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Comparative study of various Committees of Corporate Governance

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Corporate
Governance
Comparative Study of various committees
code and practices, and recommendations.

The Cadbury committee Report

In UK due to rise in scandals and

Some of the corporate disasters took
financial collapses in the late 1980s and
place primarily due to lack of
early 1990s made the shareholders and
implementable governance practices.
banks worry about their investments.

Adrian Cadbury
To prevent the recurrence of such
business failures, in May 1991 the
Sir George Adrian Cadbury was the
Cadbury Committee was set up by the
chairman of the Cadbury committee.
London Stock Exchange to help raise
Committee Published “Code of Best
standards of corporate governance. The
Practices”
committee published its report in
December 1992.

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Code of Best Practices

Role of Board of Directors, duties of the board and its compositions

Role of Non-Executive Directors.

Dealing with their Remunerations

Addressing questions of financial reporting and financial controls.

Recommendations

The majority of executive directors should be independent of

management and free from any business or other relationship.
Recommendations

Non-executive directors should be appointed for specified terms

Service contract should not be exceed three years

Executive remuneration should be recommended by remuneration

committee made entirely up or mainly of non-executives

An audit committee should be established, comprising of at least three non-

executives

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Recent Bank Failures

Greenbury Committee Report

Greenbury Committee Report: Published in 1995

This report built on the Cadbury Committee's work and focused on executive pay.

It recommended greater transparency in executive pay, the use of performance-related pay, and the
appointment of non-executive directors to remuneration committees.

The code contains the recommendations on:

The Disclosure Remuneration Service

remuneration and approval policy contract
committee provision compensation

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Hampel Committee Report

Hampel Committee Report: Published in 1998, this report aimed to simplify and consolidate previous
recommendations on corporate governance.
It emphasized the importance of board responsibility and accountability, and recommended the use of
independent non-executive directors and effective communication with stakeholders.

Corporate governance and policies

1

2 The role of directors

Recommend-
ations contain
3 The role of shareholders

4 Accountability and audit

The Combined code, Principle of good governance

1. Combined code on Corporate governance:

 Combined code
 First issued
 Structure of combined code

Provisions of combined code:

 Director's
 Director's remuneration
 Accountability and audit
 Relations with shareholders
 Institutional shareholders

2. Principles of good governance

3. Code of best practices

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The OECD Principles

OECD (The Organization for Economic Cooperation and Development) Principles

The OECD Principles of Corporate Governance provide specific guidance for
policymakers, regulators and market participants in improving the legal, institutional and
regulatory framework that underpins corporate governance, with a focus on publicly
traded companies.

The six OECD Principles

Ensuring the basis Institutional

of an effective investors, stock
corporate markets, and
governance other Disclosure and
framework. intermediaries. transparency.

The rights and The role of The

equitable treatment stakeholders in responsibilities
of shareholders and corporate of the board.
key ownership governance.
functions.

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The Global Reporting Initiative

The global reporting initiative (GRI) is the independent, international organization that helps
businesses and other organizations take responsibility for their impacts, by providing them with the
global common language to communicate those impacts. Objectives are-

1. Increase the transparency of ESG performance information reported by companies

and organizations
2. Provide a standardized framework for reporting ESG information to make it easier
to compare and evaluate performance across different organizations
3. Improve the quality of ESG reporting by encouraging companies and
organizations to adopt best practices
4. Promote sustainability by encouraging companies and organizations to take
responsibility for their impacts on the environment, society, and the economy
5. Provide a platform for dialogue between stakeholders, including investors,
consumers, NGOs, and governments, on ESG issues.

The Global Reporting Initiative

Global reporting initiative set up the base content that should involve in sustainability reporting
process-

Strategy & Organization Report

Governance
analysis Profile Profile

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Blue Ribbon Committee

Blue Ribbon Committee also known as Philippine Senate Blue Ribbon Committee.

It is the committee on accountability of Public officers and investigation of the senate of the Philippines. The Blue
Ribbon committee, tasked to investigate the wrongdoings of the government, its official and its attached agencies.

It was set up in 1998 by SEC (Securities Exchange Commission), the NYSE. Most of the recommendations were adopted
by the NYSE, AMEX(the American Stock Exchange) and the Nasdaq(National Association of Securities Dealers
Automated Quotations).

