corporate governance index

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Corporate Governance Index in India :

Corporate Governance I ndex in India Presented by Vinoth Kumar K

Corporate governance index and Scores:

Corporate governance index and Scores D efinition

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Company Corporate Governance Score (‘CGS’) reflects Standard and Poor's assessment of a company’s corporate governance practices and policies and the extent to which these serve the interests of the company’s financial stakeholders, with an emphasis on shareholders’ interests . For purposes of the CGS, corporate governance encompasses the interactions between a company’s management, its board of directors, shareholders and other financial stakeholders . A Corporate Governance Score (‘CGS’) is assigned on a scale from CGS-10 (highest) to CGS-1 (lowest). In addition, scores from 10 (highest) to 1 (lowest) are awarded to the four individual components that contribute to the overall CGS.

Factors influencing for measurement of Corporate Governance Scores:

Factors influencing for measurement of Corporate Governance Scores

Standard & poor’ Governance services:

Ownership Structure & Influence Financial Stakeholder Rights &Relations Financial Transparency and Information Disclosure Board Structure & Process stakeholders include both a company’s shareholders and creditors. This reflects the premise that the quality of a company’s governance process can affect its ability both to honor contractual financial obligations to creditors and to maximize the value of a company’s equity and distributions for its shareholders. Standard & poor’ Governance services

Ownership Structure & Influence:

Ownership Structure & Influence

Ownership structure &Influence:

ownership structure of the company is essential, especially when there is a known majority holder or when de facto majority holdings may exist on the basis of collusive shareholding arrangements. Similarly, the existence of a large number of nominee shareholders will make any analysis of the concentration of share ownership difficult. Sub-categories: Transparency of ownership Concentration and influence of ownership Ownership structure &Influence

(a)Transparency of ownership:

Key analytical issues: Breakdown of shareholdings Identification of substantial / majority holders (including indirect ownership and voting control) Director Shareholdings Evidence of indirect shareholdings Management shareholdings Criteria: There should be adequate public information on the company’s ownership structure, including, where relevant, information on beneficial ownership behind corporate nominee holdings . The Company’s actual ownership structure should be transparent, and should not be obscured by crossholdings; management controlled corporate holdings, nominee holdings, etc. (a)Transparency of ownership

(b)Concentration and influence of ownership:

Key analytical issues: Affiliations amongst shareholders Commercial arrangements between the company and affiliates / third parties Corporate structure, shareholding and management of key affiliates Outside holdings of major shareholders Terms of key contracts and licenses Internal financial and operational control system Management shareholding/voting control Contracts with directors / management Criteria : If large block holders exist, these should not exert influence that is detrimental to the interests of other stakeholders. Minority shareholders should be protected against loss of value or dilution of their interests (e.g. through capital increases, from which some shareholders are excluded, or through transfer pricing with connected companies ). Concentration of economic interest and influence of controlling shareholders of the parent/holding company on independent board/management action should not occur through block holdings of key operating subsidiaries and through effective control of key customers and suppliers . Shareholders should not be disadvantaged by management and insider shareholders who are shielded from accountability . (b)Concentration and influence of ownership

Financial stakeholder Rights and Relations:

Financial stakeholder Rights and Relations

Financial stakeholder Rights and Relations:

( a)Voting and Shareholder Meeting Procedures (including regularity of, ease of access to, and information provided about meetings ) Key analytical issues: Shareholder meeting procedures: Notices of meeting Documents sent to shareholders Charter provisions on the convening of meeting Arrangements for shareholders’ participation at meetings Previous meeting minutes Shareholder information on voting procedures Any deposit agreement for overseas listing Proxy arrangements Charter provisions on voting thresholds Shareholder attendance records Financial stakeholder Rights and Relations

Financial stakeholder Rights and Relations:

Criteria: Shareholders holding an appropriate percentage of voting rights should be able to call a special meeting and shareholders should have the opportunity to ask questions of the board during the meeting and to place items on the agenda beforehand . A shareholders’ assembly should be able to control appropriate decisions through processes that ensure participation by all shareholders . The processes and procedures used for advising shareholders of general meetings should provide for equal access of all shareholders and should ensure that shareholders are furnished with sufficient and timely information so that they are able to make informed voting decisions. Financial stakeholder Rights and Relations

(b) Ownership Rights and Financial Rights (including dividends):

Key analytical issues: Charter provisions Arrangements with registrar Share structure – classes and rights of common and preferred shares Charter provisions – shareholder and board authorities Shareholder agreements Dividend history ( b) Ownership Rights and Financial Rights (including dividends )

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Criteria: There should be secure methods of ownership of shares and full transferability of shares. A company’s share structure should be clear and control rights attached to shares of the same class should be uniform and easily understood. A shareholders’ assembly should be able to exercise decision rights in key areas, and procedures should be in place that ensure that minority shareholders are protected against dilution or other loss of value (e.g. through related party transactions on non-commercial terms) All common shareholders should receive equal financial treatment including the receipt of an equitable share of profits (i.e. dividends or other profit distributions).

