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Governance in PSUs

19th July 2013

G. SRINIVASAN

CHAIRMAN CUM MANAGING DIRECTORTHE NEW INDIA ASSURANCE COMPANY LTD.

“Corporate Governance is nothing but a step towards strengthening of the organization so as to face the challenges”

“It is stepping into the shoes of the shareholders, stakeholders, vendors, suppliers & employees by the Top Managers and CEO of the company”

“Process and mechanisms by which the capital market monitors the actions of corporate management”

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What is Corporate Governance?

World wide privatization wave.

Mergers and takeovers.

Deregulation and capital market integration.

Scandals and failures at major corporations.

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TRANSPARENCY

ACCOUNTABILITY

CONTROL

TRUSTEESHIP

ETHICS

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Why Corporate Governance?

SEBI appointed in May 1997 the Kumar Mangalam Birla Committee

Companies Amendment Act, 2000 introduced

- Setting up of Audit Committee

- Directors’ Responsibility Statement

Kumar Mangalam Birla Committee recommendations adopted by SEBI in

2000

Clause 49 introduced in Listing Agreement

Narayana Murthy Committee recommendations revised Clause 49

Definition of independent directors

Certificate by CFO & CEO

Risk Assessment & Mitigation strategy of the company

Code of Conduct for top Management

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Emergence of Corporate Governance in India

Recent Scandals

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Concept of Independent Directors introduced for the first time.

A full-time director is also covered under the definition of "key managerial personnel.“

The auditor is to be rotated "at such interval" as may be determined by resolution.

The limit of the number of companies for which a person may be appointed as auditor is proposed as 20 companies. In case of an audit firm, the limit is applicable to each partner.

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Appointment of auditors for a five-year period is subject to ratification at every annual general meeting.

The bill proposes that corporates spend certain percentage of three years average profits towards CSR activities.

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Dominance of Public Sector in the Financial and non financial sector.

75% banking space by PSBs 55% general insurance space by

PSGICs. 85% life insurance space by LIC.

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Multiple audits. Control of Government. Strong system and procedures. Directors on the board, who are mostly

not promoters. Statutory Auditors are appointed by

CAG. Faith of the public.

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Challenges in PSUs

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• Dominant shareholder

• Interference of Govt. and others

• Too much social orientation

• Rapid changes in Information Technology

• Human resource challenges

• Composition of the board

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ManagingChallenges

- Steps to ShapeFuture

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Better process for appointment of Independent Directors.

Board training programs. Sub Committees of Board to be more active. Administrative Ministry not to be on Board. Segregation of Chairman and Managing Director

position. Chairman to be a person of eminence. Involvement of employees and other stakeholders

on board. Independent Directors to be rotated every 3

years.

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Insurance industry is regulated by various regulators and other laws and regulations.

IRDA in 2009 issued guidelines for corporate governance for insurance companies.

The IRDA in its guidelines outlined in general terms, governance responsibilities of the Board in the management of the insurance functions under various regulations notified by it covering different operational areas.

These guidelines are in addition to provisions of the Companies Act 1956, Insurance Act 1938 and requirement of any other laws or regulations framed thereunder.

Governance structure Board of Directors Control Functions Senior management Disclosures Outsourcing Relationship with stakeholders Interaction with the supervisor Whistle Blowing Policy

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AUDIT COMMITTEE

INVESTMENT COMMITTEE

RISK MANAGEMENT COMMITTEE

POLICYHOLDER PROTECTION COMMITTEE

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

ETHICS COMMITTEE

Conclusion

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THANK YOU

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