310: Corporate Governance 5860

Q.1. a) Define Corporate Governance. b) What is Director Identification Number? c) Define Corporate Social
Responsibility. d) Define Enterprise Risk Management. e) Define Private Limited Company. f) Define Board
Charter. g) Define Corporate Governance Code. h) Define Shareholders.

a) Corporate Governance: Corporate governance refers to the system of rules, practices, and
processes by which a company is directed and controlled. It involves balancing the interests
of various stakeholders in a company, such as shareholders, management, customers,
suppliers, financiers, government, and the community. The primary goal of corporate
governance is to ensure that a company operates efficiently, ethically, and in the best
interests of its shareholders and other stakeholders while complying with legal and
regulatory requirements.

b) Director Identification Number (DIN): A Director Identification Number (DIN) is a unique

identification number assigned to individuals who serve as directors on the board of
companies in many countries, including India. It is a mandatory requirement for anyone
seeking to be appointed as a director in a company, and it is used to track and maintain
records of a director's activities and relationships with various companies.

c) Corporate Social Responsibility (CSR): Corporate Social Responsibility is a concept that

encourages businesses to be socially accountable by considering the impact of their
operations on society and the environment. It involves voluntary initiatives and activities
undertaken by companies to contribute to the well-being of communities, support
sustainable development, and address various social and environmental issues. CSR typically
goes beyond legal compliance and is aimed at making a positive impact on society.

d) Enterprise Risk Management (ERM): Enterprise Risk Management is a comprehensive

approach to identifying, assessing, and managing risks within an organization. It involves the
systematic identification of potential risks, analyzing their impact and likelihood, and
developing strategies to mitigate, transfer, or accept those risks. ERM aims to provide a
holistic view of an organization's risk profile and helps in making informed decisions to
protect the company's assets and achieve its objectives.

e) Private Limited Company: A Private Limited Company is a type of business entity that is
privately owned by a limited number of shareholders. It is a legal structure commonly used
for small to medium-sized businesses. Private limited companies have limited liability, which
means that the personal assets of the shareholders are protected from the company's debts
and liabilities. They are not publicly traded, and the transfer of shares is typically restricted.

f) Board Charter: A Board Charter is a formal document that outlines the roles,
responsibilities, and duties of the board of directors of a company. It serves as a governance
framework and provides guidance on how the board should operate, including decision-
making processes, the delegation of authority, and the ethical and legal standards the board
must adhere to. The Board Charter is an important tool for enhancing corporate governance.

g) Corporate Governance Code: A Corporate Governance Code is a set of guidelines or

principles that provide best practices for corporate governance in a specific jurisdiction or
industry. These codes are often developed by regulatory bodies or industry associations to
promote transparency, accountability, and ethical behavior within companies. Companies are
encouraged to follow these codes voluntarily or may be required to do so by law or
regulation.

h) Shareholders: Shareholders are individuals or entities that hold shares or ownership stakes
in a company. By owning shares in a company, shareholders become partial owners of the
business and are entitled to certain rights, such as voting at shareholder meetings, receiving
dividends, and participating in the company's financial performance. Shareholders can be
individuals, institutions, or other companies, and their ownership can be in various forms,
such as common stock or preferred stock, depending on the company's structure.
Shareholders have a vested interest in the success and profitability of the company.

Q.2. a) How can good corporate governance be achieved through proper disclosures of risk and management
of such risk.

b) “A good corporate governance requires that the board should comprise of individuals with certain
personal qualities such as integrity, a sense of accountability and history of achievement of success”. Discuss
and explain the statement.

c) Global movement for better Corporate Governance progressed, subsequent to Enron debackle. Discuss.

a) Achieving good corporate governance through proper disclosures of risk and the
management of such risk involves the following key principles:

1. Transparency: Companies should provide clear, accurate, and comprehensive

information about their risks and risk management practices in their financial reports, annual
reports, and other public disclosures. This transparency helps shareholders and stakeholders
understand the potential risks the company faces.

2. Risk Identification and Assessment: Companies should have effective systems in place to
identify and assess both internal and external risks. This includes financial risks, operational
risks, strategic risks, and compliance risks. Regular risk assessments help the board and
management make informed decisions.

3. Risk Mitigation: Once risks are identified, companies should develop and implement
strategies to mitigate and manage those risks. This might involve implementing risk
management policies, setting risk limits, and monitoring risk exposures. Boards play a crucial
role in overseeing these risk management processes.

