Question
Download Solution PDFComprehension
Read the passage given below and answer the questions that follow:
The Securities and Exchange Board of India (SEBI) constituted a Committee to promote and raise standards of good corporate governance under the Chairmanship of Shri Kumar Mangalam Birla, a member of the SEBI Board. The main objective of the Committee was to review corporate governance from the perspective of investors and shareholders and to formulate a ‘Code’ suitable for the Indian corporate environment.
Its essential recommendations apply to listed companies with paid-up share capital of Rs. 3 crore and above. The composition of the Board of Directors should have an optimum combination of executive and non-executive directors. The Audit Committee should have 3 independent directors and one expert with finance and accounting knowledge. The Board should meet at least four times a year with a gap of 4 months between two meetings to review operational plans, capital budgets, quarterly results, minutes of committee meetings. A director cannot be a member of more than 10 committees and cannot be the chairman of more than 5 of the companies.
The non-mandatory recommendations were to apply to all listed private and public sector companies, their directors, management, employees and professionals associated with such companies. The Committee believes that the recommended companies should work towards restructuring the existing boards. It also recognizes that such companies would find it difficult to comply with these conditions immediately.
In the light of the recommendations:
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Existing company boards will be restructured
Key Points
- Existing company boards will be restructured:
- The passage clearly states that the committee recognized that complying with the recommendations would involve restructuring the existing boards of companies.
- This restructuring includes changes such as increasing the number of independent directors, forming audit committees, and adhering to board meeting requirements.
- For financial enterprises, restructuring improves governance mechanisms, which in turn enhances transparency, reduces risks of mismanagement, and boosts investor confidence.
- It ensures that companies are managed in a more accountable and professionally sound manner, aligning their interests with those of stakeholders.
Additional Information
- Foreign company can be listed on Indian stock exchanges:
- This is incorrect. The passage does not mention anything about foreign companies or cross-border listings. It focuses solely on improving governance in Indian listed companies.
- There will be only two categories of companies:
- While the committee made both mandatory and non-mandatory recommendations, the passage does not classify companies into only two distinct legal categories. The focus is more on governance norms than company categorization.
- Directors will have to be re-elected:
- This is not mentioned in the recommendations. The committee’s guidelines relate more to composition and functioning of the board rather than election processes for directors.