Lesson: 9 (Data Governance)

📘Data governance (DG) encompasses all the practices that ensure data is secure, private, accurate,
available, and usable. It involves the coordinated efforts, processes, and technologies that support data
throughout its lifecycle, from creation to disposal. With the rise of data privacy regulations and the
reliance on data-driven decision-making, effective data governance has become essential.
Core Components of Data Governance
1. Organizing: Identifying and consolidating data from various sources within the organization.
2. Securing: Ensuring compliance with data privacy regulations and adherence to company policies.
3. Managing and Presenting Data: Structuring the data in a clear, accessible manner for effective use by
team members.
4. Utilizing Methods and Technologies: Implementing modern data governance platforms and tools to
support effective data management.

🌍 Data Governance Core Principles

1. Maintaining the Integrity of the Data
Ensures that data is used ethically and appropriately. Decisions regarding data should be honest and
transparent.
2. Transparency
Transparency requires clarity about how data is used, by whom, and for what purpose, this reduces
conflict.
3. Accountability and Ownership of the Data
Clearly define who owns the data and assign accountability ensuring clear access and control
mechanisms.
4. Data Audit
All data decisions must be auditable and documented for compliance.
5. Standardization of Data
Data formats should be uniform across teams to ensure compatibility. Guidelines must cover data
accessibility, security, and privacy.
6. Change Management
Any modification in data should be managed carefully to prevent errors or inconsistencies.
7. Stewardship
A dedicated data steward or team must oversee compliance with governance rules, ensuring
responsible data management.

🔑 Importance/ Significance/ Advantages of Data Governance

1. Improved Data Quality
As a result of data governance, data quality will improve, which leads to better decision-making and
increased customer trust.

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2. Better Analysis
High-quality and well-managed data allows faster and more accurate insights.
3. Improved Data Management
Eliminating unnecessary data management tasks improves operational efficiency.
4. Standardized Policies
Standardizing data-related practices across the organization creates consistency in data handling,
ensuring ethical and secure use.
5. Consistent Compliance
Data governance helps maintain regulatory compliance, reducing the risks of penalties, legal issues, and
reputational damage.
6. Clearly Defined Goals
Data governance sets a clear method to achieve business goals.

🚧 Data Governance Challenges

1. Understanding the Business Value of Data Governance
Many business managers prioritize speed over data quality, underestimating the importance of well-
governed data. This issue is particularly prominent in older organizations that may be slower in adopting
digital transformations.
Solution: Appointment of Chief Data Officers (CDOs) to ensure data governance remains a strategic
priority.
Analytics teams can also emphasize the importance by highlighting how poor data quality impacts insights
and decision-making.
2. Perception that IT Owns the Data
Traditionally, IT departments were seen as data owners, leading to a lack of business involvement in
governance. However, for data governance to be effective, ownership should ideally reside with the business
functions that rely on specific data types, such as sales and marketing.
Solution: Successful organizations shift ownership to business managers, ensuring relevant departments
(sales, marketing, etc.) govern their own data. Appointing data stewards helps balance accessibility while
maintaining security.
3. Limited or Misallocated Resources
Assigning dedicated roles such as Data Owners and Data Stewards is essential, but many organizations
lack the resources.
Solution: Initially, part-time stewards from business and IT teams manage governance. Some companies
use data governance consultants for early-stage implementation.
4. Siloed Data
Different data formats create data silos, limiting collaboration. Businesses struggle to integrate structured
(databases) and unstructured (videos, social media) data.

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Solution: Metadata management tools help unify data across platforms, enabling seamless access and
analysis.
5. Poor Data Quality and Lack of Trust in Data
Low-quality data leads to incorrect insights and decision-making. Issues like missing values, duplicate
records, and outdated data cause distrust.
Solution: Implementing data intelligence tools, quality metrics, and feedback loops improve data
reliability.
6. Poor Data Context
Poor data context arises when data lacks sufficient explanatory details, causing users to misunderstand
its meaning. This is often a perception issue rather than a data quality problem. For instance, if a dataset is
labeled as “Final Sales” without clarification, users might not know if it refers to gross or net sales,
potentially leading to incorrect conclusions.
Solution: Providing clear documentation and feedback mechanisms ensures users understand data
correctly.
7. Lack of Data Control
Some companies over-restrict access due to security concerns, preventing employees from using valuable
data.
Solution: Effective data governance should focus on setting clear, proper policies that balance access
and control.

📊 Differences between Data Governance and Data Management:

S. Basis of Data Governance (Rules & Policies) Data Management (Execution &
No. Difference Practice)
1 Definition Ensures business rules for data are Ensures data is captured, managed,
established and followed. used, and disposed of properly.
2 Scope Ensures rules are followed and data Ensures that data is collected, stored,
is trustworthy. and managed for easy access by
authorized users.

3 Benefits Data governance provides a Data management makes data available,

framework for ensuring control, accurate, and secure for users.
standardization, and reduces data
misuse.

4 Challenges Challenges include deciding where to Challenges include the lack of

start the process, employee standardized practices for organizing
resistance, and adapting to new and storing data and difficulty retrieving
rules. data.

5 Best Proper classification of data, use of Best practices involve good file naming
Practices metadata, and setting access controls, conventions, high data quality, secure
and ensuring compliance with storage, backup planning, and enhanced

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 business rules. data security.

6 Technology Uses tools that track and monitor Uses tools like Database Management
policy compliance. Systems (DBMS), Data Mining, and Big
Data Technologies.

🧱 Implementing an effective Data Governance Framework:

🔍 Objectives and Goals
To standardize data definitions, manage business-critical data assets, ensure quality and compliance, and
support strategic decision-making.
Advantages of a Data Governance Framework: (CQC SMS)
1. Consistent Data View: Provides a business glossary for data, ensuring clarity across business units
while allowing flexibility where necessary.
2. Data Quality: Ensures the data is accurate, complete, and consistent.
3. Centralized Data Discovery: Quick discoverability of critical data.
4. Single Source of Truth: "Single version of truth" across the enterprise, avoiding conflicting data
interpretations.
5. Methodologies and Best Practices: Standardizes methodologies for data management and governance
across the organization, making data handling consistent.
6. Security and Compliance: Ensures data is handled according to legal and regulatory requirements,
keeping it secure and confidential.

🧱 Three Pillars of a Data Governance Framework

1. Inclusive Governance: All data assets, from dashboards to data science models, are part of the
governance framework.
2. Practitioner-Led Approach: Rather than a few centralized individuals managing data governance, a
decentralized approach empowers data creators to be responsible for governance. This community-
driven model, such as the data mesh approach, makes domain owners fully manage their data, adhering
to global standards for consistency.
3. Embedded Governance: Governance should be woven into daily workflows, fostering an environment
where data governance supports strategic decision-making.

🔁 Traditional Approaches to Data Governance

i) Top-Down Method: The top-down approach to data governance is a centralized model, where a small,
specialized team is responsible for defining and enforcing data standards, policies, and quality control
measures before data is made accessible to broader users. Here, the primary focus is on data control.
 Structure: Managed by a dedicated data governance team, typically within IT, who has full control
over data management and quality standards.
 Process: Data modeling, governance, and quality measures are established and applied before
releasing data for organization-wide use.
 Scalability Challenge: As the organization grows and data usage increases, this approach becomes
less effective because IT can’t serve as gatekeepers for all data requests. With the increasing volume

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 of data and business users, the top-down method struggles to provide clean, complete data to
everyone who needs it in a timely manner.
ii) Bottom-Up Method: In contrast, the bottom-up method is a decentralized, agile approach that starts
with making raw data accessible and only later implementing data governance measures. This model
prioritizes data access.
 Structure: Empowers data users to access raw data immediately, with data structures and
governance controls (e.g., schema, security rules) applied later.
 Control Challenge: While scalable, this approach often lacks sufficient control, leading to issues like
inconsistent data quality, higher management costs, regulatory risks, and potential trust issues due
to delayed governance measures.
iii) Embedded Governance: Integrated into Daily Workflows.
The embedded governance model combines access and control within daily workflows, offering a
balanced, modern approach that encourages strategic decision-making and seamless data governance.
 Embedding governance within workflows ensures that data is always accurate, relevant, and
trustworthy.
 Encourages a culture where data governance is seen as a business function rather than just a
regulatory task.

Steps Involved in Creating a Data Governance Framework

🔁 Step 1: Revisiting the Definition of Data Governance
Data governance isn’t static — it evolves with organizational needs and technology shifts.
Key Questions to Ask:
 🔍 What is the purpose of data governance?
 🌐 Does it cover all data assets across the organization?
 🤝 Does it enable organization-wide data sharing and collaboration?

🧩 Step 2: Identification and Definition of Data Domains

Data domains represent areas like Finance, Sales, Marketing, etc., that generate and use data.
Focus Areas:
 🧭 Which are the important data domains?
 📊 What data is generated in each domain?
 Where is the data currently stored?
 👥 Who uses/consumes the data?

👤 Step 3: Identifying Domain Data Owners and Consumers

Promotes shared responsibility. Every domain must manage, secure, and ensure the quality of the data it
generates.
Guiding Questions:
 🧑‍💼 Who is generating data in each domain?
 🔄 Who is consuming the data and how does it integrate into their workflows?
 🧱 What are the current dependencies or barriers to data access?

📄 Step 4: Validating and Documenting Everything

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This ensures transparency, traceability, and consistency in data practices across the enterprise.
What to Document:
 🎯 Does the data help domains and the organization meet goals?
 🌱 Where does data originate from?
 📖 What does the data mean (definitions, metadata)?
 🧬 How does the data flow across departments?

🔐 Step 5: Conducting Data Security and Risk Assessments

Data governance is a continuous journey — not a one-off setup.
Assessment Focus Areas:
 🧾 What are the current access controls and security checks?
 🔑 Who is authorized to access what data — and for what purpose?
 🚧 Do current policies mitigate risk without becoming a barrier to collaboration or data discovery?

🎯 Objectives of Data Governance Quality Index (DGQI)

The Data Governance Quality Index (DGQI) is designed to assess the data maturity of government
ministries and departments, providing a standardized framework to enhance digitization and data-driven
decision-making in India. The key objectives of DGQI are:

1. The DGQI enables Ministries/Departments to evaluate their data and Management Information
Systems (MIS) against objective, standardized parameters.
2. The DGQI provides a self-assessment tool for Ministries/Departments, helping them identify areas for
improvement in their data systems.
3. The DGQI facilitates the comparison of data preparedness across different Ministries/Departments,
allowing them to identify best practices in IT systems.

⚙️Methodology of the Data Governance Quality Index (DGQI)

1. Data Generation: Measures how effectively ministries generate and authenticate data, focusing on
digitization, frequency, and use of mobile tech, location tracking, and GIS for data authenticity.
2. Data Quality: Assesses data quality management, including data profiling, data quality assessment
processes (like data pipelines and schema design), data cleaning, and technology integration.
3. Data Analysis, Use, and Dissemination: Examines whether ministries analyze data for decision-
making, use dashboards for visualization, and share data accessibly, including multilingual support.
4. Use of Technology: Evaluates use of advanced technologies (e.g., blockchain, AI) and integration with
systems like PFMS and JAM-trinity to enhance data robustness.
5. Data Security and HR Capacity: Checks if basic data security measures (e.g., antivirus, audits) and
data quality teams are in place, ensuring data protection and fundamental capacity for data
management.
6. Case Studies: Allows ministries to highlight best practices and innovative approaches not covered
by structured questions, facilitating inter-ministerial collaboration and peer learning.

✅ Data Security Best Practices in the Hospitality Sector:

1. Always encrypt sensitive information like payment card details.
2. Follow industry standards such as PCI DSS (Payment Card Industry Data Security Standard) to safeguard
payment systems.

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3. Conduct regular cybersecurity training programs for employees to recognize and respond to
cybersecurity threats.
4. Utilize essential cybersecurity tools - network monitoring, anti-malware, and traffic filtering to guard
against cyber threats.
5. Conduct tests against your organization’s cybersecurity defenses in which you mirror the behavior of an
actual hacker.
6. Use the principle of least privilege to restrict access to sensitive information, allowing only employees
who absolutely need access should have it.

✅ Telecom Data Governance in India and TRAI's Recommendations:

1. TRAI has recommended forming the Data Digitization and Monetization Council (DDMC), an apex body
responsible for overseeing data-related matters, including digitization, sharing, monetization, and
storage of data.
2. DDMC would create an overarching framework for the ethical use of data by both the government and
corporations in India, aiming to ensure responsible data practices.
3. The recommendations include creating a statutory body with representation from the Department of
Telecommunications (DoT) and the Ministry of Electronics and Information Technology (MeitY) to
promote a strong data economy in India.
4. The formation of DDMC would require amending existing laws or enacting new legislation to provide
legal authority and governance over data issues.

✅ Significance of Data Governance in E-Commerce:

1. Visibility, Relevance, and Consistency: E-commerce relies on accurate, up-to-date customer and
inventory data across various platforms. With data flowing through multiple systems, inconsistencies
and data silos can form, impacting decision-making and customer experience. Unified data
governance enhances data visibility and keeps it consistent across channels, reducing errors and
making operations smoother.
2. Limiting Data Exposure: E-commerce involves sharing data with various stakeholders, but this can
increase the risk of data breaches. A strong data governance system protects sensitive data using tools
like two-factor authentication, data encryption, and tokenization, which helps in maintaining
customer trust by limiting unauthorized access.
3. Addressing Data Inconsistencies: As data is updated across multiple repositories, e-commerce
companies can face issues with outdated or inconsistent information, affecting sales, productivity, and
strategic planning. Robust governance systems use data pipelines to validate and synchronize data,
ensuring accuracy and enabling faster, better analysis.
Merits of Data Governance for E-Commerce:
1. Data Quality: Regular tracking of data quality and usage of data quality metrics improves data
reliability. E-commerce companies can monitor how data is utilized across teams, ensuring data remains
relevant and accurate.
2. Better Business Insights: With accurate, well-governed data, e-commerce teams can identify weak
performance areas and discovery of new revenue opportunities.
3. Overall Performance: By streamlining data access and enhancing efficiency, data governance helps
various teams quickly locate accurate data, boosting productivity and reducing time spent searching for
information.

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4. Improved Decision-Making: Data governance leads to accurate and faster decision-making. Teams can
access the right data securely, enhancing the speed and accuracy of strategic decisions.
5. Data Ownership, Responsibility, and Accountability: Data governance defines clear roles and
responsibilities for data management, fostering accountability. This ensures teams know the right
experts to consult for data-related queries.

Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data
or Information) Rules, 2011
1. Privacy Policy Requirement:
Body corporates (or individuals acting on their behalf) must provide a clear privacy policy
o
regarding the handling of personal and sensitive personal data.
o This policy should be publicly available, typically on the body corporate's website, to ensure
transparency.
o The privacy policy should cover the following aspects:
 Clear and easy-to-understand statements of practices and policies.
 The types of personal and sensitive data collected.
 The purpose for collecting and using the data.
 Information regarding how data may be disclosed, including sensitive personal data.
 Measures for ensuring the protection of personal data, in line with reasonable security
practices as prescribed by the rules.
2. Personal Information:
o Defined as information related to a natural person that can identify them either directly or
indirectly, often in combination with other data available to the body corporate.
3. Sensitive Personal Data or Information:
o This includes data such as:
 Passwords.
 Financial information (e.g., bank account details, credit card information).
 Health and medical data, including physical and mental conditions.
 Sexual orientation.
 Biometric information.
 Any information provided by the individual for services that relates to the above
categories.

o However, information that is freely available in the public domain (such as information under the
Right to Information Act, 2005) is not considered sensitive personal data under these rules.
Compliance Expectations:
 The body corporate is expected to adopt reasonable security practices to ensure that sensitive
data is properly protected from unauthorized access or misuse.
 The rules outline the responsibility of companies to inform individuals about how their data is
being used and disclose the measures taken to protect it.

Digital Personal Data Protection Act, 2023

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Scope of Application:
Applies to:
 Digital personal data collected or processed in India.
 Personal data collected abroad but processed in connection with offering goods or services in India.

Does Not Apply to:

1. Data processed for personal/domestic purposes.
2. Publicly available personal data provided by:
 The individual (Data Principal).
 A third party obligated to disclose it under Indian law.

Salient Features of the Digital Personal Data Protection Act, 2023

1. General Obligations for Data Fiduciaries: Organizations responsible for handling personal data (Data
Fiduciaries) must ensure lawful and fair processing.
2. Significant Data Fiduciary Obligations: Entities with large-scale data processing have stricter
compliance requirements.
3. Special Provisions for Children: Additional safeguards for processing children’s data.
4. Rights of Data Principals (Individuals): Access information about their data and right to grievance
redressal.
5. Duties of Data Principals: Responsible use of rights, accuracy in data provided.

AI Complementing Data Governance

AI and machine learning have become integral to business strategies, relying heavily on vast, well-governed
datasets. Data governance includes policies and processes to manage data collection, storage, quality,
security, and compliance, ensuring data is accurate, secure, and accessible. Poor data quality can lead to
biased or incorrect AI outcomes, highlighting the importance of proper governance.
Benefits of AI-Powered Data Governance
1. Strengthening Data Security:
o AI detects security threats by analyzing real-time access patterns, alerting on suspicious
activities.
o It uses machine learning to identify malware and automate security patch management.
2. Automating Data Compliance:
o Monitors data flows in real-time, detecting anomalies or unauthorized access.
o Classifies sensitive data and generates compliance reports, reducing manual intervention.
3. Improving Data Quality:
o AI automates error detection and correction in datasets, reducing inconsistencies.
o It helps standardize and structure data, making it easier to use and analyze.
o AI identifies trends and patterns, uncovering errors or missing data.
4. Democratizing Data:
o Simplifies data access for employees, fostering a data-driven work culture.
o AI-powered search tools and dashboards enhance data accessibility and sharing.

Regulatory Trends in AI Regulations

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AI regulations aim to balance mitigating risks and promoting AI's economic and social benefits. Despite
jurisdictional variations, six common themes emerge:
1. Core Principles:
o Regulations emphasize respect for human rights, sustainability, and transparency.
o Risk management practices align with OECD and G20 principles.
2. Risk-Based Approach:
o Low-risk AI: Minimal compliance requirements.
o High-risk AI: Subject to stringent regulations.
3. Sector-Agnostic and Sector-Specific Rules:
o Some rules apply across sectors.
o Others address industry-specific AI applications.
4. Policy Alignment:
o AI rulemaking aligns with digital policies like cybersecurity, data privacy, and IP laws.
o The EU leads with comprehensive policy frameworks.
5. Private-Sector Collaboration:
o Regulatory sandboxes foster collaboration between policymakers and private entities.
6. International Collaboration:
o Nations coordinate efforts to address global AI challenges, focusing on generative and general-
purpose AI systems.

Data Protection Seal of the Data Security Council of India (DSCI)

The DSCI is introducing a Data Protection Seal (DPS) to ensure that organizations handle user data
securely and follow privacy standards. The seal will help users identify platforms that respect their data
privacy, similar to how the ISI mark indicates product quality.
Key Points:
 The DPS will show that platforms comply with the Digital Personal Data Protection (DPDP) Act.
 The program is being tested in Delhi and Bengaluru with partner organizations.
 Cybersecurity Challenges like deepfakes, ransomware, and attacks on multi-factor authentication
are being addressed.
 Data Protection Officers (DPOs) will be trained to manage issues like deepfakes and ensure data
security. The seal aims to ensure privacy while dealing with sensitive content like deepfakes.

Impact:
 The DPS helps platforms follow the DPDP Act and improves data privacy practices.
 The program works with governments, regulators, and industry sectors to enhance cybersecurity
and privacy rules.
 As DSCI trains more DPOs, it will improve data protection practices and build trust across the
country.

Cyber Security Breach – Case of Sun Pharma (2023)

Overview:
Sun Pharma, a leading pharmaceutical company, faced a major ransomware attack in 2023. A hacker group
claimed to have breached its IT systems, stealing sensitive company and personal data.
Key Timeline:
 March 2, 2023: Sun Pharma reported a cyber incident and isolated affected systems.

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  March 27, 2023: A ransomware group claimed responsibility for stealing data.
 Post-Attack Measures: The company took immediate steps to contain the breach, isolate its
network, and secure systems—though this affected business operations.

Impact:
 Core operations were initially unaffected, but network isolation led to disruptions.
 Financial impact uncertain; possible revenue drop and future legal consequences.

Why Pharma Sector is Vulnerable:

1. Valuable IP: Research data, patents, and clinical trials are key targets.
2. Sensitive Data: Includes patient info, trial results, regulatory filings—useful for fraud/blackmail.
3. Complex Networks: Numerous partners and vendors increase insider threats.
4. Global Presence: Cyberattacks can affect operations worldwide.
5. Weak Cybersecurity: Often underfunded and under-prioritized.
6. Multiple Exploitation Points: Opportunities for ransomware, data leaks, insider trading, etc.

Conclusion:
This case underlines the critical need for strong cybersecurity in the pharma sector and highlights
growing threats in India’s healthcare industry—one of the most targeted sectors globally.

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Lesson: 7 (Concept Of Governance In Professional Managed Company & Promoters Driven Company)
Certain provisions of Corporate Governance in a Family-Owned Companies have been incorporated
in the Companies Act, 2013 such as:
1. Independent Directors and Women Directors:
• In a Listed Company at least 1/3rd of the total directors of a listed company to be Independent
Directors.
• Unlisted Public companies with paid up share capital of Rs. 10 Crores or more.
• Turnover of Rs. 100 crore or more.
• Aggregate outstanding loans, debentures, and deposits, exceeding Rs. 50 Crores are statutorily required
to have at least 2 directors as Independent Directors.

To ensure diversity on the board, all listed companies and non-listed public companies having paid up share
capital more than Rs.100 Crores or more or turnover Rs.300 Crores or more are required to have at
least one-woman director on the board.
2. Audit Committee: The Act provides for the setting up of an Audit Committee comprising of at least 3
directors by all listed companies, majority of which have to be independent directors.
3. Nomination and Remuneration Committee: The Nomination and Remuneration committee shall
comprise of 3 or more non-executive directors out of which at least half shall be Independent Directors. Such
committee shall identify persons qualified to become directors of the company and make recommendations
to the board of directors regarding their appointment and approval.
4. Corporate Social Responsibility: Every company having net worth of Rs. 500 Crores or more, turnover
exceeding Rs. 1000 Crores or net profit of more than Rs. 5 Crore is required to constitute a Corporate Social
Responsibility Committee under Section 135 of the Companies Act, 2013 constituting 3 or more directors
with at least 1 Independent Director.
5. Serious Fraud Investigation Office: Section 211 of the Act provides for the establishment of a Serious
Fraud Investigation Office to look into the affairs of the company and investigate incidences of fraud upon
receipt of report of the Registrar or inspector or generally in the public interest or request from any
Department of Central or State Government.

Governance Challenges in Family-Owned Businesses

1. Diverse Opinions:
Managing differing opinions and resolving disputes among family members involved in the business can
be difficult.
2. Investor Distrust:
Investors (shareholders and creditors) may be wary of family-controlled companies due to the risk of
abuse of power by the controlling family. This creates a need for careful scrutiny before investing.
3. Hiring External Staff:
External staff may feel excluded from career advancement or decision-making processes, as these are
often controlled by family members.
4. Leadership Succession Issues:

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 o Leadership struggles between generations (incumbent and incoming) often lead to
communication gaps. The succession process is not always planned well, causing complications
when transitioning leadership.
o Post-succession roles for the incumbent are often not well-defined, leading to confusion and
conflict.
5. Succession Planning:
Family businesses often overlook the succession process. Key issues include:
o Entry of new family members into the business.

o Retirement of current leaders and mechanisms for conflict resolution.

o Space in the business for younger generations depends on the company’s success, and they may
find it difficult to prove themselves.
6. Changing Mindsets:
o Differences in viewpoints between older and younger generations often create tension, especially
when adapting to new economic realities.
7. Lack of Competitiveness:
o Many family businesses, especially those that grew under government protection before India’s
economy opened in 1991, faced challenges in adapting to competitive pressures. This led to
tensions and, sometimes, divisions within families.

Key Learnings from the KPMG 2022 Family Business Benchmark Survey:
1. 2022 Family Business Benchmark by KPMG
KPMG's survey covered 253,552 family businesses from 11 metropolitan regions in Germany, offering
insights into their governance structures and financial performance:
 Strategy for Longevity: Family-owned businesses tend to prioritize longevity, independence, and
security, holding higher cash reserves, high equity ratios, and ownership of fixed assets. They are
more willing to invest compared to non-family businesses.
 Financial Performance: Family businesses generally show higher turnover and profitability than
non-family businesses, based on capital.
 Ownership Structure: 74% of family businesses have shares concentrated in one family or a small
group. Also, 78% are run by at least one family shareholder.
 Gender Diversity: 8.7% of family businesses are led by women, compared to 7.7% in non-family
businesses.
 Employment: Family businesses make up approximately 90% of businesses in metropolitan areas
and provide up to 80% of jobs.

Key Takeaways from the 2021 EY and University of St. Gallen Family Business Index:

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This index ranks 500 family-owned businesses globally by revenue, revealing their significant contribution
to the global economy:
 Revenue and Employment: These businesses generate US$7.28 trillion in revenue and employ
24.1 million people, making them the third-largest economic contributor globally.
 Generational Success: Some family businesses, like Japan’s Takenaka Corporation, have been in
operation for over 400 years, with many German businesses being over 100 years old.
 Board Composition: Out of 4,418 board seats across these businesses, 1,041 are held by family
members. 17% of family members on boards are women, aligning with global industry
benchmarks. 1 in 5 businesses includes a next-generation member on the board or management
team.
 Sustainability Focus: 53% of these businesses report ESG metrics. Companies are increasingly
emphasizing sustainability, with younger generations (Gen Z and Millennials) pushing for
sustainable lifestyles and products.

Key Insights from PwC's Family Business Survey 2023:

PwC’s survey of 2,043 family business owners across 82 territories focuses on trust as a key competitive
advantage for family businesses:
 Trust as a Pillar: The survey highlighted four pillars of trust: competence, motive, means, and
impact. These pillars guide how businesses should build and maintain trust.
 ESG and DEI Challenges: Many family businesses are slow to adapt to modern expectations
regarding environmental, social, and governance (ESG) issues and diversity, equity, and
inclusion (DEI).
o 59% do not communicate their purpose externally.

o 84% do not take a public stance on important issues.

o 85% lack a clear and communicated ESG strategy.

o 79% do not have a purpose statement promoting DEI.

 NextGen Survey: PwC’s Global NextGen Survey 2022 reveals that future family business leaders
are focusing more on growth rather than ESG as a means of securing their legacy.

Key Insights from the India-State of Family Business Report by SPJIMR:

This survey studied 350 family businesses across 50 cities in India, categorizing them into large,
medium, small, and micro enterprises. Key findings include:
 Challenges in Family Businesses:
o Succession Issues: A lack of a clear successor and succession plan is a major concern. The
senior generation often has no retirement age or a defined roadmap for the next
generation's leadership induction.

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 o Roles and Responsibilities: There is a lack of clearly defined roles for family managers,
including women.
o Conflict Resolution: Many family businesses lack a conflict resolution mechanism, which
can lead to tensions and hinder business progress.
o Reluctance to Let Go: Many senior family members are reluctant to hand over the reins to
the next generation, often due to issues like lack of interest or capability in the younger
generation, or family conflicts.
 Governance and Succession: While businesses are governed by strong values and a code of
conduct, aspects like family governance and succession planning are not sufficiently prioritized,
leading to unclear succession timing and reluctance to transfer control.

Key Takeaways from the Deloitte India Business Survey Report 2022 on Family-Owned Businesses:
1. Governance Structure and Family Harmony:
o Family businesses must strive to establish clear governance structures to ensure alignment
on values, vision, and purpose. These structures help manage conflicts and maintain
balance between tradition and innovation as multiple generations become involved.
2. Conflict Resolution Mechanisms:
o More than half of the respondents highlighted the importance of a family constitution, which
includes provisions on wills, entry/exit rules, and conflict resolution mechanisms.
Regular family meetings are also seen as crucial for fostering communication, transparency,
and unity.
3. Succession Planning in Ownership and Management:
o A clear succession plan for leadership roles is critical to avoid conflicts and ensure business
continuity. This includes involving the next generation in decision-making, setting
performance expectations, and providing leadership development programs to prepare
them for future roles.
4. Non-Family Leadership:
o Over 50% of respondents have appointed non-family leaders to manage the business,
especially as the company expands. These leaders often act as a bridge, helping develop
family members for future leadership roles. However, some still prefer to retain both
ownership and management within the family.
5. Leadership Development Programs:
o More than two-thirds of respondents have formal leadership development programs for
the next generation. These programs facilitate the transfer of knowledge and heritage and
help develop business management skills.
6. Independent Directors on the Board:
o Many family businesses have external professionals on their boards to provide unbiased
governance. Some respondents, however, prefer hiring advisors to support the family-led

15
 boards in areas such as conflict resolution, succession planning, and strategic decision-
making.

Insights on Longevity in Family Businesses in Germany and Japan

1. German Family Businesses: Legacy and Stability:
o Germany is home to some of the world’s oldest family-owned companies, such as The Coatinc
Company Holding GmbH (founded in 1502), William Prym Holding GmbH (1530), and Freiherr
von Poschinger Glasmanufaktur (1568). Research by the Foundation for Family Businesses
shows that nine of the oldest family businesses in Germany have been under family
ownership for over 400 years, suggesting a deep-rooted commitment to heritage and a steady
governance approach that prioritizes long-term stability.
2. Japanese Family Businesses: The Concept of ‘Ie’:
o Japan holds a unique approach with the concept of ‘ie’, meaning “family or home”. This idea
prioritizes the survival and prosperity of the business unit as paramount, often over familial
ties. Japanese family businesses, such as Nishiyama Onsen Keiunkan (founded in 705 AD) and
Sudo Honke sake brewery (founded in 1141). The head of the 'ie' (business-family) is
responsible for choosing their successor, often selecting an adopted child over biological
children if the adopted heir is deemed more capable. This ensures that the business survives
and prospers.
3. Adoption for Business Survival:
o Companies like Suzuki, Canon, Kikkoman, and Toyota have implemented this practice,
where adopted heirs (often from outside the immediate family) are chosen as successors to
ensure the future stability of the business.

Governance Comparison: Promoter-Driven vs. Professionally Managed Companies:

1. Chairman’s Independence
 Professionally Managed (e.g., ITC, HDFC, L&T): These companies tend to have independent
chairs, ensuring unbiased decision-making and greater accountability. The chairman does not hold
ownership stakes, which enhances transparency and objectivity in governance.
 Promoter-Driven (e.g., Bharti Airtel, Bajaj Auto, Tata Motors): In these companies, the chairman
is often a family member or closely linked to the promoters. This can influence decisions in favor of
family interests, potentially compromising governance objectivity. However, it can also strengthen
family values and strategic direction.
2. Separation of Ownership and Management
 Professionally Managed: There is a clear separation between ownership and management, with
professional management teams running day-to-day operations. This encourages efficiency, long-
term growth, and reduces interference from owners, fostering a dynamic and flexible business
environment.

16
  Promoter-Driven: Family members often hold management roles, leading to more direct
involvement in decision-making. While this preserves the family’s vision and cohesion, it may limit
professional expertise and create challenges in adapting to changing market conditions.
3. Promoter's Holding
 Professionally Managed: Ownership is generally widely distributed among public shareholders.
This dispersal supports a governance structure focused on shareholders' interests and broadens
decision-making input.
 Promoter-Driven: Promoters typically maintain a substantial shareholding, allowing them
significant control over company decisions. While this can facilitate quick decision-making, it may
also concentrate power in the hands of a few, raising potential governance concerns, such as limited
accountability and oversight.
4. Sustainability-Focused Approach
 Professionally Managed: These companies tend to have a stronger focus on sustainability, driven
by external shareholder expectations and regulatory demands. They integrate ESG (Environmental,
Social, Governance) metrics and best practices to align with industry standards and ensure long-
term viability.
 Promoter-Driven: While family values and reputation often shape sustainability efforts, the
approach can vary depending on the family’s priorities. Some promoter-led firms adopt sustainable
practices, but their strategies may not always align with global standards or industry trends.
5. Succession Planning
 Professionally Managed: Succession planning is typically merit-based, focusing on leadership
qualities rather than familial ties. This ensures continuity without relying on family lineage,
promoting professional growth and long-term stability.
 Promoter-Driven: Succession is usually centered around family members, with leadership passed
to the next generation. While this preserves the family legacy, it may result in less objective
decision-making during leadership transitions, especially if capable non-family candidates are
overlooked.
6. Business Continuity Plans
 Professionally Managed: These companies generally have structured business continuity plans,
emphasizing operational stability and minimizing the impact of key person dependency. This
approach ensures that the company remains resilient to external disruptions and leadership changes.
 Promoter-Driven: In family-run businesses, continuity plans may not be as formalized, and family
involvement can affect decision-making during generational transitions. This may create challenges
in ensuring smooth leadership succession and maintaining operational consistency.
7. Conflict Management
 Professionally Managed: Conflicts are managed through formal structures and protocols,
emphasizing open communication and transparency. External professionals, such as legal advisors
and HR consultants, help resolve disputes in a structured and impartial manner.

17
  Promoter-Driven: Conflict resolution in family businesses can be more complex, as personal
relationships and family dynamics often play a significant role. Decisions may be influenced by
internal family politics, and conflict resolution can be more informal, potentially limiting
transparency and objectivity.