4. Board Oversight: The board of directors should actively oversee the company's risk
management efforts. This includes setting risk management policies, approving risk-related
decisions, and ensuring that the company's risk management practices align with its strategic
objectives and long-term sustainability.

5. Accountability: There should be a clear allocation of responsibilities for risk management.

Executives and risk management committees should be held accountable for implementing
effective risk management practices and regularly reporting to the board.

6. Compliance: Companies must comply with applicable laws and regulations related to risk
disclosure and management. Failure to do so can lead to legal and reputational
consequences.

b) The statement that "good corporate governance requires that the board should comprise
of individuals with certain personal qualities such as integrity, a sense of accountability, and a
history of achievement of success" underscores the importance of board composition in
effective corporate governance. Here's an explanation of each aspect:

1. Integrity: Board members with integrity are essential for ethical decision-making and
maintaining public trust. They should act with honesty, transparency, and a commitment to
ethical values. Integrity helps prevent conflicts of interest and unethical practices.
 2. Sense of Accountability: Board members need to be accountable for their actions and
decisions. This includes being responsible for oversight of the company's operations and
performance. They should ensure that the company follows best practices, complies with
laws and regulations, and acts in the best interests of shareholders and stakeholders.

3. History of Achievement of Success: Board members with a history of success in their

professional careers can bring valuable experience, knowledge, and strategic insights to the
board. Their achievements can contribute to effective decision-making and governance.

Board members with these personal qualities can foster a culture of trust, responsibility, and
performance within the organization, which is critical for good corporate governance.

c) The global movement for better corporate governance gained momentum following the
Enron debacle in the early 2000s. The Enron scandal was a significant corporate fraud case
that involved accounting irregularities, misleading financial disclosures, and the eventual
bankruptcy of the company. This event exposed the weaknesses in corporate governance,
including inadequate board oversight, conflicts of interest, and a lack of transparency in
financial reporting.

The Enron scandal had far-reaching consequences and served as a catalyst for reforms in
corporate governance worldwide. Here's how it progressed the global movement for better
corporate governance:

1. Regulatory Reforms: In response to Enron and other corporate scandals, governments

and regulatory bodies around the world enacted or enhanced regulations to improve
corporate governance. For example, the Sarbanes-Oxley Act in the United States introduced
stricter accounting and reporting requirements and established the Public Company
Accounting Oversight Board (PCAOB) to oversee audit firms.

2. Increased Disclosure and Transparency: Companies were required to provide more

transparent and accurate financial information, including the disclosure of potential risks and
conflicts of interest.
 3. Strengthened Oversight: Boards of directors faced increased scrutiny and were expected
to take on a more active and independent role in overseeing management and ensuring that
corporate strategies aligned with shareholders' interests.

4. Shareholder Activism: Shareholders, especially institutional investors, became more

active in advocating for better corporate governance practices. They pushed for greater
accountability, transparency, and alignment of executive compensation with company
performance.

5. Corporate Responsibility: There was a growing emphasis on corporate social

responsibility (CSR), sustainability, and ethical behavior as integral aspects of corporate
governance.

In summary, the Enron scandal exposed the deficiencies in corporate governance and
spurred a global movement to reform and strengthen corporate governance practices to
protect shareholders and stakeholders and ensure the long-term sustainability of businesses.

Q3) a) Identify and discuss the Corporate governance problems noticed in various Corporate failures. Illustrate
your answers with two examples.

b) Company Secretary is a whistle blower for betterment of observance of Corporate Governance. Substantiate
this statement.

a) Corporate governance problems have been significant contributors to various corporate

failures. Two illustrative examples are:

1. Enron Corporation:
- Lack of Transparency: Enron hid its financial losses by using complex accounting
techniques, leading to a lack of transparency in its financial statements. The company's true
financial condition was obscured from investors and the public.
- Weak Board Oversight: Enron's board of directors failed to provide effective oversight.
The board approved questionable accounting practices, including the use of off-balance-
sheet entities, which allowed Enron to conceal debt and misrepresent its financial health.
- Conflicts of Interest: Several Enron executives and board members had conflicts of
interest. For instance, the company's CFO was also the head of an off-balance-sheet entity,
and board members had financial ties to Enron. These conflicts compromised their
independence and objectivity.

2. Lehman Brothers:
- Risk Management Failures: Lehman Brothers' corporate governance suffered from poor
risk management. The company heavily invested in risky mortgage-backed securities without
adequate risk controls in place.
- Inadequate Board Oversight: The board of Lehman Brothers did not exercise effective
oversight of the company's risk-taking activities. There was limited knowledge among board
members about the nature and scale of the company's exposure to mortgage-related assets.
- Lack of Independence: Several board members had long-standing relationships with the
company and were not considered truly independent. This compromised their ability to
objectively assess and challenge management decisions.