Blue Ribbon Committee Recommendations

1. Mandate annual public disclosure of audit committee activities

2. Clarify oversight responsibility for outside auditors

3. Require audit committee annual letter to shareholders disclosing whether

4. Revise the definition of Independent Director

5. Require an independent audit committee

6. Mandate minimum Audit committee size and increased financial literacy

7. Mandate written charter detailing responsibilities and duties

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Treadway Commission Report

An abbreviated name for the 1987 report of the United States’ National Commission on Fraudulent Financial Reporting.
Named for its chairperson, James C. Treadway (a former commissioner of the

Securities and Exchange Commission), the establishment of the National Commission in 1985 was a reaction against the
corporate accounting scandals of the early 1980s. The report stressed the important role of audit committees and internal
auditors in reducing financial reporting fraud, and it emphasized the importance of ethical organizational policies.

The sponsors of the Treadway Commission are known as the Committee of Sponsoring Organizations (COSO), and they
have followed up the 1987 report with further corporate governance initiatives, including Internal Control-Integrated
Framework (1992).

Recommendations on Treadway Commission Report

The Treadway Commission made 49 recommendations. These were grouped into four major categories:

1. First were several recommendations for the public company (the tone at the top, internal accounting and audit functions, the
audit committee, management and audit committee reports, the practice of seeking second opinions from independent public
accountants and quarterly reporting).

2. Next were recommendations for independent public accountants (fraud detection responsibilities, audit quality,
communications and changing the process of setting audit standards).

3. The Commission also made recommendations for the SEC and others to improve the regulatory environment (better sanctions
and greater criminal prosecution, improved regulation of the public accounting profession, SEC resources, improved regulation
of financial institutions, better oversight by state boards of accountancy and insurance and liability crises).

4. The final group of recommendations was related to education (business and accounting curricula, professional certification
examinations, continuing professional education, and five-year accounting programmes and corporate initiatives.)

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Smith Report on Audit Committee

1. Membership:
(a) Audit committees should include at least three members, who should all be independent non-executive directors.
(b) The chairman of the company should not be an audit committee member.

2. Role and responsibilities:

(a)The audit committee is not satisfied with
any aspect of the proposed financial reporting by the company, it shall report its views to the board.
(b) The audit committee should monitor the integrity of the company’s internal financial controls.

3.The audit committee and its purpose:

(a)To monitor the integrity of the financial statements of the company.
(b)To monitor and review the effectiveness of the company’s internal audit function.
(c)To monitor and review the external auditor’s independence, objectivity and effectiveness.

4. Evaluation of audit committees:

(a) The Smith Report recommended that audit committees should be evaluated annually.
(b) The evaluation should include an assessment of the committee's effectiveness in fulfilling its responsibilities.

The Turnbull Committee

The Turnbull Committee, 1999 was set up by the Institute of Chartered Accountants in
England and Wales (ICAEW) in 1999 to provide guidance to assist companies in
implementing the requirements of the Combined Code relating to internal control.
Internal Control: Guidance for directors on the Combined Code The Turnbull Report
was first published in 1999 and set out best practice on internal control for UK listed
companies.
In October 2005 the Financial Reporting Council (FRC) issued an updated version of
the guidance with the title 'Internal Control: Guidance for Directors on the Combined
Code'. In September 2014 this was superseded by the FRC's Risk Guidance.

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Background

The FRC held a series of meetings with companies, investors and advisers in 2011 which were summarized in
the report Boards and risk published in September 2011.

One of the conclusions reached was that whilst the guidance was "still broadly fit for purpose, some change
was needed to reflect the role of the Board as articulated in the new version of the [UK Corporate
Governance] Code. The FRC intends to carry out a limited review during 2012."
In November 2013 the FRC launched a consultation on further updates to the guidance. On 17 September
2014 it published the resulting revised guidance, Risk management, internal control and related financial and
business reporting (the Risk Guidance).
This updates and replaces Internal Control: Guidance for Directors on the Combined Code (formerly known
as the Turnbull Guidance)

The Narayana Murthy Committee

 The Narayana Murthy Committee was formed to recommend measures for improving corporate
governance practices in India. The committee was chaired by Mr. N.R. Narayana Murthy, the co-founder of
Infosys Technologies Limited, and consisted of other prominent industry leaders, lawyers, and academics.

 The committee submitted its report in 2003, which contained recommendations for improving the
standards of corporate governance in India. Some of the key recommendations included strengthening the
role of independent directors, improving the quality and transparency of financial reporting, enhancing the
accountability of company management, and improving the role of audit committees.

 The recommendations of the Narayana Murthy Committee on Corporate Governance have since been
adopted by SEBI and incorporated into the regulations governing listed companies in India. The
committee’s report has had a significant impact on the corporate governance practices of Indian companies
and has helped to improve the overall governance environment in the country.