Case Studies Analysis and Findings: Governance Structure Comparison

1. Chairman’s Independence:
Importance of Independence: Shareholders generally value robust corporate governance, particularly
in public companies where shareholders are diverse. This underscores the need for an independent
Chairman, which supports objective decision-making.
Observations:
o Most of the companies exhibit a high level of Chairman independence. However, ITC is an
exception, where the Chairman is also an Executive Director, suggesting potential governance
limitations.
o In family-owned companies, Bharti Airtel and Tata Motors showcase independence well, with
Bharti Airtel having a Non-Promoter Chairman, and Tata Motors with a Non-Executive, Non-
Promoter Chairman. Bajaj Auto’s Chairman is non-executive but also a Promoter, presenting a
partial alignment with independence standards.
o Professionally managed companies like HDFC maintain optimal Chairman independence,
enhancing governance quality.
2. Separation of Ownership and Management:
Importance of Separation: This separation is critical in reducing conflicts of interest and promoting
professional management, especially in large conglomerates. Observations:
o Four out of the six companies maintain a clear separation between ownership and
management roles. However, ITC lacks this separation, which raises concerns given its large
operational scale and diversified nature. Such overlap can potentially limit objective
governance in a conglomerate of its size.
3. Promoters Holding:
Observations:
o ITC and L&T are public-owned with no promoter holdings, indicating a democratic structure.
Despite ITC’s governance weaknesses in other areas, its absence of promoter holdings
positively impacts its governance structure.
o HDFC has a relatively low promoter holding (25.63%), enhancing its democratic nature.
However, family-driven businesses show higher promoter holdings: Bharti Airtel (55.02%),
Bajaj Auto (54.98%), and Tata Motors (45.81%).
o Higher promoter holdings in family-managed businesses tend to concentrate decision-making
power within the family, potentially limiting broader shareholder influence.
4. Impact of Promoter Holding on Financial Performance:

18
 To examine the relationship between promoter holding and financial performance, regression
analysis was conducted using financial metrics from 2018–2022.
Findings:
o The analysis showed varying impacts of promoter holding on these metrics across companies.
Generally, higher promoter holdings correlate with stronger PBDIT and PBIT margins in
family-owned firms. However, for publicly held or professionally managed companies, the
impact is less pronounced, possibly due to diversified ownership and external management
practices.
5. Succession Planning:
 All six companies have implemented solid succession plans, signifying their commitment to long-
term stability.
 Family-managed example: Bharti Airtel’s board, along with its HR & Nomination Committee, closely
monitors succession and talent management initiatives.
 Professionally managed example: HDFC has a Nomination and Remuneration Committee and Board of
Directors that regularly review succession planning for both board and senior management roles,
ensuring seamless transitions.
6. Business Continuity Plan (BCP):
 Companies have recognized the importance of BCPs, adopting various measures to mitigate
disruptions.
 These include disaster management protocols, work-from-home policies, comprehensive risk
management frameworks, and effective internal audits. For project-based companies, readiness at
each site reflects a proactive approach to maintain continuity.
7. Sustainability Focused Approach:
 All companies have shown strong commitment to sustainability, demonstrated by the establishment
of dedicated committees such as ESG, Safety, Health, and Sustainability Committees.
 These bodies provide strategic guidance, make annual policy reviews, and oversee sustainability
implementation. By integrating sustainability into governance, companies aim to bolster their long-
term viability.
8. Conflict Management:
 Conflict management frameworks are well-structured, with mechanisms like codes of conduct,
regular senior management disclosures to the board (aligned with SEBI Listing Regulation 17(4)),
and periodic succession planning reviews.
 The emphasis on matching board composition with the required skill sets and expertise further
strengthens conflict management efforts, allowing the companies to minimize internal discord and
ensure balanced governance.

Marico Limited: Professionalization of the Board

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Marico Limited, founded by Harsh Mariwala, is a prime example of a family-run business transitioning into a
professionally managed company. Mariwala transformed his family-owned commodities trading business
into a leading FMCG company. In 2014, he took a major step towards professionalizing the company by
appointing a professional Managing Director (MD), Saugata Gupta, and distancing himself from day-to-day
operations. Mariwala moved to a non-executive chairperson role, allowing a professional team to manage
the company.
Notably, Mariwala's children, Rishabh and Rajvi, are no longer involved in the company’s management or
board, highlighting the family’s commitment to professional leadership. Mariwala expressed his intention to
make himself redundant over time, signalling a clear alignment of the promoter’s interests with those of
other stakeholders.
By investing in professional leadership and stepping away from day-to-day operations, Mariwala ensured
that the interests of the promoter group were aligned with those of other stakeholders. This move helped
improve the company's market perception, signaling a commitment to transparency, effective governance,
and sustainability.

Godrej Group: Clear Responsibilities for the Next Generation

The Godrej Group, another prominent family-run conglomerate, has also successfully professionalized its
governance structure while retaining significant family involvement. Adi Godrej, a third-generation
promoter, oversees the group alongside family members and professional managers.
The group’s governance approach involves clearly defined roles for the next generation based on their
individual strengths. For instance, Adi Godrej’s daughter Tanya Dubash is an Executive Director of Godrej
Industries, overseeing branding efforts, while his second daughter Nisaba Godrej serves as Executive
Chairperson of Godrej Consumer Products. His son, Pirojsha Godrej, manages the real estate business. The
group also hired a facilitator to assist with succession planning, ensuring that family members entering
management roles are well-qualified.
The involvement of professionals such as Vivek Gambhir, MD at Godrej Consumer Products, alongside
family members, reflects a balanced approach to governance. The succession plan ensures both family
legacy and professional management, providing a clear structure for leadership transitions.

Way Forward: Enhancing the Sustainability and Growth of Family Businesses

Family businesses have always been the backbone of many economies, especially in emerging markets like
India. Despite facing unique challenges, family-run businesses continue to play a pivotal role in economic
growth, contributing significantly to GDP and providing employment to millions. The way forward for
these businesses, especially in today’s rapidly evolving world, lies in their ability to adapt and embrace new
strategies while retaining the core values that have enabled their success over generations.
Way Forward for Family-Driven Businesses
Unlike typical companies, family businesses are driven by values and principles passed down through
generations. These values help them handle tough situations and build strong partnerships.
The key principles behind family businesses include:
 Trust and Integrity
 Kinship and Brotherhood

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Despite the challenges, family businesses have the potential for sustained growth if they take proactive steps
to professionalize and innovate. By blending traditional values with modern business practices, family
businesses can continue to be pillars of economic stability and contribute to national growth.
As globalization continues to increase competition, the need for professional management and adoption
of global best practices becomes critical. By embracing these strategies, family businesses can build on
their legacy and carve a path for future success.

Lesson: 14 (Corporate Social Responsibility)

Corporate Social Responsibility (CSR), also known as Corporate Citizenship or Corporate

Responsibility, involves companies embedding social, environmental, and economic concerns into their
values, culture, and operations in a transparent and accountable way. CSR is the practice of conducting
business responsibly to create a positive societal impact. This may include managing a company’s economic,
environmental, and social actions to generate value not just for shareholders but for society as a whole.
Importance of CSR to Business Sustainability:
CSR plays a crucial role in promoting the long-term sustainability of a business across several dimensions:
 Reduction in Operating Costs
 Increased Sales and Customer Loyalty
 Higher Productivity and Quality
 Access to Capital.
 Boost in Brand Image and Reputation
 Attracting and Retaining Employees
 Reduced Regulatory Oversight.

The Corporate Social Responsibility (CSR) provisions under Section 135 of the Companies Act, 2013,
along with Schedule VII and the Companies (CSR Policy) Rules, 2014, outline the framework for eligible
companies to create, implement, and oversee CSR activities.
Eligibility for CSR Compliance
According to Section 135, CSR requirements apply to every company meeting any of the following financial
criteria in the immediately preceding financial year:
1. Net worth of ₹500 crore or more,
2. Turnover of ₹1,000 crore or more,
3. Net profit of ₹5 crore or more.

Companies meeting any of these thresholds are mandated to engage in CSR and establish a Corporate
Social Responsibility Committee.

CSR Committee Composition

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The CSR Committee must consist of at least 3 directors, with at least 1 independent director. However:
 If a company is not required to appoint an independent director under Section 149(4), the CSR
Committee should have two or more directors instead.
Responsibilities of the CSR Committee and the Board
CSR is a board-driven process, empowering the Board of Directors to:
1. Formulate the CSR policy and determine the activities to be undertaken, guided by Schedule VII.
2. Plan, approve, execute, and monitor CSR projects based on recommendations from the CSR
Committee.

Applicability of Section 135 on holding, subsidiary, or foreign companies under the Companies
(Corporate Social Responsibility Policy) Rules, 2014 (Rule 3)
1. General Applicability: All companies, including their holding or subsidiary companies, and any
foreign company (as per Section 2(42) of the Companies Act, 2013) with a branch or project office in
India, are required to comply with CSR provisions if they meet the criteria specified under Section
135(1) of the Act. This means:
o If a holding, subsidiary, or foreign company meets the criteria based on net worth, turnover, or
net profit, it must implement CSR provisions.
2. Financial Calculation for Foreign Companies:
o For foreign companies, net worth, turnover, or net profit should be computed based on the
balance sheet and profit and loss account prepared according to Section 381(1)(a) and
Section 198 of the Companies Act, 2013.
3. CSR Committee Requirement for Unspent CSR Funds:
o Any company with an Unspent Corporate Social Responsibility Account as per Section
135(6) must form a CSR Committee and adhere to all provisions from sub-sections (2) to (6)
of Section 135. This is to ensure that funds allocated for CSR are effectively governed and utilized.

CSR Committee (Rule 3 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 and
Section 135 of the Companies Act, 2013.)
Requirements for CSR Committee Composition
1. Companies Not Required to Appoint an Independent Director:
o For a company that qualifies under Section 135(1) but does not require an independent
director as per Section 149(4), the CSR Committee can be formed without an independent
director.
2. Private Companies with Only Two Directors:
o If a private company has only two directors on its board, it can form the CSR Committee with
those two directors.
3. Foreign Companies:
o For foreign companies that fall under the CSR applicability rules, the CSR Committee should
include at least two members:
 One person as required by Section 380(1)(d) of the Companies Act, 2013 (an Indian
representative authorized to accept notices).

22
  Another person nominated by the foreign company.
Compositio
n of the CSR Committee:
The composition of the CSR Committee for various categories of companies is as follows:
1. Listed Companies:
 Minimum number of directors: 3 or more
 Requirement: One independent director.
2. Unlisted Public Companies:
 Minimum number of directors: 3 or more
 Requirement: At least one independent director.
 Exception: If there is no requirement to have an independent director in the company, then 2 or
more directors may suffice.
3. Private Companies:
 Minimum number of directors: 2 or more
 Requirement: No independent directors are needed as per the proviso under Section 135(1) of the
Companies Act, 2013.
4. Foreign Companies:
 Minimum number of persons: 2
o First person: As specified under clause (d) of subsection (1) of section 380 of the Act.
o Second person: Nominated by the foreign company.
For
Companies Not Required to Have a CSR Committee (Section 135(9)):
For companies where the CSR expenditure does not exceed ₹50 lakh, the CSR Committee functions are to
be carried out by the Board of Directors instead.
Responsibil
ities of the Board in relation to the CSR provisions:
1. Approve the CSR policy: The Board is responsible for approving the CSR policy of the company.
2. Disclose the CSR policy: The company must disclose the contents of the CSR policy in its report, and it
should be placed on the company's website if available.
3. Ensure implementation of CSR activities: The Board must ensure that the activities outlined in the
CSR policy are effectively carried out by the company.
4. Ensure proper utilization of CSR funds: The Board should satisfy itself that the CSR funds are being
utilized properly for the activities they were intended for.
5. Spend at least 2% of average net profits: The Board is responsible for ensuring that the company
spends at least 2% of its average net profits (calculated over the last three financial years) on CSR
activities each year.
6. Report reasons for not meeting the CSR expenditure: If the company fails to spend the required 2%
of its profits, the Board must specify the reasons in the report and ensure that any unspent CSR funds are
transferred as per the provisions of Sections 135(5) and 135(6) of the Companies Act.
Annual
Action Plan:
The Annual Action Plan formulated by the CSR Committee and recommended to the Board should include
the following key components:

23
1. List of CSR Projects approved to be undertaken, specifically as per Schedule VII of the Companies Act,
2013.
2. Manner of Execution of such projects or programmes as outlined in sub-rule (1) of rule 4 of the
Companies (CSR Policy) Rules, 2014.
3. Utilisation of Funds and Implementation Schedules for each project or programme.
4. Monitoring and Reporting Mechanism for the projects or programmes.
5. Need and Impact Assessment, if applicable, for the projects undertaken by the Company.
CSR Policy:
The CSR Policy is a document that outlines the company's commitment and approach towards corporate
social responsibility. The responsibilities related to the CSR Policy are as follows:
Responsibilities of the CSR Committee:
1. Formulate and Recommend the CSR Policy: The CSR Committee is responsible for formulating and
recommending a CSR policy to the Board. This policy should indicate the activities to be undertaken by
the company, focusing on areas specified in Schedule VII of the Companies Act, 2013.

2. Recommend the Expenditure: The CSR Committee must also recommend the amount of expenditure to
be incurred on the CSR activities outlined in the policy.

3. Monitor the CSR Policy: The Committee must monitor the CSR Policy regularly to ensure its proper
implementation.

4. Formulate and recommend an annual action plan to the Board as outlined in Rule 5(2) of the
Companies (CSR Policy) Rules, 2014.
Spending of
CSR Amount:
Under Section 135(5) of the Companies Act, 2013, every company that meets the specified criteria must
allocate at least 2% of its average net profits over the past three financial years (or since incorporation, if
fewer than three years) towards Corporate Social Responsibility (CSR) activities.
Key Provisions:
1. Minimum CSR Spending:
o The company must spend at least 2% of its average net profits made during the three
immediately preceding financial years on CSR activities, as per the CSR policy.
o For companies that haven’t completed three financial years, the spending will be based on the
profits earned during those years.

2. Preference for Local Areas:

o The company is encouraged to focus CSR spending in local areas where it operates or has its
business presence.

3. Failure to Spend the CSR Amount:

o If a company fails to meet the 2% CSR spending requirement, the Board must explain the
reasons for non-compliance in the company’s annual report.
o If the unspent amount is not related to ongoing projects, it must be transferred to a fund
specified in Schedule VII (e.g., PM CARES Fund, National Relief Fund, etc.) within 6 Months
from the end of the financial year.

24
4. Excess Spending and Carry Forward:
o If a company spends more than the required amount in one financial year, it can carry forward
the excess spending to set off against its CSR obligations for 3 Years.
o The excess amount can be offset in succeeding financial years as per the prescribed rules.
CSR
Expenditure:

1. Administrative Overheads:
o The administrative overheads for CSR activities must not exceed 5% of the total CSR
expenditure of the company in any given financial year.

2. Surplus from CSR Activities:

o Any surplus that arises from CSR activities (e.g., leftover funds) cannot be counted as part of the
company’s business profit.
o The surplus should be either:
 Reinvested into the same CSR project, or
 Transferred to the Unspent CSR Account and spent according to the company’s CSR
policy and annual action plan.
o Alternatively, the surplus can be transferred to a fund specified in Schedule VII (e.g., PM
CARES Fund, National Relief Fund, etc.) within six months of the end of the financial year.

3. Excess CSR Spending:

o If a company spends more than the required CSR amount (2% of average net profits), it may
carry forward the excess spending to offset its CSR obligations in the following years.
o However, certain conditions apply:
 The excess spending cannot include the surplus from CSR activities (which should be
dealt with separately).
 The Board of the company must pass a resolution approving the carry forward of
excess spending.
Under the
Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, a company may use its
CSR funds to create or acquire capital assets, but such assets must be held by one of the following entities:
1. Section 8 Company, Registered Public Trust, or Registered Society having charitable objectives
and a CSR Registration Number.
2. Beneficiaries of the CSR Project in the form of self-help groups, collectives, or other entities.
3. Public Authority.

For assets created prior to the Amendment Rules coming into force, companies have 180 days from the
date of commencement to align with this requirement, with an optional 90-day extension if approved by the
Board based on reasonable justification.
Modes of
Incurring CSR Expenditure
CSR spending can be undertaken in the following ways:
1. Activities Route: This is a direct approach where a company conducts CSR projects or programs itself
or through implementing agencies, as per Schedule VII of the Companies Act.

25
2. Contribution to Funds Route: Contribution to specified funds listed in Schedule VII of the Act.
3. Contribution to Incubators and R&D Projects: Contribution to incubators and research and
development activities via:
o Item (ix)(a): Contributions to government-approved incubators and R&D projects.
o Item (ix)(b): Support to institutes and organizations engaged in R&D projects.
CSR
Implementation: Conducting Activities (Rule 4(1))
CSR activities can be undertaken by:
1. The Company Itself: A company can execute its CSR activities directly.
2. Other Entities: CSR activities can also be conducted through other entities with specific qualifications:
o Companies or Trusts: Established under Section 8 of the Companies Act, a registered public
trust, or a registered society, with exemptions under relevant clauses of the Income Tax Act and
having approval under Section 80G for tax exemption.
o Government-Established Entities: Entities established by the Central or State Government.
o Statutory Entities: Established by an Act of Parliament or State Legislature
o Other Companies or Trusts with a Proven Record: Companies, public trusts, or societies that
meet the same tax exemption requirements and have at least a three-year track record in
similar activities.
Registratio
n Requirement for CSR Entities (Rule 4(2))
 Mandatory Registration: Any entity undertaking CSR activities must register with the Central
Government by filing Form CSR-1 electronically with the Registrar from April 1, 2021.
 Grandfathering Provision: CSR projects approved before April 1, 2021, are not affected by this rule.
 Form Verification: CSR-1 must be signed and digitally verified by a Chartered Accountant, Company
Secretary, or Cost Accountant in practice.
 Unique Registration Number: Upon submission, a unique CSR Registration Number is generated
automatically, aiding in the tracking and regulation of entities involved in CSR.
Engagemen
t with International Organizations (Rule 4(3))
Companies can engage international organizations for the design, monitoring, and evaluation of CSR
projects as well as capacity building of company personnel involved in CSR.
Collaborati
on with Other Companies (Rule 4(4))
Joint CSR Projects: Companies may collaborate with other companies for CSR projects, programs, or
activities. However, each company’s CSR committee must be able to report separately on these joint
projects.

26
 Utilization
of Funds (Rule 4(5))
Fund Utilization Oversight: The company’s Board must confirm that CSR funds are used solely for
approved purposes. This verification must be certified by the Chief Financial Officer (CFO) or the person
responsible for financial management, ensuring proper fund allocation and compliance.
Ongoing
Projects (Rule 4(6))
Monitoring and Flexibility: For projects extending over multiple financial years, the Board is responsible
for monitoring progress based on approved timelines and yearly budget allocations. It also has the
authority to make modifications, if necessary, to ensure smooth project execution within the allowed
timeframe. I
mpact Assessment: Companies undertaking CSR projects with significant budgets or large-scale impact
may conduct impact assessments to measure the effectiveness and long-term benefits of CSR activities.
This can help guide future CSR strategies and refine project execution, ensuring positive societal and
environmental outcomes.

Mandatory Independent Assessment: Companies with an average CSR obligation of ₹10 crore or more in
the preceding three financial years must conduct impact assessments. This is specifically required for CSR
projects with individual outlays of ₹1 crore or more that were completed at least one year prior to the
assessment.

Board Reporting: The Impact Assessment Report must be submitted to the Board of Directors.
Additionally, the report should be included in the company's annual CSR report, providing transparency and
accountability to stakeholders.

Expenditure Ceiling for Impact Assessment

Companies may allocate CSR funds to cover impact assessment expenses, but this spending is capped at:
 2% of the total CSR expenditure for that financial year, or
 ₹50 lakh, whichever is Higher.

Independent Agency Requirement: Rule 8(3) mandates that CSR impact assessments must be conducted
by an independent agency. Although “independent agency” is not defined under the Companies Act or CSR
Rules, the term implies that the agency should not be a related party under Section 2(76) of the Companies
Act, 2013. The Board of Directors has the discretion to determine the criteria for selecting an eligible
independent agency.
Unspent
CSR Amount (Section 135(6))
 Transfer of Unspent Amount: If a company has an unspent CSR amount for an ongoing project at the
end of the financial year, it must transfer this amount to a special account called Unspent CSR Account
in a scheduled bank within 30 days from the end of the Financial Year. The company must then spend
this amount on the specified CSR projects within 3 Financial Years.
 Transfer to Schedule VII Fund: If the unspent amount remains in the account beyond this period, the
company must transfer it within 30 Days after the 3-year period to a fund specified in Schedule VII
of the Act.

27
 Penalty for
Non-Compliance (Section 135(7))
 Company Penalty: For failing to transfer unspent amounts to either the Unspent CSR Account or
Schedule VII Fund, a company is liable to pay a penalty of twice the amount to be transferred by the
Company to the Unspent CSR Account or the Fund or ₹1 crore, whichever is Lower.
 Officer Penalty: Each officer in default will be subject to a penalty of one-tenth of the amount to be
transferred by the Company to the Unspent CSR Account or the Fund or ₹2 lakh, whichever is Lower.
Central
Government Directions – Section 135(8)
Authority to Issue Directions: The Central Government has the power to provide general or specific
directions to companies or classes of companies to ensure compliance with CSR provisions. Companies must
follow any such directives as instructed.
Exemption
from CSR Committee Constitution – Section 135(9)
CSR Committee Requirement Exemption: Companies with a CSR spending requirement of ₹50 lakh or
less under Section 135(5) are exempted from establishing a CSR Committee. Instead, the Board of Directors
takes on the responsibilities typically handled by the CSR Committee.
Eligible CSR
Activities – Schedule VII
1. Eradicating Hunger, Poverty, and Malnutrition
o Includes promoting healthcare, sanitation, safe drinking water.

2. Promoting Education
o Including general education, special education, skill development, and livelihood enhancement
for children, women, elderly, and differently-abled individuals.
o Example: CSR spending on the “Har Ghar Tiranga” campaign was recognized as an eligible
activity, as it promotes cultural education related to national pride.

3. Promoting Gender Equality and Empowerment

o Supports gender equality, empowerment of women, establishment of homes for women and
orphans, old age homes, daycare centers, and efforts to reduce inequality for disadvantaged
groups.

4. Promotion of Sports
o Training and initiatives that promote rural sports, as well as national, paralympic, and Olympic
sports.

5. Environmental Sustainability
o Covers activities promoting environmental sustainability, protection of flora and fauna, animal
welfare, agroforestry, natural resource conservation, and contributions to the Clean Ganga Fund.

6. Protection of National Heritage

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 o Includes restoration of heritage sites and buildings, promotion of traditional arts and handicrafts,
establishment of public libraries, and efforts to preserve national culture.

7. Support for Armed Forces Veterans and Dependents

o Includes welfare measures for armed forces veterans, war widows, their dependents, and for
veterans and families of Central Armed Police Forces (CAPF) and Central Para Military Forces
(CPMF).

8. Prime Minister’s National Relief Fund and Other Funds

o Contributions to the Prime Minister’s National Relief Fund (PMNRF), PM CARES Fund, or any
other fund set up by the central government for socio-economic development, especially
benefiting Scheduled Castes, Scheduled Tribes, OBCs, minorities, and women.

9. Research and Development in Science and Technology

o Includes contributions to:
 Government-funded incubators or R&D projects in fields like science, technology,
engineering, and medicine.
 Public-funded institutions such as IITs, National Laboratories, and autonomous
bodies under central government departments like DAE, DBT, DST, and AYUSH.
 Institutions like DRDO, ICAR, ICMR, and CSIR that support research promoting
Sustainable Development Goals (SDGs).

10. Rural Development Projects

o Initiatives aimed at the development and upliftment of rural areas.

11. Slum Area Development

o Development and improvement of slum areas as designated by the Central or State Government
or other competent authorities.

12. Disaster Management

o Activities related to disaster management covering relief, rehabilitation, and reconstruction
efforts for affected communities.
Activities
that do not qualify as eligible CSR activities
1. Normal Course of Business:
o Activities that are part of the normal business operations of a company are not eligible for CSR.
o Exception: Companies involved in R&D for new vaccines, drugs, and medical devices related to
COVID-19 may treat such activities as CSR, provided they collaborate with specific organizations
mentioned in item (ix) of Schedule VII (such as government research bodies) and disclose the
same in their Board reports. This exception is available until FY 2022-23.

2. Activities Outside India:

o CSR activities undertaken outside India are not eligible, except for training of Indian sports
personnel representing India at national or international levels.

3. Political Contributions:
o Any contribution made to a political party under Section 182 of the Companies Act.

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4. Employee Benefits:
o Activities that directly or indirectly benefit the employees of the company, as defined under
Section 2(k) of the Code on Wages, 2019.

5. Sponsorships for Marketing:

o Sponsorship activities aimed at deriving marketing benefits for the company’s products or
services.

6. Statutory Obligations:
o Activities undertaken solely to fulfill statutory obligations under any existing law in India.
United
Nation’s SDGs
The United Nations Sustainable Development Goals (SDGs) were established to address the global
challenges humanity faces. These goals are part of the 2030 Agenda for Sustainable Development and are
meant to create a more equitable, just, and sustainable world. Below are the 17 SDGs:
GOAL 1: No Poverty
GOAL 2: Zero Hunger
GOAL 3: Good Health and Well-being
GOAL 4: Quality Education
GOAL 5: Gender Equality
GOAL 6: Clean Water and Sanitation
GOAL 7: Affordable and Clean Energy
GOAL 8: Decent Work and Economic Growth
GOAL 9: Industry, Innovation and Infrastructure
GOAL 10: Reduced Inequality
GOAL 11: Sustainable Cities and Communities
GOAL 12: Responsible Consumption and Production
GOAL 13: Climate Action
GOAL 14: Life Below Water
GOAL 15: Life on Land
GOAL 16: Peace and Justice Strong Institutions
GOAL 17: Partnerships to achieve the Goal
SDG India
Index:
The SDG India Index is a key tool developed by NITI Aayog to assess and monitor the progress of India's
states and union territories (UTs) towards achieving the Sustainable Development Goals (SDGs) set by the
United Nations under the 2030 Agenda.
Key Features of the SDG India Index:
 First Released: The SDG India Index Baseline Report was launched in 2018, providing an initial view
of the country’s performance in relation to the SDGs.
 Focus Areas: The Index focuses on 13 out of 17 SDGs, excluding Goals 12 (Responsible Consumption
and Production), 13 (Climate Action), 14 (Life Below Water), and 17 (Partnerships for the Goals). These
are either covered in a different framework or require additional processes.

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 Indicators: These indicators help evaluate the social, economic, and environmental status across Indian
states and UTs.
 Holistic View: The SDG India Index provides an aggregate score, offering an overview of the country’s
and its states' progress across different SDGs. This score serves as a tool for policymakers, businesses,
and civil society to understand performance and focus on areas requiring improvement, challenges
and gaps, enabling better policy and decision-making.
SDG Index
significance useful to States/UTs in assessing their starting point on the SDGs in the following ways:
1. Support for States/UTs:
 Benchmarking Progress: The Index allows states/UTs to benchmark their performance against
national targets and the performance of other states/UTs. This helps identify areas of improvement
and devise strategies to achieve SDGs by 2030.
 Identify Priority Areas: The SDG India Index helps states and UTs highlight the key areas where they
need to focus on for progress. This is particularly important for states facing challenges in meeting
certain SDG targets.
2. Highlighting Data Gaps:
 One of the outcomes of preparing the SDG India Index was the identification of significant data gaps,
particularly in some regions like the North-East and UTs.
 The unavailability of data on indicators like Maternal Mortality Ratio for certain states and regions
points to the need for stronger statistical systems and improved data collection at both the national and
state levels.
Website
Disclosures:
As per the requirements under the Companies (CSR Policy) Rules, 2014, companies are mandated to
disclose certain CSR-related information on their websites. The key disclosures include:
 Composition of the CSR Committee
 CSR Policy
 CSR Projects Approved by the Board.

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 Lesson: 16 (Governance Influencers)

The Institute of Company Secretaries of India (ICSI)

Overview:
 ICSI is the only recognized professional body in India dedicated to the development and regulation
of the Company Secretaries profession.
 Established under the Company Secretaries Act, 1980, it operates under the Ministry of
Corporate Affairs, Government of India.

Role in Corporate Governance:

 ICSI is a key leader in promoting good corporate governance practices in India.
 Through initiatives in research, education, and professional development, ICSI has significantly
fostered adherence to governance practices.

Motto, Vision, and Mission:

 Motto: Satyma Vada Dharamam Chara - Speak the Truth, Abide by the Law.
 Vision: To be a global leader in promoting good corporate governance.
 Mission: To develop high-caliber professionals who facilitate corporate governance.

ICSI - Centre for Corporate Governance, Research, and Training (CCGRT):

 CCGRT, established in May 1999, is ICSI’s National Research and Training Centre, focused on
corporate governance.
 It conducts professional development programs, research, and training for corporate
governance.
 The CCGRT publishes research and encourages research skills among students and professionals.

ICSI – PMQ Course in Corporate Governance:

 ICSI offers Post Membership Qualification (PMQ) Courses, including one in corporate
governance.
 This course, structured in four stages, provides specialized knowledge in corporate governance for
its members.

ICSI’s Secretarial and Auditing Standards

Secretarial Standards:
 ICSI has established secretarial standards, some of which are mandatory while others are
recommendatory.
 These standards provide guidelines on various corporate issues to help members and corporations
adopt best management practices.

Auditing Standards:
 ICSI has also introduced auditing standards to guide professionals in ensuring transparency and
accuracy in auditing processes.

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ICSI Awards for Excellence in Corporate Governance
National Awards:
 ICSI National Awards for Excellence in Corporate Governance were initiated in 2001 to promote
good governance practices and recognize exemplary companies.

Additional Awards:
 ICSI CSR Excellence Awards
 ICSI Best Secretarial Audit Report Award
 ICSI Best PCS Firm Award
 ICSI Business Responsibility and Sustainability Awards.

Seminars, Conferences, and Workshops

 ICSI organizes seminars, webinars, conferences, and workshops domestically and internationally.
 These events aim to educate and empower students, members, and corporate professionals on
the latest laws, standards, and governance practices, enhancing their implementation in business.

Implementation of Best Practices in Corporate Governance

1. Recognizing leadership efforts of corporate boards in practising good corporate governance principles
in their functioning.
2. Recognizing implementation of innovative practices, programs, and projects that promote the cause
of corporate governance.
3. Motivating corporations to prioritize and integrate sound governance practices into their overall
functioning.

Part B. Investor Associations

Investor Associations
Investor Associations are non-profit organizations established to serve the investor community. Their
purpose is to educate investors on stocks, bonds, mutual funds, and other financial instruments,
inform them about their rights and remedies, and promote awareness.
SEBI Conditions for Operation of Investor Associations
1. Formation
 Must be registered as a society, trust, or company under respective regulations.
 Minimum existence period of 2 years (SEBI may grant exceptions in special cases).
 Primary objective: Protection of investor interests and related services.

2. Membership
 Must have a minimum of 100 members comprising,
o Individual shareholders
o Non-profit organizations
 The association must discontinue membership of any body corporate or institution within three
months after SEBI recognition.

3. Management and Governance

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  Governed by rules, regulations, or bye-laws for governance and management, that comply with
SEBI's recognition conditions.
 Managed by a Governing Board or Management Committee with at least 7 members (directors if
a company), with elections held at least once every 3 years.
 Restrictions on board members:
o Cannot be SEBI-registered intermediaries.
o Cannot serve as directors (except independent professionals) in listed companies.

Role of Investor Associations in Corporate Governance

1. Education and Awareness
 Equip individual investors, especially small ones, understand financial markets, corporate
functioning, and investment nuances.
 Help protect against losses due to misinformation or market malpractices.

2. Grievance Redressal
 Act as a bridge between investors and companies/regulatory bodies.
 Act as representatives for investors to address complaints and seek justice and provide assistance to
resolve issues through proper forums and regulatory bodies.

3. Monitor Best Practices

 Monitor company boards and influence effective corporate governance practices in investee
companies.
 Use collective strength to influence corporate behavior positively.

4. Facilitating Investment Growth

 Facilitate improved conditions for investments and access to opportunities beyond local boundaries.

Part C. Proxy Advisory Firms

Proxy advisory firms are independent entities that assist institutional investors and shareholders by
providing research and voting recommendations. Their purpose is to guide informed voting on corporate
matters like governance policies, mergers, leadership appointments, and executive compensation.
Definition (SEBI Regulation 2(1)(p)):
A proxy advisor is an individual or organization offering recommendations and advice to institutional
investors or shareholders to assist in voting on policy issues or public offers.
Proxy Advisory Firms in India: In India, proxy advisory services are provided by firms like Institutional
Investor Advisory Services (IiAS), InGovern, and Stakeholder Empowerment Services (SES).
Functions of Proxy Advisory Firms
1. Voting Recommendations: Advise institutional investors on whether to vote for or against resolutions
at AGMs, EGMs, and court meetings.
2. Enhancing Participation: Encourage investor involvement in corporate decision-making processes.
3. ESG Analysis: Evaluate Environmental, Social, and Governance factors to assess growth opportunities
and risks.
4. Corporate Governance Analysis: Provide scorecards and ratings on companies’ governance practices.
5. Risk Monitoring: Identify risks in corporate policies and decisions, protecting shareholder interests.

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6. Comprehensive Reporting: Prepare detailed reports for shareholders to simplify decision-making on
complex corporate matters.

Role of Proxy Advisory Firms in Corporate Governance

Proxy advisory firms play a critical role in ensuring adherence to corporate governance standards as
outlined in the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015.
Contributions to Corporate Governance
1. Compliance Support: Help companies align with stringent corporate governance norms, promoting
transparency and accountability.
2. Policy Enforcement: Persuade corporate bodies from ignoring governance norms, as negative
recommendations may harm their reputation, investor confidence, and share prices.
3. Investor Guidance: Provide shareholders with in-depth analysis of corporate agendas and voting
recommendations to make informed decisions.

Issues And Challenges Faced By Proxy Advisory Firms

1. Standardization and Rigid Approaches
 Proxy advisory firms are often criticized for overly standardized recommendations. For example,
firms recommended against certain independent directors due to long associations, even though
their tenure complied with the Companies Act, 2013, and SEBI regulations.
2. Related Party Transactions (RPTs)
 Minority shareholders now have significant power in approving material RPTs, which can lead to
disputes, especially when majority shareholders are foreign investors.
3. Litigation Risks
 Proxy Firms can face lawsuits, such as ITC's ₹1,000 crore defamation suit against IIAS for
questioning remuneration proposals.
4. Lack of Trust
 Companies resist proxy firms, alleging personal biases, insufficient research, or unreliable
recommendations.
5. Lack of Awareness
 Many shareholders are unaware of corporate governance norms and the role of proxy firms.
6. Shareholder Attitude
 Shareholders often neglect their voting rights and activism.
7. High Competition and Limited Market Scope
 The proxy advisory market is narrow, with limited players, leading to stiff competition.
8. Lack of Specialized Expertise

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  Firms struggle with recruiting professionals with specialized skills due to limited industry-specific
training programs.

India's regulatory framework for Proxy Advisory Firms

Key Provisions under SEBI (Research Analysts) Regulations, 2014
1. Definition of Proxy Advisor: Proxy advisory firms are defined under Regulation 2(i)(p) as any entity
that advises institutional investors or company shareholders on their voting rights and offers
recommendations on agenda items for public offers.

2. Mandates and Requirements:

 Registration with SEBI: Proxy advisory firms must register with SEBI to conduct business in India.
 Disclosure Requirements: Firms must include specific disclosures in their recommendations to
ensure transparency.
 Internal Policies and Procedures: Proxy advisors are required to create internal policies to guide
their operations.
 Record Maintenance: The firms must maintain records of all recommendations made to
institutional investors.

The SEBI Procedural Guidelines for Proxy Advisors key features:

1. Proxy advisory firms must disclose their voting recommendation policies annually.
2. Reports must be shared with both the company and investors. If the company has any clarifications or
feedback, it can submit them within a timeline for the needful changes.
3. If the company's opinion significantly differs from the proxy advisor's report, proxy firms can issue
additional reports or an addendum, if necessary, to address the discrepancy.
4. If errors or discrepancies are found, proxy advisory firms must disclose corrections to clients within 24
hours.
5. Firms must disclose the methodologies, procedures, and sources they rely on when formulating
reports.
6. If firms suggest a governance standard higher than what is legally required, they must provide
adequate reasons for this recommendation.
7. Proxy advisors must establish a framework to identify and manage conflicts of interest, particularly
when providing consultancy services, to prevent bias in advisory services.
8. Firms must clearly outline situations where they will abstain from providing voting recommendations.

SEBI’s Grievance Mechanism

In addition to disclosure requirements, SEBI has set up a grievance mechanism to address conflicts between
listed companies and proxy advisors. If a company disagrees with a proxy advisor's recommendations, it can
raise the issue with SEBI, which will act as an arbitrator to ensure fairness. This approach promotes natural
justice by allowing companies to voice their concerns against potentially harmful recommendations.

Institutional Investor
An Institutional Investor is a large organization that manages funds on behalf of its members or clients
and invests in various financial assets like stocks, bonds, and commodities.

36
Examples of institutional investors include insurance companies, banks, mutual funds, non-banking
financial companies (NBFCs), and pension funds.
These entities:
 Trade in large quantities and typically receive preferential treatment and lower transaction fees
compared to individual, or retail, investors. Have high creditworthiness and solvency.
 Possess extensive knowledge and experience in finance, enabling them to analyze investment risks
and returns thoroughly and employ advanced financial models.

Institutional investors are broadly categorized into:

 Foreign Portfolio Investors (FPI): Investments from foreign entities.
 Domestic Institutional Investors (DII): Investments from Indian entities.

Types of institutional Investors

1. Hedge Funds: Hedge funds are known for their aggressive and high-risk investment strategies. They
focus on a concentrated number of assets, aiming for high returns, but with high volatility. Investments
are locked in for long periods, making them riskier. Risk Level: High, with potential for significant gains
or losses
2. Mutual Funds: Mutual funds diversify investments across industries to reduce risks. They are
accessible to both retail and institutional investors, often with minimal entry requirements, making
them a preferred option for beginner investors. Risk Level: Low to moderate, suitable for beginners.
3. Insurance Companies: Invest premiums received in securities, using returns to repay policyholders.
Manage large funds, significantly influencing markets.
4. Endowment Funds: Typically managed by non-profit organizations such as universities and hospitals,
endowment funds invest to generate income that supports various beneficiary activities, like
scholarships. Objective: Generate income for beneficiary programs.
5. Pension Funds: Funded by contributions from employees and employers. Investments focus on stable,
income-generating assets to provide regular income during retirement.
6. Private Equity (P/E) Funds: P/E funds invest in private companies that cannot access public capital.
They are high-risk and illiquid but with potential high returns.
7. Venture Capital (VC) Funds: VCs invest in small, high-growth startups, often participating in the
management of these companies. Despite the high potential for loss, the chance for substantial growth
makes VC investments appealing for investors seeking high-risk, high-reward opportunities.

Comparison between Individual Investors (Retail Investors) and Institutional Investors:

Factors Individual Investors (Retail) Institutional Investors

Individuals investing in securities, Entities investing on behalf of groups
Definition
typically via brokerage firms. (e.g., mutual funds, pension funds).
Smaller investment amounts due to Larger investments with pooled funds
Investment Size
personal funds. from many individuals or entities.
Access to both public and private
Access to public securities on
Market Access markets (e.g., private placements,
exchanges.
institutional real estate).

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 Significant impact on supply and
Less impact on market movements due
Impact on Market demand, directly influencing security
to smaller trades.
prices.
More focused on long-term investments,
More short-term, often driven by
Investment Strategy with a professional approach to risk
emotions or market sentiment.
management.
More susceptible to emotional biases Less emotional bias, relying on thorough
Risk & Biases
and market fluctuations. analysis and in-depth strategies.
Importance of institutional investors:
1. Key Source of Capital:
o Institutional investors provide substantial capital for companies and economies, making them crucial
for funding large-scale projects and fostering business growth.
o Their involvement before IPOs helps companies secure initial investments, ensuring IPO success and
reducing dependency on retail investors.

2. Benefits to Individual Investors:

o Through pooled investment vehicles like mutual funds, retail investors gain access to diverse, high-
value securities that would otherwise be difficult to invest in directly.
o Institutional investors offer expert management with dedicated research teams, allowing retail
investors to benefit from professional-level risk management and market analysis without needing
extensive market knowledge themselves.

3. Preferential Market Treatment:

o Due to their large trade volumes, institutional investors often receive preferential treatment,
including lower transaction costs and faster order execution.

Key issues and criticisms:

1. High Dependency:
o While institutional investors provide significant capital to companies, their departure from a position
can negatively impact the market. This creates a dependency on these investors, and their exit may
be perceived as a warning sign, affecting security prices.

2. Market Control:
o Institutional investors have the power to influence market prices due to the size of their investments.
They can manipulate prices by entering or exiting positions, which may sometimes be used to move
the market in their favor.

3. Loss of Control for Companies:

o Gaining trust from institutional investors is difficult, as large sums of money are involved. Companies
must demonstrate strong risk/return profiles to attract them. Additionally, institutional investors
often participate in company management, which can lead to a loss of control or dilution of equity for
the company.

ESG

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ESG stands for Environmental, Social, and Governance. ESG investing focuses on these three factors,
investing in companies that adopt sustainable practices and ethical behavior. This investment approach is
also known as socially responsible investing (SRI), impact investing, or sustainable investing.
Key Characteristics of ESG Investing
 Environmental focus: Companies that minimize their environmental impact and work on sustainability.
 Socially responsible: Companies that treat stakeholders ethically and promote inclusivity.
 Strong governance: Companies with ethical, transparent, and responsible corporate governance
structures.

Benefits of ESG Investment

1. Reduced Risk: Companies with strong ESG practices are better equipped to handle environmental and
social risks. This could help reduce their exposure to regulatory, legal, or reputational issues.
2. Long-Term Returns Potential: Many ESG funds have demonstrated strong long-term performance. This
suggests that companies with solid ESG practices are better positioned to manage risks and seize future
opportunities.
3. Increasing Demand: As ESG investments gain popularity globally (including in India), the increasing
demand could drive up the value of these funds, benefiting investors who align their portfolios with
sustainable practices.
4. Alignment with Personal Values: ESG investing allows investors to align their financial goals with their
ethical beliefs, supporting companies that have positive environmental and social impacts.
5. Improved Corporate Behavior: When investors prioritize ESG factors, companies become more aware
of their responsibility toward environmental and social performance, leading to improved corporate
behavior over time.
Challenges Faced by ESG Investments
1. Absence of Quality Data: Obtaining reliable data on a company's ESG performance can be difficult to
find and often lacks accuracy, making it challenging for investors to make informed decisions.
2. Absence of Measurement Standards: The lack of standardized ESG data and reporting practices in
India hinders consistent and reliable assessment. Different terms like impact investing, socially
responsible investing, and sustainable investing complicate the landscape.
3. Limited Track Record of ESG Funds: ESG funds are relatively new in India (emerging in the last 2-3
years), and their limited track record may discourage investors from exploring this investment option.
4. Traditional Mindset: Many investors and fund managers view ESG investing as an additional,
unnecessary expense, limiting its adoption.
5. Lack of Awareness: Despite growing interest, many investors are still unaware of ESG investing, which
prevents its broader market acceptance.

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 Lesson: 5 (Board Committees)

Rationale Behind Board Committees

 To improve Board effectiveness and efficiency.
 To allow for detailed evaluation and analysis of minor details by bodies with subject matter
expertise, providing well-considered recommendations (e.g., Audit Committee reviewing internal audit
reports).
 To insulate the Board from potential undue influence of controlling shareholders and managers.
 To prepare the groundwork for decision-making and submit recommendations to the Board.
 To enable better management of the Board's time and allow in-depth scrutiny of proposals.
 To manage the Board's workload and strengthen its governance role.

Committee Management
1. Functioning:
o Committees operate under the Board-approved terms of reference.
o They can be standing committees (permanent, included in bylaws) or ad-hoc committees
(temporary for specific tasks).
2. Role:
o Committees recommend policies and decisions but do not override individual Board members’
responsibilities.
o They leverage members’ expertise, ensuring diverse opinions.
3. Documentation:
o Minutes of all meetings must be recorded and submitted to the Board for review.

Provisions in Table F of Schedule I, Companies Act, 2013 for Articles of Association - Board
Committees
1. Delegation of Powers to Committees (Article 71)
 (71(i)): The Board has the authority to delegate its powers to committees formed from its members,
as per the provisions of the Companies Act.
 (71(ii)): Committees formed must follow any regulations set by the Board while exercising the
delegated powers.

2. Chairperson of Committee Meetings (Article 72)

 (72(i)): Committees have the freedom to elect a Chairperson for their meetings.
 (72(ii)): If no Chairperson is elected, or if the Chairperson is absent within five minutes after the
meeting’s scheduled start time, members present can choose one among them to preside over the
meeting.

3. Committee Meetings and Voting (Article 73)

40
  (73(i)): Committees have the discretion to meet and adjourn meetings as they deem fit.
 (73(ii)): Decisions at committee meetings are determined by a majority vote. In case of a tie, the
Chairperson has a second or casting vote to resolve it.

4. Validity of Actions Despite Defects in Appointment (Article 74)

 Any actions taken during meetings of the Board, a committee, or by any individual acting as a
director, are considered valid, even if any later discovery shows defects in the appointment or
disqualification of any director or acting individual.

5. Written Resolutions (Article 75)

 A resolution signed in writing by all members of the Board or committee who are entitled to receive
notice of a meeting is valid and effective as though passed in an actual meeting, provided the Act does
not specifically require otherwise.

Selection of Committee Members

1. Criteria for Selection
o Committee members are appointed by the Board or Committee Chairman.
o The selection should be based on the committee's tasks and the expertise, skills, and time
commitment of the members.
o It’s crucial to match members' skills and knowledge with the committee’s needs.

2. Role Clarity
o Members should have a clear understanding of the committee's goals, and the Chairman should
effectively use their skills to meet these objectives.

Appointment of Committee Chairman

1. Role of Committee Chairman
o The committee Chairman can be appointed by the Board or elected by committee members.
o The Chairman plays a key role in setting the tone, pace, and strategies for the committee's work.
o The Chairman should possess leadership skills, time commitment, and relevant experience.

2. Responsibilities of the Chairman

o The Chairman coordinates the committee's work, sets meeting agendas, assigns responsibilities, and
ensures tasks are followed up.
o They should create an environment of thoughtful deliberation and align the committee’s goals with
the broader organizational objectives.

Audit Committee
1. Constitution of the Audit Committee (Section 177(1)):
Under the Companies Act, 2013, specifically Section 177(1) along with Rule 6 of the Companies (Meetings of
Board and its Powers) Rules, 2014 and Rule 4 of the Companies (Appointment and Qualification of
Directors) Rules, 2014, the following classes of companies are required to establish an Audit Committee:
 Listed Public Companies
 Unlisted Public Companies meeting any of the following criteria:

41
  Paid-up Share Capital: ₹10 crore or more
 Turnover: ₹100 crore or more
 Outstanding Loans, Debentures, and Deposits: Exceeding ₹50 crore
2. Composition of the Audit Committee (Section 177(2)):
The Audit Committee must have at least 3 directors, with a majority of independent directors. Further,
the Chairperson and the majority of the committee members must be capable of reading and
understanding financial statements.
3. Functions of the Audit Committee (Section 177(4)):
The Audit Committee’s functions, as outlined in the terms of reference specified by the Board, include:
1. Appointment of Auditors:
 Recommending the appointment, remuneration, and terms of appointment of auditors.
2. Audit Monitoring:
 Monitoring the auditor’s independence, performance, and the effectiveness of the audit process.
3. Financial Statements Review:
 Examining financial statements and the auditors' report.
4. Related Party Transactions:
 Approving or modifying transactions with related parties, including making omnibus approvals for
such transactions under prescribed conditions.
 Transactions with a value not exceeding ₹1 crore, if entered without Audit Committee approval, are
voidable unless ratified within three months.
 Exemptions for transactions between a holding company and its wholly owned subsidiary.
5. Inter-Corporate Loans and Investments:
 Scrutinizing loans and investments between corporations.
6. Valuation of Assets:
 Conducting valuation of the company’s undertakings or assets, if necessary.
7. Internal Financial Controls and Risk Management:
 Evaluating the company’s internal financial controls and risk management systems.
Right to be Heard for Auditors and Key Managerial Personnel (KMPs) (Section 177(7))
The company's auditors and Key Managerial Personnel (KMPs) have the right to be heard at Audit
Committee meetings when the auditor's report is considered but do not have the right to vote.
Disclosure of Audit Committee Composition in the Board’s Report (Section 177(8))
The Board's report under Section 134(3) must disclose:
 The composition of the Audit Committee.
 Where the Board has not accepted any recommendation of the Audit Committee, the report must
disclose this along with the reasons for the non-acceptance.

Provisions of the SEBI (LODR) Regulations, 2015 for Audit Committee Constitution (Regulation
18(1))
SEBI (LODR) Regulations, 2015 establish key requirements for forming an audit committee in every listed
entity to ensure independent, qualified oversight. These include:
1. Minimum Membership and Independence Requirements

42
  The audit committee must consist of at least 3 directors.
 2/3rd of these members must be independent directors. For entities with outstanding SR
(Special Rights) equity shares, the entire committee must be composed solely of independent
directors.
2. Financial Literacy and Expertise
 All members of the audit committee must be financially literate, meaning they should be able to
read and understand basic financial statements like balance sheets, profit and loss accounts, and
cash flow statements.
 At least 1 member must have accounting or financial management expertise. This could
include relevant professional certification, experience in finance or accounting, or a comparable
role such as CFO or CEO that involved financial oversight responsibilities.
3. Chairperson’s Role and Requirements
 The Chairperson of the audit committee must be an independent director.
 This chairperson is required to attend the Annual General Meeting (AGM) to address shareholder
queries, reinforcing transparency and accountability to investors.
4. Secretary and Support
 The Company Secretary is designated as the secretary to the audit committee, responsible for
administrative and secretarial support to ensure smooth operations.
5. Optional Invitees for Meetings
 At the audit committee's discretion, it may invite the finance director, head of finance, head of
internal audit, a representative of the statutory auditor, or other relevant executives to participate
in its meetings.
 However, the audit committee may sometimes choose to conduct meetings without the presence
of these executives, allowing for private discussions when necessary.
Meetings of the Audit Committee – Regulation 18(2) of SEBI (LODR) Regulations, 2015
To maintain regular oversight and ensure effective governance, SEBI’s Listing Obligations and Disclosure
Requirements mandate the following procedures for conducting audit committee meetings:
1. Frequency of Meetings
 The audit committee must meet at least 4 times annually.
 There should not be a gap of more than 120 days between any two consecutive meetings,
ensuring timely review and decision-making.
2. Quorum Requirements
 The quorum for an audit committee meeting is either 2 members or 1/3rd of the committee
members, whichever is higher.
 Importantly, at least 2 independent directors must be present for the quorum, ensuring
impartiality and objectivity in discussions and decisions.

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3. Powers of the Audit Committee
 The audit committee is empowered to:
 Investigate any activity within its terms of reference.
 Seek relevant information from any employee
 Obtain external legal or professional advice when needed.
 Secure attendance of outsiders with relevant expertise.

Role of the Audit Committee – Regulation 18(3) (SEBI LODR Regulations, 2015)
A. Primary Functions
1. Oversight of financial reporting and disclosure
2. Recommend appointment, terms & fees of auditors
3. Approve payments for non-audit services to auditors
4. Review annual financial statements before Board submission, esp.:
o Directors’ Responsibility Statement
o Changes in policies
o Audit findings & adjustments
o Legal compliance
o RPT disclosures
o Modified audit opinions
5. Review quarterly financial statements
6. Audit independence, effectiveness & performance
7. Approval/modification of related party transactions
8. Scrutinize inter-corporate loans/investments
9. Valuation of assets/undertakings (when necessary)
10. Evaluate internal financial controls & risk systems
11. Review statutory/internal auditor performance and control systems
12. Monitor whistle-blower mechanism
13. Approve appointment of CFO
14. Any other terms set by Board
15. Review loans/investments by holding company in subsidiary exceeding:
o ₹100 crore or
o 10% of subsidiary's assets (whichever is lower)
16. Comment on merger/demerger/amalgamation schemes

B. Mandatory Information Review

1. MD&A (Management Discussion & Analysis)
2. Management letters / internal control issues by auditors
3. Review appointment/removal/terms of Chief Internal Auditor
4. Internal audit reports on control weaknesses
5. Statement of deviations:
o Quarterly: With monitoring agency report (Reg. 32(1))
o Annual: Use of funds for other than stated purposes (Reg. 32(7))

Nomination and Remuneration Committee as per the Companies Act, 2013

The Nomination and Remuneration Committee (NRC) is established under Section 178 of the Companies
Act, 2013, with specific guidelines regarding its composition, responsibilities, and procedures.

44
1. Constitution of the Nomination and Remuneration Committee (Section 178(1))
 The NRC must consist of 3 or more non-executive directors, with at least half being independent
directors.
 The NRC is mandatory for:
 Every listed public company.
 Unlisted public companies meeting any of the following criteria:
 Paid-up share capital of ₹10 crore or more.
 Turnover of ₹100 crore or more.
 Outstanding loans, debentures, and deposits exceeding ₹50 crore.
 The chairperson of the company (whether executive or non-executive) may be a member of the NRC
but cannot chair the Committee.

2. Identification of Persons to Become Directors (Section 178(2))

The NRC must:
 The NRC must establish criteria for the qualifications, attributes, and independence of directors.
 Identify qualified persons for appointment as Directors and in senior management positions.
 Recommend their appointment and removal to the Board.
 It recommends to the Board a remuneration policy for directors, key managerial personnel, and other
employees, which considers factors such as qualifications, positive attributes, and independence of the
appointees.
 Specify the manner for the evaluation of performance of the Board, its committees, and individual
directors, to be done by the Board, NRC, or an independent external agency.

Remuneration Policy for Directors and KMPs (Section 178(4))

When formulating the remuneration policy, the NRC must ensure:
1. The remuneration is reasonable and sufficient to attract, retain, and motivate Directors of the
required quality.
2. The relationship between remuneration and performance is clear and aligned with performance
benchmarks.
3. Balance between fixed and incentive pay for Directors, KMPs, and senior management, reflecting
short and long-term performance objectives aligned with the company’s goals.

Disclosure Requirements
 The remuneration policy must be published on the company’s website, if available.
 Key features of the policy, along with any changes and the website link to the full policy, should be
disclosed in the Board’s report.

Attendance of the Chairman at General Meetings (Section 178(7))

The chairperson of the committee or an authorized member must attend general meetings of the
company to address shareholder queries

Provisions of SEBI (LODR) Regulations, 2015 for Nomination and Remuneration Committee
Constitution of the Committee – Regulation 19(1)

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According to SEBI's Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, the
Nomination and Remuneration Committee (NRC) should be formed as follows:
1. Committee Composition: The NRC should include at least 3 directors.
2. Non-Executive Directors: All NRC members must be non-executive directors.
3. Independent Directors: At least two-thirds of the committee members should be independent
directors.
Chairperson – Regulation 19(2)
 The chairperson of the NRC must be an independent director.
 The chairperson of the listed entity, whether executive or non-executive, can be a member of the
NRC but cannot chair the committee.
Quorum – Regulation 19(2A)
The quorum for NRC meetings requires either:
 Two members, or
 One-third of the committee members, whichever is greater.
Additionally, at least one independent director must be present for the meeting to proceed.
Chairperson’s Attendance at the Annual General Meeting – Regulation 19(3)
The NRC chairperson is encouraged to attend the annual general meeting (AGM) to address shareholder
questions. However, the chairperson has the discretion to decide who should answer the queries.
Number of Meetings – Regulation 19(3A)
The NRC must meet at least once per year to fulfill its responsibilities.
Role of the Nomination and Remuneration Committee as per SEBI (LODR) Regulations, 2015
1. Formulating Criteria for Directors: Develop criteria to determine qualifications, positive attributes,
and independence of directors. The committee also recommends policies for the remuneration of
directors, key managerial personnel (KMP), and other employees.
2. Independent Director Appointment:
 Evaluate Board Balance: Assess the skills, knowledge, and experience balance on the board for
each independent director appointment.
 Role Description: Prepare a role and capability description for the independent director.
 Identification of Suitable Candidates: May involve:
 Using external agencies for recommendations.
 Considering diverse backgrounds.
 Reviewing the time commitment of candidates.
3. Performance Evaluation Criteria: Develop criteria for evaluating the performance of independent
directors and the board as a whole.

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4. Board Diversity Policy: Create policies to enhance diversity on the board of directors, considering
varied backgrounds, skills, and perspectives.
5. Identifying Suitable Candidates: Identify individuals qualified to become directors or join senior
management. The NRC then recommends appointments and removals to the board based on
established criteria.
6. Independent Director Term Continuation: Decide whether to extend or renew the term of
independent directors based on their performance evaluation.
7. Senior Management Remuneration: Recommend to the board all forms of remuneration payable to
senior management, ensuring alignment with company objectives and performance.

Stakeholders Relationship Committee as per Companies Act, 2013

The Stakeholders Relationship Committee (SRC) is established to address and resolve the concerns of the
company's security holders. The provisions under Section 178 provide the following guidelines:
1. Constitution of Committee – Section 178(5):
 Companies with more than 1,000 shareholders, debenture-holders, deposit-holders, or
other security holders at any time during a financial year must establish an SRC.
 The committee must include a chairperson who is a non-executive director, with additional
members as determined by the Board.
2. Resolution of Grievances – Section 178(6):
 The SRC is tasked with considering and resolving grievances of the company's security
holders, such as issues related to share transfers, dividends, and other concerns affecting
shareholders and other security holders.
3. Chairperson Attendance at General Meetings – Section 178(7):
 The chairperson of the SRC, or another designated committee member, must be present
at general meetings to address any queries or concerns from shareholders.
4. Penalties for Contravention – Section 178(8):
 Company: Five lakh rupees.
 Officer in default: One lakh rupees.
 Note: Failure to resolve grievances in good faith does not constitute contravention.
5. Explanation of “Senior Management”:
 Senior management refers to personnel who are part of the company’s core management
team and one level below the executive directors, including functional heads.

Stakeholders Relationship Committee as per SEBI (LODR) Regulations, 2015

The Stakeholders Relationship Committee (SRC) for listed entities is governed by Regulation 20 under the
SEBI (LODR) Regulations, 2015, with responsibilities focused on shareholder and security holder interests.
Below are the key provisions:

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1. Constitution of the Committee – Regulation 20(1):
 Listed entities are required to form an SRC to specifically address and protect the interests
of shareholders, debenture holders, and other security holders.
2. Chairperson – Regulation 20(2):
 The chairperson of the SRC must be a non-executive director, ensuring objectivity and
independence in addressing stakeholder issues.
 Composition – Regulation 20(2A):
1. The SRC must have at least three directors, with a minimum of one independent
director.
2. For listed entities with outstanding SR equity shares, at least two-thirds of the
committee must be independent directors to strengthen impartiality.
3. Chairperson’s Attendance at Annual General Meetings – Regulation 20(3):
 The SRC chairperson is required to be present at the AGM to address security holder queries,
enhancing transparency and accountability.
4. Number of Meetings – Regulation 20(3A):
 The SRC must convene at least once a year to review and discuss pertinent matters related to
security holders' grievances and interests.
5. Role and Responsibilities – Part D of Schedule II: The SRC’s role includes:
a) Grievance Redressal: Addressing grievances related to:
 Transfer/transmission of shares.
 Issues related to new/duplicate certificates, general meetings, etc.
 Non-receipt of annual reports or declared dividends.

b) Review Voting Rights: Ensuring effective exercise of voting rights by shareholders.

c) Unclaimed Dividends: Ensuring timely receipt of dividend warrants, annual reports, and
statutory notices by shareholders and reducing unclaimed dividends.
d) Service Standards: Reviewing adherence to the service standards set by the Registrar & Share
Transfer Agent.

Corporate Social Responsibility (CSR) Committee as per the Companies Act, 2013
The CSR Committee, as per Section 135 of the Companies Act, 2013, is mandatory for companies meeting
certain financial thresholds.
Applicability – Section 135(1): A CSR Committee must be constituted by companies meeting any of the
following criteria in the previous financial year:
 Net worth of ₹500 crore or more
 Turnover of ₹1,000 crore or more
 Net profit of ₹5 crore or more

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2. Composition of CSR Committee – Section 135(1):
 The CSR Committee should consist of three or more directors, with at least one independent
director.
 If the company is not required to appoint an independent director under Section 149(4)
(applicable to certain private and unlisted public companies), the CSR Committee may have two
or more directors without an independent director.
3. Independent Director Requirement – Section 149(4):
 Listed public companies are required to have at least one of the board as independent
directors.
 For companies where one-third results in a fraction, it must be rounded off to the next whole
number.
4. Extension to Foreign Companies – Rule 3 of the CSR Policy Rules, 2014:
 The CSR provisions apply to foreign companies with branch or project offices in India that
meet the CSR criteria based on net worth, turnover, or net profit.
 For foreign companies, these financial metrics are computed based on the balance sheet and
profit & loss account prepared in compliance with Section 381(1)(a) and Section 198 of the
Companies Act.
5. Unspent CSR Amount – Further Provision:
 Companies with an Unspent CSR Account as per Section 135(6) must have a CSR Committee and
comply with the requirements outlined in Section 135(2) to (6), which include defining CSR
policy, budgeting, and regular reporting of CSR activities and unspent amounts.
Corporate Social Responsibility (CSR) Committee as per Rule 5 of the Companies (Corporate Social
Responsibility Policy) Rules, 2014
Rule 5 of the Companies (CSR Policy) Rules, 2014 outlines the requirements for forming a CSR Committee
and its responsibilities in developing and implementing CSR activities:
1. Formation of CSR Committee:
 Non-Independent Director Requirement: Companies that are required to constitute a CSR
Committee under Section 135(1) but are exempt from appointing an independent director under
Section 149(4) can form the CSR Committee without an independent director.
 Private Companies with Two Directors: A private company with only two directors on its
board can constitute its CSR Committee with these two directors.
 Foreign Companies: Foreign companies subject to CSR requirements must form a CSR
Committee with at least two persons:
 One person must meet the qualifications under Section 380(1)(d) (typically a resident
authorized to accept legal notices on behalf of the foreign company).
 The second person is nominated by the foreign company itself.

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2. Annual Action Plan:
The CSR Committee must formulate and recommend an annual action plan to the Board, including:

 A list of CSR projects or programs as per Schedule VII.

 The manner of execution and implementation schedules.
 Utilization of funds and monitoring/reporting mechanisms.
 Need and impact assessment for projects (if applicable).

Alteration of Plan: The Board may alter the CSR plan during the financial year if recommended by the
CSR Committee, provided there is reasonable justification for the changes.
3. Disclosure of CSR Committee Composition – Section 135(2):
 The Board’s report (Section 134(3)) must disclose the composition of the CSR Committee,
ensuring transparency regarding the members responsible for overseeing CSR initiatives.
4. CSR Policy Formulation – Section 135(3):
 The CSR Committee must:
 Formulate and recommend a CSR Policy to the Board, detailing the specific activities
aligned with Schedule VII.
 Recommend the budget for CSR activities.
 Monitor the CSR Policy periodically to ensure compliance and effectiveness.
Exemption from Constituting a CSR Committee – Section 135(9)
 Under Section 135(9) of the Companies Act, 2013, a company is exempted from forming a CSR
Committee if the CSR expenditure required (as per Section 135(5)) is Rs. 50 Lakhs or less.
o In such cases, the Board of Directors will discharge the functions of the CSR Committee.

Risk Management Committee – Regulation 21 of SEBI (LODR) Regulations, 2015

The Risk Management Committee (RMC) is designed to ensure that listed entities have structured
oversight of risk management.
Applicability
 These requirements apply to:
1. The top 1000 listed entities by market capitalization.
2. Entities classified as ‘High value debt listed entities’ (Regulation 21(5)).
Constitution and Structure
1. Formation: The board of directors must constitute an RMC (Regulation 21(1)).
2. Number of Members:
 The committee should have a minimum of three members, with the majority being board
members, including at least one independent director.

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  For entities with outstanding SR (Superior Rights) equity shares, at least two-thirds of the
committee must be independent directors (Regulation 21(2)).
3. Chairperson: The Chairperson should be a board member, though senior executives may also serve
on the committee (Regulation 21(3)).
4. Meeting Frequency: The committee must meet at least twice a year (Regulation 21(3A)).
5. Gap Between Meetings: No more than 210 days should elapse between two consecutive meetings
(Regulation 21(3C)).
6. Quorum: The quorum is two members or one-third of the committee, whichever is greater, with at
least one board member present (Regulation 21(3B)).
Roles and Responsibilities
1. The committee may be delegated with the responsibility to monitor and review the risk management
plan.
2. Specific functions to be covered by the committee include cybersecurity.
3. The committee's role must include functions as specified in Part D of Schedule II of the SEBI (LODR)
Regulations.
Powers of the Risk Management Committee
The committee has the authority to:
 Seek information from any employee.
 Obtain external legal or professional advice.
 Invite experts to attend meetings when necessary.

Role of the Risk Management Committee as per Part D of Schedule II (SEBI LODR Regulations, 2015)
1. Formulation of a Risk Management Policy:
 Develop a detailed policy that includes:
 Risk Identification Framework: Identifies internal and external risks, that the company may
face, including financial, operational, sectoral, sustainability (especially ESG-related
risks), information, and cybersecurity risks.
 Risk Mitigation Measures: Establishes systems and internal control processes to manage
identified risks.
 Business Continuity Plan: Ensures the company can continue its operations during
disruptions.
2. Policy Review:
 Review the risk management policy at least once every 2 years, taking into account industry
changes and the growing complexity of risks.
3. Oversight and Implementation:
 Oversee the implementation of the risk management policy and assess the effectiveness of risk
management systems periodically.

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4. Monitoring and Evaluation Systems:
 The committee must ensure that the company has appropriate methodologies, processes, and
systems in place to monitor and evaluate risks associated with the business operations.
5. Oversight of Chief Risk Officer:
 Review and approve the appointment, removal, and terms of remuneration of the Chief Risk
Officer (if applicable), ensuring alignment with the company’s risk strategy.
6. Coordination with Other Committees
 The RMC should coordinate with other board committees, especially where roles may overlap,
according to a framework defined by the board.
7. Reporting to the Board:
 Keep the board informed on the nature of discussions, recommendations, and required actions,
providing regular updates on key risk-related matters.