In both cases, corporate governance problems, including a lack of transparency, weak board
oversight, and conflicts of interest, contributed to the corporate failures.

b) The company secretary can play a significant role as a whistle-blower for the betterment
of corporate governance for several reasons:

1. Legal and Ethical Obligations: Company secretaries often have a legal and ethical duty to
act in the best interests of the company and its stakeholders. They are responsible for
ensuring compliance with laws and regulations, including corporate governance
requirements.

2. Access to Critical Information: Company secretaries typically have access to sensitive

corporate information, including board decisions, financial records, and compliance-related
matters. This access positions them to identify irregularities or governance issues.

3. Independence: Company secretaries are expected to maintain a level of independence

from the executive management team. This independence can enable them to raise concerns
without fear of retaliation.
 4. Fiduciary Responsibility: Company secretaries are fiduciaries of the company, and they
owe a duty to the organization's stakeholders, including shareholders and the public. This
fiduciary responsibility may compel them to report any violations of corporate governance
principles or unethical behavior.

5. Reporting Mechanisms: In many cases, legal and regulatory frameworks provide

mechanisms for company secretaries to report corporate governance violations and
concerns, ensuring that their actions are protected by law.

6. Promoting Accountability: Whistle-blowing by company secretaries can help promote

accountability within the organization and deter corporate governance lapses. It can lead to
corrective actions and prevent the erosion of shareholders' trust.

In summary, company secretaries can act as whistle-blowers for the betterment of corporate
governance by leveraging their access to information, legal and ethical obligations, and
independence to report violations and concerns, thereby contributing to the improvement of
corporate governance practices.
Q4) a) Discuss the different Board’s Committee. Explain their role and functions

b) “Corporate Governance is not only the responsibility of listed companies but also of private and public
companies”. Do you agree with this statement? Substantiate your answer with proper justification.
a) Boards of directors typically establish various committees to assist in carrying out their
responsibilities. These committees play essential roles in corporate governance. Here are
some common board committees and their roles and functions:

1. **Audit Committee**:
- **Role**: The audit committee oversees financial reporting, internal controls, and the
external audit process.
- **Functions**: It reviews and approves financial statements, ensures the integrity of
financial reporting, assesses the effectiveness of internal controls, and evaluates the
qualifications and independence of external auditors.

2. **Nomination and Governance Committee**:

- **Role**: The nomination and governance committee is responsible for board
composition, director nominations, and corporate governance practices.
 - **Functions**: It identifies and nominates potential board members, assesses the skills
and qualifications of directors, and promotes sound corporate governance principles and
policies.

3. **Compensation Committee**:
- **Role**: The compensation committee is responsible for executive compensation,
including salaries, bonuses, stock options, and other incentives.
- **Functions**: It reviews and approves executive compensation packages, ensures
alignment with company performance, and considers long-term incentives to attract and
retain top talent.

4. **Risk Management Committee**:

- **Role**: The risk management committee focuses on identifying, assessing, and
managing risks associated with the company's operations.
- **Functions**: It reviews and assesses the company's risk profile, oversees risk
management strategies, and ensures that the company has adequate risk mitigation
measures in place.

5. **Finance Committee**:
- **Role**: The finance committee addresses financial matters beyond what the audit
committee handles, such as capital structure and major financial transactions.
- **Functions**: It reviews and recommends financial policies, funding strategies, capital
allocation decisions, and large financial transactions.

6. **Social Responsibility or Sustainability Committee**:

- **Role**: This committee focuses on the company's impact on society, the environment,
and corporate social responsibility (CSR) initiatives.
- **Functions**: It reviews and shapes CSR policies, environmental practices, and the
company's contribution to social and community well-being.

7. **Technology or Innovation Committee**:

 - **Role**: The technology or innovation committee concentrates on technology-related
matters and the company's innovation strategies.
- **Functions**: It oversees technology investments, digital transformation initiatives, and
innovation projects to ensure alignment with the company's objectives.

These board committees help distribute the workload and expertise required for effective
corporate governance, ensuring that key areas like financial reporting, executive
compensation, risk management, and ethical conduct are properly addressed.

b) I agree with the statement that "Corporate Governance is not only the responsibility of
listed companies but also of private and public companies." Effective corporate governance is
essential for all types of companies, regardless of their listing status. Here's the justification
for this position:

1. **Stakeholder Trust**: All companies, whether public or private, have stakeholders,

including shareholders, employees, customers, suppliers, and the broader community.
Effective corporate governance is crucial to maintaining trust and confidence among these
stakeholders.

