Over the years some Indian companies have voluntarily established high standards of corporate governance, but there are many more, whose practices are a matter of concern. There is also an increasing concern about standards of financial reporting and accountability, especially after losses suffered by investors and lenders in the recent past, which could have been avoided, with better and more transparent reporting practices. Investors have suffered on account of unscrupulous management of the companies, which have raised capital from the market at high valuations and have performed much worse than the reported figures leave alone the financial projections at the time of raising money. Another example of bad governance has been the allotment of promoter’s shares, on preferential basis at preferential prices, disproportionate to market valuation of shares, leading to further dilution of wealth of minority shareholders. This practice however was later contained.

There are also many companies, which are not paying adequate attention to the basic procedures for shareholders’ service; for example, many of these companies do not pay adequate attention to redress investors’ grievances such as delay in transfer of shares, delay in dispatch of share certificates and dividend warrants and non-receipt of dividend warrants. SEBI has been daily receiving large number of investor complaints on these matters. While enough laws exist to take care of many of these investor grievances, the implementation and inadequacy of penal provisions.

1. To suggest suitable amendments to the listing agreement executed by the stock exchanges with the companies and any other measures to improve the standards of corporate governance in the listed companies, in areas such as continuous disclosure of material information, both financial and non-financial, manner and frequency of such disclosures, responsibilities of independent and outside directors;
2. To draft a code of corporate best practices; and
3. To suggest safeguards to be instituted within the companies to deal with insider information and insider trading.

Major recommendations of the committee are as follows.

• The board should have an optimum combination of executive and non-executive directors and at least 50% of the board should comprise of non-executive directors.

• No director should be a member in more than 10 committees or act as chairman of more than five committees in which he is a Director.

• The board of the company should set up a qualified and independent “Audit Committee”.

• Board should set up a remuneration committee to determine the remuneration packages for the executives.

• The corporate governance section of the Annual Report should make disclosures on remuneration paid to directors in all forms including salary, benefits, bonuses, stock options, pensions and other fixed as well as performance linked incentives .

• Management should assist the board in its decision-making process in respect of company’s strategy, policy, code of conduct and performance targets.

• The management should implement the policies and code of conduct of the board

• It should provide timely, accurate, substantive and material information, including financial matters and exceptions to the board, board committees and the shareholders.

• As a part of the disclosure related to management, in addition to the Director’s report, Management Discussion and Analysis Report should form part of the Annual Report to the shareholder.

The committees also took note of various steps taken by SEBI for strengthening corporate governance, some of which are:

• Stringent disclosure norms for Initial Public Offers
• Providing information in director’s reports for utilization of funds and variation between projected and actual use of funds as per the requirements of the Companies Act,
• Declaration of quarterly results
• Mandatory appointment of compliance office for monitoring share transfer process
• Timely disclosure of material and price sensitive information having a bearing on the performance of the company
• Dispatching one copy of complete balance sheet to every household and abridged balance sheet to all shareholders
• Issue of guidelines for preferential allotment at market related process
• Issue of regulations providing for a fair and transparent framework for takeovers and substantial acquisitions.

The recommendations made by Shri Kumar Mangalam Birla Committee were accepted by SEBI in December 1999, and are now enshrined in Clause 49 of the Listing Agreement of every Indian stock exchange.