Lesson: 19 (Sustainability Audit; ESG Rating; Emerging Mandates from Government and
Regulators)
🌱 Sustainable Development
 Defined as: "Development that meets the needs of the present without compromising future generations'
ability to meet their needs" (UN Brundtland Report).
 Combines economic growth with ecological concerns (Ecological Modernization).
 Balances three key areas:
o Social concerns (People)
o Environmental concerns (Planet)
o Economic concerns (Profits)

Sustainability in Business: Businesses operate sustainably by meeting current needs without harming the
ability of future generations to do the same.

🌱 Sustainability Reporting
Sustainability reporting evolved as companies began disclosing their environmental and social impacts,
particularly:
 1980s: Large polluters published voluntary environmental reports.
 1990s–2000s: Rise of Corporate Social Responsibility (CSR) reporting.
 Present: Sustainability reporting is a mandatory practice in many industries, emphasizing
transparency.

Focus areas (ESGEE Dimensions):

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 Environmental
 Social
 Governance
 Ethical
 Economic.

A program is considered sustainable when it:

 Generates economic value.
 Distributes wealth fairly.
 Is socially just.
 Protects the environment.
 Operates ethically and within the law
 Conforms to all applicable laws, rules, and regulations.

🌱 What is a Sustainability Audit?

 It’s a detailed evaluation of a company’s environmental, social, and economic impacts.
 Purpose: To identify areas for improvement in sustainability and reduce negative impacts.
 Covers:
o 🔋 Environmental Factors – Energy use, greenhouse gas emissions, waste management, water
consumption.
o 🧑‍🤝‍🧑 Social Factors – Employee relations, human rights, labor practices, community engagement.
o 💰 Economic Factors – Supply chain sustainability, product sourcing, ethical business practices.
o This assessment is also known as a Triple Bottom Line Audit (People, Planet, Profit).
 Outcome: Helps develop a sustainability strategy and set goals for continuous improvement.

Key Contributors (No Single Founder)

 🌍 UNEP (UN Environment Programme)
 🏢 WBCSD (World Business Council for Sustainable Development)
 📋 GRI (Global Reporting Initiative)
They provided standards, best practices, and global frameworks.

📒 Key ESG Standards and Initiatives

Several frameworks have shaped how organizations approach ESG. Some notable standards include:
 ISO 26000
 Global Reporting Initiative (GRI)
 Sustainability Accounting Standards Board (SASB)
 UN Sustainable Development Goals (SDGs)

🧩 Framework of Sustainability Audit/ Process of Conducting a Sustainability Audit/ Sustainability

Audit Process Flow
1. Planning & Preparation
o Define scope & goals
o Identify stakeholders
o Develop audit plan
2. 📥 Data Collection & Analysis

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 o Gather ESG-related data
o Review internal practices and policies
3. 📊 Assessment & Evaluation
o Analyze findings
o Benchmark against standards & peers
4. 📝 Report Generation
o Summarize results
o Recommend improvements
5. 📈 Implementation & Monitoring
o Act on recommendations
o Monitor long-term progress.
🧭 Frameworks may vary, but the core steps remain consistent.

🏭 Case Study: Sustainability Audit of a Manufacturing Company

📌 1. Define the Scope
 🧭 Covers operations, supply chain & product life cycle
 🌍 Focus areas:
o Environmental: energy use, resources, waste, GHG emissions
o Social & ethical: labor rights, human rights, community engagement
📊 2. Gather Information
 ⚙️Energy & resource usage data
 🚯 Waste generation & emissions
 👥 Data on labor, human rights, and CSR practices
📏 3. Assess Performance
 📐 Benchmarks used:
o Global Reporting Initiative (GRI) Standards
o ISO 26000
 ✅ Good performance: energy efficiency, waste management
 ❗ Weak areas: emissions control, community involvement
4. Identify Areas for Improvement
 Reduce GHG emissions
 Improve community engagement
 ☣️Limit hazardous materials in the supply chain
🎯 5. Develop Action Plan
 🎯 SMART goals with timelines
 📆 Monitoring & reporting framework
🚀 6. Implement & Monitor
 Company started executing the plan
 🧑‍💼 Consulting firm continued monitoring & support
📢 7. Report & Communicate
 📒 Detailed sustainability report published
 👥 Shared with stakeholders: employees, customers, shareholders, and public
🟢 Impact of Audit:
 🎯 Helped improve sustainability performance
 🌟 Enhanced reputation, innovation, and competitiveness.

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Sustainability Audit Report
A sustainability audit report is a detailed document that evaluates an organization's environmental, social,
and governance (ESG) performance. The purpose of this report is to help the organization understand its
current sustainability impact and identify areas for improvement. It typically involves an independent
third-party auditor to ensure accuracy, credibility, and transparency.
📌 Key Elements of a Sustainability Audit Report
1. Executive Summary
 📍 Snapshot of the full report
 🧾 Includes:
o Purpose of the audit
o Key findings
o Main recommendations
2. Background
 🏢 About the organization
 🎯 Sustainability goals & objectives
 🔍 Scope of the audit
3. Methodology
 🧪 How the audit was conducted
 📚 Data sources used
 👥 Stakeholders consulted
 Tools & techniques applied for analysis
4. Key Findings
 📊 Detailed ESG performance review:
o ⚡ Energy use
o GHG emissions
o 🚯 Waste management
o 💧 Water use
o 👥 Employee relations
o Community engagement
o ⚖️Legal compliance
5. Recommendations
 ✅ Specific action points to improve performance
 🌱 Examples:
o Reduce energy consumption
o Better waste disposal methods
o Improve employee engagement programs
6. Implementation Plan
 📅 Timelines
 🎯 Goals
 👤 Responsibilities assigned
 📈 Steps to track execution of recommendations
7. Conclusion
 📝 Summary of findings & recommendations
 🌍 Reaffirms organization’s commitment to sustainability.

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📘 Audit Standards on Sustainability
Organizations can follow various international, national, and regional standards for conducting
sustainability audits:
🌍 1. Global Reporting Initiative (GRI) Standards
 🌐 Most widely used sustainability reporting framework.
 🧾Offers guidelines and indicators for helping organizations track and report their environmental,
social, and governance (ESG) performance
 📊 Provides a universal set of indicators for sustainability performance.

📘 2. ISO 26000
 🤝 Standard for corporate social responsibility (CSR).
 💡 Provides guidance, not requirements.
 Covers:
o 🌱 Environmental responsibility
o 🧍‍♀️Human rights
o Community involvement.

📏 3. Sustainability Assessment Standards

 🧮 Provide structured frameworks for assessing sustainability.
 Key examples:
o 📗 EMA (Environmental Management Accounting)
o 📘 AA1000 (AccountAbility Principles Standard)
o 🧾 SAF (Sustainability Assessment Framework)

4. National & Regional Standards

 Various national and regional standards help organizations measure and report sustainability within
specific regulatory contexts
 🌿 Example: EU EMAS (Eco-Management and Audit Scheme)
o Helps track, manage, and report on sustainability performance in the EU.

🌱 Importance of Sustainability Audit

A sustainability audit serves two major roles:
1. ‍♀️Identify ESG Risks
2. 📊 Benchmark performance against competitors.

✅ Why It’s Important

1. Identify Areas for Improvement
 🔍 Helps understand environmental, social, and economic impact.
 💰 Leads to cost savings, better efficiency, and less harm to the environment.
2. Measure Sustainability Performance
 📈 Tracks progress systematically.
 🎯 Helps set sustainability goals.
 📍 Benchmarks against industry standards.

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3. Demonstrate Commitment
 ✅ Shows stakeholders that the organization takes sustainability seriously.
4. Enhance Reputation
 🌟 Builds brand image.
 🤝 Attracts eco-conscious customers, investors, and employees.
5. Foster Innovation & Competitiveness
 ⚙️Drives new sustainable solutions.
 🥇 Helps stay ahead of competition in evolving markets.
6. Strategic Tool
 🧭 Enables data-driven actions for long-term sustainability success.

Part B. ESG Rating

🌐 Meaning of ESG
🔷 ESG = Environmental + Social + Governance
It’s a strategic framework that helps organizations create value for all stakeholders - employees,
customers, suppliers, financiers, and the community.
🧭 Purpose:
 Integrates ethical and sustainable practices into business decisions.
 Used by capital markets to evaluate:
o 📉 Non-financial risks
o 📈 Future financial performance
💡 Though ESG factors are non-financial, they support long-term accountability, risk management, and
enterprise value.
👥 Stakeholders considered:
Customers, suppliers, employees, leadership, community, and the environment.

📊 Criteria of ESG
Each ESG pillar represents specific aspects of ethical and sustainable performance:
🌱 1. Environmental (E)
Focus: Impact on the planet & natural resources
✅ Includes:
 Air & water quality
 🌳 Biodiversity & deforestation
 🔋 Energy usage & performance
 🌍 Carbon footprint & GHG emissions
 Natural resource depletion
 🚮 Waste management & pollution control
👥 2. Social (S)
Focus: Impact on people & communities
✅ Includes:
 😊 Customer satisfaction
 🔐 Data protection & privacy
 🤝 Community impact & charitable efforts
 🧑‍🤝‍🧑 DEI (Diversity, Equity, Inclusion)
 💼 Employee engagement
 🏥 Health, safety, human rights

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  ❌ Child labour, slavery
 📋 Labour standards
3. Governance (G)
Focus: Corporate controls, ethics & transparency
✅ Includes:
 👔 Company leadership
 🧑‍💼 Board composition & diversity
 🛑 Anti-corruption & anti-bribery policies
 💰 Executive pay policies
 Donations & political lobbying
 🧾 Tax strategies, audit controls
 📣 Whistleblower programs.

🌟 Meaning of ESG Rating

🔹ESG Score:
An objective evaluation of a company, fund, or security’s performance in Environmental, Social, and
Governance (ESG) areas.

🔹 Types of Scoring Systems:

 🏭 Industry-specific: Focuses on material ESG issues relevant to specific industries.
 🌍 Industry-agnostic: Focuses on universal ESG issues like climate change, DEI, and human rights.

🔹 Purpose of ESG Ratings

 Risk Management: Highlights unmanaged ESG risks such as energy efficiency, diversity, and
governance.
 Investment Decisions: Helps investors understand long-term risks and potential.
 Reputation Indicator: Reflects how well a company manages its ESG responsibilities compared to
peers.

Impact of the Rating:

✅ Good ESG rating = Strong ESG risk management
❌ Poor ESG rating = High unmanaged ESG exposure.

📈 ESG Key Performance Indicators (KPIs)

Definition:
1. ESG KPIs are quantifiable metrics that help track the impact of a company’s operations on ESG
dimensions.
2. Help investors understand risk exposure and impact potential.
3. Are especially crucial for VCs and private equity.
📘 SEBI’s BRSR Core Framework & ESG KPIs (Regulation 34(2)(f) of SEBI (LODR), 2015 – as amended)
📝 Mandatory ESG Disclosure:
 Top 1000 listed entities must include Business Responsibility and Sustainability Report (BRSR) in
their annual report.
 This includes environmental, social, and governance disclosures as per SEBI format.

📌 Assurance Requirements:

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 BRSR Core must be assured (either limited or reasonable assurance).
o Limited assurance = Easier to implement, but low confidence
o Reasonable assurance = Costlier, but higher credibility.

Features of BRSR Core (as per SEBI ESG Advisory Committee):

1. KPIs are quantifiable for comparability.
2. Relevant to both manufacturing and service sectors in India.
3. Uses intensity ratios (to normalize for company size).

Glide Path for BRSR Core Implementation

Financial Year Assurance Requirement Companies
2022–23 BRSR mandatory; no assurance required Top 1,000 companies
2023–24 Reasonable assurance mandatory Top 250 companies
2024–25 Reasonable assurance mandatory Top 500 companies
2025–26 Reasonable assurance mandatory Top 1,000 companies
ESG Disclosures for Supply Chain
Currently, supply chain metrics are voluntary under leadership indicators in BRSR. SEBI plans a gradual
implementation under "comply or explain" basis:

Financial Supply Chain ESG Disclosure Requirement

Year
FY 2024-25 Top 250 companies must comply or explain BRSR Core for supply chain (Assurance
NOT mandatory).
FY 2025-26 Top 250 companies must comply or explain BRSR Core for supply chain (Assurance on
comply or explain basis).
Major ESG Rating Providers
1. Dun & Bradstreet
 A global business data and analytics provider.
 Offers company-level ESG scores, sector analysis, and reports.
 Helps businesses assess ESG risks of third-party partnerships.
 Provides comparative industry rankings to aid investment decisions.

2. Sustainalytics ESG Risk Ratings (by Morningstar)

 Covers 20,000+ companies and 172 countries.
 Rates 40,000 companies worldwide.
 Uses both quantitative and qualitative ESG analysis.
 Evaluates companies based on governance, environmental impact, social contribution, and
financial performance.

3. MSCI ESG Ratings

 One of the largest ESG rating agencies, covering 14,000 equity and fixed-income issuers.
 Provides industry-specific ESG risk analysis and comparative rankings.
 Aggregates company-level ratings to fund and portfolio levels.

MSCI's ESG Rating Model answers four key questions:

1. What are the biggest ESG risks and opportunities for the company?

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2. How exposed is the company to these risks and opportunities?
3. How well is the company managing these factors?
4. How does the company’s ESG performance compare to its industry peers?

MSCI ESG Score & Rating System:

 Scores range from 0 to 10.
 ESG ratings are categorized as AAA (highest) to CCC (lowest).

MSCI Rating Pillars & Criteria:

Pillar ESG Factors Covered
Environmental Climate Change, Natural Resources, Pollution & Waste, Environmental Opportunities
Social Human Capital, Product Liability, Stakeholder Opposition, Social Opportunities
Governance Corporate Governance, Corporate Behavior

4. Thomson Reuters ESG Ratings

 Uses 400+ ESG metrics, with 186 key fields.
 Data available since 2002.
 Groups ESG factors into 10 categories, summarized under three pillars:
o Environmental: Resource use, emissions, innovation.
o Social: Workforce, human rights, community, product responsibility.
o Governance: Management, shareholders, CSR strategy.

5. FTSE Russell ESG Ratings

 Covers 7,200 securities across 47 countries.
 Six ESG categories:
o Corporate Governance
o Environmental Policy
o Social Policy
o Labor Practices
o Supply Chain Policy
o Country of Origin (proxy for economic development)

6. Institutional Shareholder Services (ISS) Ratings

 Owned by Deutsche Bourse Group.
 Provides ESG ratings for companies, countries, and funds.
 Covers climate change, human rights, labor standards, corruption, and controversial weapons.

7. S&P Global ESG Scores

 Uses a bottom-up approach, focusing on industry-level ESG behavior.
 Measures environmental practices, employee relations, and other ESG aspects.

8. CDP Climate, Water, and Forest Scores

 Not-for-profit organization providing environmental data.
 Helps investors identify companies addressing climate change, water security, and deforestation.

9. Moody’s ESG Solutions Group

 Part of Moody’s Corporation, one of the largest credit rating agencies.

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 Provides ESG ratings, sustainability analytics, and finance certification services.
 Includes Vigeo Eiris (ESG assessor) and Four Twenty Seven (climate data business).

🌟 Advantages of ESG Ratings (C.L.I.M.A.T.E. S.P.I.N.)

1. Competitive Advantage
 Boosts brand recognition and fosters customer loyalty, especially among ethically conscious consumers.
 Simplifies ESG data management through software for tracking emissions, energy, and waste.
 Helps small and mid-sized companies attract more clients and customers by addressing sustainability
concerns.

2. Lower Cost
 Tracks metrics like energy, water, and raw material usage to identify efficiency improvements.
 Reduces costs related to waste management and penalties, while improving operational efficiency.
 Promotes innovation in resource management and sustainability practices.

3. Investors and Lenders are attracted

 Companies with ESG programs attract investors and lenders due to their strong risk management.
 Studies consistently show that companies prioritizing ESG outperform competitors.
 Demonstrates long-term financial stability and sustainability.

4. Makes Supply Chains Stronger

 Companies with good ESG scores find better supply chain partnerships, as stakeholders value
sustainability.
 Retailers and large corporations prefer products and partnerships with companies demonstrating strong
ESG performance.
 Particularly crucial for small and mid-sized companies, which depend heavily on stable supply chains.

5. Attracts & Keeps Talent

 Attracts employees seeking workplaces aligned with their values, especially Millennials and Gen Z.
 Strong ESG practices foster job satisfaction, improving employee loyalty and productivity.
 Addresses the shift in workforce priorities seen during the "Great Resignation."

6. Triggers Company Growth and Financial Performance

 ESG programs drive growth by improving operational efficiency and financial performance.
 Access to ESG software makes implementation cost-effective for small and mid-sized businesses.
 Strengthens the company’s position in the sustainability movement.

7. Enhances Corporate Transparency

 Expands disclosures beyond financial metrics to include environmental and social impacts.
 Enhances stakeholder trust and corporate accountability through sustainability reporting.

8. Stronger Risk Management

 Helps identify emerging risks and opportunities overlooked by traditional approaches.
 Supports proactive responses to risks, protecting reputation and shareholder value.

9. Promotes Stakeholder Engagement

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 Facilitates meaningful engagement with stakeholders, including shareholders, employees, customers,
and communities.
 Tailors sustainability disclosures to the interests of diverse stakeholders.

10. Improves Information and Communication with Stakeholders

 Broadens disclosures to non-financial impacts, fostering stronger trust and understanding.
 Enables benchmarking, peer comparison, and stakeholder dialogue regarding sustainability efforts.

The Way Forward - There are three key changes companies should quickly establish to prepare for
the challenges ahead.
1. Appointing a Chief Sustainability Officer (CSO): A CSO will play a pivotal role to implement
sustainability goals. Addresses employee resistance and simplifies complex changes. Motivates
employees by linking ESG goals to incentives like bonuses.
2. Creating an ESG Policy Budget: Proper budgeting for hiring, implementing policies, and forming
partnerships. Justify budget by showing cost-saving potential, e.g., extending IT asset lifespan cuts new
equipment expenses.
3. Assessing Partners’ Sustainability Practices: Companies must evaluate their entire supply chain to
ensure that their partners also operate sustainably. This includes everything from suppliers to service
providers.
Companies failing to address their carbon footprint or sustainability will risk falling behind and
governments are enforcing stricter rules to combat greenwashing and reward genuine sustainability
efforts.

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 Lesson: 17 (Empowerment of the Company Secretary Profession)
Role of Company Secretaries:
1. Governance and Board Support:
o Serve as advisors to the board and senior management.
o Ensure the board is informed about governance issues and sustainability trends.
o Maintain company reputation and ensure compliance with corporate policies.
2. Catalysts for Good Governance:
o Promote ethical practices, organizational culture, and strategic alignment.
o Help boards address sustainability risks and opportunities effectively.
3. Operational Oversight:
o Support effective decision-making.
o Oversee implementation of governance policies and safeguard corporate integrity.
SEBI
Regulations and Role of CS
1. Compliance Officer Role:
o CS professionals are recognized as Compliance Officers responsible for timely, accurate
dissemination of material information and guiding the Board.
2. Secretarial Audit and Certificates:
o CS professionals provide Secretarial Audit Reports and Corporate Governance Certificates,
ensuring statutory compliance and enhancing Board assurance.
3. Insider Trading Safeguards:
o CS professionals are tasked with preventing misuse of price-sensitive information, with
increasing judicial scrutiny for lapses.

Eligibility and Membership

 Members can choose between two career paths:
1. Employment: Serving as a Key Managerial Personnel (KMP) or Compliance Officer in
companies.
2. Practice: Working independently after obtaining a Certificate of Practice (CoP) under the
Company Secretaries Act, 1980.

Role of CS in Employment
 Acts as a Governance Professional, balancing the interests of management, the Board, shareholders,
and other stakeholders.
 Accepted as an independent and indispensable professional in corporate management.
 Recognized under various regulations, including:
o Companies Act, 2013
o SEBI (LODR) Regulations, 2015
o SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021
o IFSCA (Issuance and Listing of Securities) Regulations, 2021
o IRDA and PNGRB Regulations (Insurance and Gas sectors)

Role of CS in Practice
 Offers professional services across diverse fields, including:
o Corporate Laws: Secretarial compliance, governance, and restructuring.
o Securities Laws: SEBI and stock exchange-related compliance.

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 o Representation Services: Appearing before tribunals like NCLT.
o Audit and Certification: Compliance audits, certifications under Companies Act and SEBI
regulations.
o Finance and Taxation: GST, accounting, and financial advisory.
o Specialized Services:
 Intellectual Property Rights (IPRs)
 Arbitration, mediation, and conciliation
 Roles like Insolvency Professional, Internal Auditor, and Registered Valuer.

💼 Changing Role of Company Secretary – Global Perspectives from Governance Institutes

🌍 1. Chartered Secretaries Southern Africa
Theme: Company Secretary and AI – Opportunity, not Threat
 AI will automate repetitive tasks like lodging documents, filing statements, sending notices, and
distributing board packs.
 Due diligence and compliance tasks will become more efficient through AI-driven assistance.
 Strategic and advisory roles of the Company Secretary cannot be automated due to their complexity
and need for emotional intelligence.
 Examples of automatable tasks:
o Filing via XBRL
o Sending board minutes and agendas
o Taking meeting attendance, surveys, and responses
o Drafting repetitive contract clauses.

⚙️Functions requiring human intellect and discretion:

 Advising the board on risks
 Distinguishing confidential information
 Inducting new directors
 Judging governance issues and making ethical decisions.

Way Forward:
AI should be embraced to reduce workload, allowing the Company Secretary to focus on complex
decision-making, corporate citizenship, and strategic governance.
Governance
Institute of Australia
Theme: Technology Disruption & Human Judgment
 AI and ML will enhance the role by automating routine functions, making the role more strategic and
impactful.
 Machines lack:
o Emotional intelligence
o Creativity
o Ability to interpret boardroom dynamics and facial expressions
o Wisdom and experience necessary for governance decisions
 Governance often lies in the “grey area”—machines cannot replace human intuition, gut feeling, and
judgment.
🤖 👉 🧠: Technology assists, but human oversight remains essential for effective corporate governance.

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 ICSA –
Future Proofing: Technological Innovation and Implications for Corporate Governance
 AI as Disruptor & Enabler:
o Tools like minute-taking devices using speech-to-text algorithms can disrupt the traditional roles of
Company Secretaries.
o Human supervision remains essential for ensuring the accuracy, tone, and context of meeting
minutes.
o Despite being a disruptor, this technology is a potential benefit, shifting the CS role from mere
compliance and administration to value-adding strategic support.
🔮 Three
Social Issues That Will Affect Governance in the Future
1. Demographic Change
o Millennials expect all companies (not just NGOs or social bodies) to actively help solve economic,
environmental, and social problems.

2. Technological Change
o Tech brings instability in jobs and new governance issues.
o Challenges:
 AI can automate tasks, but raises privacy and ethical questions.
 No one’s fully taking responsibility for these issues yet.
 Tech is causing environmental harm (like 50 million tonnes of e-waste yearly).
 AI decisions are hard to trace, so when it makes errors, we can’t always fix them.
 AI that reads emotions (facial expressions/voice) could manipulate stakeholders, like
employees or customers.

3. Environmental Sustainability
o Usually applies more to big companies with large carbon footprints.
o But now all companies are expected to show long-term environmental care in their governance.
🧭 Role of
Company Secretaries in Board Governance
CSs are seen as the “conscience” of the company (as per IFC, World Bank Group).
Their role is growing and now includes:
 Working closely with the Board
 Supporting ESG strategy and business integration

🔧 Board Governance Activities by CSs

 Director appointment and induction
 Training of Board members
 Advising on ESG and business strategies
 Managing meetings, agendas, committees
 Setting up Board portals (tech support)
 Ensuring Board independence & conflict management
 Reporting on financial and non-financial matters.

Traditional Duties and Responsibilities vs. Connections to Corporate Sustainability Governance

1. Governance Processes and Governance Committee

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 Traditional Duties:
o Maintain governance processes and Board documents.
o Advise the Board and Governance Committee on governance matters.
o Serve as an expert and liaison for governance-related issues.
o Administer the corporate code of conduct and policies.
 Sustainability Connection:
o Monitor trends in sustainability governance.
o Update governing documents to include sustainability oversight.
o Educate executives on sustainability governance trends.
o Ensure compliance with sustainability policies.

2. Board Roles and Responsibilities

 Traditional Duties:
o Advise the Board on roles and responsibilities.
o Draft and maintain these roles and responsibilities.
 Sustainability Connection:
o Integrate sustainability oversight within Board roles and responsibilities.

3. Chairperson and Committee Chairperson Liaison

 Traditional Duties:
o Support Chairpersons in their effectiveness.
 Sustainability Connection:
o Inform Chairpersons about sustainability governance trends and best practices.

4. Management Liaison
 Traditional Duties:
o Facilitate the Board-management relationship.
 Sustainability Connection:
o Educate the CEO and other executives on sustainability risks and opportunities.
o Support the sustainability prime to bring key sustainability issues to the Board.

5. Meeting Agendas
 Traditional Duties:
o Prepare agendas and briefing materials.
 Sustainability Connection:
o Embed sustainability discussions in regular agendas.
o Include sustainability risks, opportunities, and stakeholder impacts in meeting packages.

6. Meeting Documentation
 Traditional Duties:
o Oversee drafting and maintaining minutes.
 Sustainability Connection:
o Record sustainability discussions and decisions in the minutes.

7. Director Recruitment and Nominating Committee

 Traditional Duties:
o Liaise with the Nominating Committee.

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 o Develop criteria for Board recruitment.
 Sustainability Connection:
o Promote diversity in Board composition.
o Include sustainability expertise in recruitment criteria and skills matrix.

8. New Director Orientation

 Traditional Duties:
o Facilitate orientation for new Directors.
 Sustainability Connection:
o Incorporate sustainability education, policies, and reports in orientation.

9. Board and Director Training

 Traditional Duties:
o Organize ongoing education for the Board and Directors.
 Sustainability Connection:
o Ensure sustainability topics like risks, trends, and stakeholder impacts are covered in training
sessions.

10. Board, Chair, and Director Evaluation

 Traditional Duties:
o Support performance assessments.
 Sustainability Connection:
o Evaluate sustainability skills, knowledge, and commitment in assessments.

11. Disclosure and Reporting

 Traditional Duties:
o Draft annual governance reports.
 Sustainability Connection:
o Include sustainability practices in annual reports following global standards (e.g., GRI).

12. Board Communications

 Traditional Duties:
o Manage communications with shareholders and stakeholders.
o Coordinate annual general meetings.
 Sustainability Connection:
o Disclose sustainability performance and foster Board-stakeholder relations.

13. Board Operations

 Traditional Duties:
o Arrange logistics for Board meetings and related activities.
 Sustainability Connection:
o Integrate sustainability practices into meeting arrangements.

14. Personal Performance Planning

 Traditional Duties:
o Manage personal development plans.
 Sustainability Connection:

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 o Include sustainability governance in performance evaluations and professional plans.

Informal Roles in Sustainability Governance

1. Raise sustainability topics informally through Governance Committee relationships.
2. Discuss sustainability governance trends with Board and committee chairs.
3. Using relationships with Board members and the C-suite to introduce sustainability as a governance
priority.
4. Supporting sustainability-focused discussions, reporting, and decision-making at the Board level.

⚖ Comparative Analysis of Law Applicable to Governance Professionals

Malaysia – Company Secretary
Evolved Role:
 From administrative advisor to governance advisor.
 Plays a key role in enabling effective board and committee functioning via the Chairman.

Core Roles & Responsibilities:

 Organizing board and committee meeting logistics.
 Attending meetings, recording minutes, and facilitating board communication.
 Facilitating director orientation, training, and development.
 Advising the board on its roles, disclosures, and regulatory compliance.
 Managing annual shareholder meeting processes.
 Monitoring corporate governance developments and aligning practices with stakeholder expectations.
 Serving as a communication focal point on governance issues.

Qualification & Knowledge:

 Needs expertise in company law, securities law, finance, governance, and listing compliance.
 Continuous professional development is essential.

Vietnam – Corporate Secretary

Nature of Role:
 A senior management position in public companies.
 Directly accountable to the Board.
 Key support for governance, administration, communication, and compliance.

Recommended Practices:
 Acts as a bridge between board and management, and between company and shareholders.
 In large companies, investor relations officers handle shareholder communication.
 Expected to provide strategic governance guidance to directors, shareholders, and stakeholders.

Core Roles & Responsibilities (similar to Malaysia but with enhanced emphasis):
 Manage board/committee meetings and minutes.
 Facilitate board communication.
 Advise on board roles, disclosures, and regulatory compliance.
 Support director induction and training.
 Conduct shareholder meetings.
 Monitor and implement governance practices.
 Act as focal point for stakeholder engagement.

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 Ethical Standards & Competence:
 Must act with integrity, independence, neutrality, and objectivity.
 Requires deep understanding of the business, legal, and regulatory environment.
 Continuous professional development is mandatory.

United Kingdom (UK)

 UK Corporate Governance Code:
o 2012 Version: The company secretary is responsible for ensuring good information flow within the
board, committees, and between management and non-executive directors. They also facilitate induction
and ongoing professional development.
o 2014 and 2018 Versions: Reinforces the company secretary’s role in advising the board on governance
matters, ensuring compliance with board procedures, and supporting the board in its effectiveness. The
appointment and removal of the company secretary should be a decision of the entire board.
o Provision 16 (2018): The company secretary must ensure the board has the necessary policies,
processes, and resources to function effectively. They are responsible for advising on governance
matters, and all directors should have access to their services.

Role of Company Secretary in ESG

The Company Secretary (CS) is increasingly recognized as the "governance professional" in areas like
Corporate Social Responsibility (CSR), Business Responsibility and Sustainability Reporting (BRSR),
and Environment, Social, and Governance (ESG), emphasizing sustainability.
1.🌱 ESG and CS
 Non-Financial Metrics: ESG has become a crucial consideration for investors, who now evaluate both
financial and non-financial metrics before making investment decisions. CS plays a central role in
reporting non-financial metrics to board/committees.
 Internal Support for Sustainability: CS professionals are key to supporting companies’ sustainability
initiatives, helping them track and report on ESG factors such as climate change, biodiversity, and
social impact, thus ensuring transparency and compliance.

2. 🌍 BRSR and CS
 Transition to BRSR: SEBI replaced the Business Responsibility Reporting (BRR) framework with the
Business Responsibility and Sustainability Reporting (BRSR) in 2021.
 Mandatory Compliance: Reporting under BRSR is mandatory for the top 1,000 companies by market
capitalization in India.
 Scope of Reporting: Companies must report on ESG issues like climate change, biodiversity, water
management, and supply chain sustainability.
 Alignment with Global Goals: Businesses must disclose their commitments to the Paris Climate
Agreement and UN Sustainable Development Goals (SDGs).

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 CS as a Preferred Professional: The CS’s expertise in governance and compliance makes them the
ideal professional for advising corporations on BRSR reporting. They play a crucial role in ensuring
compliance with the new framework, helping businesses disclose their environmental, social, and
governance practices.

3. 💹 Social Stock Exchange (SSE) and CS

 Role of SSE: The Social Stock Exchange (SSE) was introduced to provide a platform for investments
focused on social objectives. It aims to facilitate funding for social enterprises.
 CS’s Role: Company Secretaries, with their deep knowledge of corporate structuring and regulatory
compliance, are ideally suited to advise on the procedures for registration, listing, and compliance
with SSE. While the impact analysis and social audits might be new to CS, their ability to manage and
lead multidisciplinary teams enhances their role in the SSE framework.

4. 🔍 Social Audit and CS as Social Auditor

 Social Audit: A social audit assesses a company’s social responsibility efforts and the impact of its
operations on society. It reviews areas such as environmental impact, community development,
charitable contributions, and the work environment.
 ICSI Social Auditing Standards: The Institute of Company Secretaries of India (ICSI) has established
Social Auditing Standards. These standards cover areas like:
 ICSI Social Auditing Standards:
o Hunger, Poverty, and Inequality (SAS-01)
o Healthcare and Safe Drinking Water (SAS-02)
o Education and Livelihoods (SAS-03)
o Gender Equality and LGBTQIA+ Empowerment (SAS-04)
o Environmental Sustainability and Climate Change (SAS-05)
o Rural and National Sports (SAS-07)
o Slum development and affordable housing (SAS-11)
o Disaster Management, relief, and reconstruction (SAS-12)

 CS as Social Auditors: With these standards, Company Secretaries are well-placed to lead social audits,
ensuring that companies’ CSR and social responsibility activities align with their stated goals, regulatory
standards, and ethical practices.

5. 💠 Corporate Social Responsibility (CSR) and CS

CSR Framework: CSR initiatives were initially voluntary, but the Companies Act, 2013 (Section 135) made
CSR mandatory for certain companies based on criteria like profit, turnover, and net worth. CSR activities
are regulated under the Companies (Corporate Social Responsibility Policy) Rules, 2014, along with
Schedule VII of the Act.
📌 Role of CS in Employment
 As Key Managerial Personnel (KMP), ensures compliance in letter and spirit.
 Actively involved in:
o CSR Committee proceedings

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 o Drafting and evolving CSR Policy
o Coordinating implementation across departments
o Overseeing reporting and disclosure requirements.

📌 Role of CS in Practice
 Provides advisory and consultancy services to companies not required to appoint a full-time CS.
 Helps in policy formulation, implementation guidance, and legal compliance under CSR law.

6. CS as Chief Risk Officer

 Risk Management Requirement: Section 134(3)(n) of the Companies Act, 2013 mandates companies
to include a statement on the development and implementation of a risk management policy in the
Board's Report. The policy should identify risks that may threaten the company’s existence, but many
companies often treat this as a mere formality.
 CS’s Role as Chief Risk Officer:
o Risk Identification and Mitigation: The CS, as Chief Risk Officer, can play a pivotal role in
identifying, measuring, and mitigating various types of risks (compliance, legal, operational, etc.).
Effective risk management is essential to protect the company’s reputation and financial health.
o Risk Disclosures: The CS ensures that risks are adequately disclosed in company reports, and
mitigative strategies are put in place to minimize any adverse impact on the business.

