presentation of
 Financial Figures and insiders trading. The prices of the
share of Satyam Computers were increased many folds but
SEBI was in total failure in detecting or even smelling any
foul smell. The result of all that insider trading was that
the promoters of the Company have deliberately made
money in crores by misrepresenting the financial figures
and there by increased the market value of the shares and
sold their shares at those higher values and the end result
was that there was the erosion of the funds of the
common people who have invested in the shares of Satyam
Computers relying upon the financial figures of the
Company

E. FAILURE OF AUDITORS IN THE DUE DELIGENCE IN THEIR

DUTIES:

M/s Pricewaterhouse Coopers is one of the best auditing

firms around the Globe. This firm is equally responsible for
the financial scam since there are many factors which may
work as indicators for demanding further investigation like
Cash lying with the company without any income on that.
The PWC is total fail in due diligence of their duties for
example PWC never verifies the forged statements with
the bank and debtors etc. The failure of PWC can be
judged from the fact that Investment banker Merillynch
found the financial scam merely in 10 days. In nutshell we
can arrived at a conclusion that if PWC work with due
diligence the Satyam scam may not occurred
:KOTAK COMMITTEE ON CORPORATE GOVERNANCE,
2018:

 Introduction:-

A 21-member Committee on corporate governance headed

by banker Uday Kotak has submitted its report to the
Securities and Exchange Board of India (SEBI)

The panel was constituted by SEBI in June 2017. It was

given four months to submit its recommendations. In its
suggestions it has recommended major overhaul of
corporate governance norms for listed firms.

 Recap:-
2 JUNE 2017

5 OCTOBER 2017

28 MARCH 2018

10 MAY 2018

Formation of The committee The SEBI Amendments

Corporate released its approved issued to SEBI
Governance recommendati certain listing
committee ons for public amendments regulations &
under Uday comments with/without recommendat
Kotak modification ion
 : BROAD CATEGORIES OF AMENDMENTS:

Sources:
 Report on Corporate governance by SEBI dated 5 October 2017
 SEBI circular No SEBI/HO/CFD/CMD/CIR/P/2018/79 DATED 10May 2018
 Presentation on Corporate Governance by various Organization
:COMPOSITION AND ROLE OF BOARD OF DIRECTORS:
: INSTITUTION OF INDEPENDENT DIRECTORS:
: ACCOUNTING AND AUDIT RELATED MATTERS:
: BOARD COMMITTEES:
:INVESTOR PARTICIPATION:
: DISCLOSURES AND TRANSPARENCY:
Monitoring group entities and related parties:
 : GLOBAL VIEW OF CORPORATE GOVERNANCE:

A recent assessment (2017) on the implementation standards of

corporate governance on a sample of about 1600 companies
worldwide, Ethical Investment Research Services (EIRIS), a UK
based leading global provider of independent research into the
social, environmental and governance (ESG) performance of
companies that tracks performance of about 3000 companies
across the world, has brought out some interesting insights. These
include;

 62% of the companies studied have boards containing

more than a third of independent directors. However the
proportion of independent directors varies greatly between
countries. Over 90% of companies in North America, UK,
Switzerland, the Netherlands, Norway, Finland and
Australia have more than a third of independent
 directors, compared with less than 10% in Germany,
Austria and Japan

 Disclosure of directors’ remuneration is consistently high,

with 96% of all companies disclosing this information.

 In half of the countries studied, over 90% of companies

separate the roles of chair and chief executive. However
rates of separation are lower in the US (30%), Japan (54%)
and France (56%)

 Worldwide, only 8.1% of board members are women.

Representation of women on the board continues to be
lowest in Japan at less than 1% and remains generally low
in Mediterranean countries. These low levels are driven by
a mixture of cultural factors including a history of fewer
women in formal employment combined with weak
legislative encouragement

 However corporate governance practices are

converging. Governance codes are being revised to
improve the levels of transparency and independence,
and the proportion of companies adopting western
models of board structure is increasing

 As the financial markets grow and the developing

countries corporations increasingly explore global
financial markets for resources and business,
harmonization of the corporate governance increases and
intensifies

 Good companies are going beyond the mandatory

requirements in adopting best practices in governance
 Greater interaction and sharing of knowledge is gaining
ground across countries in setting effective governance
frameworks

 Good governance emerged as a major incentive for

corporate growth and in pursuing global business
aspirations.

The developments as discussed above lead to and envisage

greater thrust on the quality of governance
 :EMERGING CHALLENGES AND LOOKING
AHEAD:

 General: While corporate have been quite

successful in placing effective processes that will
ensure compliance with the listing norms, several
challenges exist in the governance landscape.

 Chairman & CEO: Though the Chairman and CEO

are separated in several companies, in certain
instances, it is found that a family member who is a
non executive director is chairman and another
family member is the CEO. Such arrangements meet
the compliance requirements in letter but not in
spirit. Similarly, in some it was found that meetings
of several committees are clubbed together to save on
time.

 Related Party: Significant improvements are

required in respect to the reporting of
subsidiary company operations as also related
party transactions, a general feeling that is
commonly shared by most of the practicing
community on the corporate governance

 Board and Audit Committee: Evaluation of the

performance of the Board and the sub committees in
particular the Audit Committee needs to be further
strengthened and streamlined.
 Independent directors: In view of the sizeable
representation of the public sector enterprises
in the stock market capitalization, it becomes
important to speed up the process of placing
required number of independent directors in these
companies. These companies being big in size and
having significant growth, it is important that
the short coming on the proportion of independent
directors should not place them in a
disadvantageous position in regard to compliance
standards.

 SEBI and Clause 49: SEBI should express its

unwillingness to allow any relaxation of the Clause 49
Listing norms for public sector undertakings
despite their limitations in finding required
number of independent directors, as defined by the
norms. Similarly SEBI came up with further urbs on
insider trading by proposing surrender of profits
made by insiders of a company in any equity-based
securities transaction of the company leading to short
term profits. To help companies to expand the
scope of corporate governance reports in the
annual reports, SEBI has allowed company
secretaries to certify the report in addition to the
statutory auditors