As the present system of corporate governance has not delivered, it may be useful to think of a viable alternative to Clause 49. The idea of a two-tier corporate management was presented in these columns last week (Business Line, May 10). Let us now explore the modus operandi of this alternative.

The Corporate Overview Team (COT) will meet as often as necessary. The company secretary will act as secretary to the COT. Panel members will choose a chairman and determine the period for which he will hold office. Minutes of the proceedings of the COT will be maintained. Each team member will submit a separate report on his findings or observations on matters connected to his discipline. The company secretary will collate all the reports, and submit the same to the chairman for his consideration.

The consolidated report as amended/corrected by the chairman will be submitted to the board in each quarter as interim report. Within 30 days of the end of the financial year, the COT will submit a final report to the board which will be included in the Directors' Report as an annexure. Any adverse comments made by the COT will be open for explanation by the board. The directors' explanation will be also be included as an addendum to the COT report.

COT's DUTIES

The team will meet as often as necessary and oversee the respective functions assigned to it and submit an interim report every quarter pointing out any shortcoming or adverse effects of any action taken by the board so that corrective measures can be taken.

At the end of the financial year, within one month of close of the year, it will submit a final report which will form part of the Directors' Report to the members and the directors can, by way of an addendum, explain their viewpoints on the comments made by the panel. COT will discharge such functions as set out in Annexure A

Where, on the basis of the COT report, the Central Government or SEBI feels that the affairs and governance of the company are not being conducted in the manner conducive to the interests of the shareholders, in general, and the public at large, it can intervene and make investigations and, on the basis of the report, the directors will be asked to explain.

And, where required, such action as may be considered necessary and proper may be taken by the Central Government depending upon the nature and extent of irregularities.

Such an investigation will be done by an independent body called the Corporate Oversight Board which will consist of eminent practising company secretaries, chartered accountants, financial analysts and lawyers.

For this purpose, the regulatory body will empanel a suitable number of professionals who are willing to take such work and see if such professionals will be chosen for the purpose of investigation who will act independently and submit the report directly to the appointing body.

ADVANTAGES, DISADVANTAGES

The advantages of the proposal are that the promoters/shareholders have absolute freedom to manage their own affairs and appoint directors of their choice without any interference. The stringent regulations under SEBI Guidelines, the Companies Act, etc., with respect to directors lays the possibility of their being charged with certain offences committed knowingly or unknowingly wilfully or otherwise and they will be left to defend themselves more so in the case of `independent directors'.

The term independent being so stringent it is becoming next to impossible to comply with the requirement. The inconsistencies in the composition of the board for listed/unlisted public companies will also induce continuation of the current unhealthy practices.

It appears that Clause 49 may not be complied with by all listed companies for years to come, then why have a code which in inoperable? On the other hand, the disadvantages of this alternative are that there is no regular output data being furnished to the regulator periodically for being foreseen by the watchdog. In fact, this has never happened. The regulator is not able to assimilate and digest the data supplied and merely make it public. Undoubtedly, this has statistical value.

The alternative course, however, covers all the ideal requirements of corporate governance as contemplated under Clause 49, which can be included as an annexure, except that the composition of the Board is left to the freedom of the promoters.

It is pertinent to observe that the COT panel members are subject to approval of the shareholders as their reports are available to the latter, the regulators and the public. It should serve the purpose adequately. Any prudent shareholder can study the report and see things at a micro level; Clause 49 is more macro level.

ANNEXURE A

Examine productivity to ascertain whether the installed capacity is being achieved and theorised and, if not, suggest measures to improve.

Use of raw materials and consumables are as per established norms.

Output ratio of the productive staff is as per normal standards obtained in similar industries.

Cost reducing measures are in place, and, if not, introduce a suitable mechanism

All accounting standards as applicable are complied with.

Foolproof system exists to detect fraud, misfeasance and malfeasance

Taxes are deducted at source where applicable and paid to the government and returns are filed.

Is the existing system adequate to prepare quarterly or even monthly accounts and whether stock exchange requirements are complied with?

If shareholders' communication is handled in-house, is the machinery adequate and commensurate with the number of shareholders.

All the grievances and complaints of shareholders are being attended to promptly or is there any pending matter and, if so, why.

Are the registrars and share transfer agents submitting periodical reports and are there any complaints by any shareholder against them.

Are the share transfer agents submitting the required data for inclusion in the company's annual report and annual return to the stock exchange?

Is there adequate system to check if there is any single shareholder who is collectively holding 5 per cent and more of the paid-up capital.

Similarly, assure that no shareholder acquires through the market or otherwise shares exceeding 15 per cent without prior intimation to the stock exchange.

Have the directors' shareholding undergone any substantial change and, if so, has stock exchange been informed

Are the statutory returns being filed in time.

Ensure whether human relations/resources department evolves adequate procedures to appraise and measure the talent of each employee in each discipline. Whether the system exists for disciplinary action in regard to errant employees. Does the company have standing orders? If not, suggest one.

Take the approval of the COT in respect of senior-level appointments exceeding annual remuneration as may be prescribed from time to time.

Generally, the COT assists the board of directors in all spheres of activities of the company so as to ensure value addition.

N. R. Moorthy
(The author is a Pune-based company secretary.)