2. **Legal and Ethical Obligations**: Companies, whether publicly traded or privately held,
are bound by laws and regulations related to corporate governance. These legal
requirements include duties to shareholders, the protection of minority shareholders, and
adherence to ethical principles.

3. **Risk Management**: Good corporate governance helps identify, assess, and manage
risks, which is essential for all companies. Poor governance can lead to financial losses,
reputational damage, and legal consequences, regardless of the company's size or listing
status.

4. **Long-Term Sustainability**: Strong corporate governance practices are critical for the
long-term sustainability and success of any company. Private companies, family businesses,
and startups also need effective governance to ensure their continuity and growth.
5. **Institutional Investors and Creditors**: Even private companies often have institutional
investors, creditors, or venture capital firms that require adherence to corporate governance
standards to protect their investments.

6. **Public Perception**: The reputation of a company can be influenced by its corporate

governance practices. A well-governed private company is more likely to attract customers,
partners, and investors.

In summary, corporate governance is a fundamental aspect of responsible and ethical

business management that extends to all companies, whether they are publicly listed or
privately held. It is crucial for protecting stakeholder interests, managing risks, ensuring legal
compliance, and sustaining the long-term success of the company.

Q5) a) Explain in detail the issues and challenges of ICICI Bank in Corporate Governance

b) How existence of effective control mechanism will help in observance of good Corporate Governance
through i) Internal audit. ii) Management audit.

a) ICICI Bank, one of India's leading private sector banks, has faced several issues and
challenges related to corporate governance over the years:

1. **Conflict of Interest**: One of the significant corporate governance challenges faced by

ICICI Bank was the alleged conflict of interest involving its former CEO, Chanda Kochhar. She
was accused of having a conflict of interest in a loan provided to Videocon Group, which had
business dealings with her husband. The bank's board faced criticism for its handling of this
matter and its lack of transparency.

2. **Lack of Transparency**: ICICI Bank was criticized for a lack of transparency in

disclosing certain loans and non-performing assets (NPAs). It faced allegations of not fully
disclosing information to investors and regulators, which eroded trust in the bank's corporate
governance practices.

3. **Board Composition and Independence**: Concerns were raised about the

independence of the bank's board of directors. Some board members had long-standing
associations with the bank, and questions were raised about their ability to provide effective
oversight and challenge management decisions.

4. **Whistleblower Allegations**: There were allegations made by a whistleblower

regarding irregularities and unethical practices within the bank. These allegations included
issues related to loans, governance, and the bank's risk management practices.

5. **Regulatory Scrutiny**: ICICI Bank faced regulatory investigations and scrutiny related
to corporate governance issues. These investigations highlighted the need for stricter
compliance with regulatory guidelines and best practices.

6. **Risk Management and NPAs**: Like many other banks in India, ICICI Bank has
struggled with the management of non-performing assets (bad loans). There were concerns
about the effectiveness of the bank's risk management and credit assessment processes.

Addressing these issues and challenges is crucial for ICICI Bank to maintain and enhance its
corporate governance practices and regain trust from its stakeholders.

b) Effective control mechanisms, such as internal audit and management audit, are integral
to the observance of good corporate governance:

i) **Internal Audit**:
- **Risk Mitigation**: Internal audit helps identify and assess risks within the organization.
This, in turn, aids in the development of risk mitigation strategies and ensures that the
company adheres to prudent risk management practices, a cornerstone of good corporate
governance.
 - **Compliance Monitoring**: Internal auditors ensure that the company complies with
legal and regulatory requirements. By doing so, they help maintain corporate governance
standards and reduce the risk of legal and regulatory violations.
- **Financial Transparency**: Internal audit provides an independent assessment of
financial processes and controls. This enhances financial transparency, helping to prevent
financial irregularities or fraud, which can erode trust in corporate governance.
- **Efficiency and Effectiveness**: Internal auditors evaluate the efficiency and
effectiveness of operations. This contributes to better decision-making and the efficient
allocation of resources, which are essential for corporate governance.

ii) **Management Audit**:

- **Strategic Alignment**: Management audits assess the alignment of the company's
strategies with its mission and objectives. This ensures that management decisions and
actions are consistent with the best interests of the company and its stakeholders.
- **Performance Evaluation**: Management audits evaluate the performance of the
management team. This helps hold management accountable for their actions and decisions,
a key aspect of corporate governance.
- **Ethical Practices**: Management audits examine the ethical practices of the
management. Ensuring ethical behavior by the management is vital for maintaining
corporate governance standards.
- **Corporate Culture**: A management audit can assess the corporate culture and
whether it promotes ethical conduct and accountability, both of which are essential for good
corporate governance.

