CS Professional:GRMCE [Ch-2 Legislative Framework of Indian Corporate Governance]

1.  Companies act,2013 
• regulator focus towards responsibility/accountability
• good corporate governance structure
• ease of doing business in India
• strengthen compliance and investor protection
• SEBI estd. in 1992
• The Companies Act, 2013 and SEBI (LODR) Regulations, 2015 together deals with virtually all areas affecting Corporate Governance.
2.  REGULATION 4 OF SEBI (LODR) REGULATIONS,2015 
• Chapter II provides broad principles for periodic disclosures/obligations of listed entities.
• based on principles given by International organization of Securities Commission (IOSCO)
• underline specific requirements
• in absence of specific guidelines, these shall follow:
• shareholder rights
• timely info
• equitable treatment
• stakeholder role in corporate governance
• disclosure & transparency
• Board responsibilities

CORPORATE GOVERNANCE IN BANKS/FINANCIAL INSTITUTIONS

• various advisory groups and consultative groups formed
• in 1999, Basel Committee on banking supervision
• board's overall responsibilities
• board qualification/composition
• board's own structure and practices
• senior management
• group structure governances
• risk management function
• risk identification,monitoring and controlling
• risk communication
• compliance
• internal audit
• compensation
• disclosure and transparency
• supervisor rule
• in 03/2000,formed under chairmanship of Dr. R.H. Patil
• in 11/2001, under chairmanship of Dr. A.S. Ganguly
• in 20/01/2014, formed under chairmanship of Mr. P.J. Nayak
• included defined role of supervisors and a supportive environment with sound organizational structure
• Master Direction-Reserve Bank of India ( [RBI] ‘Fit and Proper’ Criteria for Elected Directors on the Boards of PSBs) Directions, 2019
• AUTHORITY: Nomination and Remuneration Committee with min. 3 non-executive directors of which 1/2 or more shall be independent and comprise of one member from Risk Management Committee.
• non-executive chair shall be member but not chair such committee
• quorum-3 including chair; if no nominated members present then board may nominate another non-executive director
• board may decide tenure
• MANNER/PROCEDURE:
• declaration/undertaking from nominated
• determine their acceptance as directors
• discussion and voting properly recorded as minutes with necessary references
• CRITERIA
• 35 to 67 years of age on cut-date at submission
• atleast graduate
• special knowledge/practical experience as prescribed in RBI circulars
• disqualifications
• hold office for 3-6 years and eligible for re-election only if above 6 years has not been completed
• PROFESSIONAL RESTRICTION
• no business connection regarding bank nor activities producing conflict of interest.
• no professional relationship with bank/NOHFC holding the bank or declaration stating the relationship breakup upon being elected as director.
• not under adverse notice of any authority/agency and not a defaulter of a lending institution
• OBTAIN FROM ELECTED DIRECTOR
• covenant deed before assuming office
• declaration at FY end that info provided has not undergone any modification.
• if change: annex 1
• ensure compliance of Sec. 20
• if elected candidate fails to do above, he shall be liable of consequences thereof

• GUIDELINES ON CORPORATE GOVERNANCE FOR NBFCs [Master Direction No. RBI /DNBR/ 2016-17/45. DNBR.PD.008/03.10.119/2016-17 dated 1st September, 2016 (updated as on 17th February, 2020). These guidelines applicable for NBFC-SI-ND and Deposit taking Company (Reserve Bank) Directions, 2016.] 
• APPLICABLE TO
• NBFC-factor having asset size 500cr./above
• NBFC-IDF
  
• NBFC-MFIs having asset size 500cr./above
• NBFC-IFC having asset size 500cr./above
• AUDIT COMMITTEE
• 3/more members of BoD (Sec. 177 of Co. act,2013)
• info system audit atleast once in two years
• NOMINATION COMMITTEE (Sec. 178)
• RISK MANAGEMENT COMMITTEE & ASSET LIABILITY MANAGEMENT COMMITTEE
• CHIEF RISK OFFICER(CRO) APPOINTMENT 
• asset size=more than 50 billion
• senior official as advisor with adequate qualification/experience
• fixed tenure and transferred/removed with board's approval
• safeguards to ensure independence
• direct report to MD/CEO
• not given other responsibilities/targets
• decision maker in credit sanction process
• FIT AND PROPER CRITERIA AS PER BANKS
• DISCLOSURE/TRANSPARENCY
• progressive risk management systems/policy
• conform with corporate governance standards
• disclose registration/rating/penalties/JV partners/parent financing/NPAs
• PARTNER ROTATION IN AUDIT FIRM
• every 3 years
• rotated partner eligible after 3 years if applicable NBFC so decides