7. 🌍 Climate Change and the Corporate Secretary

 Climate Change Governance: As climate change risks and opportunities become more pressing,
companies are under increasing pressure from investors and regulators to address them. The
Corporate Secretary plays a critical role in ensuring that Boards are well-equipped to make informed
decisions on climate-related matters.
 Survey Insights (CSIA & PwC, 2020): A survey conducted by the Corporate Secretaries International
Association (CSIA) and PwC highlighted key governance practices regarding climate change. The
objectives were to assess:
 Risk Management – Identifying, mitigating, and monitoring climate-related risks.
 Regulatory Response – How authorities have addressed climate change risks.
 Corporate Integration – Adoption of climate change policies into company culture.
 Responsibility Allocation – Designating roles for climate change governance.
 Awareness & Training – Assessing the Board and Corporate Secretary’s knowledge of climate
change.
 Reporting & Disclosure – Evaluating the extent and frequency of climate-related disclosures.
 Role of Corporate Secretary – Their influence in integrating climate governance.

Climate Governance and the Company Secretary

Five Key Roles of Company Secretary in Climate Governance:
The Company Secretary plays a key role in helping the company manage climate-related issues. Their role
can be divided into five parts:

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1. Climate Governance Professional
 Set up policies, committees, and systems to handle climate risks.
 Ensure the board and its subcommittees include climate in their work.
 Suggest forming climate-focused committees if needed.
 Promote climate awareness and training at the board level.
 Help include climate experts on the board.
 Make sure management is involved in climate risk management.

2. Strategic Advisor
 Help the board regularly discuss climate issues like:
o Industry decarbonisation
o Climate risks and opportunities
o Scenario analysis
 Align climate goals with business strategy.
 Record board decisions and support communication with shareholders.

3. Risk Manager
 Support the board in identifying:
o Physical risks (e.g., floods, heatwaves)
o Transition risks (e.g., policy or technology changes)
 Help include climate risks in the company’s risk management system.
 Ensure proper disclosure of these risks.

4. Metrics and Targets Monitor

 Work with management to set and track climate-related targets.
 Ensure the board approves these metrics.
 Regularly review performance and suggest improvements.
 Link executive pay to meeting climate goals.

5. Disclosure Requirements
 Collect accurate data for climate reporting.
 Ensure reports meet global standards like TCFD.
 Get data verified by external experts.
 Make sure management and the board approve the final disclosures.

⚖️Case Title: Mayank Agarwal vs. M/s. Technology Frontiers (India) Private Limited
📌 Background & Issue:
 Company Secretary (CS) Mr. Sriram Srivatsan issued a notice under Section 90 of the Companies Act,
2013 to disclose Significant Beneficial Ownership (SBO).
 The company did not comply, so the CS filed a petition before NCLT to ensure statutory compliance.
 Nominee Director, Mr. Mayank Agarwal, challenged the maintainability of the petition, arguing that:
o CS lacked locus standi (legal standing),
o No Board Resolution authorized him to approach NCLT.
(Declaration of SBO: Individuals holding: 25% or more beneficial interest in shares, (OR) Right to exercise
significant influence/control.)

🛑 Applicant's (Mayank Agarwal) Arguments:

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 CS cannot act independently without Board’s approval.
 Section 90(7) allows only the Company (via the Board) to file application.
 No delegated authority or ratification existed.
 CS allegedly committed professional misconduct by acting without authority.

✅ Respondent's (CS Mr. Srivatsan) Defense:

 He was appointed as Compliance Officer via Board Resolution.
 Section 205 mandates CS to report and ensure legal compliance.
 Rule 10(4) of the Companies (Appointment and Remuneration) Rules, 2014 allows CS to represent
company before authorities.

👨‍⚖️NCLT Observations:
 CS is not just a clerk; he is a Key Managerial Personnel (KMP) and Officer in Default under Sections
2(51) and 2(60).
 CS must ensure compliance, especially when the board fails.
 Watchdog, not bloodhound – expected to act diligently for corporate governance.
 Filing a petition was within CS's power and duty.

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 Lesson: 10 (Stakeholders Rights)

UN Guiding Principles on Business and Human Rights (UNGPs):

Three-Pillar Framework:
 Pillar I: The State duty to protect human rights
 Pillar II: The business responsibility to respect human rights
 Pillar III: Access to remedy for victims of business-related human rights harm.

Part A. Whistle/ Vigil/ Grievance Redressal Mechanism

Whistleblowing refers to revealing misconduct within an organization, particularly illegal or unethical
activities, in the public interest and ensures the protection of whistleblowers against retaliation,
harassment, or victimization.
Reasons for Whistleblower Policies
1. Promotes Transparency – Encourages openness among employees.
2. Protects Whistleblowers – Ensures safety for those reporting misconduct.
3. Encourages an Open Work Culture – Builds confidence in reporting unethical behavior.
4. Reduces Corruption – Prevents misuse of power, especially in public institutions.
5. Strengthens Democracy & Rule of Law – Supports accountability in governance.
6. Improves Work Environment – Helps correct small issues, fostering ethical responsibility.

Types of Whistle Blowers

Whistleblowers can be categorized based on the context and nature of their disclosure. Below are the key
types:
1. Internal Whistleblowers: Report wrongdoings to higher officials within the same organization.
Common Issues: Disloyalty, improper conduct, indiscipline, insubordination, or disobedience.
2. External Whistleblowers: Report unethical activities to entities outside the organization such as
media, public interest groups, or enforcement agencies.
3. Alumni Whistleblowers: Former employees who report unethical practices from their previous
organizations.
4. Open Whistleblowers: Whistleblowers whose identities are revealed.
5. Personal Whistleblowers: Reporting organizational wrongdoings that harm a specific individual.
6. Impersonal Whistleblowers: Reporting unethical practices aimed at harming others within or outside
the organization.
7. Government Whistleblowers: Reports unethical practices or misconduct by government officials.
8. Corporate Whistleblowers: Reports wrongdoings within a business corporation.

Legislative Framework in India Supplementing the Whistleblowing Mechanism

1. The Whistle Blowers Protection Act, 2014
 Purpose: Establishes guidelines for whistleblower protection in non-corporate cases.
 Key Features:
o Central Vigilance Commissioner (CVC): Receives complaints, handles public disclosures, and
protects whistleblowers.

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 o Scope: Covers allegations of corruption, misuse of power, or discretion against public servants.
Does not apply to Special Protection Group (SPG) personnel.
o Complaint Validity: Anonymous complaints are not entertained; complaints must be filed within
seven years of the incident.
o Appeals: Complainants dissatisfied with the Competent Authority's decision can appeal to the High
Court within 60 days.
o Safeguards: Protects whistleblowers from victimization and ensures confidentiality. Disclosing a
whistleblower's identity, intentionally or unintentionally, can result in imprisonment.

2. The Companies Act, 2013 and the Companies (Meetings of Board and its Powers) Rules, 2014
 Mandatory Vigil Mechanism:
Section 177(9) mandates the establishment of a vigil/whistleblowing mechanism for:
o Listed companies.
o Companies accepting public deposits.
o Companies with borrowings exceeding ₹50 crores from banks or financial institutions.
 Operation Through Audit Committees:
o Companies with audit committees must operate the mechanism through the committee.
o Members with conflicts of interest must recuse themselves.
 Safeguards:
o Protects whistleblowers from victimization.
o Provides direct access to the Audit Committee Chairperson or designated directors in exceptional
cases.
 Disclosure Requirements:
o The existence of the vigil mechanism must be communicated within the organization.
o Details must be disclosed on the company’s website and in the Board’s Report.
 Frivolous Complaints:
o Repeated false complaints may lead to disciplinary action, including reprimands.

3. Companies (Auditor’s Report) Order, 2020 (CARO 2020)

 Objective: Strengthens corporate governance by mandating the disclosure of whistleblower complaints
to Auditors in Listed Companies.
 Auditor’s Responsibility: Whistleblower complaints must be reviewed and disclosed in the auditor's
report.

4. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR)

Key Provisions Relating to Whistleblowing and Vigil Mechanism
1. Regulation 22: Vigil Mechanism
o Requirement:
 All listed companies must establish a vigil mechanism to address and report genuine
grievances from employees and directors.
 The mechanism provides protection against victimization for whistleblowers.
o Objective: Ensure transparency and encourage employees to report unethical or illegal practices.

2. Regulation 46: Website Disclosure

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 o Companies are required to: Disseminate information about the vigil mechanism and whistleblower
policy on a dedicated section of their website.

3. Regulations 34 and 53: Annual Report Disclosure

o Under the Corporate Governance section of the Annual Report, companies must:
 Include details about the vigil mechanism and whistleblower policy.
 Confirm that no personnel have been denied access to the audit committee.

4. Regulation 4(2)(d)(iv): Stakeholder Grievances

o Mandates the establishment of a whistleblower policy to enable stakeholders, such as employees
and their representative bodies, to report unethical and illegal practices within the company.

5. Schedule II: Role of the Audit Committee

o The Audit Committee is responsible for:
 Reviewing the functioning of the vigil mechanism.
 Ensuring its effective implementation.

(A) Whistleblower Protection Act, 1989:

 Purpose: This landmark law was established to protect federal employees who report fraud, and abuse
within the U.S. government.
 Key Provisions of WPEA
o Protects disclosures made to supervisors or those involved in wrongdoing.
o Motive of the whistleblower and the timing of the disclosure (even if made while off duty or after
the event) no longer undermine protection.
o Whistleblowers are now protected even if they report misconduct while carrying out their job
duties.

(B) Sarbanes-Oxley Act, 2002 (SOX)

 Context:
o The Sarbanes-Oxley Act was passed in response to massive corporate fraud scandals, like Enron
and WorldCom.
o The Act aims to strengthen corporate governance and improve the accuracy of financial
disclosures from publicly traded companies.

 Key Provisions Related to Whistleblowing:

o Audit committees must establish procedures for confidential employee complaints.
o Whistle-blowers can directly report to federal regulators, Congress, or supervisors without prior
employer notification.
o Protects whistle-blowers from retaliation, with penalties up to 10 years imprisonment for
offenders.

(C) The False Claims Act (FCA)

 Designed to prevent fraud against the government, first enacted during Abraham Lincoln's presidency.
 Key Features:
o Whistle-blowers receive 15-30% of the government’s recovery in fraud cases.

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 o Protects whistle-blowers from retaliation and harassment.

The United Kingdom: Whistleblowing Framework

The Public Interest Disclosure Act (PIDA), 1998
Overview:
 Scope: Covers both private and public sector employees (excluding police officers).
 Protection Clause: Ensures that employees who make protected disclosures are not subjected to
detrimental treatment or retaliation by their employers.

Channels for Disclosure:

 Disclosures must be made to prescribed channels (employer or appropriate authority).
 Disclosures to the media are not protected, unlike in the U.S.

Canada: Whistleblowing Laws

Public Servants Disclosure Protection Act, 2007
Canada has limited whistleblowing laws, and the existing framework has faced criticism for being overly
restrictive and ineffective.
Federal Legislation: Public Servants Disclosure Protection Act (PSDPA), 2007
 Scope: Applies to most federal public service employees.
 Purpose: Protects whistleblowers from reprisals for reporting wrongdoing in the public sector.
 Criticism: Sets too many conditions on whistle-blowers and for protecting wrongdoers.

Australia: Whistleblowing Framework

Key Features of the Corporations Act Amendments:
1. Protected Individuals: Officers, employees and contractors.

2. Protections Offered: Safeguards against retaliation for whistleblowing and grants civil remedies,
including reinstatement of employment if terminated.
o Qualified Privilege: Protects whistleblowers from defamation suits.

3. Disclosure Channels: Whistleblowers must report to:

o Securities regulators.
o The company's auditor or audit team members.
o Directors, company secretaries, or senior managers.
o Any person authorized by the company to handle such matters.

4. Transparency Requirement: Whistleblowers must provide their name to receive protection under
the Act.

Best Practices in Designing and Implementing Effective Whistleblowing Mechanisms - Core Steps:
1. Gaining Top-level Commitment
2. Developing a Whistle-blower Policy
3. Embedding the Programme
4. Monitoring and Evaluation

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5. Designing Reporting Mechanisms
6. Reporting.

Seven Dimensions of Organizational Culture Influencing Whistle-Blowing Behavior

1. Engagement
2. Vigilance
3. Accountability
4. Credibility
5. Courage
6. Options
7. Empowerment.

Key Recommendations for an Effective Whistle-Blowing Framework:

1. Awareness Generation: Educate stakeholders about legal provisions and the benefits of reporting
wrongdoings.
2. Identity Protection: Ensure whistle-blowers’ identities remain confidential unless consented to or required
by law.
3. Incentive Mechanisms: Reward whistle-blowers who provide evidence of malpractices or wrongdoing.
4. Widening the Scope: Include state governments and private organizations to broaden anti-corruption
efforts.

Workplace Practices: Health and Safety

Occupational Health and Safety (OHS): A Core Element
Ensuring safe working conditions aligns with Directive Principles of State Policy and international
standards. Boards must integrate health and safety into governance structures, including sub-committees
like risk, remuneration, and audit.
Benefits of Prioritizing OHS
 Reduced Risk of Accidents/Injuries: Early hazard identification and mitigation minimize workplace
incidents.
 Enhanced Employee Morale: Employees feel more secure and less stressed in a safe workplace.
 Improved Productivity: Safer work environments reduce absenteeism and maintain workflow continuity.
 Cost Savings: Lower expenses from healthcare, compensation claims, and insurance premiums.
 Insurance Premiums: Proper safety measures demonstrate a commitment to employee welfare thereby
lowering premiums.
 Compliance: Avoid penalties and reputational damage from regulatory violations.
 Reputation: Adopting modern safety standards positions companies as industry leaders, setting them apart
from competitors.

Case Study: Bhopal Gas Tragedy

 Incident Overview:
The 1984 Bhopal Gas Tragedy was caused by the release of methyl isocyanate gas from Union Carbide India
Limited, affecting thousands of people and resulting in widespread fatalities and injuries.
 Consequences:
o Over 20,000 deaths and irreparable damage to the health of 60,000 people.
o Highlighted the dangers of unsafe industrial operations and poor hazard management.

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 Legal and Environmental Impact:
o Led to enactment of the Environment Protection Act, 1986 and Public Liability Insurance Act,
1991.
o Strengthened Article 21 of the Indian Constitution, emphasizing the right to live in a pollution-free
environment.
 Lessons Learned:
o Ensuring strict compliance with safety regulations is essential to prevent disasters.
o Industrialization must prioritize human and environmental safety.

Prevention of Sexual Harassment (POSH) Act, 2013:

The POSH Act, 2013 aims to protect women from sexual harassment in workplaces, ensuring a safe,
respectful, and non-discriminatory work environment.
Definition of Workplace and Harassment
1. Workplace Includes: Physical offices, employee-visited locations during work, transportation, and even
work-from-home settings.
2. Harassment at Workplace: Any action, communication, or misconduct aimed at demeaning,
intimidating, or discriminating against an individual based on religion, race, gender, or other grounds.
3. Sexual Harassment Covers:
o Physical contact or advances.
o Requests for sexual favors.
o Sexually colored remarks.
o Showing pornography.
o Any unwelcome verbal, physical, or non-verbal conduct of a sexual nature.

Gender-Specific Yet Inclusive Approach

 While the POSH Act focuses on protecting women, organizations are encouraged to:
o Foster gender neutrality.
o Address harassment faced by men or individuals of other genders.

Key Objectives of the POSH Act

1. Protect women’s rights to a safe workplace.
2. Encourage organizations to create awareness about workplace harassment.
3. Mandate internal committees to handle complaints effectively.
4. Extend protection beyond office boundaries, promoting gender neutrality & how can it be used by men
who face any kind of sexual harassment during work in the workplace.

Impact of Sexual Harassment at the Workplace

Professional Consequences:
 Decreased productivity and absenteeism.
 Loss of promotional opportunities.
 Retaliation or gossip.
 Defamation or ostracization.
 Career setbacks or relocation.

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Personal Consequences:
 Depression, anxiety, or trauma.
 Difficulty concentrating or sleeping.
 Loss of self-esteem, trust, and confidence.
 Physical effects: headaches, fatigue, eating disorders.
 Isolation and strained relationships.

Consequences of Workplace Sexual Harassment

1. Emotional and Physical Issues
 Physical health impacts:
o Loss of appetite, migraines, sleep difficulties, and weight changes.
o Sleep deprivation can lead to hormone imbalance, weakened immunity, and high blood pressure
risks.
 Mental health consequences:
o Anxiety, depression, nervousness, and low self-esteem.
o Research shows victims experience lower job satisfaction and increased psychological distress.

2. Financial Challenges for Victims

 Career setbacks:
o Reduced work performance, loss of credibility, and lack of recommendations.
o Victims may quit, leading to unpaid leaves or financial instability.

3. Decreased Company Productivity

 Workplace disruptions:
o Harassment causes absenteeism, low morale, tension, and hostility.
o Resulting in reduced performance and higher employee turnover.
 Financial impact:
o Businesses incur costs due to legal proceedings, rehiring, and training.
o Toxic workplaces deter talent acquisition and retention.

4. Damage to Brand Name and Reputation

 Public perception:
o High-profile harassment cases damage company reputation.
o Consumers are less likely to support businesses with poor workplace practices.

Case Study: Vishaka vs. State of Rajasthan (Bhanwari Devi Case)

Incident Overview:
 Bhanwari Devi, a social worker in Rajasthan, was gang-raped while attempting to stop a child marriage
in 1992.
 Her case highlighted the lack of workplace protections for women against sexual harassment.
Key Developments:
 Supreme Court recognized sexual harassment at the workplace as a violation of fundamental rights
under Articles 14, 15, 19, and 21 of the Constitution.
 The case led to judicial legislation in the absence of statutory law.

Vishaka Guidelines:
 Defined sexual harassment and provided a framework to address it:

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 1. Employers must implement procedures to prevent and resolve sexual harassment cases.
2. Establishment of Complaints Committees at all workplaces:
 Chaired by a woman and include NGO/third-party participation.
 At least 50% of members should be women.
3. Employers must take appropriate legal actions.
4. Committees to advise victims and recommend further actions.
Impact:
 Paved the way for the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and
Redressal) Act, 2013, which replaced the Vishaka Guidelines.

Employee Turnout / Attrition Rate

Employee Turnover: This refers to employees leaving a company or organization, and it includes all types
of separations.
Types of Employee Turnover:
1. Voluntary Turnover
Voluntary turnover occurs when employees leave an organization by their own choice. Some common
reasons for voluntary turnover include:
 Resignation (due to personal reasons, better job offers, career advancement, etc.)
 Retirement
 Relocation
 Pursuing other opportunities (moving to a different company or organization)
It is a major concern for companies because due to its unpredictability and loss of key talent.

2. Involuntary Turnover
Involuntary turnover occurs when the company decides to terminate an employee's employment, and the
employee is not leaving voluntarily. This type of turnover can be divided into two categories:

 Controllable Involuntary Turnover:

This type occurs when an employee is terminated due to poor performance, failure to meet company
expectations, or violations of company policies.
 Uncontrollable Involuntary Turnover:
This occurs when factors outside both the employer and employee's control lead to the departure.
Common examples include:
o Death or disability of the employee.
o Forced downsizing or layoffs due to external circumstances, like economic downturns or
restructuring.

While involuntary turnover can disrupt teams and cause uncertainty, it may offer certain benefits, such as
reducing the workload of employees who were negatively impacted by a terminated colleague, or
streamlining processes during a downsizing.

Effects of High Employee Turnover:

1. Disruptions to Workflow:
High turnover rates lead to a loss of experienced employees, which can disrupt the flow of work. The
remaining employees are often expected to take on additional responsibilities, which can reduce their focus
and productivity.

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2. Low Workplace Morale:
As existing employees take on more work due to the vacancies left by departing staff, their morale can drop.
The additional workload, along with the uncertainty about job stability, creates stress and anxiety. Anxiety
and stress result in more resignations, perpetuating turnover.
3. Loss of Talented Employees:
High turnover increases the risk of losing valuable employees, especially those with unique skills or
experience.
4. Financial Losses:
High turnover is expensive. Companies incur costs in recruiting, hiring, and training new employees.
Furthermore, newly hired employees often take time to reach the productivity levels of their predecessors,
which can affect client satisfaction and sales.
5. Negative Workplace Reputation:
A high turnover rate can tarnish a company's reputation, making it harder to attract top talent. Potential
employees often research companies before applying, and a history of frequent employee departures can
deter them. Job security is a major factor in employee engagement.

Gender Parity at Work

Parity refers to the equal representation of genders in various aspects of life, including the workplace. It
ensures that both men and women have access to the same opportunities, rights, and material
conditions, while still respecting their specific needs. Parity is foundational in combating gender disparities
and promoting equality between the sexes.
Gender Parity vs. Gender Equality
While the terms gender parity and gender equality are often used interchangeably, they have distinct
meanings:
 Gender Equality focuses on the treatment of people of different genders, ensuring that all genders are
treated fairly and with equal respect. It involves creating opportunities for everyone, irrespective of
gender, and providing the same rewards, resources, and opportunities for all.
 Gender Parity refers to the representation of each gender in equal numbers. In the context of the
workplace, gender parity is achieved when men and women (or other genders) are represented equally,
with a balanced ratio. For example, a 1:1 ratio of men to women in leadership positions would signify
gender parity.
Workplace Gender Equality
Gender equality in the workplace is achieved when people of all genders have equal access to
opportunities, rewards, and resources, without discrimination. This includes:
1. Equal pay for work of equal or comparable value.
2. Removal of barriers to women’s full and equal participation in the workforce.
3. Access to all occupations and industries, including leadership roles, regardless of gender.
4. Elimination of gender-based discrimination, especially in relation to family and caregiving
responsibilities.

Why Does Workplace Gender Equality Matter?

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 Achieving workplace gender equality is not only the right thing to do but also essential for economic and
organizational success. Some benefits include:
 Better organizational reputation
 Increased organizational performance
 Improved national productivity and economic growth
 Enhanced ability of companies to attract and retain talent.

Women in Boardrooms: Progress and Impact

 The percentage of women on boards has increased globally.
 Gender-diverse boards lead to better decision-making, innovation, and financial performance.
 More women in leadership breaks stereotypes, encourages career growth, and fosters a culture of
equality.
 The McKinsey Diversity Wins Report (2020) shows that companies with top-quartile gender-diverse
boards outperform financially by 28%.

Monetary and Non-Monetary Benefits

Incentives are rewards used by organizations to motivate employees to perform better and achieve goals.
These rewards can be classified into two categories: monetary and non-monetary benefits.
Monetary Benefits
Monetary benefits are financial rewards provided by employers to encourage employees to meet certain
performance targets or goals. These benefits are highly effective in addressing basic needs, such as
security and physiological needs, but may lose their impact once those needs are met.
Types of Monetary Incentives:
1. Piece Rates:
o Typically used in production industries, employees are paid a specific amount for each unit of work
they produce.
o Motivational Impact: Encourages employees to work quickly and increase productivity.
o Considerations: Supervisors must monitor quality to avoid compromises.

2. Pay Raise:
o A salary increase awarded after an employee has worked for a company for a long period or
achieved certain milestones.
o Motivational Impact: Serves as recognition for loyalty and consistent performance.

3. Profit Sharing:
o A portion of the company’s profits is shared with employees, often based on their role, tenure, and
contributions to overall goals.
o Enhances employees’ sense of belonging and ownership.

4. Bonuses:
o Offered to employees for meeting or exceeding targets, such as sales quotas or project completion
deadlines.
o Types: Individual bonuses, team bonuses, annual bonuses.

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5. Contests:
o Sales or production contests where the best-performing individuals or teams are rewarded with
cash or other incentives.
o Motivational Impact: Promotes healthy competition and drives productivity.

Limitations of Monetary Incentives:

 While monetary incentives are effective, their impact may diminish over time once employees' basic
needs are satisfied.
 Sustainability: Money alone may not foster long-term loyalty or deep engagement with the
organization.

Types of Non-Monetary Incentives

Non-monetary incentives provide emotional, developmental, and experiential value to employees. These
rewards do not involve direct financial compensation but can be equally or more impactful in terms of
fostering motivation, job satisfaction, and long-term loyalty.
1. Flexible Working Arrangements
 Description: Allowing employees to choose their work hours or work from home on specific days.
 Benefits: Provides employees with greater control over their work-life balance, helping them meet
personal or family commitments while still being productive.
 Impact: Increases trust between employer and employee, improves employee satisfaction, and helps
attract and retain talent.

2. Extra Time Off

 Description: Giving employees additional time off beyond their standard vacation or sick days, or
allowing them to leave early or take longer lunch breaks.

3. Physical Rewards
 Description: These are tangible items given to employees as a reward for their performance or
achievements, ranging from small tokens like branded merchandise to larger items like gadgets or
equipment.
 Benefits: Physical rewards carry emotional value and can serve as reminders of the employee's
connection to the company. Items like customized thermoses or company-branded products can foster a
sense of pride.
 Impact: Strengthens the bond between employees and the company, providing a lasting memento that
reinforces the employee’s importance to the organization.

4. Experiential Rewards
 Description: Unique experiences tailored to employees’ passions.
 Benefits: Shows genuine interest in employees as individuals, creating positive memories associated
with the company.

5. Fringe Benefits
 Description: These are additional benefits provided by the company, beyond regular pay. Examples
include health insurance, paid vacation, meal subsidies, or transportation perks.
 Benefits: These benefits are usually seen as a “perk” and contribute to an employee’s overall
compensation package without directly increasing salary.

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  Impact: They enhance job satisfaction, improve employee retention, and provide employees with a sense
of security and well-being.

6. Growth Opportunities
 Description: Providing employees with opportunities for training, mentorship, or career
advancement.
 Benefits: Helps employees advance in their careers, which leads to loyalty. Indicates long-term value in
employees’ roles within the company.

7. Recognition and Praise

 Description: Publicly acknowledging an employee's achievements through awards, notes, or mentions
in meetings.
 Impact: Strengthens morale and encourages continued high performance by reinforcing positive
behavior.

While monetary incentives are effective in driving short-term results and meeting basic needs, non-
monetary incentives have a more profound and lasting impact. Non-monetary rewards address intrinsic
motivations, foster stronger employee relationships, and contribute to a more positive and collaborative
work environment. Companies that combine both types of rewards create a holistic incentive structure that
enhances employee satisfaction, performance, and loyalty, contributing to long-term organizational
success.

Supplier Code of Conduct

A Supplier Code of Conduct is a set of ethical and business standards that suppliers must adhere to in
order to do business with a company.
The main aspects of the Supplier Code of Conduct include: Ethical and Sustainable Practices, Regular
Audits, Compliance Certifications, Legal Compliance and Termination for Non-Compliance.

Local Procurement and Its Benefits

Local procurement refers to the purchase of goods and services from local businesses, typically within
emerging and developed markets, to support community engagement and local economic
development.
Benefits of Local Procurement
1. Benefits for Local Suppliers:
o Strengthens local businesses and creates jobs.
o Encourages community support and delivers social value.
2. Helps Meet CSR Targets:
o Helps meet defined local spending targets.
3. Shortens Timeframes:
o Working with local suppliers can reduce lead times and help companies source materials faster,
overcoming supply chain challenges.
4. Cost Reduction:
o Using local suppliers can lower transportation costs, which are rising due to high fuel prices, and
reduce overall logistical demands.

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5. Environmental Benefits:
o Reduced transportation distances and storage needs decrease the project's environmental footprint,
aligning with sustainability goals.

Lesson: 8 (Board Disclosures and Website Disclosures)

Disclosures are regulated under multiple legislations, including:
1. Companies Act, 2013 and associated rules.
2. SEBI (LODR) Regulations, 2015 for listed companies.
3. Secretarial Standards (e.g., SS4 on Board’s Report).
4. Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013.
5. Other applicable statutes.

1. Annual Report
An annual report is a comprehensive document provided to shareholders and stakeholders to assess a
company’s annual performance, including financial and operational highlights.
Components to Annual Report:
 Statement of Financial Position
 Financial Highlights
 Notes to Financial Statements
 Income Statement
 Statement of Cashflow
 Information on Corporate Governance
 Management Discussion and Analysis.

📜 SEBI (LODR), 2015 – Regulation 34

🔸 Mandatory Actions for Listed Companies:
 Submit and publish the Annual Report on the website and to the stock exchange:
o 📤 On the day of dispatch to shareholders (with AGM notice)
o 🔁 If revised, send within 48 hours after AGM with explanation

📋 What must be included in the Annual Report:

1. ✅ Audited Financial Statements
o Balance Sheet, P&L, etc.
o Statement on Impact of Audit Qualifications (Reg 33(3)(d))
2. ✅ Consolidated Financial Statements (audited)
3. ✅ Cash Flow Statement (only indirect method)
4. ✅ Director’s Report
5. ✅ MD&A Report (as part of or separate from Director’s Report)
6. ✅ BRSR (Business Responsibility and Sustainability Report)

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 o Mandatory for Top 1000 listed entities

🟢 SEBI Circular – BRSR Core (July 12, 2023)

Mandatory BRSR Core Assurance Schedule:

FY Applicability (Top Listed Entities)

2023–24 Top 150
2024–25 Top 250
2025–26 Top 500
2026–27 Top 1000

 Must undertake reasonable assurance of BRSR Core.

 Includes assurance for the value chain (to be defined by SEBI).

🟨 Voluntary Disclosures:
 Other listed entities (e.g., SME Exchange) may:
o Voluntarily disclose BRSR
o Voluntarily obtain BRSR Core assurance.

SEBI (LODR) Regulations, 2015 - Additional Annual Report Disclosures

🔷 A. Related Party Disclosures (RPD)

📌 Entity 📋 Disclosure Requirements

Holding Company ➤ Loans/advances to:
• Subsidiaries (name & amount)
• Associates (name & amount)
• Firms/companies where directors are interested (name & amount)
Subsidiary Company ➤ Same disclosures in their accounts as parent company
Loanee (receiving ➤ Must disclose any investment in shares of parent or subsidiary company
loan)

 🔍 “Director’s interest” has the same meaning as in Section 184, Companies Act, 2013
 🔸 Also disclose transactions with promoter/promoter group entities holding ≥10% shareholding
 🚫 Banks are exempt from these RPD requirements.

🔷 B. Management Discussion & Analysis (MD&A)

Must cover the following areas (within competitive limits):

🧩 Business & Industry:

 Industry structure and developments
 Internal control systems & adequacy
 Material HR & IR developments (e.g., number of employees)
 Financial vs operational performance
 Segment-wise/product-wise performance
 Opportunities and threats
 Outlook
 Risks and concerns

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📉 Financial Ratio Changes (≥25%):
Must explain changes in:
1. Debtors Turnover
2. Inventory Turnover
3. Interest Coverage Ratio
4. Current Ratio
5. Debt-Equity Ratio
6. Operating Profit Margin (%)
7. Net Profit Margin (%)
8. Sector-specific ratios, if any

🧾 Return on Net Worth:

Disclose and explain any change compared to previous year

⚠️Disclosure of Accounting Treatment:

If different from prescribed AS, provide:
 Reason for deviation
 Justification why it's more representative of true & fair view.

✅ Corporate Governance Report: Key Disclosures in the Annual Report

The Corporate Governance section of a listed company’s annual report must include specific disclosures to
ensure transparency, trust, and regulatory compliance.

📜 1. Philosophy on Code of Governance

A short statement outlining the company's philosophy and commitment towards good corporate
governance.

📜 2. Board of Directors
Details regarding the board must cover the following:

Composition and Category: Whether directors are promoters, executive, non-executive, independent non-
executive, or nominee directors (specify if nominated by lenders or equity investors).

Attendance Records: Each director’s attendance at board meetings and the last Annual General Meeting
(AGM).

Other Board Memberships

 State how many other boards or committees each director is part of (as member or chairperson).
 From FY ending March 31, 2019 onwards, separately list:
o Names of listed entities where they are directors.
o Their category of directorship.

Number and Dates of Board Meetings: No. of board meetings were held and the respective dates.

Relationships Between Directors: Any inter-se (mutual) relationships among directors.

Shares/Convertible Instruments: Number of shares and convertible instruments held by non-executive

directors.

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Familiarisation Programme for Independent Directors: Web link showing details of programs conducted
to familiarize independent directors with the company’s operations.

Skills, Expertise, and Competence Matrix

 From FY ending March 31, 2019:
o List of core skills/expertise/competencies identified as essential for the board, and those
actually available among current directors.
 From FY ending March 31, 2020:
o Name the directors who possess such skills/expertise/competencies.

Independence of Directors: Confirm that independent directors meet all regulatory conditions and remain
independent from management influence.

Resignation of Independent Directors

 If an independent director resigns before completing their tenure:
o Provide detailed reasons for the resignation.
o Include a confirmation from the resigning director that there are no material reasons other than
those disclosed.

Audit Committee
🔍 Point 📋 Details
(a) Brief terms of reference
(b) Composition, names of members & chairperson
(c) Meetings held and attendance during the year
Nomination & Remuneration Committee
🔍 Point 📋 Details
(a) Brief terms of reference
(b) Composition, names of members & chairperson
(c) Meetings and attendance during the year
(d) Performance evaluation criteria for Independent Directors
Stakeholders’ Relationship Committee
🔍 Point 📋 Details
(a) Name of non-executive director heading the committee
(b) Name and designation of compliance officer
(c) Number of shareholder complaints received
(d) Complaints not resolved to shareholders’ satisfaction
(e) Pending complaints
Risk Management Committee
🔍 Point 📋 Details
(a) Brief terms of reference
(b) Composition, names of members & chairperson
(c) Meetings held and attendance
Remuneration of Directors
🔍 Disclosures Required
(a) All pecuniary transactions of non-executive directors with the entity

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 (b) Criteria for payment to non-executive directors (can be on website + referred in report)
(c) Additional disclosures (apart from Companies Act):
(i) Elements of remuneration (salary, bonuses, stock, etc.)
(ii) Fixed & performance-linked incentives (with performance criteria)
(iii) Service contracts, notice periods, severance fees
(iv) Stock option details, discounts, vesting and exercise period
General Body Meetings
🔍 Disclosure 📋 Details
(a) Location & time of last 3 AGMs
(b) Special resolutions passed in the last 3 AGMs
(c) Special resolution passed via postal ballot in last year – voting pattern
(d) Person who conducted postal ballot
(e) Whether special resolution is proposed through postal ballot
(f) Postal ballot procedure
Means of Communication
🔍 Point 📋 Details
(a) Quarterly results
(b) Newspapers where results are published
(c) Website link for financial results
(d) Disclosure of official news releases
(e) Presentations made to institutional investors or analysts
General Shareholder Information
🔍 Disclosures
AGM – Date, time, venue
Financial year
Dividend payment date
Stock exchange names & listing fee confirmation
Monthly market price data (High/Low)
Performance vs indices (e.g., BSE Sensex, CRISIL Index)
Reasons if securities are suspended from trading
Registrar & Share Transfer Agent
Share transfer system
Shareholding distribution
Dematerialization and liquidity
List of credit ratings (with revisions) for all debt/fixed deposit/mobilization schemes (domestic or
foreign)
Other Disclosures (as per SEBI LODR)
🔍 Clause 📋 Details to be Disclosed
(a) Materially significant related party transactions with potential conflict of interest
(b) Non-compliance, penalties or strictures from SEBI/Stock Exchanges/Authorities (last 3
years)
(c) Vigil Mechanism / Whistle Blower Policy + affirmation of access to Audit Committee
(d) Compliance with mandatory and adoption of non-mandatory corporate governance
requirements
(e) Web link to policy on material subsidiaries
(f) Web link to policy on related party transactions

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 (i) Certificate from Practicing CS – No director is debarred/disqualified by MCA/SEBI/statutory
authority
(j) If the Board rejected mandatory committee recommendations – reasons to be disclosed
(l) Sexual Harassment Disclosures (POSH Act):
(a) Complaints filed
(b) Complaints disposed
(c) Complaints pending at year-end
(m) Loans and advances in nature of loans to firms/companies where directors are interested
(except banks)
Clause (11) to (13): Additional Reporting Requirements
🔢 📋 Content
(11) Non-compliance of corporate governance clauses (2) to (10), along with reasons
(12) Extent of adoption of discretionary requirements (Part E of Schedule II)
(13) Disclosure of compliance with regulations 17 to 27 and 46(2)(b) to (i) in corporate governance
section of annual report
🅓 Declaration
CEO declaration that Board members and senior management have complied with the Code of Conduct
🅔 Compliance Certificate
Certificate from Auditor or Practicing CS on compliance with corporate governance conditions, annexed to
Director’s Report
🅕 Demat Suspense Account / Unclaimed Suspense Account
If any shares lie in suspense accounts:
🔍 Point 📋 Disclosure
(a) Total shareholders and outstanding shares at the beginning of the year
(b) Shareholders who approached for share transfer
(c) Shareholders to whom shares were transferred
(d) Outstanding shares and shareholders at year-end
(e) Voting rights remain frozen till claimed by rightful owner
Statement of Deviation(s) or Variation(s) – Regulation 32 of SEBI (LODR) Regulations, 2015
Quarterly Reporting Requirements:
🔍 📋 Details
Requirement
(a) Submit quarterly statement to Stock Exchange for public/rights/preferential/QIP
issues
(b) Statement must show:
- Deviations in use of proceeds vs. stated objects
📝 Review - Category-wise variation (capex, marketing, working capital etc.)
🧾Annual Explanation for variation must be given in Directors’ Report
Report
📄Annual If funds used for purposes other than stated, prepare annual statement certified by
Statement statutory auditors and place before Audit Committee until full utilisation
🧑‍🏫 If the listed entity has appointed a monitoring agency to track the utilization of funds
Monitoring (for public issue, rights issue, preferential issue, etc.), the entity must submit any
Agency comments or reports received from the monitoring agency within 45 days from the
end of each quarter.

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 The monitoring report must also be placed before the audit committee on a quarterly
basis.

📅 Until When? | Continue disclosures till full utilisation or purpose is achieved.

📬 Documents & Information to Shareholders

📘 Regulation 36 – Sending Annual Report
📥 Mode of Sending 📋 To Whom?
(a) Soft Copy To shareholders who have registered email addresses
(b) Hard Copy (Salient Features) To shareholders who haven’t registered email addresses
(c) Hard Copy (Full Report) To shareholders who request for it
🕒 Timeline: Must send the annual report to security holders at least 21 days before the AGM

Board’s Report – Key Overview

 A comprehensive report prepared by the Board of Directors, presented to shareholders at the AGM.
 Acts as the main communication tool between the board and stakeholders.

📌 Purpose and Significance

👥 For Whom? 🔍 Why Important?

Shareholders Know company’s performance and strategy
Investors Gauge growth potential & governance
Prospective Investors Business credibility
Lenders & Bankers Assess creditworthiness
Government Regulatory insight
Public Transparency & trust

Key Inclusions in the Board’s Report

✅ Company’s performance during the year
✅ Material changes till the report date
✅ Capital reserves, management changes, etc.
✅ Policies: Risk Management, CSR, Board Evaluation
✅ Independent Directors’ declaration
✅ Secretarial Audit Report (mandatory annexure)
✅ Strategy for modernization, expansion, diversification.

1. Purpose:
o Informs shareholders about the company’s performance and significant developments.
o Highlights major policies, management changes, expansion, diversification, capitalization, and
reserves.
o Provides insights into risk management, board evaluation, Corporate Social Responsibility (CSR), and
future strategies.

2. Stakeholders:

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 o Useful for shareholders, lenders, bankers, government authorities, prospective investors, and the
public.

Practical Preparation Aspects

👨‍💼 Who Prepares?
 Prepared by Secretarial Department under guidance of the Company Secretary.

🧾 Steps for Effective Preparation:

1. 📅 Start of Financial Year: CS circulates “To-Do List” to all departments (finance, accounts, ops).
2. 🧩 During the Year:
o Report significant events impacting business/viability/profits immediately.
o For SEBI Reg. 30 events, disclosure must be made within 24 hours.
3. 📁 AGM Folder:
o Maintain regular inputs and documents.
o Treat Board’s Report as an ongoing project.
4. ⏰ Year-end Reminder: Send final intimation to branches to ensure no event is missed.

📑 Key Disclosures under Section 134(3)

🔢 Clause 📌 Disclosure Required

(a) Web address where Annual Return under Sec. 92(3) is placed
(b) Number & Dates of Board Meetings held during the year
(c) Directors’ Responsibility Statement under Sec. 134(5):
i. Accounting standards followed
ii. Consistent policies & prudent judgments
iii. Sufficient care in maintaining records
iv. Going concern basis
v. Adequate internal financial controls
vi. Compliance systems effective
(ca) Fraud details reported by Auditor (Sec. 143(12)) other than those to CG:
- Nature, Amount, Parties, and Remedial Action
(d) Statement on declarations by Independent Directors under Sec. 149(6)
(e) Company’s policy on Director appointment and remuneration (Sec. 178)
(f) Explanations/comments by Board on qualifications/adverse remarks in auditor reports
(g) Particulars of loans, guarantees or investments under Sec. 186
(h) Particulars of Related Party Transactions under Sec. 188(2)
(i) CSR initiatives and report (Sec. 135)
(j) State of Company’s affairs
(k) Amount proposed to be carried to reserves
(l) Dividend recommended
(m) Material changes & commitments affecting financial position
(n) Conservation of energy, tech absorption, foreign exchange
(o) Risk management policy
(p) Details about performance of subsidiaries/associates/JVs
(q) Names of companies which became or ceased to be subsidiaries/associates/JVs
(r) Details of directors/KMP appointed or resigned

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 (s) Statement on compliance of Secretarial Standards
(t) Board evaluation details (Sec. 178)
🧾 Other Disclosures under Specific Sections & Rules

📜 Section & Rule 📌 Disclosure

Sec. 43 r/w Rule 4 Issue of equity shares with differential rights
Sec. 54 r/w Rule 8 Issue of Sweat Equity Shares
Sec. 62(1)(b) ESOP details
Sec. 67 r/w Rule 16 Restrictions on purchase or loans for purchase of own shares
Sec. 129 Consolidated Financial Statements
Sec. 131 Voluntary revision of Financials or Board Report
Sec. 149(10) Appointment/Re-appointment of Independent Directors
Sec. 168(1) Resignation of Directors
Sec. 177(8) Composition of Audit Committee
Sec. 177(10) Details of Vigil Mechanism
Sec. 178(4) Remuneration policy for Directors/KMPs/employees
Sec. 197(12) Directors’ and employees’ remuneration disclosures
Sec. 197(14) MD/WTD remuneration from holding or subsidiary
Sec. 204(1) Annexure: Secretarial Audit Report
Secretarial Standard on Report of the Board of Directors (SS-4)
📅 Effective From: 1st October 2018
Issued by: ICSI (Secretarial Standards Board)
📌 Purpose: Ensures uniformity & completeness of Board’s Report.
🧩 Key Points of SS-4:
 Should include statement if no dividend or no reserve transfer is proposed.
 Disclose number & dates of Board Meetings (aligns with Sec. 134(3)(b)).
 Declaration of Independence from all Independent Directors and compliance with Schedule IV Code.
 Must highlight performance of subsidiaries, JVs, associates.
 If any part of SS-4 contradicts law, law prevails.

Disclosures under Section 134(3) of the Companies Act, 2013

The Board’s Report is attached to the financial statements presented at the AGM under Section 129. It is
based on standalone financial statements and must highlight the performance of subsidiaries,
associates, and joint ventures, detailing their contribution to the overall results.
Key disclosures mandated under Section 134(3) include:
✅ Mandatory Disclosures
(a) Annual Return – Section 92(3)
 Mention the web address where the annual return is placed.
(b) Board Meetings
 Disclose number and dates of meetings held during the year (as per SS-4).
(c) Directors’ Responsibility Statement – Section 134(5)
Should affirm the following:

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1. ✅ Compliance with accounting standards, with explanations for deviations.
2. ✅ Consistent accounting policies and prudent estimates.
3. ✅ Adequate care for record maintenance and fraud prevention.
4. ✅ Accounts prepared on a going concern basis.
5. ✅ For listed companies: Internal financial controls are adequate and effective.
6. ✅ Systems for compliance with all applicable laws are adequate and effective.

📘 SS-4 Explanation:
“Internal financial controls” = Systems ensuring orderly conduct, asset safeguarding, fraud detection,
accurate records, and reliable financial reporting.
📌 Case Law:
In Cambridge Technology Enterprises Ltd., non-compliance with accounting standards led to compounding
(NCLT Hyderabad).
(ca) Auditor-Reported Frauds – Section 143(12)
Disclose frauds reported by auditors not reportable to Central Govt:
 Nature of fraud
 Approx. amount
 Parties involved (if no remedial action)
 Remedial steps taken
💰 Note: Fraud of ₹1 crore or more must be reported to the Central Government.
(d) Independent Director Declaration – Section 149(6)
Report must confirm:
 ✅ Declaration received from all Independent Directors regarding independence.
 ✅ They complied with Code of Independent Directors (Schedule IV).
📘 SS-4 Add-on: Disclosure that all IDs meet independence criteria and have complied with their code.
(e) 🧑‍⚖️Policy on Directors' Appointment & Remuneration – Section 178(3)
Applicable to companies with a Nomination and Remuneration Committee. Board’s Report must include:
 ✅ Criteria for:
o Determining qualifications,
o Positive attributes,
o Independence of a director.
 ✅ Disclosure of remuneration policy for directors, KMPs, and other employees.

🔹 As per Section 178(4), the policy must ensure:

 Fair, sufficient, and motivating remuneration.
 Clear link between remuneration and performance.
 Balanced pay structure (fixed + incentive) for short & long-term goals.

🌐 Policy to be placed on company’s website; Board’s Report must disclose salient features + web
address.
🟨 Exceptions:
 Govt. companies – Clause (e) & (p) not applicable (as per GSR 463(E), 05.06.2015).

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 Certain SEZ-licensed entities (RBI/SEBI/IRDA) – Exempt if info is already in financials (GSR 8(E),
04.01.2017).

(f) 🧾 Explanations on Audit Remarks

The Board must respond to every qualification/adverse remark/disclaimer in:
1. Statutory Auditor’s Report – Sec 143(3)(h)
→ On accounts or related matters.
2. Cost Auditor’s Report – Sec 148(5)
→ Must explain qualifications related to cost records.
3. Secretarial Auditor’s Report – Sec 204(3)
→ Full explanation required for each qualification or observation, with reasons and context.

(g) 💰 Loans, Guarantees, Investments – Section 186

Disclose all:
 Loans given
 Guarantees provided
 Securities acquired
➡️Must be mentioned in the Board’s Report if undertaken during the financial year.

(h) 🤝 Related Party Transactions – Section 188(1)

All RPTs entered into must be disclosed in:
 Form AOC-2
 As per Rule 8(2) of Companies (Accounts) Rules, 2014)
➡️Attach to the Board’s Report.

(i) 🏢 State of the Company’s Affairs

Give a clear picture of:
 Company’s financial health.
 Material changes vs. previous year.
 Production/sales targets and reasons for major deviations.

(j) 💼 Transfer to Reserves

Disclose:
 Any amount proposed to be transferred to reserves before dividend declaration.
 If no transfer, include a simple statement:
📝 Example:
“The Board of Directors of your company has decided not to transfer any amount to the Reserves for the
year under review.”

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(k) Dividend Recommendation [Sec 123]
 Report must state:
o 💰 Amount per share and percentage of dividend recommended.
o 📝 SS-4 adds:
 Interim dividend details (amount & %)
 Total dividend for the year
 Statement on Dividend Distribution Policy (with reasons if deviated)
 Whether dividend paid from reserves
 If no dividend declared → A statement to that effect must be included.

(l) Material Changes & Commitments (Post Balance Sheet)

 Must disclose changes after FY-end but before the date of the report, if they affect the company’s
financial position.
 ⏳ Helps stakeholders understand events impacting performance after the reporting date.

(m) Energy, Tech & Forex Disclosures [Rule 8(3)]

A. Conservation of Energy:
 Steps taken & capital investment in energy saving.
 Use of alternate energy sources.

B. Technology Absorption:
 Efforts made, benefits derived (productivity, cost).
 If tech imported:
o Year, status of absorption, unabsorbed areas with reasons.
 R&D expenditure.

C. Foreign Exchange:
 Actual inflows & outflows during the year.

❗ Exemption to 8(3): Not applicable to Government companies making defence equipment.

📌 If not applicable, use statement like:
“Disclosures pertaining to conservation of energy, technology absorption, foreign exchange earnings and
outgo are not applicable…”

(n) Risk Management Policy

 Report must state:
o Whether Risk Management Committee exists.
o Policy highlights.
o Key risks identified.
o Steps to mitigate risks.
 Especially important if risks threaten company’s existence.

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(o) Corporate Social Responsibility (CSR)
For companies under Section 135, the Board’s Report must disclose:
1. CSR Policy and Activities:
o Contents of the CSR policy.
o Initiatives undertaken during the year.
o CSR policy availability on the company’s website.

2. CSR Committee Composition:

o Details of members of the CSR Committee.

3. Mandatory Spending:
o Disclosure of at least 2% of the average net profits of the preceding three financial years (or
available years for new companies) spent on CSR activities.
o If the company fails to spend the prescribed amount, the reasons for such non-compliance must
be stated.

4. Annual CSR Report:

o Annex the CSR report to the Board’s Report, using Annexure I or Annexure II format depending
on the financial year start date.
o For foreign companies, the CSR report must be included in the balance sheet filed under Section
381(1)(b).

5. Impact Assessment (Applicable for Larger Projects):

o Required for companies with an average CSR obligation of ₹10 crores or more over the
preceding three financial years.
o Conduct an independent impact assessment for CSR projects with a value of ₹1 crore or more
completed at least one year before.
o The impact assessment report should:
 Be presented to the Board.
 Be annexed to the CSR annual report.
o Companies may account for impact assessment costs as part of CSR expenditure (capped at 5%
of the total CSR expenditure or ₹50 lakhs, whichever is Higher).

(p) Board Evaluation (Sec 134 + Rule 8(4))

 Applicable to:
o All listed companies, and
o Public companies with paid-up capital ≥ ₹25 Cr
 Disclose:
o Evaluation of performance of Board, Committees & Directors
🛑 Exemptions:
 Govt companies if directors evaluated by Ministry/Dept
 IFSC companies may skip if already disclosed in financial statements

(q) Other Disclosures (Rule 8(5))

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1. 📊 Financial highlights (include macro/industry/company factors)
2. 🔁 Change in nature of business
3. 👥 Directors/KMP appointed or resigned
o Names, dates, mode of appointment/cessation
o Independent directors’ integrity, expertise & proficiency (from online test)
4. 🧩 Subsidiaries, JVs, or associates added/removed
5. 💰 Details of deposits
o Accepted/unclaimed/defaults (beginning, max, end)
6. ❌ Deposits not complying with Chapter V
7. ⚖️Material orders affecting going concern
8. Adequacy of internal financial controls
9. 📑 Maintenance of cost records (u/s 148)
10. 👩‍⚖️Internal Complaints Committee (Sexual Harassment Act)
11. ⚖️Cases under IBC Code
12. 📉 Difference in valuation (loan vs one-time settlement)
📘 If any policy is on the website, a brief mention with link in Board Report is sufficient.

📝 Board’s Report for OPC & Small Company (Rule 8A, Companies (Accounts) Rules, 2014)
📌 Applicability:
 Rule 8 does not apply to One Person Company (OPC) or Small Company.
 Abridged Board’s Report is prescribed under Rule 8A.

📋 Contents of Abridged Board Report:

1. 🏢 State of company’s affairs
2. 📊 Financial summary or highlights
3. 🔁 Material changes in business after FY-end impacting financials
4. 👥 Directors appointed or resigned during the year
5. 🌐 Web address where Annual Return (Sec 92(3)) is hosted
6. 📅 Number of Board meetings
7. ✅ Directors’ Responsibility Statement (Sec 134(5))
8. 🔍 Fraud details reported by auditor u/s 143(12) (except those to CG)
9. 💬 Board’s explanation on auditor’s qualifications/adverse remarks
10. ⚖️Significant orders from regulators/courts/tribunals affecting going concern

🧾 Form AOC-2 must be attached for related party transactions under Sec 188(1).

🧾 Disclosure on Issue of Equity Shares with Differential Rights

(Section 43 read with Rule 4(4), Companies (Share Capital & Debentures) Rules, 2014)

📌 To be included in Board Report if equity shares with differential rights (dividends, voting, etc.) are
issued:
1. 🔢 Total shares issued with differential rights
2. ⚖️Nature of differential rights (voting, dividends)
3. 👤 Names of promoters/Directors/KMP to whom issued
4. 💵 Issue price
5. 🔁 Any change in control due to such issue
6. 🧮 Diluted EPS (as per accounting standards)

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7. 📈 % of such shares to total post-issue equity capital & voting rights
8. 📊 Pre and post-issue shareholding & voting rights (as per SEBI Listing format – Clause 35)

🧾 Disclosures – Issue of Sweat Equity Shares

(Sec 54(1)(d) read with Rule 8, Companies (Share Capital & Debentures) Rules, 2014)

📌 If Listed: Follow SEBI Regulations

📌 If Unlisted: Follow Rule 8 of Companies Rules, 2014
Board’s Report must disclose the following:
1. 📅 Date of Board meeting approving the issue
2. 📄 Justification/reason for the issue
3. 📊 Class of shares under which issued
4. 🔢 Total number of shares to be issued
5. 👥 Class(es) of employees/directors to whom issued
6. 📑 Principal terms (including valuation basis)
7. ⏳ Duration of association with company
8. 🧾 Names of recipients & their relation with Promoter/KMP
9. 💰 Issue price
10. 💼 Nature of consideration (cash/other)
11. 💸 Breach of managerial remuneration ceiling (if any) and how dealt
12. 📚 Statement of compliance with accounting standards
13. 🧮 Diluted EPS as per applicable accounting standards.

👥 Disclosures – Employee Stock Option Scheme (ESOP)

(Sec 62(1)(b) read with Rule 12(9), Companies (Share Capital & Debentures) Rules, 2014)

Board’s Report must disclose:

1. 🎯 Options granted
2. ✅ Options vested
3. 🏁 Options exercised
4. ❌ Options lapsed
5. 🔢 Shares arising from exercise
6. 💵 Exercise price
7. Variation in option terms
8. 💰 Money realized from exercised options
9. 📌 Total number of options in force
10. 🧑‍💼 Employee-wise grant details for:
 Key Managerial Personnel (KMP)
 Employees granted ≥ 5% of total options in any year
 Employees granted ≥ 1% of issued capital in any year

📛 Disclosures – Restrictions on Loans/Purchase of Company’s Own Shares

(Section 67(3) Proviso read with Rule 16(4), Companies (Share Capital & Debentures) Rules, 2014)

📌 Applicable when voting rights on employee share schemes are not exercised directly by employees.
Board’s Report must disclose:

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1. 👥 Names of employees not voting directly
2. 📄 Reasons for not voting directly
3. 🧑‍⚖️Person exercising such voting rights
4. 📊 Number & % of shares held in favour of such employees
5. Date of general meeting where votes were cast
6. 🧾 Resolutions on which votes were cast
7. 📈 % of such voting power on each resolution
8. ✅ Whether votes were cast in favour or against.

📚 Disclosures – Consolidated Financial Statements (CFS)

(Rule 8(1) & Rule 5 of Companies (Accounts) Rules, 2014; Sec 129(3) Proviso)

Board’s Report shall:

1. Be based on standalone financials
2. Highlight:
o 📈 Performance of subsidiaries, associates & JVs
o 🌐 Their contribution to overall performance

Financial Statement must also attach:

📄 Form AOC-1 = containing salient features of financials of:
 Subsidiaries
 Associate companies
 Joint ventures.

🌐 Website Disclosures – SEBI (LODR) Regulation, 2015 (Reg. 46)

🔸 Companies Act, 2013 doesn't mandate a website, but SEBI mandates listed entities to maintain a
functional website with key info.
Mandatory Disclosures on Website
1. 🏢 Business details
2. 📜 Terms of appointment of Independent Directors
3. 👥 Composition of Board Committees
4. 📘 Code of Conduct (Board & Senior Mgmt)
5. Vigil Mechanism / Whistle Blower Policy
6. 💰 Criteria for payment to Non-Executive Directors (if not in Annual Report)
7. 🔁 Policy on Related Party Transactions
8. 🧩 Policy for Material Subsidiaries
9. 🎓 Familiarization Program for Independent Directors:
o No. of programs attended (yearly & cumulative)
o Hours spent (yearly & cumulative)
o Other details
10. 📧 Email for grievance redressal
11. ☎️Contact info of designated officials for investor grievances
12. 💹 Financial Information:
o Notice of Board Meeting (Financial Results)
o Approved Financial Results

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 o Complete Annual Report (Balance Sheet, P&L, CG Report, etc.)
13. 📊 Shareholding Pattern
14. 📰 Media/associate company agreements
15. Analyst/Investor Meets:
o Schedule (at least 2 working days prior)
o Presentations made
16. 🎤 Post-Earnings Calls (since Apr 1, 2022 – mandatory):
o Audio/Video & Presentation:
 On website within 24 hrs or before next trading day
o Transcripts:
 Within 5 working days
o Both retained for min 5 years
17. 🔁 Name changes (Old & New names) – displayed for 1 year
18. 📉 Updated Credit Ratings (on any revision)
19. 🌍 Subsidiary Financials (upload 21 days before AGM):
o Foreign Subsidiary:
 If CFS mandated abroad → Upload CFS
 If audit not mandated → Upload unaudited + translated copy (if not in English)
20. 🧾 Secretarial Compliance Report (Reg. 24A(2))
21. 📑 Policy for Materiality (Reg. 30(4)(ii))
22. 👔 KMP contact for materiality & exchange disclosures (Reg. 30(5))
23. 📈 Statement of Deviations/Variations (Reg. 32)
24. 💸 Dividend Distribution Policy (Reg. 43A)
25. 📄 Annual Return (Section 92 of Companies Act, 2013)
⏳ Timely Updates
📌 Website content must be:
 Accurate ✅
 Updated within 2 working days from any change 🕑.

🌐 Regulation 62 – Website Disclosures

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
📌 Applies to listed entities with:
Non-Convertible Debt Securities (NCDs)
Non-Convertible Redeemable Preference Shares (NCRPS)
✅ Mandatory Website Disclosures
🏢 Business Details
🔸 Overview and nature of business
👥 Board Composition
🔸 List of directors and their roles
📊 Financial Information:
 Board Meeting Notice – where financial results will be discussed
 📈 Approved Financial Results – post-meeting
 📘 Complete Annual Report – incl. Balance Sheet, P&L, Director’s Report, CG Report, etc.
☎️Investor Grievances:
 📧 Email ID for grievance redressal

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 👤 Contact info of designated officials
🔗 Debenture Trustees
🔸 Name + full contact details
📣 Disclosures Related to NCDs/NCRPS:
🔸 Notices, circulars, reports, call letters, proceedings, etc.
📂 Filings & Reports:
🔸 All compliance and information reports filed with SEBI or stock exchanges
🚨 Defaults & Failures (if any):
 ❌ Default in payment of interest/redemption
 🏦 Failure to create charge on assets
📉 Credit Ratings (NCDs/NCRPS)
🔸 All credit ratings obtained → updated immediately upon revision
🔁 Statement of Deviations/Variations
(As per Reg. 52(7) & 52(7A))
📄 Annual Return
🔸 Section 92 of Companies Act, 2013

🧩 Additional Disclosures (If Reg. 15–27 Applicable)

👥 Board Committees – Composition details
📜 Terms of Appointment – Independent Directors
📘 Code of Conduct – Board & Senior Management
Vigil Mechanism / Whistle Blower Policy
💰 Payment Criteria – Non-Executive Directors (if not in Annual Report)
🧾 Secretarial Compliance Report – Reg. 24A(2)
🔁 Related Party Transaction Policy
🧩 Policy for Material Subsidiaries
🎓 Familiarization Programme (Independent Directors):
 📚 No. of programs attended (yearly & cumulative)
 Hours spent (yearly & cumulative)
 📌 Other key details
🔄 Update Requirement
🕒 Update within 2 working days
after any change in content
⚠️The website must always be accurate & up-to-date.

Disclosures under the Companies Act, 2013 & Rules

1. Registered Office Details on Official Publications
 Every company must print the following details on all official communications:
o ✅ Company Name
o ✅ Registered Office Address
o ✅ Corporate Identity Number (CIN)
o ✅ Telephone & Fax number (if any)
o ✅ Email ID
o ✅ Website Address (if any).

2. Change of Object for Unutilized Prospectus Funds

 If a company with unutilized funds raised through prospectus wants to change its object:

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 o Must pass a Special Resolution via postal ballot
o Disclose the resolution with justification on the company’s website.

3. Unpaid Dividend Statement

 After transferring unpaid dividend to Unpaid Dividend Account:
o The company must prepare a statement with:
 Shareholder names
 Last known addresses
 Amounts due
o Upload the statement on the company’s website, if any.

4. Corporate Social Responsibility (CSR) Policy

 Applicable to companies meeting CSR thresholds:
o The Board shall approve the CSR policy
o Place the policy on the company’s website, in the manner prescribed.

5. Financial Statements of Listed Companies

📘 Section 136(1)
 Every listed company must place on its website:
o ✅ Standalone and consolidated financials
o ✅ Auditor’s Report
o ✅ Other mandatory documents
 🌍 If company has subsidiaries:
o Place separate audited financials of each subsidiary on the website
o For foreign subsidiaries:
 If the foreign subsidiary is required to prepare consolidated financial statements under
its local law, those can be placed on the website of the listed company.
 If the foreign subsidiary does not require an audit and the financial statements are
unaudited, the listed company can place the unaudited financial statement on its
website.
 🔤 If not in English, also upload English translation.

6. Vigil Mechanism Disclosure

📘 Proviso to Section 177(10)
 Listed and prescribed companies must establish a Vigil Mechanism
 Details must be disclosed on the company’s website and in Board Report.

7. Nomination & Remuneration Policy

📘 Proviso to Section 178(4)
 Nomination & Remuneration Committee must formulate a policy on:
o Qualifications
o Positive Attributes
o Independence of Directors
 Place the policy on the company’s website
 🔍 Mention web address & salient features in Board’s Report.

8. Notice for Compromises & Arrangements

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📘 Proviso to Section 230(3)
 When Tribunal orders meeting for arrangement/compromise:
o 📢 Serve notice to creditors/shareholders/debenture holders
o Publish the notice on the company’s website, if any.

9. Independent Director’s Appointment Terms

📘 Schedule IV – Code for Independent Directors
 📄 Terms and conditions of appointment of Independent Directors
 Must be posted on the company’s website.

10. Candidature for Directorship

📘 Rule 13(2) – Companies (Appointment and Qualification of Directors) Rules, 2014
 When a person is proposed for directorship:
o At least 7 days before General Meeting
o Company must post notice of candidature/intention on its website.

11. Notice of Resignation of Director

[Rule 15 – Companies (Appointment and Qualification of Directors) Rules, 2014]
 When a company receives a director’s resignation:
o It must file Form DIR-12 with the Registrar of Companies (ROC) within 30 days.
o The company must also publish this information on its website, if it has one.

12. Advertisement or Circular for Deposits

[Rule 4(3) – Companies (Acceptance of Deposits) Rules, 2014]
 When a company invites public deposits, it must:
o Issue a circular with all prescribed particulars.
o Upload a copy of the circular on the company's website, if available.

13. Variation in Terms Mentioned in Prospectus

[Rule 7(3) – Companies (Prospectus and Allotment of Securities) Rules, 2014]
 If a company wants to vary the terms of a contract or the objects mentioned in the prospectus:
o A notice must be published on the company's website, if any.

14. Conversion of Section 8 Company

[Rule 22(1)(b) – Companies (Incorporation) Rules, 2014]
 When a Section 8 Company applies for conversion to another type:
o It must publish a notice in Form INC-19 within one week of application.
o This notice must be:
 Sent to the Regional Director,
 Published on the company’s website, and
 As per directions of the Central Government, if any.

15. Change of Objects After Raising Funds via Prospectus

[Rule 32(3) – Companies (Incorporation) Rules, 2014]
 When a company changes the purpose for which funds were raised through prospectus:
o A notice of such change must be placed on the website.

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16. Closure of Register of Members / Security Holders
[Rule 10(1) – Companies (Management and Administration) Rules, 2014]
 When a company closes any register:
o It must give at least 7 days prior notice,
o 📰 Publish in:
 One vernacular newspaper in the district of its registered office, and
 One English newspaper widely circulated in that district,
o Also publish the notice on its website, and any website notified by the Central Government.

17. Notice of General Meeting

[Rule 18(3)(ix) – Management & Administration Rules, 2014]
 Every company shall:
o Place the notice of the general meeting on its website (if any), and
o On any other website as notified by the Central Government.

18. E-Voting Notice

[Rule 20(4)(ii) – Management & Administration Rules, 2014]
 When a company conducts voting through electronic means:
o The notice must be uploaded on:
 The company's website, and
 The website of the e-voting agency, if any.

19. E-Voting Results

[Rule 20(4)(xvi) – Management & Administration Rules, 2014]
 After completion of e-voting:
o The results and the scrutinizer’s report must be published on:
 The company’s website, and
 The agency’s website, immediately after declaration.
o 📈 If the company is listed, results must be sent to the stock exchange, which will upload on its
website.

20. Postal Ballot – Notice

[Rule 22(4) – Management & Administration Rules, 2014]
 The notice of postal ballot must be:
o Uploaded on the company's website after it is sent to the members, and
o Kept there till the last date for receiving the postal ballots.

21. Postal Ballot – Results

 Results of the postal ballot, along with the scrutinizer’s report, must be published on the company’s
website.

22. Special Notice

 If it is impractical to send the special notice in the regular mode:
o 📰 Publish in:
 English newspaper, and
 Vernacular newspaper with wide circulation in the state where the company is
registered

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 o Also post the notice on the company website, if any.

Lesson: 13 (Environment)

Importance of Environmental Conservation

The environment, encompassing all living and non-living components, is critical for human life and the
planet’s balance. Conservation efforts are necessary to mitigate the harmful impacts of industrialization and
human activities that disrupt ecosystems.
Importance of Environment Conservation:
1. Agriculture
 Dependency: Agriculture depends on the environment for soil, water, and climatic conditions. Nations
rely on sustainable farming to feed their populations.
 Impact of Conservation: Prevents soil erosion, flooding, and desertification, ensuring continued
agricultural productivity. Unsustainable farming practices threaten natural ecosystems and food security.
2. Fishing
 Significance: Oceans, lakes, and rivers are vital sources of food and livelihood for many communities.
 Marine Conservation: Protects marine biodiversity, ensures sustainable seafood supply, and prevents
extinction of aquatic species. Overfishing and pollution are major challenges.
3. Climate
 Human Influence: Activities such as greenhouse gas emissions have altered global climates, leading to
global warming, extreme weather, and rising sea levels.
 Reversal through Conservation: Actions like reforestation can restore rainfall patterns, facilitate
agriculture, and mitigate climate change effects.
4. Water Quality
 Benefits: Clean water has social, environmental, and economic advantages:
o Reduces waterborne diseases and healthcare costs.
o Enhances aquatic biodiversity and ecosystems.
o Supports tourism and recreational activities.