In summary, effective control mechanisms, such as internal audit and management audit,
play a vital role in promoting good corporate governance by identifying and addressing risks,
ensuring compliance, enhancing transparency, evaluating management performance, and
fostering ethical behavior within the organization. These mechanisms contribute to the
overall health and integrity of a company's corporate governance practices.
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310: Corporate Governance 5946

a) Define enterprise Risk management? b) Define corporate governance. c) Define SEBI. d) Define external
control. e) Define share holders. f) Define CSR. g) Define Board charter. h) Define Nominee committee.
a) Enterprise Risk Management (ERM): Enterprise Risk Management is a comprehensive
approach to identifying, assessing, and managing risks within an organization. It involves
systematically identifying potential risks, analyzing their impact and likelihood, and
developing strategies to mitigate, transfer, or accept those risks. ERM aims to provide a
holistic view of an organization's risk profile and helps in making informed decisions to
protect the company's assets and achieve its objectives.

b) Corporate Governance: Corporate governance refers to the system of rules, practices, and
processes by which a company is directed and controlled. It involves balancing the interests
of various stakeholders in a company, such as shareholders, management, customers,
suppliers, financiers, government, and the community. The primary goal of corporate
governance is to ensure that a company operates efficiently, ethically, and in the best
interests of its shareholders and other stakeholders while complying with legal and
regulatory requirements.

c) SEBI: SEBI stands for the Securities and Exchange Board of India. It is the regulatory
authority in India responsible for overseeing and regulating the securities and capital
markets. SEBI's primary role is to protect the interests of investors, promote fair and
transparent securities markets, and ensure the orderly functioning of the securities industry.
It regulates various entities, including stock exchanges, brokers, and listed companies, to
maintain market integrity.

d) External Control: External control refers to mechanisms, regulations, and oversight

imposed on an organization or entity from outside sources. These external sources can
include government agencies, regulatory bodies, industry associations, and other
organizations that establish rules, standards, and guidelines to ensure compliance,
transparency, and ethical behavior in the operations of the entity.

e) Shareholders: Shareholders are individuals or entities that hold shares or ownership stakes
in a company. By owning shares in a company, shareholders become partial owners of the
business and are entitled to certain rights, such as voting at shareholder meetings, receiving
dividends, and participating in the company's financial performance. Shareholders can be
individuals, institutions, or other companies, and their ownership can be in various forms,
such as common stock or preferred stock, depending on the company's structure.
Shareholders have a vested interest in the success and profitability of the company.
f) CSR: CSR stands for Corporate Social Responsibility. It is a concept that encourages
businesses to be socially accountable by considering the impact of their operations on society
and the environment. CSR involves voluntary initiatives and activities undertaken by
companies to contribute to the well-being of communities, support sustainable
development, and address various social and environmental issues. CSR typically goes
beyond legal compliance and is aimed at making a positive impact on society.

g) Board Charter: A Board Charter is a formal document that outlines the roles,
responsibilities, and duties of the board of directors of a company. It serves as a governance
framework and provides guidance on how the board should operate, including decision-
making processes, the delegation of authority, and the ethical and legal standards the board
must adhere to. The Board Charter is an important tool for enhancing corporate governance.

h) Nominee Committee: A Nominee Committee, often referred to as a Nominating and

Governance Committee, is a subcommittee of a company's board of directors. Its primary
role is to identify, nominate, and recommend individuals to serve as directors on the board.
This committee also focuses on corporate governance practices and ensures that the board
operates efficiently and adheres to best governance principles. The Nominee Committee
plays a crucial role in board composition and succession planning.