CORPORATE GOVERNANCE GUIDELINES FOR INSURANCE COMPANIES

• GUIDELINES ISSUED ON 05/08/2009 and 18/05/2016
• above fully applicable for all insurers except
• reinsurance co. w.r.t policyholder's protection committee
• foreign insurer's indian branch not required to constitute BoD and mandatory committees
• GENERAL
• system of financial controls
• fiduciary relationship between shareholders,BoD and management
• more intensive governance structure
• economic development
• safety/financial strength
• solvency/long term investment
• effect from FY 2016-17
• OBJECTIVES
• sound and prudent principles and practices
• quick addressal of non-compliance/weak oversight/controls
• covers various elements of corporate governance
• SIGNIFICANT OWNERS (SOs),CONTROLLING SHAREHOLDERS-BOARD'S ROLE
• minimum lock-in: 5 years for promoter from commencement and no share transfer without authority's approval
• ceiling of foreign investment @49% being controlled/owned by indians at all times
• control includes right to appoint majority of directors/control management or policy decisions
• prior approval of IRDAI for share registration/transfer exceeding 1% and involve holding share capital.
• after such transfer, excess of 5% paid-up capital
• CONFLICT OF INTEREST-BOARD'S ROLE
• arrangement with related parties such as reinsurance/investments/outsourcing to related parties
• defining ordinary course of business
• determine arm's length pricing of price/premium
• items requiring approval
• other relevant matters
• disclosures to group entities
• reviewed yearly
• auditors,actuaries,directors and KMPs shall not simultaneously hold 2 positions together leading to potential conflict of interest
• ongoing compliance on cap structure
• GOVERNANCE STRUCTURE
• headed by executive or non-executive chairs
• insurers part of financial group subject to regulatory requirements established for group level
• maintain consistency
• BOARD OF DIRECTORS
• Composition
• sustain growth,competent,qualified,protect stakeholder interest
• consistent with business
• shareholders elect/nominate from various areas
• directors possess knowledge of group structure
• business/products
• material risks
• min. 3 independent bu 2 from 5 years of registration of certificate
• such vacancy filled up before following board meeting or 3 months from vacancy, whichever LATER.
• chair is non-executive then CEO is whole-time director
• atleast one woman
• Role and Responsibilities
• fit and proper criteria as per banks/FIs
• disclosures of meetings/committees
• CONTROL FUNCTIONS
• risk identification,assessment,quantification,control,mitigation and monitoring
• ensure compliance with board approved policy
• appropriate internal controls
• internal audit functions
• group-wide risk control systems for adequate addressal
• DELEGATION-BOARD COMMITTEES
• authority advises mandatory committees for profit earning insurers
• In addition, Regulation 45d of the IRDA (Non-linked Insurance Products) Regulations, 2013 requires constitution of a ‘With Profits’ Committee by Life Insurance Companies comprising of one Independent Director of the Board, the Chief Executive Officer,Appointed Actuary of the Company and an Independent Actuary.
• Audit Committee (MANDATORY)
• Sec. 177 of co. act
• oversee financial statements,financial reporting,CFS and disclosure processes and maintenance
• independent chair with strong financial analysis background and min. 3 directors
• efficient functioning of internal audit department
• appointment,remuneration,performance and oversight of auditors
• discuss with statutory auditors, the nature/scope of audit 
• additional board approved work and specifically disclosed in notes to accounts
• Investment Committee (MANDATORY)
• atleast 2 non-executive,CEO,CFO,CIO,CRO and appointed actuary
• recommend investment policy and lay down operational framework of investment operations
• liquidity for smooth operations
• implement investment policy and independently review them
• effective reporting system to ensure compliance
• meet at least once in quarter and submit report to board