(c) Takeover Defenses and Corporate Control Issues:

Key analytical issues: Effects of provisions in company charter or articles of association Arrangements as disclosed in regulatory filings or their equivalent, annual reports, records of resolution, notices of meetings and proxy materials Interviews with the Board Secretary Criteria: The Company should maintain a level playing field for corporate control, and should be open to changes in management and ownership that provide increased shareholder value. Takeover defenses are not necessarily considered to be negative governance features on their own; such defenses are analyzed against the current ownership structure to determine how virulent or benign they are in practice and how the board intends to use them to increase shareholder value. ( c) Takeover Defenses and Corporate Control Issues

Financial Transparency and Information Disclosure:

Financial Transparency and Information Disclosure

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Transparency involves the timely disclosure of adequate information concerning a company’s operating and financial performance and its corporate governance practices . For a well-governed company, standards of timely disclosure and transparency are high. This enables shareholders, creditors and directors to effectively monitor the actions of management and the operating and financial performance of the company . Strong transparency means that the financial reporting facilitates a clear understanding of a company’s true underlying financial condition. In part, this means that contingent liabilities and non-arm’s length relationships with other related companies are disclosed.

(a) Quality and content of Public Disclosure:

Key analytical issues: Comprehensiveness of financial statements and reports (including data on key affiliates) disclosed to shareholders and investment community Quality of non-financial information Quality of corporate records available at company’s headquarters Criteria: Financial reporting and disclosure should be clearly articulated and completed to a high standard. (a) Quality and content of Public Disclosure

(b) Timing of and Access to Public Disclosure:

Key analytical issues: Timeliness of filing financial and other statements with regulatory bodies Procedures for disclosure of market sensitive information Briefing materials for investment community presentations Availability of records to all shareholders at the company’s headquarters Reports to shareholders Quality of website and online reporting Criteria: All publicly disclosable information should be promptly available and freely accessible to the investment community and shareholders. Public disclosure is a function of internal transparency and effective internal control policies. The company’s by-laws, statutes and/or articles should be clearly articulated and readily accessible to all shareholders. The company should maintain a website and make company reports, summary reports and / or other investor relevant information available in English and the local language, if applicable (b) Timing of and Access to Public Disclosure

(c) Independence and effectiveness of audit process:

Key analytical issues: Audit contract Finance and control systems, and audit committee process Charter provisions prescribing relationships with auditor Audit reports Criteria: Auditors should be independent of the board and management in all material respects. They should also be reputable. There should be procedures in place to maintain the independence of the outside auditors. (c) Independence and effectiveness of audit process

Board Structure and Process:

Board Structure and Process

Board Structure and Process:

The role of the corporate board and its ability to provide independent oversight of management performance and hold management accountable to shareholders and other relevant stakeholders. Separation of authority at the board level is important. Board governance factor is the structure of executive remuneration and benefits. With regard to the selection of board members, a cumulative voting structure may allow for board representation for minority shareholders in appropriate cases. Board Structure and Process

(a) Board Structure and Composition:

Key analytical issues: Board size and composition Board leadership and committees Representation of constituencies Criteria: A board should be structured in such a way as to ensure that the interests of all the shareholders may be represented fairly and objectively. (a) Board Structure and Composition

(b) Role and effectiveness of the Board:

Key analytical issues: Definitions of board role Board-level processes for identifying, evaluating, managing and mitigating risks faced by the company Board and committee meeting’s agenda and papers Management compensation process Criteria: The board should bear overall accountability for the performance of the company. The board should be ultimately responsible for the system of internal risk control at a company. (b) Role and effectiveness of the Board

(c) Role and Independence of Non employed Directors:

Key analytical issues: Relationships between outside board members and senior management History of involvement of outside directors with company Terms of outside director engagement Control committee independence and activity Articulation of the specific role of outside directors Director Election procedures Criteria: An appropriate proportion of the non employed directors should be truly independent and act as such. Independent or outside directors should ensure that the long-term interests of all shareholders are represented by including that the interests of other stakeholders are duly taken into account. Directors should be elected under a transparent system in which they are not able to participate. (c) Role and Independence of Non employed Directors

(d) Board and Executive Compensation, Evaluation and Succession Policies:

Key analytical issues: Level and form of compensation The extent to which pay is connected to financial or other performance measures Performance evaluation criteria Independence and integrity of compensation setting process Succession planning Criteria: Directors and executives should be fairly remunerated and motivated to ensure the long-term success of the company. Appropriate incentives should be in place connecting executive pay to the performance of the company. There should be clearly articulated performance evaluation and succession policies/plans for employed directors of the company. (d) Board and Executive Compensation, Evaluation and Succession Policies

Corporate Governance Ratings by ICRA:

Corporate G overnance R atings by ICRA

Factors considerations::

Share holding structure Governance structure and management process Board structure and process Examine shareholder relations Transparency and disclosures Financial discipline Factors considerations: