Question
Download Solution PDFComprehension
Read the following passage carefully, and answer the questions.
Securities and Exchange Board of India (SEBI) in 1999 set up a committee under Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the standards of good corporate governance. The primary objective of the committee was to view corporate governance from the perspective of the investors and shareholders and to prepare a 'Code' to suit the Indian corporate environment.
The mandatory recommendations apply to the listed companies with paid up share capital of Rs. 3 crore and above. The composition of board of directors should be a combination of executive and non-executive directors. Audit committee should contain 3 independent directors with one having financial and accounting knowledge. The Board should hold at least 4 meetings in a year with a maximum gap of 4 months between 2 meetings to review operational plans, capital budgets, quarterly results, minutes of committee's meeting. The director shall not be member of more than 10 committee and shall not act as chairman of more than 5 committees across all companies.
The non-mandatory recommendations were to apply to all the listed private and public sector companies, their directors, management, employees and professionals associated with such companies. The committee recognizes that compliance with the recommendations would involve restructuring the existing boards of companies. It also recognizes that smaller ones will have difficulty in immediately complying with these conditions.
Which one of the following is not a part of mandatory recommendations?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Auditor of the company must have experience of 10 years
Key Points
- Auditor of the company must have experience of 10 years:
- This is not mentioned as a mandatory recommendation by the Kumar Mangalam Birla Committee in the passage.
- The committee focused on board structure, audit committee composition, and meeting frequency, not specific auditor qualifications or years of experience.
- In the context of financial enterprises, while auditor experience is important for accuracy and compliance, this criterion was not part of SEBI’s mandated governance reforms.
- Mandatory guidelines emphasize oversight and independence over tenure-based eligibility, promoting transparency and investor confidence through board governance mechanisms rather than focusing on professional experience thresholds.
Additional Information
- Audit committee should contain 3 independent directors with one having financial and accounting knowledge:
- This is a correct mandatory recommendation according to the committee. It ensures financial expertise and independence in internal control, especially relevant for financial institutions where audit transparency is critical.
- The Board should hold at least 4 meetings in a year with maximum gap of 4 months between 2 meetings to review operational plans:
- Also a correct mandatory recommendation. Regular board meetings ensure continuous oversight and timely decision-making, vital in fast-changing financial markets.
- Director shall not be a member of more than 10 committees and shall not act as chairman of more than 5 committees across all companies:
- This is part of the mandatory norms to avoid overcommitment and ensure effective participation. It is crucial in financial enterprises where governance and risk management responsibilities are complex and demanding.