1. Report of the Kumar
Mangalam Birla Committee
on Corporate.
By : Sumit Pachauri (Mangalayatan University)

2. Kumar Mangalam Birla
Committee.
 In early 1999, Securities and Exchange
Board of India (SEBI) had set up a
committee under Shri Kumar Mangalam
Birla, member SEBI Board, to promote and
raise the standards of good corporate
governance.
 The report submitted by the committee is
the first formal and comprehensive attempt
to evolve a ‘Code of Corporate
Governance', in the context of prevailing
conditions of governance in Indian
companies, as well as the state of capital
markets.

3. The Term “Committee”.
 The Committee's terms of the reference were
to:
suggest suitable amendments to the listing
agreement executed by the stock exchanges
with the companies and any other measures to
improve the standards of corporate governance
in the listed companies, in areas such as
continuous disclosure of material
information, both financial and non-
financial, manner and frequency of such
disclosures, responsibilities of independent and
outside directors; draft a code of corporate best
practices; and suggest safeguards to be
instituted within the companies to deal with
insider information and insider trading.

4. Corporate Governance –
The Objective.
1. Corporate governance has several claimants –shareholders
and other stakeholders - which include
suppliers, customers, creditors, the bankers, the employees of
the company, the government and the society at large. This
Report on Corporate Governance has been prepared by the
Committee for SEBI, keeping in view primarily the interests of
a particular class of stakeholders, namely, the
shareholders, who together with the investors form the
principal constituency of SEBI while not ignoring the needs of
other stakeholders.
2. The Committee therefore agreed that the fundamental
objective of corporate governance is the "enhancement
of shareholder value, keeping in view the interests of
other stakeholder". This definition harmonises the need
for a company to strike a balance at all times between
the need to enhance shareholders’ wealth whilst not in
any way being detrimental to the interests of the other
stakeholders in the company.

5. The Recommendations of the
Committee.
 This Report is the first formal and comprehensive
attempt to evolve a Code of Corporate
Governance, in the context of prevailing conditions
of governance in Indian companies, as well as the
state of capital markets.
 While making the recommendations the Committee
has been mindful that any code of Corporate
Governance must be dynamic, evolving and should
change with changing context and times. It would
therefore be necessary that this code also is
reviewed from time to time, keeping pace with the
changing expectations of the
investors, shareholders, and other stakeholders and
with increasing sophistication achieved in capital
markets.

6. Applicability of the Recommendations.
Mandatory and non mandatory
recommendations.
 The committee divided the recommendations
into two categories, namely, mandatory and
non- mandatory.
 The recommendations which are absolutely
essential for corporate governance can be
defined with precision and which can be
enforced through the amendment of the listing
agreement could be classified as mandatory.

7. Mandatory
Recommendations:
 Applies To Listed Companies With Paid Up
Capital Of Rs. 3 Crore And Above.
 Composition Of Board Of Directors –
Optimum Combination Of Executive &
Non-Executive Directors .
 Audit Committee – With 3 Independent
Directors With One Having Financial And
Accounting Knowledge.
 Remuneration Committee.

8.  Board Procedures – Atleast 4 Meetings Of The
Board In A Year With Maximum Gap Of 4
Months Between 2 Meetings. To Review
Operational Plans, Capital Budgets, Quarterly
Results, Minutes Of Committee's
Meeting.Director Shall Not Be A Member Of
More Than 10 Committee And Shall Not Act As
Chairman Of More Than 5 Committees Across
All Companies
 Management Discussion And Analysis Report
Covering Industry
Structure, Opportunities, Threats, Risks, Outlo
ok, Internal Control System
 Information Sharing With Shareholders

9. Non-Mandatory
Recommendations:
 Role Of Chairman
 Remuneration Committee Of Board
 Shareholders' Right For Receiving Half Yearly
Financial PerformancePostal Ballot Covering
Critical Matters Like Alteration In
Memorandum Etc
 Sale Of Whole Or Substantial Part Of The
Undertaking
 Corporate Restructuring
 Further Issue Of Capital
 Venturing Into New Businesses