Q2) Define any two: a) Types of directors. b) Four pillars of corporate governance. c) Types of auditors. d)
Statutory duties of directors.

a) Types of Directors:
- **Executive Directors**: These directors are typically full-time employees of the company
and are involved in the day-to-day management and operations of the business.
- **Non-Executive Directors**: Non-executive directors are not involved in the day-to-day
management of the company and may provide independent oversight and guidance.
- **Independent Directors**: Independent directors are non-executive directors who have
no material relationship with the company and are expected to provide unbiased judgment
and act in the best interests of shareholders.
- **Managing Director/CEO**: This is the top executive responsible for the overall
management of the company.
- **Chairperson**: The chairperson of the board presides over board meetings and
provides leadership to the board.
 - **Non-Executive Chairman**: In some cases, the chairperson and CEO roles are
separated, with a non-executive chairman overseeing the board.

b) Four Pillars of Corporate Governance:

- **Accountability**: Ensuring that those entrusted with corporate responsibilities are held
accountable for their actions and decisions.
- **Transparency**: Providing clear and accurate information to shareholders and
stakeholders about the company's performance, financials, and governance practices.
- **Fairness**: Treating all shareholders and stakeholders fairly and equitably, avoiding
conflicts of interest and ensuring the protection of minority shareholders.
- **Responsibility**: Upholding ethical conduct, adhering to laws and regulations, and
acting in the best interests of the company and its stakeholders.

c) Types of Auditors:
- **Internal Auditors**: Internal auditors are employees of the company and are
responsible for evaluating and improving the effectiveness of the company's risk
management, control, and governance processes.
- **External Auditors**: External auditors are independent professionals or firms hired to
review the company's financial statements and ensure their accuracy and compliance with
accounting standards and regulations.
- **Forensic Auditors**: Forensic auditors specialize in investigating financial irregularities,
fraud, and misconduct within an organization.
- **Tax Auditors**: Tax auditors focus on the company's tax compliance and ensure that it
meets its tax obligations in accordance with tax laws and regulations.
- **IT Auditors**: IT auditors assess the effectiveness and security of a company's
information technology systems, including data protection and cybersecurity.

d) Statutory Duties of Directors:

- **Duty of Care and Skill**: Directors are required to act with reasonable care and skill,
using the skills and knowledge expected of a person in their position.
- **Duty of Loyalty**: Directors must act in the best interests of the company, avoiding
conflicts of interest and disclosing any conflicts that may arise.
 - **Duty of Good Faith**: Directors should act honestly and in good faith, with a genuine
purpose of promoting the success of the company.
- **Duty to Act in the Company's Interest**: Directors must promote the success of the
company for the benefit of its shareholders as a whole, considering the long-term impact of
their decisions.
- **Duty to Avoid Unauthorized Profits**: Directors should not profit from their position
without proper authorization.
- **Duty to Declare Interests**: Directors are required to declare any direct or indirect
interests in transactions or arrangements with the company.
Q3) a) Discuss the major recommendations of the K.M. Birla committee on corporate governance?
(Mandatory & non mandatory)

b) Define corporate governance need & scope of corporate governance?

a) The K.M. Birla Committee on Corporate Governance, also known as the Advisory Group on
Corporate Governance, was formed by the Securities and Exchange Board of India (SEBI) to
recommend measures for improving corporate governance practices in India. The
committee's recommendations included both mandatory and non-mandatory measures to
enhance corporate governance. Here are some of the major recommendations:

Mandatory Recommendations:
1. **Composition of the Board**: The committee recommended that the boards of listed
companies should have a majority of independent directors. It defined independence criteria
and recommended that at least 50% of the board should comprise independent directors.

2. **Audit Committee**: It mandated the formation of an audit committee composed

entirely of independent directors. The audit committee would oversee financial reporting,
internal controls, and audit-related matters.

3. **Audit Committee Role**: The committee recommended that the audit committee
should review the financial statements, internal audit reports, and related party transactions.
It should also oversee the appointment, compensation, and performance of the external
auditors.
4. **CEO/CFO Certification**: CEOs and CFOs of listed companies were required to certify
the accuracy of financial statements and the adequacy of internal controls.

5. **Whistleblower Mechanism**: The committee recommended that companies establish a

mechanism for employees and stakeholders to report concerns about unethical behavior,
fraud, or corporate mismanagement.

6. **Compliance Report**: Companies were required to submit an annual report on

compliance with corporate governance norms.

7. **Related Party Transactions**: The committee suggested that related party transactions
be disclosed and approved by the audit committee and shareholders.

Non-Mandatory Recommendations:
1. **Staggered Boards**: The committee recommended that boards consider having
staggered boards with a portion of directors serving staggered terms.

2. **Independent Chairman**: While not mandatory, the committee suggested that

companies consider appointing an independent director as the chairman of the board.

3. **Separation of Chairman and CEO Roles**: The separation of the roles of chairman and
CEO was recommended as a best practice but not mandated.