5. Air Quality

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  Importance of Clean Air: Promotes better human health, reduces healthcare expenses, and preserves
urban infrastructure.
 Environmental Impact: A conserved environment decreases air pollution, benefiting ecosystems and
biodiversity.
6. Biodiversity Protection
 Significance: Conservation ensures the survival of diverse species, maintaining the balance of
ecosystems.
 Benefits: Preserves food chains, energy flows, and supports nature-based tourism.
7. Wildlife Protection
 Role of Conservation: Protects animal habitats, preventing species extinction and human-animal
conflicts.
 Impact: Ensures the functionality of ecosystems and supports biodiversity.
8. Safeguarding Earth
 Planet’s Protection: Reduces climate change effects and other destructive forces harming Earth.
 Consequences of Inaction: Nature retaliates through extreme weather, affecting food, shelter, and
overall well-being.
9. Human Health
 Health Preservation: Environmental conservation helps prevent the emergence of new diseases and
sustains medicinal species.
 Wild Habitat Role: Protects against zoonotic diseases (transmission from animals to humans).
Key
Regulatory Bodies in India:
1. Ministry of Environment & Forests (MoEF):
o MoEF is the central government’s nodal agency responsible for planning, coordinating, and
overseeing environmental and forestry programs.
o It plays a major role in the conservation of flora, fauna, forests, and wildlife. It also works towards
pollution prevention, afforestation, and environmental protection.
o The Ministry represents India in the United Nations Environment Programme (UNEP) and
coordinates efforts in areas like pollution control, environmental awareness, and research.
2. Central Pollution Control Board (CPCB):
o CPCB was established in 1974 under the Water (Prevention and Control of Pollution) Act and has
been entrusted with functions under the Air (Prevention and Control of Pollution) Act, 1981.
o It plays a vital role in controlling pollution by promoting cleanliness of water and improving air
quality across India.
National Action Plan on Climate Change (NAPCC):

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  Launched in 2008, NAPCC aims to address climate change through mitigation and adaptation strategies.
 India’s Nationally Determined Contributions (NDCs), presented at COP 26 in 2021, include ambitious
goals like achieving Net Zero emissions by 2070, increasing non-fossil fuel energy capacity to 500
GW by 2030, and reducing carbon emissions by one billion tons between 2021 and 2030.
National Green Tribunal (NGT):
 Established in 2010, the National Green Tribunal is tasked with the enforcement of environmental laws
and protection of India's natural resources. The tribunal has become a key player in the country’s efforts
toward sustainable development.
Exhibit 1:
Environmental Safeguards
1) Identifying and assessing potential environmental risks and impacts associated with development
activities.
2) Establishing clear measures and processes to manage risks effectively and reduce the negative
environmental impacts.
3) Preventing excessive burden on the environment and the people by ensuring sustainable development
practices.
Environme
ntal Permits
Industries are categorized into four groups - white, green, orange, and red, based on their environmental
impact.
1. White Category:
o Non-polluting industries that don't require permits, but must notify the relevant State Pollution
Control Board.
o Examples: Solar power generation, wind power, mini hydro-electric power plants with less than 25
MW capacity.
o Pollution Index (PI) score: Upto 20.
2. Green Category:
o Industries with moderate pollution potential, requiring certain environmental permits.
o Pollution Index (PI) score: 21-40.
o Examples: Sawmills, tire retreading, plastic product manufacturing.
3. Orange Category:
o Industries with higher pollution potential, requiring multiple permits.
o PI score: 41-59.
o Examples: Food processing, ink manufacturing, pharmaceutical formulations.
4. Red Category:
o Industries with the highest pollution potential, requiring several environmental permits.
o PI score: 60 and above.
o Examples: Nuclear power plants, oil and gas extraction.
Environme
ntal Impact

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Environmental impacts are the changes to the environment caused by human activities, affecting air, land,
water, and biodiversity. These impacts can have both short-term and long-term consequences, and they
are closely tied to public health and quality of life.
The IPAT Equation helps conceptualize environmental impact by considering three factors:
 Population (P): More people = more consumption and waste.
 Affluence (A): Higher income usually leads to higher consumption (GDP per capita)
 Technology (T): The environmental damage per unit of economic activity.

This formula can be expanded as:

Environmental Impact = Population × Affluence × Materials Intensity × Dissipation × Hazard Factor
In the context of the energy sector, a similar equation known as Kaya’s Identity is used to calculate carbon
emissions:
 C = P × GDP/P × E/GDP × C/E, where:
o C = Total carbon emissions.
o P = Population.
o GDP/P = GDP per capita.
o E/GDP = Energy intensity.
o C/E = Carbon intensity of energy.
Energy
Consumption
Energy has been central to human evolution and development, transitioning from basic fire and animal
power to modern electricity and sustainable fuels. It underpins essential services like cooking, heating,
cooling, lighting, mobility, and operating technology across sectors. Access to reliable and clean energy is
critical for improving human well-being and economic development, particularly in developing nations,
where energy demands are ever-growing.
Types of Energy
1. Primary and Secondary Energy
 Primary Energy: Sources that are found or stored in nature. Examples include coal, oil, natural gas,
biomass, nuclear energy, thermal energy from Earth's interior, and gravitational energy.
 Secondary Energy: Energy produced from primary energy sources, such as electricity generated from
coal or oil.
2. Commercial and Non-Commercial Energy
 Commercial Energy: These are energy sources available in the market for a price. Key examples are
electricity and refined petroleum products. Commercial energy is vital for industrial, agricultural, and
transportation development.
 Non-Commercial Energy: These energy sources are not bought in the market but are typically
collected by individuals or communities. Examples include firewood, agricultural waste, and animal
power. Non-commercial energy is often ignored in energy accounting.
3. Renewable and Non-Renewable Energy

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  Renewable Energy: Sources that are inexhaustible, like solar, wind, geothermal, tidal, and
hydroelectric power. Renewable energy is cleaner and helps mitigate climate change.
 Non-Renewable Energy: Fossil fuels like coal, oil, and gas, which are finite and contribute significantly
to greenhouse gas emissions.
Significant
Features of the Energy Conservation Act, 2001
The Energy Conservation Act, 2001 aimed at promoting energy efficiency and conservation across
various sectors in India. The Act empowers both the central and state governments with several key
provisions designed to regulate energy consumption, encourage the use of energy-efficient technologies, and
foster sustainable energy practices.
1. Energy Usage Standards
o Grants powers to the central and state governments to set minimum energy performance
standards for specific appliances and equipment, thereby encouraging the adoption of energy-
efficient technologies.
2. Mandatory Labelling
o Mandates certain appliances and equipment to display energy efficiency labels. These labels help
consumers make informed choices by providing information on the energy performance of
products, thereby promoting the market for energy-efficient products.
3. Restriction on Non-Compliant Items
o Empowers the government to prohibit the manufacturing, import, and sale of products that do not
meet the established energy performance standards. This ensures that only energy-efficient
products are available in the market.
4. Information Dissemination
o The Act requires energy-intensive industries, commercial establishments, and other designated
consumers to be informed about energy conservation measures and guidelines. This creates
awareness and encourages businesses and consumers to adopt energy-saving practices.
5. Energy Conservation Fund
o The Act establishes Central and State Energy Conservation Funds to support energy conservation
efforts. These funds are used for promoting energy efficiency programs, raising awareness, and
financing research and development in the field of energy conservation.
6. Energy Utilization Standards
o The government is authorized to establish energy utilization standards and guidelines for designated
consumers. These standards serve as benchmarks for energy consumption, promoting efficient
energy use across industries and commercial establishments.
7. Energy Conservation Building Codes (ECBC)
o The Act provides for the development and modification of Energy Conservation Building Codes
(ECBC) for new commercial buildings with a contract load of 500 kW or more. These codes guide

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 the design, construction, and operation of energy-efficient buildings, reducing energy consumption
in the built environment.
Significant
Changes in The Energy Conservation (Amendment) Act, 2022
1. Carbon Credit Trading Scheme
o The Amendment Act empowers the Central Government to establish a carbon credit trading
scheme. This allows the trading of permits that authorize entities to emit a specified amount of
carbon dioxide or other greenhouse gases.
o Entities can voluntarily register projects, earn Carbon Credit Certificates (CCCs), and trade them.

o Energy-saving certificates (ESCerts) and renewable energy certificates (RECs) may also be
traded as offsets.
o Obligated entities can buy or sell credits, and non-obligated entities may participate to offset
emissions.
2. Obligation to Use Non-Fossil Sources of Energy (Renewable energy sources like solar, wind)
o The Amendment Act introduces a mandatory requirement for designated consumers (including
industries, the transport sector, and commercial buildings) to consume a minimum share of non-
fossil energy sources.
o Penalties: Entities that fail to meet these minimum energy consumption standards may face fines,
including a penalty of up to INR 10 lakh per instance of non-compliance. In addition, they could
face further penalties that are twice the price of each metric ton of oil equivalent, above the
prescribed norms.
3. Energy Conservation and Sustainable Building Code
o The Amendment Act expands the scope from energy conservation to sustainable building practices.
The new code focuses not only on energy efficiency but also on the use of renewable energy and
other green building practices.
o Sets norms for energy efficiency, renewable energy use, and green building requirements.

4. Promotion of Renewable Energy and National Green Hydrogen Mission

o The Amendment Act emphasizes the promotion of renewable energy and the National Green
Hydrogen Mission.
o The Act mandates the use of non-fossil fuel sources to speed up decarbonization, aligning with the
goals of the Paris Agreement and other international climate commitments, thereby contributing to
global sustainable development objectives.
5. Penalty for Non-Compliance
o Penalties are now explicitly introduced for non-compliance with the new provisions, particularly
related to the failure of designated consumers to meet the prescribed minimum consumption of
non-fossil energy.

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 Bureau of
Energy Efficiency (BEE)
The Bureau of Energy Efficiency (BEE) is a statutory body established under the Energy Conservation
Act, 2001. BEE plays a critical role in promoting energy efficiency and conservation in India through its
various policies and initiatives.
Key features of BEE:
1. Statutory Body
o BEE is a statutory body created under the Energy Conservation Act, 2001 promoting energy
efficiency across sectors.
2. Establishment and Merger
o The BEE was formally established on March 1, 2002, through the merger of the Energy
Management Centre under the Ministry of Power.
3. Focus on Self-Regulation and Market Standards
o BEE's key goals is to encourage voluntary adoption of energy-efficient practices through self-
regulation and market-driven standards.
4. Sustained Energy Efficiency
o The primary objective of BEE is to reduce the energy intensity of India’s economy by actively
engaging stakeholders in adopting energy-saving measures.
5. Sector-Wide Energy Efficiency
o Develops policies and programs tailored to improve energy conservation across industry,
residential, commercial, and transport sectors.
Objectives
of the Bureau of Energy Efficiency (BEE)
1. Leadership and Policy Support
o Develop strategies and policies to promote energy efficiency across sectors (industry, commercial,
residential, and transportation).
o Provide guidance for national energy efficiency and conservation programs.

2. Multi-Sectoral Support
o Collaborate with government, private sector, and international agencies to implement the Energy
Conservation Act.
o Demonstrate efficient energy management through public-private partnerships.

3. Policy Implementation
o Manage energy conservation policies under the Energy Conservation Act.
o Develop and enforce energy efficiency standards, labeling programs, and building codes.

4. Stakeholder Guidance
o Advise stakeholders (businesses, consumers, and others) on energy efficiency policies.
o Conduct awareness campaigns and disseminate technical expertise.

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5. Monitoring and Verification
o Establish procedures for monitoring energy efficiency at sectoral and national levels.
o Conduct energy audits and performance evaluations to ensure compliance with standards.
Powers and
Functions of the Bureau of Energy Efficiency (BEE)
1. Norms and Standards: Recommend energy consumption norms and process standards for regulation by
the Central Government.
2. Energy Service Companies (ESCOs): Promote ESCOs to provide solutions for implementing energy
efficiency projects.
3. Energy Savings Certificates: Suggest issuance of tradable certificates to encourage energy efficiency
investments.
4. Standards and Labeling: Develop labels for appliances to guide consumer choices and promote energy-
efficient products.
5. Promotional Activities: Conduct awareness campaigns, capacity-building programs, and training on energy
efficiency.
6. Awareness Creation: Operate information clearinghouses, conduct workshops, and run educational
programs to promote energy conservation.
7. Financing Mechanisms: Promote green bonds, performance contracts, and other financing models for
energy efficiency projects.
Energy
Accounting and Auditing Regulations for DISCOMs
As part of its role in energy management, BEE has notified regulations for Energy Accounting and Auditing
of electricity distribution companies (DISCOMs):
1. Intervals: Periodic quarterly energy accounting and annual energy audit.
2. Pre-requisites: Defined requirements for conducting audits and accounting.
3. Action Plans: Prioritize the issues identified and prepare Action Plan.
4. Execution: Methodology and procedures for conducting energy audits and accounting.
5. Reporting: Guidelines for submitting periodic and annual reports.
6. Audit Report Structure: Standardized format for reporting.
Conducted by certified Energy Managers.
Submission: Within 60 days of the quarter's end.
Carbon
Border Adjustment Mechanism (CBAM)
The Carbon Border Adjustment Mechanism (CBAM) objective is to reduce greenhouse gas emissions
by 55% by 2030 and achieve climate neutrality by 2050 under the European Climate Law and European
Green Deal.
Purpose and Functionality of CBAM
 Ensures that the carbon costs for imports into the EU are equivalent to those for domestic production
under the EU Emissions Trading System (ETS).
 Aims to prevent carbon leakage (where industries move to countries with less stringent emission
regulations) by encouraging cleaner industrial production globally.
 CBAM is Aligns with WTO rules to promote fairness and global climate action.

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 Goods and Industries Affected
CBAM targets carbon-intensive goods, particularly in sectors such as:
 Aluminum Products
 Cement Products
 Clay Products and Kaolin
 Electrical Energy
 Fertilizers
 Hydrogen
 Iron and Steel Products

Exemptions
1. Goods originating from Switzerland, Liechtenstein, Iceland, and Norway are exempt.
2. Low-value consignments (up to €150) and certain military imports are also excluded.
Implication
s for Businesses
1. How Businesses Are Affected:
o Companies will need to adjust their operations and strategies because CBAM will increase costs for
carbon-heavy imports.
2. Changes in Fuel Costs:
o New rules under EU ETS II will make conventional fuels more expensive, encouraging businesses to
switch to cleaner energy options.
3. Support from the EU:
o The EU offers grants and funding programs like the Innovation Fund to help businesses adopt low-
carbon technologies.
o Money collected from the carbon market will be used to provide even more support for these
changes.

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 Lesson: 4 (Board Processes through Secretarial Standards)
Companies Required to Comply with SS-1:
 All Companies (Except for Certain Exemptions):
SS-1 applies to the meetings of the Board of all companies incorporated under the Companies Act, 2013,
including private companies and small companies.
 One Person Companies (OPC):
OPCs are exempt from SS-1 if they have only one director on their Board. However, if an OPC has more than
one director, it must follow SS-1.
Exemptions:
 Section 8 Companies (Non-profit Organizations):

o MCA Notification (G.S.R. 466(E), June 5, 2015):

Section 8 companies (non-profit organizations) are exempt from the applicability of Section 118
of the Companies Act, 2013, and by extension, SS-1. However, such companies must record the
minutes of their meetings within 30 days if their Articles of Association provide for confirmation
of minutes by circulation.
o Revised MCA Notification (G.S.R. 584(E), June 13, 2017):
The exemption is only applicable if the Section 8 company has not committed a default in filing its
financial statements or annual return with the Registrar of Companies (RoC).
Special Acts
and Their Impact on SS-1:
 Companies Governed by Special Acts:
SS-1 applies to companies governed by Special Acts, such as banking companies, insurance companies,
and companies engaged in the generation or supply of electricity. However, if the provisions of the
Special Act are inconsistent with SS-1, the provisions of the Special Act shall prevail.

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 Examples of Special Acts:
o Banking Regulation Act, 1949
o Insurance Act, 1938
o Other Special Acts governing industries like electricity, telecommunications, etc.
Applicabilit
y to Committee Meetings:
 Mandatory Committees:
SS-1 is applicable to meetings of the following committees that are constitutionally required under the
Companies Act, 2013:
o Audit Committee
o Nomination and Remuneration Committee
o Corporate Social Responsibility (CSR) Committee
o Stakeholders Relationship Committee

 Voluntary Committees:
If a company establishes any other committees voluntarily or based on regulations outside the
Companies Act, the company may choose to apply SS-1 as a good governance practice to those
committees as well.
Applicabilit
y to Provisions Relating to Independent Directors:
 Companies Appointing Independent Directors Voluntarily:
Companies that are not legally required to appoint independent directors but do so voluntarily must
comply with the relevant provisions in SS-1 regarding Independent Directors.
Summary
of Applicability / Non-Applicability of SS-1:
Applicable to:
 All companies except those explicitly exempted:
o Private Limited Companies
o Public Limited Companies
o One Person Companies (OPC) with more than one director
o Companies under Special Acts (unless provisions of the Special Act conflict with SS-1)
o Voluntary Appointment of Independent Directors (companies voluntarily appointing them
must comply with SS-1 regarding Independent Directors)
o Meetings of mandatory committees (Audit, Nomination & Remuneration, CSR, Stakeholders
Relationship)

Not Applicable to:

 One Person Companies (OPC) with only one director
 Specified IFSC Public/Private Companies
 Companies exempted by the Central Government through notification
 Section 8 Companies (if the company defaults in filing financial statements or annual returns)
Board
processes through Secretarial Standards (SS-1)

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1.1 Authority to Convene a Meeting
 Requisition by a Director:
o Any Director of the company can request to summon a meeting of the Board at any time. This
can be done through a requisition made to the Company Secretary (or, if there is no Company
Secretary, another person authorized by the Board).
o The Company Secretary, or the authorized person, is responsible for actually convening the
meeting in consultation with the Chairman (or in the Chairman’s absence, the Managing
Director, or in their absence, the Whole-time Director), unless the Articles of Association
specify otherwise.
 Procedure for Requisition:
o If a Director orally requests a meeting, the Company Secretary or the authorized person must
immediately put the request in writing. This written requisition must be placed before the
Chairman/Managing Director/Whole-time Director, as appropriate.
o If the Chairman/Managing Director/Whole-time Director refuses to convene the meeting as
requested, and the Articles are silent on the matter, the Company Secretary or authorized
person cannot summon the meeting on their own. They must communicate the refusal to the
requisitioning Director, who has the right to convene the meeting independently.
 Role of the Chairman in Convening Meetings:
o The Chairman of the Board can adjourn the meeting at any point, unless the majority of
Directors present at the meeting dissent or object to the adjournment.
o The Chairman has the authority to adjourn the meeting for various reasons, such as the lack of
time to complete the agenda or external factors like force majeure events (e.g., curfew,
earthquake, etc.).

1.2 Day, Time, Place, Mode, and Serial Number of Meeting

SS-1 outlines the requirements for determining the day, time, place, and mode of a Board Meeting, ensuring
that the process is structured and standardized while allowing flexibility.
1.2.1 Serial Number of Meetings
 Numbering of Meetings:
o Every meeting must be assigned a serial number to help with tracking and reference.

o The company may choose to follow an existing system of numbering or create a new one, but it
should be consistent and easily recognizable.
 For example, numbering can be done by year, like 1/2020, 2/2020, and so on, or with
continuous serial numbering across years (e.g., 120th Meeting, 121st Meeting).
 Adjourned Meetings should retain the same serial number as the original meeting. For
instance, if the original meeting is numbered 12th Meeting, the adjourned meeting
should also be 12th Meeting (Adjourned).

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1.2.2 Day, Time, and Place of the Meeting
 Flexible Timing and Location:
o A Board meeting may be held at any time, on any day, and at any place.

o Notice of the Meeting must clearly mention the venue of the meeting, which can either be the
registered office or any other place.
o Electronic Mode: If the meeting is conducted through electronic mode (such as video
conferencing), the venue of the meeting is deemed to be the location specified in the notice, even
if the meeting is virtually conducted.

1.2.3 Participation through Electronic Mode

 Electronic Participation:
o Any Director has the right to participate through Electronic Mode (e.g., video conferencing or
audio-visual communication) unless the Act or any other law prohibits such participation for
specific business items.

Notes on Specific Situations

 Board Meeting on Public Holidays:
o A Board meeting can be held on a public holiday unless the Articles of Association specify
otherwise.
o However, according to Section 174(4) of the Act, Board meetings adjourned for want of
quorum cannot be held on National Holidays.
o Original Meetings can be convened on a National Holiday unless prohibited by the Articles.

 Adjourned Meeting:
o If a meeting is adjourned due to a lack of quorum, it should be held on the same day, time,
and place the following week.
o If the scheduled day is a National Holiday, the meeting should be held on the next non-National
Holiday, maintaining the same time and place.
o Notice of the adjourned meeting must be sent to all Directors, informing them of the updated
schedule.
 Time of the Meeting:
o Board meetings may be held at any time; however, it is practical to hold them during working
hours to facilitate detailed discussions and decision-making. While meetings may extend beyond
working hours, starting during working hours is ideal for maximizing participation and
productivity.
Venue of Meeting

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 Flexibility of Venue:
A Board meeting can be held either at the Registered Office of the company or any other location,
including a remote place, either in India or abroad. However, the Articles of the company may specify
a particular place or city for holding meetings, and the meeting must take place only at that specified
location if such a provision exists in the Articles.
 Consequences of Non-Compliance with Articles:
If a Board meeting is held in a location that contradicts the Articles' requirements, the decisions made in
that meeting cannot be enforced in any manner. Therefore, it's crucial to adhere to the location
specified in the Articles to avoid any legal consequences regarding the validity of decisions.

Coincidental Physical Presence of Directors

 Not Constituting a Meeting:
The mere physical presence of all Directors at one location does not automatically constitute a valid
Board meeting. For a meeting to be considered valid, it must follow the prescribed procedures for
convening and conducting meetings.

Meeting Conducted Through Electronic Mode

 Venue in Electronic Mode Meetings:
For meetings conducted through electronic mode (such as video conferencing), the scheduled venue
mentioned in the meeting notice will be deemed the official venue of the meeting. The meeting's
proceedings are considered to be recorded at this venue, even if the meeting is held remotely.
 Telephone or Tele-conferencing Participation:
Participation through telephone or tele-conferencing that doesn't meet the requirements of the relevant
provisions of the Act cannot be considered as participation through Electronic Mode. If a technical
issue occurs during an electronic meeting and a Director switches to telephone or tele-conferencing,
this cannot be counted as Electronic Mode participation for the purpose of quorum.
 Director’s Intention to Participate in Electronic Mode:
Directors wishing to participate through video conferencing or other audio-visual means must notify
the company sufficiently in advance. This allows the company to make the necessary arrangements to
facilitate the participation effectively.
 Security and Integrity of Electronic Mode Meetings:
Directors cannot participate through electronic mode from their own end unless the company ensures
sufficient security and identification procedures to safeguard the meeting's integrity.
 Physical Presence Required for Integrity:
If all Directors are participating through electronic mode, at least one person (such as the Chairman or
Company Secretary or any authorised person) should be physically present at the scheduled venue
mentioned in the meeting notice. This ensures proper recording of the meeting and safeguards its
integrity, fulfilling the legal requirements for conducting such meetings.

Meetings of Committees and the Board on the Same Day

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 No Restriction on Same-Day Meetings:
There are no restrictions on holding meetings of both the Board and its Committees on the same day,
provided a reasonable time gap is maintained between the two meetings. This ensures that there is no
overlap or confusion in the meeting processes.

Meetings of Audit Committee and Board to Consider Financial Statements

 Audit Committee and Board Meeting Timing:
For equity-listed companies, the gap between the Audit Committee’s approval of financial
statements and the Board meeting to approve the same should be as narrow as possible. Ideally,
these meetings should occur on the same day to prevent the leakage of material information before the
financial statements are publicly disclosed. This is in line with Schedule B of the SEBI (Prohibition of
Insider Trading) Regulations, 2015, to ensure the integrity of the financial reporting process and
compliance with insider trading laws.

Notice of Board Meetings (SS-1: Para 1.3)

Key Requirements for Issuing Notice
1. Mode of Delivery:
Notice for every Board meeting must be provided in writing and can be delivered by:
o Hand delivery,
o Speed post or Registered post,
o Facsimile,
o E-mail, or
o Any other electronic means.

2. Issuer of the Notice:

o The Company Secretary is responsible for issuing the notice.
o If there is no Company Secretary, a Director or another person authorised by the Board may
issue the notice.

3. Contents of the Notice:

o Serial number,
o Day,
o Date,
o Time, and
o Full address of the meeting venue must be mentioned.
o It should also provide information about the option to participate through electronic mode,
along with the necessary details for such participation.

Provisions Under the Companies Act, 2013

1. Participation in Electronic Mode:
o A Director intending to participate via electronic mode can give a declaration at the beginning
of the calendar year, which remains valid for one year.

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 o The declaration does not restrict the Director from attending in person, but the Director must
inform the company in advance if they choose to attend in person instead of electronically.
2. Notice Timing:
o The minimum notice period is 7 days before the meeting date unless the Articles of
Association specify a longer period.
3. Mandatory Notice:
o Even for meetings held on pre-determined dates or at regular intervals, notice must still be
issued.

Additional Notes
1. ElectronicMail Definition:
As per Rule 2(1)(g) of the Companies (Specification of Definitions Details) Rules, 2014, "Electronic mail"
refers to a digitally sent message that is storable and retrievable.
2. Notice to Alternate and Original Directors:
o If an Alternate Director has been appointed, the notice must also be sent to the Original
Director simultaneously.
o Sending the notice to the Original Director ensures they remain informed about Board
developments.
3. Address for Sending Notice:
o Notices should be sent to the registered postal address or e-mail address provided by the
Director.
o In the absence of such information, notices may be sent to the address listed in the Director's DIN
registration.
4. Precedence of Compliance:
Notices must strictly follow the rules under Section 173 of the Companies Act, 2013, and the
Companies (Meetings of Board and its Powers) Rules, 2014, for validity and enforceability.

Summary of Notice Provisions for Easy Recall

 WHO: Issued by the Company Secretary (or authorised person).
 HOW: Sent via physical or electronic means (e.g., hand delivery, email).
 WHAT: Includes serial number, date, time, venue, and participation options.
 WHEN: Delivered at least 7 days in advance unless the Articles specify otherwise.
 TO WHOM: Sent to all Directors (including both Alternate and Original Directors, if applicable).
 WHY: Ensures proper governance and compliance with legal requirements for Board meetings.

Illustration: Notice of Board Meetings under SS-1

Scenario: Articles and Independent Director's Request
 Articles of XYZ Ltd. specify that notices for Board/Committee meetings must be sent via e-mail, speed
post, or registered post with acknowledgment.

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 The company currently sends notices via speed post.
 Mr. A, an Independent Director, requests that notices be sent to his office address via courier.
Action Required by the Company:
 As Mr. A has requested a specific mode (courier), the company must comply and send notices to him
via courier.

Key Provisions of Notice under the Companies Act and SS-1

1. Notice Period:
 Statutory Requirement:
o Section 173(3) mandates a minimum 7 days’ notice for Board meetings.

o This is calculated excluding the meeting date but including the date of notice issuance.

 Articles Prescribing Longer Notice Period:

o If Articles mandate a longer notice period, the company must comply with that.

o However, the statutory period cannot be reduced except for urgent business as permitted
under SS-1.
2. Shorter Notice:
 Board meetings may be called at shorter notice in urgent cases if:
o At least one Independent Director is present.

o If no Independent Director attends, the decisions are circulated for ratification and finalized
only upon such ratification.
3. Mode of Notice:
 Mandatory Options:
o Hand delivery, post (speed/registered), or electronic means (e.g., email).

 Director's Specific Request:

o If a Director specifies a preferred mode, the company must follow it.

4. Additional Time for Postal Delivery:

 If notice is sent by speed post or registered post, 2 additional days must be accounted for service.

Notice for Adjourned Meetings:

1. To Whom:
o Notices must be sent to all Directors, including those absent during the original meeting.
2. Timing:
o If the adjourned meeting date is decided during the original meeting:
 The notice should be sent immediately.
o If not decided:
 7 days’ notice must be given before the adjourned meeting.

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3. Special Consideration for Quorum:
o For adjourned meetings due to lack of quorum, a minimum 7-day notice applies unless
otherwise stated in the Articles.
4. Electronic Mode Meetings:
o Notices for adjourned meetings conducted via electronic mode must follow the same rules.

SEBI (LODR) Regulations, 2015 – Regulation 29: Prior Intimations

Prior Intimations: Regulation 29 (SEBI LODR, 2015)
Listed entities must provide prior intimation (minimum 2 working days in advance, excluding the date of
intimation and meeting) to stock exchanges for Board meetings considering the following proposals:
1. Financial Results: Quarterly, half-yearly, or annual results.
2. Fundraising Activities: Includes issuing securities via:
o Further public offers, rights issues, ADRs/GDRs, FCCBs, QIP, debt issues, or preferential
allotments.
3. Dividends or Bonus Issues:
o Declaration/recommendation of dividends.
o Issuance of convertible securities or decisions to pass over dividends.
4. Bonus Securities: Proposal for declaration of bonus shares.
5. Buyback of Securities: Proposals for buyback.
6. Voluntary Delisting: From stock exchanges.
7. Alteration in Listed Securities: Changes in form, nature, or rights/privileges of listed securities.
8. Changes in Payments: Alteration in payment dates for debentures/bonds interest or redemption
amounts of redeemable shares, debentures, or bonds.
Additional Requirements:
 Intimation must include the date of the Board meeting.

Agenda and Notes on Agenda: Key Provisions and Guidelines

1. Agenda Distribution Timeline:
o The Agenda and Notes on Agenda must be sent to Directors at least 7 days before the meeting.
o If the Articles of Association specify a longer period, that period should be followed.
2. Contents of Agenda and Notes:
o Each item must:
 Be supported by a detailed note outlining the proposal, material facts, and its
implications.
 Include the Director’s concern or interest in the matter, as previously disclosed.
3. Serial Numbering:
o All items on the agenda must be serially numbered for clarity.
4. Inclusion of Additional Items:
o Items not included in the agenda can be considered if:
 The Chairman permits it.
 A majority of Directors present agree.

Urgent Business
1. Shorter Notice for Agenda/Notes:
o For urgent matters, agenda and notes can be sent with less than 7 days’ notice, provided:

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  At least one Independent Director, if any, is present at the meeting.
o If no Independent Director is present:
 Decisions must be circulated to all Directors and finalized only upon ratification by at
least one Independent Director, or
 In the absence of Independent Directors, by a majority of the Board.

2. Items of Unpublished Price Sensitive Information (UPSI):

o Notes on UPSI-related items can also be sent at shorter notice, subject to:
 Consent of a majority of Directors, including at least one Independent Director, if any.
o UPSI includes:
 Financial results.
 Dividends.
 Capital structure changes.
 Changes in Key Managerial Personnel (KMP).
 Mergers, acquisitions, demergers, delistings, and expansions.

Approval Mechanisms
1. Draft Resolutions:
o If a resolution is required for approval, its draft must be:
 Set out in the agenda notes.
 Presented during the meeting.
o Other decisions may be recorded in the minutes as resolutions, even if not presented beforehand.

2. Supplementary Notes:
o Supplementary information on agenda items can be shared:
 At or before the meeting.
 With the Chairman’s permission and the majority consent of Directors present,
including at least one Independent Director, if any.

Illustrative Scenario
 Consent for UPSI Notes at Shorter Notice:
o Assume a company has 9 Directors, and 5 Directors have provided general consent for UPSI
items at shorter notice.
o If a new Director is appointed:
 Consent from the new Director can be obtained individually.
 If the new Director approves, no fresh consent from the Board is needed.
 If the new Director dissents, fresh consent from the Board must be obtained.

Frequency of Meetings: Key Provisions and Guidelines

Meetings of the Board
1. Minimum Requirement:
o At least four Board Meetings must be held in a calendar year.
o A maximum interval of 120 days is allowed between two consecutive meetings.
2. First Board Meeting:
o Must be conducted within 30 days of incorporation.

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 o Example:
 If a company is incorporated on June 15, the first meeting must occur by July 14.
 If the first meeting is held on July 10, the next must be within 120 days, i.e., by
November 7.
3. Exemptions for Specific Companies (Section 173(5) of the Companies Act, 2013):
o One Person Companies (OPC), small companies, and dormant companies:
 Must conduct at least one Board Meeting in each half of the calendar year.
 A gap of at least 90 days between two meetings is mandatory.
o OPC with a sole director: Exempt from Board Meeting requirements.

Meetings of Committees
1. General Guidelines:
o Committees must meet as often as necessary to fulfill their responsibilities.
o The Board or applicable laws/authorities may prescribe the minimum frequency.
2. Specific Requirements Under SEBI (LODR) Regulations, 2015:
o Audit Committee (Regulation 18(2)(a)):
 Must meet at least four times a year.
 A maximum gap of 120 days is allowed between two meetings.
o Nomination and Remuneration Committee (Regulation 19(3A)):
 Must meet at least once a year.