• Risk Management Committee (MANDATORY)
• overall guidance and supervision of CRO with direct access to board
• close co-ord with finance function
• independently assess/evaluate capital,finance and operating decisions
• risk management framework,policy and processes
• risk tolerance limits while assessing cost and benefits
• review risk-reward performance and risk profile
• report ot board,details on risk exposures and actions taken
• fraud monitoring policy for board approval
• Policyholder Protection Committee (MANDATORY)
• sound and healthy market practices
• official authority issued regulations/guidelines/circulars
• report complaints to IRDAI monthly to assess governance and market conduct issues to keep informed and address compliance issues
• headed by non-executive director including customer expert/representative as invitee
• policy on customer education to treat customer fairly
• awards review and grievance details
• Nomination and Remuneration Committee (MANDATORY)
• scrutinize declarations of prospects for independent/discreet references to verify accuracy
• obtain annual declarations and covenant deeds
• clear understanding of mutual role
• remuneration subject to IRDAI's approval and management costs
• packages and compensations aligned with objectives as per policies
• at least 3 non-executive directors with independent chair and 1/2 members also to be independent
• proposed appointments/reappointments parallel with board approved policy
• CSR POLICY (MANDATORY,Sec. 135)
• eligible co. spends prescribed amt.
• CSR policies
• CSR expenses not included under management costs and not under policyholder's accounts
• With Profits Committee
• a/c to IRDA (non-linked insurance products) regulations,2013
• independent director,CEO,appointed actuary and independent appointed actuary
• meet as often as required and transact prescribed business
• report attached to actuarial report
• Other Committees
• ethics committee
• asset liability management committee
• The mandatory committees, except Nomination and Remuneration Committee, the Corporate Social Responsibility Committee and the With Profits Committee meet at least four times in a year and not more than four months shall elapse between two meetings.
• quorum=two members/one-third of members whichever is greater, however in case independent director(s) is/ are mandated to be in any of the Committees, at least one such independent director or his alternate director, should necessarily be present to form the quorum.
• KEY MANAGERIAL PERSONS (KMPs)
• CEO/MD/WTD
• Sec. 34A of insurance act,1938 requires authority's approval
• not detrimental to interest of policyholders and consistent with policies
• proposal submitted at least a month before tenure completion of incumbent
• corollary succession planning
• APPOINTED ACTUARY
• prior authority's approval
• fit and proper criteria fulfilled
• clear responsibilities
• inform board of noncompliance
• direct board interaction
• EXTERNAL AUDIT-STATUTORY AUDITORS
• directions/guidelines
• no conflict of interest
• competent and integral to alert appropriate authorities
• access to board through audit committee
• DISCLOSURE REQUIREMENTS
• basis,methods and assumptions
• ratios and margins
• policy persistence ratio,financial performance
• risk management architecture and claims
• when finalization of annual accounts extends beyond 90 days of FY,disclosures made within 15 days of board's adoption
• OUTSOURCING ARRANGEMENTS
• not for core functions other than those specifically permitted
• explicit safeguards
• management monitors/reviews
• REGULATOR INTERACTION
• adoption/implementation confirmation
• assess board members and performance
• assessment of internal processes and systems
• CS=compliance officer for separate certificate
• All insurers are required to file are port on status of compliance with the Corporate Governance guidelines on an annual basis. This report shall be filed within 3 months from the end of the financial year.
• WHISTLE BLOWER POLICY
• report directly to chair
• independent directors shall meet at least once a year

