CII Task Force Committee

For the first time in the history of corporate governance in India, the Confederation of Indian Industry (CII) framed a voluntary code of corporate governance for the listed companies, which is known as CII Code of desirable corporate governance.

The main recommendations of the Code are summarised as:

(a) Any listed company with a turnover of Rs. 1000 million and above should have professionally competent and acclaimed non-executive directors,

Who should constitute:

• At least 30% of the board, if the chairman of the company is a non-executive director.
• At least 50% of the board if the chairman and managing director is the same person.

(b) For the non-executive directors to play an important role in corporate decision-making and maximising long-term shareholder value,

They need to:

• Become active participants in boards, not passive advisors,
• Have clearly defined responsibilities within the board, and
• Know how to read a balance sheet, profit and loss account, cash flow statements and financial ratios, and have some knowledge of various company laws.

(c) No single person should hold directorships in more than 10 listed companies. This ceiling excludes directorship in subsidiaries (where the group has over 50% equity stake) or associate companies (where the group has over 25% but no more than 50% equity stake).

(d) The full board should meet a minimum of six times a year, preferably at an interval of two months, and each meeting should have agenda items that require at least half-a-days discussion.

(e) As a general rule, one should not re-appoint any non-executive director who has not had the time to attend even one-half of the meetings.

(f) Various key information must be reported to, and placed before the board, viz., annual budgets, quarterly results, internal audit reports, show cause, demand and prosecution notices received, fatal accidents and pollution problem, default in payment of principal and interest to the creditors, inter corporate deposits, joint venture foreign exchange exposures.

(g) Listed companies with either a turnover of over Rs. 1000 million or a paid up capital of Rs. 200 million, whichever is less, should set up audit committees within 2 years. The committee should consist of a least three members, who should have adequate knowledge of finance, accounts, and basic elements of company law. The committees should provide effective supervision of the financial reporting process. The audit committees should periodically interact with statutory auditors and internal auditors to ascertain the quality and veracity of the company’s accounts as well as the capability of the auditors themselves.

(h) Consolidation of group accounts should be optional.

(i) Major Indian stock exchanges should generally insist on a compliance certificate, signed by the CEO and the CFO.