4. **Risk Management Committee**: The committee recommended the formation of a risk

management committee as a non-mandatory measure.

b) **Corporate Governance** refers to the system of rules, practices, and processes by

which a company is directed and controlled. It is necessary for ensuring that a company
operates transparently, ethically, and in the best interests of its shareholders and
stakeholders. The need for corporate governance arises from several factors:
**1. Protection of Stakeholder Interests**: Corporate governance helps protect the interests
of shareholders, employees, creditors, and other stakeholders. It ensures that the company's
management acts in a manner that safeguards their interests.

**2. Accountability and Transparency**: It promotes accountability and transparency in the

management of the company's affairs. This is crucial for building trust among stakeholders.

**3. Attraction of Capital**: Effective corporate governance practices make a company more
attractive to investors and creditors. It enhances the company's ability to raise capital and
lowers the cost of capital.

**4. Mitigation of Risks**: Good governance practices help identify and manage risks,
ensuring the company's long-term sustainability and reducing the likelihood of financial and
reputational crises.

**5. Legal and Regulatory Compliance**: Companies are subject to various laws and
regulations. Corporate governance ensures that the company complies with these
requirements.

The scope of corporate governance covers a wide range of aspects, including:

- Board structure and composition.
- Board committees, such as audit committees and nomination committees.
- Disclosure and transparency in financial reporting.
- Compliance with laws, regulations, and ethical standards.
- Protection of shareholder rights.
- Ethics and codes of conduct.
- Risk management and internal controls.
- Accountability and performance evaluation.
- Stakeholder engagement and social responsibility.
In summary, corporate governance is essential for the proper management of companies and
the protection of stakeholders' interests. It encompasses various practices and mechanisms
to ensure transparency, accountability, and ethical behavior in corporate activities.

Q4) a) Explain the power and liabilities of the directors?

b) Discuss the different boards committee? explain their role and functions

a) **Power and Liabilities of Directors**:

**Powers of Directors**:
1. **Management**: Directors have the authority to manage the company's affairs and
make strategic decisions on its behalf. They can approve budgets, set policies, and determine
the company's direction.

2. **Appointing Officers**: Directors can appoint and remove officers, such as the CEO, CFO,
and other key executives.

3. **Dividends**: Directors can recommend the payment of dividends to shareholders,

subject to applicable laws and the company's financial health.

4. **Borrowing**: They can decide to borrow funds on behalf of the company, although
there may be limits or requirements set in the company's bylaws or articles of incorporation.

5. **Contracts**: Directors can enter into contracts and agreements on behalf of the
company.

6. **Board Committees**: Directors often establish and serve on various board committees,
such as audit committees and compensation committees, to oversee specific aspects of the
company's operations.
**Liabilities of Directors**:
1. **Fiduciary Duty**: Directors owe a fiduciary duty to the company and its shareholders.
They are expected to act in good faith, with care, loyalty, and in the best interests of the
company. Failure to do so can result in personal liability.

2. **Statutory Duties**: Directors have statutory duties, including the duty of care, duty of
loyalty, and duty of good faith. Failure to fulfill these duties can lead to legal action against
them.

3. **Breach of Law**: Directors can be held personally liable for violations of laws and
regulations, such as securities laws or tax laws, if they knowingly or negligently allow such
violations to occur.

4. **Mismanagement**: Directors can be held liable for mismanagement, misappropriation

of company funds, or decisions that harm the company's financial health or reputation.

5. **Disclosure Obligations**: Directors may be liable for false or misleading disclosures,

whether in financial statements or in communication with shareholders, regulators, or the
public.

6. **Conflict of Interest**: Failure to disclose and manage conflicts of interest can result in
liability, especially when personal interests are put ahead of the company's interests.

Directors can often limit their personal liability by acting in good faith, with due diligence,
and in the best interests of the company. They can also obtain liability insurance to protect
themselves from legal actions.

b) **Different Board Committees and Their Roles**:

1. **Audit Committee**:
- **Role**: Oversees financial reporting, internal controls, and the external audit process.
 - **Functions**: Reviews financial statements, ensures internal controls are effective, and
assesses the qualifications and independence of external auditors.

2. **Compensation Committee**:
- **Role**: Manages executive compensation, including salaries, bonuses, and stock
options.
- **Functions**: Reviews and approves executive compensation packages, aligns
compensation with company performance, and attracts and retains top talent.

3. **Nomination and Governance Committee**:

- **Role**: Focuses on board composition, director nominations, and corporate
governance practices.
- **Functions**: Identifies and nominates potential board members, assesses director
qualifications, and promotes sound corporate governance principles.

