Narayana Murthy Committee

Corporate GovernanceIn its zest to improve governance in the companies through the regulatory process SEBI also instituted a committee under the chairmanship of Mr. N. R. Narayana Murthy which recommended enhancements in corporate governance. The committee comprised of 23 persons and submitted its final report on 8th February 2003.

The Narayana Murthy Committee has mentioned about correct approach for successful corporate governance. It has said:

“Corporate Governance is beyond the realm of law. It stems from culture and mindset of management, and cannot be regulated by legislation alone. Corporate governance deals with conducting the affairs of a company such that there is fairness to all stakeholders and that its actions benefit the greatest number of stakeholders. It is about openness, integrity and accountability. What legislation can and should do, is to lay down a common framework- the “form” to ensure standards. The ‘substance’ will ultimately determine the credibility and integrity of the process. Substance is inexorably linked to the mindset and ethical standards of management.”

Thus we see that the whole thing has got an ethical orientation now, and emphasis is laid on raising the ethical standards for good corporate governance. Some of the major recommendations made by the committee are as under

  • All audit committee members should be ‘financially literate’ and at least one member should have accounting or related financial management expertise.
  • Mere explanation as to why a company has followed a different accounting standard from the prescribed standards will not be sufficient.
  • Board members should be informed about risk assessment and minimization procedures.
  • Board members should be trained in the business model of the company as well as the risk profile of the business parameters, their responsibilities as directors and best ways to discharge them. 
  • Use of proceeds of IPO should be disclosed to the audit committee.
  • There shall be no nominee directors when a director is to be appointed on the board and shareholders shall make such appointments.
  • Board of Directors, limiting the maximum number of stock options that can be granted to non-executive directors in any financial year, may fix compensation paid to non-executive directors. 
  • Whistle Blowers should not be subject to unfair or prejudicial employment practices.
  • A peer group comprising the entire board of directors, excluding the director being evaluated, should make the performance evaluation of non-executive board members.