10. Names of the Members of the committee Shri Kumar
Mangalam Birla, Chairman, Aditya Birla group
Chairman of the Committee
1. Shri Rohit Bhagat, Country Head, Boston Consulting Group
2. Dr. J Bhagwati, Jt. Secretary, Ministry of Finance.
3. Shri Samir Biswas, Regional Director, Western Region, Department of Company
Affairs, Government of India
4. Shri S.P. Chhajed, President of Institute of Chartered Accountants of India
5. Shri Virender Ganda, Ex-President of Institute of Company Secretaries of India
6. Dr. Sumantra Ghoshal, Professor of Strategic Management, London Business School
7. Shri Vijay Kalantri, President, All India Association of Industries
8. Shri Pratip Kar, Executive Director, SEBI — Member Secretary
9.Shri Y. H. Malegam, Managing Partner, S.B. Billimoria & Co
10.Shri N. R. Narayana Murthy, Chairman and Managing Director, Infosys Technologies
Ltd.
11.Shri A K Narayanan, President of Tamil Nadu Investor Association
12.Shri Kamal Parekh, Ex-President, Calcutta Stock Exchange (Shri J M Chaudhary –
President Calcutta Stock Exchange
13.Dr. R. H. Patil, Managing Director, National Stock Exchange Ltd.
14.Shri Anand Rathi, President of the Stock Exchange, Mumbai
15.Ms D.N. Raval, Executive Director, SEBI
16.Shri Rajesh Shah, Former President of Confederation of Indian Industries.
17.Shri L K Singhvi, Sr. Executive Director, SEBI
18.Shri S. S. Sodhi, Executive Director, Delhi Stock Exchange

11. Suggested List Of Items To Be Included In
The Report On Corporate Governance In
The Annual Report Of Companies
1. A brief statement on company’s philosophy
on code of governance.
2. Board of Directors.
3. Audit Committee.
4. Remuneration Committee report.
5. Shareholders Committee
6. General Body meetings.
7. Disclosures.
8. Means of communication..
9. General Shareholder information

12. Clause 49:
 As per the committee, the recommendations should be
made applicable to the listed companies, their
directors, management, employees and professionals
associated with such companies, in accordance with the
time table proposed in the schedule given later in this
section.
 The recommendations will apply to all the listed private
and public sector companies, in accordance with the
schedule of implementation.
 The Committee recognizes that compliance with the
recommendations would involve restructuring the existing
boards of companies. It also recognizes that some
companies, especially the smaller ones, may have
difficulty in immediately complying with these conditions.
 The recommendations were implemented through Clause
49 of the Listing Agreements, in a phased manner by SEBI.

13. Clause 49 of the Listing Agreement
to the Indian stock exchange.
 Clause 49 of the Listing Agreement to the Indian stock
exchange comes into effect from 31 December 2005. It
has been formulated for the improvement of corporate
governance in all listed companies.
 In corporate hierarchy two types of managements are
envisaged: i) companies managed by Board of Directors;
and ii) those by a Managing Director, whole-time director
or manager subject to the control and guidance of the
Board of Directors. As per Clause 49, for a company with
an Executive Chairman, at least 50 per cent of the board
should comprise independent directors. In the case of a
company with a non-executive Chairman, at least one-third
of the board should be independent directors.
 It would be necessary for chief executives and chief
financial officers to establish and maintain internal
controls and implement remediation and risk mitigation
towards deficiencies in internal controls, among others.

14.  Clause VI (ii) of Clause 49 requires all companies to submit a
quarterly compliance report to stock exchange in the
prescribed form. The clause also requires that there be a
separate section on corporate governance in the annual
report with a detailed compliance report.
 A company is also required to obtain a certificate either from
auditors or practising company secretaries regarding
compliance of conditions as stipulated, and annex the same
to the director's report. The clause mandates composition of
an audit committee; one of the directors is required to be
"financially literate". It is mandatory for all listed companies
to comply with the clause by 31 December 2005.
 The term ‘Clause 49’ refers to clause number 49 of the
Listing Agreement between a company and the stock
exchanges on which it is listed (the Listing Agreement is
identical for all Indian stock exchanges, including the NSE
and BSE). This clause is a recent addition to the Listing
Agreement and was inserted as late as 2000 consequent to
the recommendations of the Kumarmangalam Birla
Committee on Corporate Governance constituted by the
Securities Exchange Board of India (SEBI) in 1999.

15. CONCLUSION:
 There are several corporate governance structures
available in the developed world but there is no one
structure, which can be singled out as being better than
the others. There is no "one size fits all" structure for
corporate governance. The Committee’s
recommendations are not therefore based on any one
model but are designed for the Indian environment.
Corporate governance extends beyond corporate law.
 The Committee believes that its recommendations will go
a long way in raising the standards of corporate
governance in Indian firms and make them attractive
destinations for local and global capital. These
recommendations will also form the base for further
evolution of the structure of corporate governance in
consonance with the rapidly changing economic and
industrial environment of the country in the new
millenium.