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The Narayana Murthy Committee

Codes And Practices Proposed by The Committee Are as Follows:

1. Role of Independent Directors

2. Audit Committees
3. CEO/CFO Certification
4. Board Structure
5. Disclosures and Transparency
6. Shareholder Rights
7. Related Party Transactions

Comparative study & analysis of various committees

The various committee reports and guidelines on corporate governance have been developed in different countries
and at different times to provide recommendations on how companies should be run to ensure accountability,
transparency, and ethical behavior. Below is a comparison of some of the key recommendations of the major
reports and guidelines:

 Cadbury Committee Report (UK, 1992):

• It defined corporate governance as "the system by which companies are directed and controlled."
• It recommended that companies should establish a code of best practice for corporate governance and disclose
their compliance with the code in their annual report.

 Greenbury Committee Report (UK, 1995):

• It focused on executive remuneration and recommended that companies should disclose their policy on executive
pay and that the remuneration committee should be composed entirely of non-executive directors.

 Hampel Committee Report (UK, 1998):

• It emphasized the importance of corporate culture in ensuring good corporate governance.
• It recommended that companies should have a "comply or explain" approach to corporate governance, whereby
they should either comply with the relevant code of best practice or explain why they have not done so.

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Comparative study & analysis of various committees

 Treadway Committee Report (USA, 1987):

• It focused on internal controls and recommended that companies should establish a system of internal controls to
ensure the reliability of financial reporting.
• It recommended that the audit committee should be composed entirely of independent directors.

 Blue Ribbon Committee Report (USA, 1999):

• It emphasized the importance of the board of directors in ensuring good corporate governance.
• It recommended that companies should have a majority of independent directors on their board and that the chair of
the board should be independent.
• It recommended that companies should establish a code of ethics for their senior financial officers.

 OECD Principles of Corporate Governance (international, 1999):

• It provides a set of principles that are applicable to all countries regardless of their legal, economic, or political
systems.
• It emphasizes the importance of transparency, accountability, and fairness in corporate governance.

Comparative study & analysis of various committees

 The Smith Report (UK, 2003):

• It was commissioned by the UK government following a series of corporate scandals and financial failures and
aimed to address the shortcomings of the previous reports.

 Narayana Murthy Committee Report (India, 2003):

• It focused on corporate governance in India and recommended that companies should have a majority of
independent directors on their board.
• It recommended that companies should establish a code of conduct for their board members and senior
management.
• It recommended that companies should establish a system of internal controls to ensure the reliability of financial
reporting.

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Recommendations of various committee on Corporate governance

Cadbury Report (1992):

The Board of Non-executive

Directors Directors

Executive Reporting &

Directors controlling

The Board of Directors Executive Directors

 Regular meeting and full control  Pay according to remuneration committee
 Clearly accepted division of responsibilities  Full disclosure of their remuneration in documents
 Include non-executive director  Directors service tenure (not more than 3 years)
 Good communication between directors and
company secretary Reporting and control
 Professional relationship with auditor
Non-Executive Directors  Establish audit committee which clearly deals with
 Independent judgement authority and duties (at least 3 non-executive directors)
 Specific term (appointment)  Report on effectiveness of company’s internal control
 Selection through formal procedure system
 Selection and appointment by the board as a  Accurate representation of company’s position
whole

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Greenbury Report (1995)

 Set a remuneration committee (consists of non executive director)
 Non-executive directors are free from personal financial interest
 Remuneration of non-executive directors determined by the board
 Chairman of remuneration committee meet the AGM
 Executive remuneration should not be excessive
 Committee should make a report each year
 Company’s policy on executive remuneration should be disclosed in financial statement
 The report should contain full disclosure of remuneration package of each director

Hampel Report (1998)

 Forming an audit committee (at least 3 non-executive directors)
 Adopt a healthy control system to protect the shareholders
 Present the balanced and real, understandable position to all stakeholders
 Board of Directors are accountable for risk management and financial control
 Different individuals as Chairman and CEO
 Directors contract (not more than a year)
 Remuneration committee will decided decide salary of directors

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OECD Principles (1999)

Presence of an effective corporate governance framework

Assurance of protecting shareholders rights

Equitable treatment of all shareholders

Effective role of stakeholders in corporate governance

Disclosure and transparency

Clear cut responsibilities of the board

Blue Ribbon Report (1999)

 Majority of independent directors on board
 Presence of a code of ethics for their senior executives

Narayana Murthy Committee (2002)

Recommendations

Mandatory Non-mandatory

 Mandatory recommendations
 Strengthen audit committee
 Improve quality of financial disclosure
 Improving disclosure of remuneration to directors
 Maintain a risk management system
 Follow a specified code of conduct
 Follow a whistle-blower policy to encourage the reporting unethical practices
 None mandatory recommendations
 Training to the members of board of directors
 Establish a system which evaluate members of governing board

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