4. **Risk Management Committee**:

- **Role**: Evaluates and manages risks associated with company operations.
- **Functions**: Reviews and assesses the company's risk profile, oversees risk
management strategies, and ensures adequate risk mitigation measures.

5. **CSR (Corporate Social Responsibility) Committee**:

- **Role**: Manages the company's impact on society and the environment.
- **Functions**: Shapes CSR policies, environmental practices, and community well-being
initiatives.

6. **Technology or Innovation Committee**:

- **Role**: Focuses on technology-related matters and innovation strategies.
- **Functions**: Oversees technology investments, digital transformation initiatives, and
innovation projects.
These board committees help distribute the workload and expertise required for effective
corporate governance, ensuring that key areas like financial reporting, executive
compensation, risk management, and ethical conduct are properly addressed.

Q5) a) Highlighted the major failure of corporate governance in Kingfisher Airlines?

b) Explain in detail the issues and challenges of ICICI bank in corporate governance.

a) **Major Failures of Corporate Governance in Kingfisher Airlines**:

Kingfisher Airlines, a prominent Indian airline, faced significant corporate governance failures
that contributed to its eventual financial collapse. Some of the major issues included:

1. **Excessive Debt**: The airline incurred massive debts to finance its expansion and
operations. The board and management were criticized for not effectively managing the
company's debt levels, leading to severe financial stress.

2. **Lack of Transparency**: Kingfisher Airlines faced allegations of not providing

transparent and accurate financial information to its stakeholders. The lack of transparency
eroded trust among investors and creditors.

3. **Conflict of Interest**: The founder and promoter of the airline, Vijay Mallya, had
interests in various other businesses, including the liquor industry. This raised concerns about
potential conflicts of interest that might have influenced the airline's decisions.

4. **Poor Risk Management**: The company's risk management practices were criticized for
not adequately addressing the volatile nature of the airline industry, economic challenges,
and fluctuations in fuel prices. This failure to manage risks effectively contributed to the
airline's financial woes.
5. **Non-Compliance**: Kingfisher Airlines faced issues related to non-compliance with
various financial and regulatory requirements. It failed to meet its financial obligations and
was unable to pay employees and lenders.

6. **Governance Structure**: There were concerns about the governance structure and
oversight of the company. Questions were raised about the independence of board members
and their ability to provide effective oversight and challenge management decisions.

7. **Employee Relations**: The airline had difficulties in managing employee relations and
payment of salaries. These issues led to labor unrest and disruptions in operations.

8. **Legal and Regulatory Challenges**: Kingfisher Airlines faced legal and regulatory
challenges, including the suspension of its operating license by the Directorate General of
Civil Aviation (DGCA) due to safety concerns.

These corporate governance failures ultimately contributed to the financial downfall and the
eventual grounding of Kingfisher Airlines.

b) **Issues and Challenges of ICICI Bank in Corporate Governance**:

ICICI Bank, one of India's leading private sector banks, faced several corporate governance
issues and challenges:

1. **Conflict of Interest**: The former CEO, Chanda Kochhar, was accused of having a
conflict of interest in a loan provided to the Videocon Group, which had business dealings
with her husband. The bank's board faced criticism for its handling of this matter and its lack
of transparency.

2. **Lack of Transparency**: ICICI Bank was criticized for a lack of transparency in disclosing
certain loans and non-performing assets (NPAs). It faced allegations of not fully disclosing
information to investors and regulators, which eroded trust in the bank's corporate
governance practices.
3. **Board Composition and Independence**: Concerns were raised about the
independence of the bank's board of directors. Some board members had long-standing
associations with the bank, and questions were raised about their ability to provide effective
oversight and challenge management decisions.

4. **Whistleblower Allegations**: There were allegations made by a whistleblower regarding

irregularities and unethical practices within the bank. These allegations included issues
related to loans, governance, and the bank's risk management practices.

5. **Regulatory Scrutiny**: ICICI Bank faced regulatory investigations and scrutiny related to
corporate governance issues. These investigations highlighted the need for stricter
compliance with regulatory guidelines and best practices.

6. **Risk Management and NPAs**: Like many other banks in India, ICICI Bank struggled with
the management of non-performing assets (bad loans). There were concerns about the
effectiveness of the bank's risk management and credit assessment processes.

Addressing these issues and challenges is crucial for ICICI Bank to maintain and enhance its
corporate governance practices and regain trust from its stakeholders.