STEWARDSHIP CODE FOR INSURERS IN INDIA

• in march 2017 in the form of principles
• insurer to have board approved stewardship policy identify and defining stewardship responsibilities
• IRDAI vide its Circular No. IRDAI/ F&A/GDL/CPM/045/02/2020 dated 7th February, 2020 issued the Revised Guidelines on Stewardship Code for Insurers in India.
• disclosed on website within 30 days of board approval
• subsequent changes/modification specifically disclosed
• submit annual compliance certificate-board approved before 30/06 yearly

1. responsibility discharge policy and public disclosure
• monitoring and engaging respective matters
• client's wealth enhancement
• protecting ultimate beneficiary/client value
• selective intervention above threshold
• provide for due diligences
• professional advices may be sought
• policy reviewed and updated periodically
2. clear policy of managing conflict of interest
• taking all reasonable stops
• identify potentially conflicting scenarios
• procedures including
• blanket bans
• referring to audit committee
• segregation of voting and sales
• recuse policies
• records
3. insurers to monitor investees
• regularly
• insurers participate optionally
• different monitoring levels and areas
• potential insider info triggers
4. clear intervention policy in investee co.
• regular assessment of intervention outcomes
• meetings/discussions with management
• intervention levels
• insurance councils in case of industry level issues
5. clear collaboration policy
• safeguarding investor interest
6. clear voting and disclosure policy
• not automatically support board proposals
• voluntary participation if significant investment decisions
• form part of public disclosures quarterly
7. periodic reports on stewardship activities
• to ultimate beneficiaries
• board ensures effective oversight

CORPORATE GOVERNANCE IN CENTRAL PUBLIC SECTOR ENTERPRISES (CPSES)

• principled process and structure through which objectives are attained and monitoring systems are set.
• Department of Public Enterprises (DPE)=nodal dept. for issuing guidelines
• govt. a major shareholder so highest governance standard
• DPE issued guidelines on board
• at least 1/3rd are non-official/independent directors
• if chair=non-executive, at least 50% has an executive chair
• 4 min. in maharatnas,navratnas
• 3 in miniratnas
• audit committee set up
• made mandatory in 2010
• salient features of 2010 guidelines
• BOARD OF DIRECTORS
• upto 50% functioning directors
• max. 2 nominee directors
• Listed:at least 50% independent;Others: at least 1/3rd independent
• nominees of investees deemed independent
• meet at least once every 3 months and 4 such meetings yearly
• director member in max. 10 committees and chair of 5
• periodical review of compliance reports
• code of conduct
• clarity between board and management
• risk management
• director training
• AUDIT COMMITTEE
• qualified and independent
• role as in co. act,2013
• powers
• meet at least 4 times yearly and not more than 4 months between meetings
• quorum= 2 or 1/3 whichever GREATER but min. 2 independent present
• info review
• REMUNERATION COMMITTEE
• at least 3 directors, all part-time [nominee or independent]
• headed by independent director
• ineligible for  Performance Related Pay unless independent directors are on board
• decide annual bonus/variable pay
• SUBSIDIARY CO.
• at least one independent director
• minutes placed at board meeting
• subsidiaries whose turnover/net worth is 20%/more of holding co.
• DISCLOSURES
• summary statement with related parties in normal course of business and not on arm's length basis
• accounting standards
• director remuneration
• management discussion and analysis in director's report
• corporate governance and compliances
• mandatory guidelines with quarterly progress report and comprehensive reports
• make suitable modifications and clarifications to concerned ministries

GUIDELINES ON CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY FOR CPSES

• act provisions and CSR rules
• per earlier guidelines, CSR and sustainable development were complementary

Guidelines on Corporate Social Responsibility And Sustainability For CPSEs w.e.f. 01.04.2014 (Issued by the Govt of India, Ministry of Heavy Industries and Public Enterprises, vide Circular No. F. No. 15(13)/ 2013-DPE(GM), dated 21st October,2014

• don't override/supersede co. act,Schedule VII or CSR Rules
• sustainability initiatives emphasized
• include a mission/vision statement
• guiding principles
• mandatory to take up CSR activities even if made profit in the preceding year but aren't eligible.
• board approval
• specify the reasons if fail to do so and unspent amt. carried forward to next year
• priority to issues of foremost concern
• align with business policies and strategies monitored through in-house expertise
• not lose sight of social and environmental responsibility but amt. spent not part of CSR spend
• philosophy to be embedded in core values
• extend reach and oversight to overall supply chain network
• local area preferable
• device communication strategy
• brief narrative in annual report
• baseline/need assessment survey prior to activity selection
• guidelines dated 10/12/2018
• common theme identified per year
• thematic programme=60% of annual CSR expenditure
• aspirational districts given preference
• NITI Aayog to pilot programme
• furnish details of nodal officer and brief concerned officers
• comply with relevant provisions