Meetings of Independent Directors

1. Requirement:
o Companies required to appoint Independent Directors must ensure that:
 Independent Directors meet at least once in a financial year.
 No attendance from Non-Independent Directors or management is allowed.
2. Purpose of the Meeting:
o Review the performance of:
 Non-Independent Directors.
 The Board as a whole.
 The Chairman of the Board.
o Assess the flow of information from management to the Board to ensure its effectiveness.
3. Facilitation:
o The Company Secretary (if appointed) assists in organizing the meeting upon the request of
Independent Directors.

Provisions Under SEBI (LODR) Regulations, 2015

1. Board Meeting Frequency (Regulation 17(2)):
o The Board must meet at least four times annually.
o A 120-day gap between meetings is permissible.

Quorum: Key Provisions and Guidelines

1. Presence Throughout:

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 o Quorum must be present not only at the commencement but also during the entire course of the
meeting.
o Rule 3(5)(b) of the Companies (Meetings of Board and its Powers) Rules, 2014 requires the
Chairman to ensure this, especially for meetings conducted through electronic mode.

Provisions Under the Companies Act, 2013

1. Quorum Definition:
o One-third of the total strength of the Board or two directors, whichever is higher.
o Articles of Association (AoA):
 If the AoA specifies a higher quorum, the company must comply with the higher
requirement.
2. Reduction in Board Strength:
o If the number of directors falls below the minimum prescribed in the AoA:
 No business can be transacted unless the Board is restored to the required strength
through:
 Appointment by the remaining directors or
 A General Meeting of the company.

Provisions Under SEBI (LODR) Regulations, 2015

1. Top Listed Entities:
o For the top 2000 listed entities (as per market capitalization):

 Quorum: One-third of the Board's total strength or three directors, whichever is

higher.
 At least one Independent Director must be present.
2. Participation via Electronic Mode:
o Directors participating through video conferencing or other audio-visual means are counted
for quorum.
o Exceptions:

 Directors are excluded for items of business where their participation is restricted under
applicable laws.

Disqualification from Quorum

1. Interested Directors:
o Directors cannot be counted for quorum or participate in decisions where they have an interest,
except:
 In private companies, directors may participate after disclosure of interest.
A Director is deemed to be interested if the company enters into, or proposes to enter into, a contract or
arrangement in the following cases:

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 (a) With a Body Corporate:
The Director, along with other Directors:
o Holds more than 2% of the paid-up share capital of the body corporate, or

o Is a promoter, manager, or chief executive officer of the body corporate.

(b) With a Firm or Other Entity:

The Director is a partner, owner, or member of that firm or entity.
2. Related Party Transactions:
o Interested directors must exit the meeting during discussions and voting on related party
transactions.

Illustrations
1. Board Strength and Quorum Calculation:
o Scenario:

 Total strength of Board (as per AoA): 15.

 Vacant positions: 4.
 Actual strength for quorum calculation: 11 (15 - 4).
 Quorum: One-third of 11 = 4 (rounded up) or 2, whichever is higher → Quorum = 4.
2. Electronic Participation:
o A director attending via video conferencing will be counted for quorum unless excluded for
specific items of business.

Quorum for Board Meetings (Section 174)

1. Standard Requirement:
o One-third of the total strength of the Board or two Directors, whichever is higher.

o Participation through video conferencing or other audio-visual means is counted for quorum.

2. Acting with Vacancies:

o If the number of directors falls below the required quorum due to vacancies:

 Remaining directors can act only to:

 Increase the number of directors to meet quorum requirements, or
 Call a General Meeting of the company.
3. Interested Directors:
o If interested directors exceed or equal two-thirds of the total Board strength:

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  Quorum will be the number of non-interested directors present, provided at least two
non-interested directors are present.
4. Adjournment for Lack of Quorum:
o If a meeting cannot proceed due to a lack of quorum:

 The meeting stands automatically adjourned to the same day, time, and place in the next
week.
 If that day is a national holiday, the meeting is adjourned to the next non-national
holiday at the same time and place.
5. Explanation for Section 174:
o Rounding Off: Any fraction of a number is rounded up to one.

o Total Strength: Excludes vacant director positions.

Quorum for Committee Meetings (Para 3.5)

1. Specified by the Board:
o Quorum for committee meetings is as specified by the Board.

o If no specific quorum is set, all members of the committee must be present to form a quorum.

2. Regulatory Provisions:
o If laws or regulations under any other act specify quorum requirements for a committee, those
provisions take precedence.

Attendance at Meetings
1. Maintenance of Attendance Register
 Every company must maintain an attendance register for:
o Board Meetings.
o Committee Meetings.

2. Requirements for Attendance Register

The register must include:
 Details of the Meeting:
o Serial number.
o Date of the Meeting.
o Name of the Committee (if applicable).
o Place and time of the Meeting.
 Participants:
o Names and signatures of Directors, Company Secretary, and invitees.
o Mode of presence for those attending via Electronic Mode.

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 3. Signing and Authentication
 Directors attending physically sign the register.
 Directors attending via Electronic Mode are deemed to have signed if:
o Their attendance is recorded in the register.

o The register is authenticated by:

 Company Secretary (if appointed).

 Chairman, or another authorized Director in the absence of the Company Secretary.
 Participation through Electronic Mode must also be recorded in the Minutes.

4. Storage and Inspection

 Location:
o The register must be kept at the Registered Office or another location approved by the Board.

 Access:
o Open for inspection by Directors.

o Directors who have ceased their position can inspect the register for the Meetings held during
their tenure.
 Preservation:
o Retain the register for at least 8 financial years from the last entry.

o May be destroyed afterward with Board approval.

 Custody:
o The Company Secretary is responsible for maintaining custody of the register.

Provisions Under Companies Act, 2013

 Clause 65 of Table F:
o Directors attending Board or Committee Meetings must sign their name in a designated book kept
for this purpose.
1. Notes on Attendance Register
 Serial Numbering:
o The pages of the attendance register must be serially numbered.

 Binding Loose-Leaf Registers:

o If maintained in loose-leaf format, the register must be bound periodically, at least once every
3 years.

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 Attendance Confirmation for Electronic Participation:
o The Chairman is responsible for confirming the attendance of Directors participating via
Electronic Mode.
 Custody Without a Company Secretary:
o If no Company Secretary is appointed, the register will be in the custody of another person
authorized by the Board.
 Preservation Period Example:
o Example:

 First entry: 5th May 2010.

 Last entry: 18th March 2015.
 The register must be preserved until 31st March 2023, which is 8 financial years from
the year of the last entry (31st March 2015).

2. Leave of Absence
 Grant of Leave:
o Leave of absence for a Director can only be granted if the request is communicated to:

 Company Secretary.
 Chairman.
 Any other authorized person responsible for issuing the Notice of the Meeting.
 Vacancy Due to Absence:
o A Director's office becomes vacant if they miss all Board Meetings during a 12-month period,
whether or not they sought leave of absence.

Key Provisions on Chairman of Meetings

1. Chairman of the Board
 Chairman Appointment:
o The Chairman of the company shall act as the Chairman of the Board.

o If the company does not have a Chairman, the Board can elect one of its members to act as
Chairman.
 Provisions under Companies Act, 2013 (Clause 70 of Table F):
o The Board may elect a Chairman and determine their term of office.

o If no Chairman is elected or absent at a meeting, the Directors present can elect one of
themselves to chair the meeting.
 Role in Meetings:

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 o The Chairman conducts Board Meetings.

o If the Chairman cannot attend or the Articles specify otherwise, the Directors present at the
meeting will elect another Director to chair.
 Conflict of Interest:
o If the Chairman is interested in an item of business:

 They must delegate the chair to a Non-Interested Director (with majority consent).
 The Chairman may resume their position after the item is transacted.
o For private companies: The Chairman can participate after disclosing their interest.

o For related party transactions, the Chairman must recuse themselves from discussions and
voting (physically or electronically).

2. Chairman of Committees
 Chairman Appointment for Committees:
o The Chairman of a Committee is either:

 Appointed by the Board.

 Elected by the Committee members, as per the Act, any other law, or the Articles of
Association.
o If no Chairman is appointed or the Chairman is unavailable, the members present shall elect one
of themselves to chair the meeting.
 Provisions under Companies Act, 2013 (Clause 72 of Table F):
o A Committee may elect a Chairman.

o If the Chairman is not present within five minutes of the meeting start time, the members
present can elect one of themselves as Chairman for that meeting.
1. Authority for Passing Resolutions by Circulation
 Decision-Maker:
o The authority to decide if a resolution will be passed by circulation lies with:

 Chairman of the Board, or

 In the Chairman's absence, the Managing Director, or
 In their absence, any Director (excluding an Interested Director).
 Directors’ Right to Demand a Meeting:
o If not less than one-third of the total number of Directors (including Interested Directors)
demand that the resolution be discussed at a meeting:
 The Chairman must place the resolution for consideration in a Board meeting.

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 Illustration:
o If a company has 9 Directors, including 3 Interested Directors:

 For determining the one-third requirement, the total number of Directors is 9, not
adjusted for Interested Directors.
 Thus, 3 Directors (one-third of 9) can demand that the resolution be decided in a
meeting.
o Note: Interested Directors cannot participate or vote on the item during the meeting.

2. Procedure for Passing Resolutions by Circulation

 Draft Circulation:
o The draft resolution, along with necessary supporting documents, must be circulated to all
Directors, including Interested Directors, on the same day.
 Mode of Circulation:
o The documents can be shared via:

 Hand delivery, Speed Post, Registered Post, or Courier.

 Electronic means such as Email or other recognized digital platforms.

 Details in the Note:

o Each resolution must be accompanied by an explanatory note detailing:

 Proposal description.
 Material facts to understand the proposal’s meaning, scope, and implications.
 Disclosure of any Director's interest in the resolution.
 Instructions on how Directors should signify their assent or dissent.
 The deadline for response from Directors.

 Communication Address:
o The draft and papers should be sent to the Director’s:

 Registered postal or email address with the company.

 If unavailable, any address linked to the Director’s DIN registration.

Additional Notes
 Restrictions: Certain items cannot be passed by circulation and must be discussed at Board meetings
(refer to Annexure A of relevant regulations).
 Transparency: The circulation process ensures Directors have sufficient information to make an
informed decision.
 Documentation: All circulated resolutions, responses, and related communications must be preserved
for regulatory and compliance purposes.

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Approval and Recording of Resolution by Circulation
1. Approval Process
 Majority Approval:
o A resolution is considered passed when it receives approval from a majority of Directors
entitled to vote.
 Conditions for Deeming Approval:
o The resolution is deemed passed on the earlier of:
(a) The last date specified for Directors to signify their assent or dissent.
(b) The date when the required majority approval is received, provided:
 The number of Directors who have not responded, along with those who demand a
physical meeting, does not equal or exceed one-third of the total Directors.
 Effective Date:
o The resolution becomes effective from the date it is deemed passed unless a different effective
date is specified.

2. Voting Restrictions
 Interested Directors:
o An Interested Director cannot vote on resolutions by circulation.

o A Director is treated as interested if:

 They or other Directors hold more than 2% of paid-up share capital of a related body
corporate, or if they are a promoter, manager, or CEO of the body corporate.
 They are a partner, owner, or member of a related firm or entity.
 Non-Response by Directors:
o If a Director does not respond by the specified deadline, it is presumed they have abstained from
voting.
 Resolution Not Passed:
o If the majority approval is not obtained by the last specified date, the resolution is treated as not
passed.

Illustration
 Total Directors: 10
o For the resolution to pass: 6 approvals are needed.

o If 6 Directors approve, the resolution is not deemed passed until:

 The last date expires, or

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  2 more Directors approve/dissent, ensuring that one-third cannot demand a physical
meeting.

3. Recording of Resolution
 Subsequent Meeting:
o Resolutions passed by circulation must be noted in the next Board meeting.

o The resolution text, along with any dissent or abstention, is recorded in the meeting’s Minutes.

4. Validity of Circulation Resolutions

 Resolutions passed by circulation are as valid as those passed in a duly convened Board meeting.
 Note: This does not eliminate the requirement for the Board to meet at the prescribed frequency under
applicable laws.

Maintenance and Content of Minutes

1. Maintenance of Minutes Books
 Minutes Books:
o Minutes must be recorded in separate books for the Board and each Committee.

o The Minutes can be maintained in either physical or electronic form, as determined by the
company.
 Serial Numbering:
o Pages in the Minutes Books should be consecutively numbered.

o Loose-leaf forms should be periodically bound, typically coinciding with one or more financial
years.
 Tampering:
o Minutes should not be pasted or tampered with in any manner.

 Location:
o Minutes Books must be kept at the Registered Office or another location approved by the Board.

 Electronic Format:
o If maintained electronically, the Minutes must include a timestamp for validation.

2. General Contents of Minutes

 Introduction:
o The serial number and type of the meeting (e.g., Board or Committee) should be noted.

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 o Include the name of the company, day, date, venue, and time of commencement.

 Attendance:
o Record the names of Directors present, whether physically or through electronic mode.

o The Company Secretary and any Invitees should also be recorded, especially if invited for
specific agenda items.
 Appointments:
o Any appointments made during the meeting must be included.

3. Notes on Specific Scenarios

 Adjourned Meetings:
o If a meeting is adjourned due to a lack of quorum, a statement from the Chairman or another
Director shall be recorded in the Minutes.
 Listing Directors:
o The names of the Directors should be listed in alphabetical order or another logical manner,
starting with the name of the person in the Chair.

Specific Contents of Minutes

1. Key Elements to Include in the Minutes:
 Attendance Details:
o Names of Directors present and their mode of attendance (physical or Electronic Mode).
o For Directors attending through Electronic Mode, include their location and, if applicable, their
consent to sign the statutory registers.
o Names of the Company Secretary and any Invitees (with their attendance mode).
o Quorum Presence: A record of whether the Quorum was met.
o Leave of Absence: The names of Directors who requested and were granted leave.

 Previous Meetings:
o A note on the Minutes of the preceding Meeting and any Committee Meetings.
o Resolutions by Circulation: A record of any Resolutions passed by circulation since the last
meeting, including any dissent or abstention.

 Director Participation:
o If an Interested Director did not participate in discussions or votes on related matters, this
should be noted (particularly for related party transactions).
o Any dissent by a Director and the name of the Director who dissented or abstained from voting.
o If a Director participated in only part of the meeting, Agenda items where they were absent
should be specified.

 Other Considerations:

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 o Ratification: Any ratification by the Independent Director or majority of Directors in case of
meetings held at short notice.
o Any Agenda items considered without prior notice, with the majority consent of Directors and
ratification by a majority of Directors.

 Time of Meeting:
o The time of commencement and conclusion of the meeting.

Recording and Finalization of Minutes

1. Fair and Accurate Summary:
 Minutes should provide a fair and correct summary of the proceedings of the meeting.
 The language should be clear, concise, and plain to ensure clarity and easy comprehension.
2. Handling Unsigned Documents:
 If any unsigned documents (such as reports, notes, or presentations) were tabled at the meeting and
referenced in the minutes, these documents must be identified by initialling by the Company
Secretary or Chairman. This ensures proper identification of documents not previously included in the
agenda notes.
3. Reference to Superseded Resolutions:
 If any earlier resolutions or decisions are superseded or modified, the minutes must explicitly
reference the prior resolutions or state that the new resolution supersedes all previous ones related to
that matter.
4. Noting Previous Minutes:
 The minutes of the preceding meeting must be noted at the next Board Meeting following their entry
into the Minutes Book.
o Example: If a meeting is held on 1st July, and the next is scheduled for 25th July, the minutes
from the 1st July meeting must be presented for noting at the 25th July meeting, assuming the
minutes have been entered into the book by then.

Finalization and Entry of Minutes

1. Circulation of Draft Minutes:
 Within 15 days of the conclusion of a meeting, the draft minutes must be circulated to all members of
the Board or Committee for review and comments.
o Example: If the meeting concludes on 1st September, the draft minutes should be circulated no
later than 15th September.
2. Entry in the Minutes Book:
 Minutes must be entered into the Minutes Book within 30 days of the meeting’s conclusion.
o The Company Secretary is responsible for recording the date of entry.

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3. Alterations to Minutes:
 Once entered in the Minutes Book, minutes cannot be altered unless approved by the Board at a
subsequent meeting.
o Any changes made must be recorded in the minutes of the meeting where the alteration was
approved.

Signing, Dating, and Inspection of Minutes

1. Signing and Dating of Minutes:
 Minutes of the Board Meeting must be signed and dated by:
o The Chairman of the Meeting or,

o The Chairman of the next Meeting.

 The Chairman must:

o Initial each page of the Minutes.

o Sign the last page and include the date and place where the signature is made.

 Once signed, the Minutes cannot be altered, except as outlined in the standards.
2. Circulation of Signed Minutes:
 Within 15 days after signing, a certified copy of the signed Minutes must be circulated to all Directors
(as of the meeting date, or appointed thereafter). However, Directors who waive their right to receive a
copy in writing, or whose waiver is recorded in the minutes, do not need to receive them.

3. Inspection and Extracts of Minutes:

 Directors are allowed to inspect the Minutes of Board and Committee Meetings.
 Extracts of the Minutes can only be provided after the minutes have been entered in the Minutes Book.
However, certified copies of resolutions passed at a meeting can be issued earlier if the text of the
resolution was presented at the meeting.
4. Entitlement to Receive Minutes:
 A Director is entitled to receive the Minutes of meetings held before and during their term of office.
 If a Director ceases to be a Director, they are still entitled to receive the signed Minutes of the meetings
that occurred during their tenure.

Case Law:
 Usha Martin Telematics Ltd. v. Registrar of Companies (High Court Of Calcutta, C.R.R. 494 OF 2019):
o A typographical or inadvertent error in the recording of minutes, which is subsequently
corrected, cannot be considered an offence under the provisions of the Companies Act.

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Preservation of Minutes and Other Records
1. Preservation of Minutes:
 Minutes of all meetings (Board, Committee, etc.) must be preserved permanently in either:
o Physical form, or

o Electronic form with a Timestamp for tracking.

2. Preservation of Other Records:

 Under Rule 15 of the Companies (Management and Administration) Rules, 2014:
o Registers of debenture-holders or other security holders and the annual return must be
preserved for eight years.
 Office copies of Notices, Agendas, Notes on Agendas, and other related papers must be preserved for:
o As long as they remain current, or

o For eight financial years, whichever is later. After that, they may be destroyed with the
Board’s approval.
3. Custody of Minutes Books:
 Minutes Books should be in the custody of the Company Secretary.
4. Special Case - Mergers/Amalgamations:
 In case a company is merged or amalgamated with another, the Minutes of the meetings of the
transferor company must be preserved permanently by the transferee company, even if the
transferor company is dissolved.

Disclosures
1. Board of Directors Report:
 The Report of the Board of Directors must include a statement confirming compliance with
applicable Secretarial Standards.
2. Directors' Responsibility Statement (Companies Act, 2013):
 Under Section 134(5)(f), the Directors' Responsibility Statement must include a declaration that:
o Directors have devised proper systems to ensure compliance with all applicable laws.

o These systems are adequate and functioning effectively.

3. Disclosures by a Director of his Interest (Companies Act, 2013 - Rule 9):

 Every director must disclose any concern or interest in any company, bodies corporate, firms, or
associations (including shareholding).
o This is to be done by giving a notice in writing in Form MBP 1.

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 o The notice must be disclosed at the meeting held immediately after it is submitted.

o Notices must be kept at the registered office and preserved for eight years from the end of the
financial year to which they relate. The Company Secretary or an authorized person maintains
these notices.

Disclosure Provisions under SEBI (LODR) Regulations, 2015

1. Principles Governing Disclosures and Obligations (Regulation 4(1)):
A listed entity must adhere to the following principles:
(a) Standardized Information:
 Disclosures must align with applicable accounting and financial disclosure standards.
(b) Implementation of Accounting Standards:
 Prescribed accounting standards must be implemented effectively, considering stakeholders' interests.
 Annual audits must be conducted by an independent, competent, and qualified auditor.
(c) Avoid Misrepresentation:
 Information provided to stock exchanges and investors must not be misleading.
(d) Adequate and Timely Information:
 Provide sufficient and timely information to recognized stock exchanges and investors.
(e) Clear Dissemination:
 Information must be accurate, explicit, timely, and communicated in simple language.
(f) Equal Access to Information:
 Dissemination channels must ensure equal, timely, and cost-efficient access for investors.
(g) Compliance with Laws:
 Entities must comply with securities laws and applicable guidelines issued by regulatory authorities.
(h) Stakeholder Interests:
 Disclosures and obligations should consider stakeholders' interests and follow both the letter and spirit
of regulations.
(i) Event-based and Periodic Filings:
 Event-based and periodic filings must provide relevant and sufficient information.
(j) Trackable Information:
 Periodic filings should enable investors to track the entity's performance and assess its current status.

2. Disclosure of Information (Regulation 4(2)(f)(i)):

1. Material Interest Disclosure:
o Directors and Key Managerial Personnel (KMP) must disclose to the board any material interest
—direct, indirect, or on behalf of third parties—in transactions or matters affecting the listed
entity.
2. Operational Transparency and Confidentiality:
o The board and senior management must promote transparency to stakeholders while
maintaining confidentiality.
o This approach fosters informed decision-making.

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Good Practices in Convening Board Meetings
1. Maintaining an Annual Calendar:
o A calendar schedules board and committee meetings along with related actions.
o It ensures systematic planning for inputs and outputs.

2. Directors’ Time Commitment:

o Directors should allocate adequate time for preparation and board meeting attendance, typically
3–4 days per month for non-executive roles.
o Audit committee meetings usually require more preparation time.
o Directors must disclose other commitments to the nomination committee before and update the
board after their appointment.

Annexure ‘A’
Illustrative List of Items That Must Be Placed Before the Board at Its Meeting (Cannot Be Passed by
Circulation)
General Business Items
1. Minutes and Compliance:
o Noting Minutes of Audit and other Committee Meetings.
o Approving financial statements and the Board’s Report.
o Considering the Compliance Certificate for adherence to applicable laws.
o Specifying the list of laws applicable to the company.
2. Auditor Appointments:
o Appointment of Secretarial Auditors.
o Appointment of Internal Auditors.
Specific Items
1. Financial Decisions:
o Borrowing money (excluding debenture issuance).
o Investing the company’s funds.
o Granting loans, guarantees, or providing securities for loans.
2. Governance and Administration:
o Making political contributions.
o Calling unpaid money on shareholder shares.
o Approving the remuneration of the Managing Director, Whole-time Director, and Manager.
o Appointment or removal of Key Managerial Personnel (KMP).
o Appointing a Managing Director or Manager in more than one company.
o For public companies: Appointment of Directors in casual vacancies (subject to Articles of
Association).
3. Transactions:
o Sanctioning related party transactions that are not in the ordinary course of business or not on
an arm’s length basis.
o Sale of subsidiaries.
o Purchasing or selling material tangible/intangible assets not in the ordinary course of business.
o Approving payments to Directors for loss of office.
4. Independent Directors:

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 o Items arising from Independent Directors’ separate meetings if required by them.
Corporate Actions
1. Capital Restructuring:
o Authorizing buyback of securities.
o Issuing securities, including debentures (within or outside India).
2. Business Growth:
o Approving amalgamation, merger, or reconstruction.
o Diversifying the company’s business.
o Taking over another company or acquiring controlling/substantial stakes in another company.

Additional List of Items for Listed Companies

For listed companies, the following items must also be placed before the Board at its meeting:
Planning and Budgeting
1. Approval of annual operating plans and budgets.
2. Capital budgets and any updates.
Remuneration and Key Personnel
3. Information on the remuneration of Key Managerial Personnel (KMP)
Compliance and Regulatory Matters
4. Show cause, demand, prosecution, and penalty notices that are materially important.
5. Non-compliance with regulatory, statutory, or listing requirements, including shareholder services (e.g.,
non-payment of dividends or delay in share transfers).
Safety and Environmental Concerns
6. Fatal or serious accidents and dangerous occurrences.
7. Material effluent or pollution issues.
Financial Obligations and Risks
8. Material defaults in financial obligations by or to the company.
9. Substantial non-payment for goods sold by the company
Legal and Liability Issues
10. Issues involving significant public or product liability claims, including judgments or orders that:
o Pass strictures on the company’s conduct.
o Take an adverse view on another enterprise with potential negative implications for the company
Joint Ventures and Transactions
11. Details of any joint venture or collaboration agreements.
12. Transactions involving substantial payments towards goodwill, brand equity, or intellectual property.
Human Resources and Industrial Relations
13. Significant labour problems and proposed solutions.
14. Major developments in Human Resources or Industrial Relations, such as:
o Signing of wage agreements.
o Implementation of Voluntary Retirement Schemes (VRS).
Foreign Exchange and Financial Risks
15. Quarterly details of foreign exchange exposures and management actions to mitigate risks from adverse
exchange rate movements (if material).

Illustrative List of Items for the Agenda of the First Board Meeting of a Company
The following is a comprehensive agenda for the first Board Meeting of a newly incorporated company:
Organizational and Statutory Formalities

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 1. Appointment of Chairman: To appoint the Chairman for the Meeting.
2. Certificate of Incorporation: To note the Certificate of Incorporation issued by the Registrar of
Companies.
3. Memorandum and Articles of Association: To take note of the company’s Memorandum and Articles
of Association as registered.
4. Registered Office:
o To note the location of the Registered Office of the company.
o To ratify the title document or lease/rent agreement for the Registered Office.
Board and Governance Matters
5. First Directors: To note the first Directors of the company.
6. Directors' Disclosure of Interest: To read and record the Notices of Disclosure of Interest submitted by
the Directors.
7. Additional Directors: To consider the appointment of Additional Directors, if necessary.
8. Chairman of the Board: To consider and appoint the Chairman of the Board.
Appointments and Authorizations
9. First Auditors: To consider and appoint the first Auditors of the company.
10. Key Managerial Personnel (KMP): To approve the appointment of KMPs (if applicable) and other
senior officers.
Operational and Procedural Matters
11. Common Seal: To adopt the Common Seal of the company, if required.
12. Bankers and Bank Accounts:
o To appoint Bankers.
o To authorize the opening of bank accounts in the company’s name.
13. Share Certificates and Depositories:
o To authorize the printing of share certificates.
o To authorize correspondence with depositories, if applicable.
14. Issue of Share Certificates: To authorize the issuance of share certificates to the subscribers of the
Memorandum of Association.
Approval and Ratification
15. Preliminary Expenses: To approve and ratify preliminary expenses and preliminary agreements
executed during incorporation.

Key Provisions for Conducting Board Meetings through Video Conferencing (VC) or Other Audio
Visual Means
 Section 173(2) of the Companies Act, 2013: Directors can participate in Board meetings either in person
or through video conferencing (VC) or other audio-visual means.
 Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014: Establishes the process and
conditions for conducting such meetings.
 Secretarial Standard-1 (SS-1): Provides additional guidelines to ensure compliance and efficiency in
meetings conducted through VC.

General Guidelines
1. Arrangements to Avoid Connection Failures:
o Companies must ensure stable and reliable video or audio connections to avoid interruptions.
2. Responsibilities of Chairperson and Company Secretary:
o Safeguard Meeting Integrity: Use appropriate security and identification procedures.

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 oEnsure Proper Equipment: Make suitable VC/audio-visual facilities available for effective
communication.
o Record and Preserve Proceedings:
 Record the proceedings.
 Safeguard these recordings as part of the company’s records until the audit of that
financial year is completed.
o Prevent Unauthorized Access: Ensure that only authorized directors or participants are present
during the VC meeting.
3. Accessibility for Differently Abled Directors:
o Directors with disabilities can request permission to have an accompanying person assist them
during the meeting.

Specific Provisions
 Recording and Storage: The VC meeting must be recorded with the date and time, and the recordings
must be stored securely.
 Audibility and Visibility: All participants must be able to see and hear each other clearly throughout
the meeting.
Matters Not Allowed Through VC
The Central Government may notify specific matters that cannot be handled via VC. In such cases:
 If quorum is achieved through physical presence, additional directors may still participate via VC for
discussions.
Key Provisions for Conducting Meetings via Video Conferencing (VC) – Detailed Process
3. Notice of Meeting and Participation Intimation
 (a) Notice must be sent to all directors in compliance with Section 173(3) of the Companies Act, 2013.
 (b) The notice should include:
o Option to participate via VC or other audio-visual means.
o Necessary details like access credentials and instructions for participation.
 (c) Directors intending to join via VC must inform the Chairperson or Company Secretary.
 (d) Advance intimation is essential to enable the company to make appropriate arrangements.
 (e) Directors may provide an annual declaration of their intent to participate via VC, valid for one year.
o This does not prevent them from attending in person, provided sufficient prior notice is given.
 (f) In the absence of any intimation, it is assumed the director will attend the meeting in person.

4. Roll Call at the Beginning of the Meeting

At the commencement of the meeting, the Chairperson will conduct a roll call. Each director participating
through VC must confirm the following details for the record:
1. Name: Full name of the director.
2. Location: The exact location from which they are joining the meeting.
3. Receipt of Agenda: Acknowledgment of receiving the agenda and other relevant materials.
4. Confidentiality Confirmation: Assurance that no unauthorized individual has access to the meeting
proceedings at their location.

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5. Quorum and Participants
 (a) After the roll call, the Chairperson or Company Secretary shall:
o Inform the Board of the names of individuals, apart from directors, attending the meeting with
the Chairperson's permission.
o Confirm that the required quorum is present.
o Explanation: Directors participating via VC are counted towards the quorum unless excluded by
any provision of the Act or Rules.
 (b) The Chairperson must ensure the quorum is maintained throughout the meeting.

6. Meeting Venue
 The scheduled venue mentioned in the meeting notice will be deemed the official place of the meeting.
 Recordings of the meeting proceedings will also be deemed to occur at this location.

7. Statutory Registers
 Statutory registers required under the Act must be placed at the scheduled venue.
 If directors participating via VC consent to sign the registers electronically, this will be recorded in the
meeting minutes.

8. Identification and Clarity

 (a) Each participant must identify themselves before speaking on any agenda item.
 (b) If a director’s statement is interrupted or unclear, the Chairperson or Company Secretary must
request a repeat.

9. Voting Procedure
 If a motion is contested and requires a vote:
o The Chairperson will call the roll.
o Each director will identify themselves while casting their vote.

10. Restricted Access

 From the start to the end of the meeting, only the following individuals are allowed access to the meeting
location (physical or virtual):
o Chairperson
o Directors
o Company Secretary
o Any other person whose presence is required by the Board (with the Board’s permission).

11. Decisions and Minutes

 (a) After discussion on each agenda item, the Chairperson will announce:
o The summary of the decision taken.
o The names of directors dissenting, if any.
o The draft minutes will be preserved until confirmation as per sub-rule (12).

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  (b) The minutes must disclose the names of directors attending via VC or other audio-visual means.

12. Draft Minutes and Confirmation

 (a) The draft minutes must be circulated to all directors within 15 days of the meeting, either in writing
or electronically.
 (b) Directors have 7 days or a reasonable time (as decided by the Board) to confirm or comment on the
accuracy of the draft minutes.
o If no response is received, approval is presumed.
 (c) Post-confirmation, the minutes are entered in the Minute Book (as per Section 118 of the Act) and
signed by the Chairperson.

Lesson: 20 (Integrated Reporting Framework; Global Reporting Initiative Framework; Business

Responsibility & Sustainability Reporting)
The Integrated Report:
1. A concise communication detailing how an organization creates value in the short, medium, and long
term.
2. Reflects external environments and provides a holistic view of the organization’s operations.

Purpose and Focus

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 Primary Purpose: Explain to financial capital providers how the organization creates, preserves, or
erodes value over time.
 Broader Benefits:
o Relevant for employees, customers, suppliers, communities, regulators, and policymakers.
o Enhances stakeholders' understanding of an organization’s ability to create sustainable value.

Structure of the Integrated Reporting Framework

Principles-Based Approach
The IR Framework is based on a principle-based approach ensuring,
 Flexibility: Allows organizations to adapt the framework to their unique circumstances.
 Comparability: Enables stakeholders to compare across organizations effectively.

It does not prescribe specific key performance indicators, measurement methods, or detailed disclosures.
Instead, organizations must exercise judgment to determine:
 Material matters to disclose.
 How to disclose them using recognized methods.
 Alignment with existing published information for consistency.

🧭 Guiding Principles (How to Report)

The seven guiding principles serve as the foundation for preparing and presenting an integrated
report. They ensure the content and presentation are meaningful, balanced, and insightful:
These guide how information is selected and presented in the report:
🟢 Principle 🔍 Focus
🧠 Strategic Focus & Future The report should highlight the organization's strategy, its impact on value
Orientation creation over time, and its interaction with different capitals.
🔗 Connectivity of Shows how various factors are interrelated and dependent in influencing
Information value creation.
🧍‍♂️Stakeholder Shows how stakeholder interests are understood and addressed
Relationships
🎯 Materiality Discloses what affects value creation over short, medium, and long term
✂️Conciseness Clear, crisp, and to the point
✔️Reliability & Balanced, error-free, includes all material positives and negatives
Completeness
🔁 Consistency & Comparable across time and entities (if relevant).
Comparability
Content Elements of the Integrated Reporting Framework (What to Report)
An Integrated Report contains 8 Content Elements, interconnected to provide a comprehensive view of
value creation. The questions form the basis for these elements and allow flexibility in reporting.
🟦 Content Element ❓ Key Question
🏢 Organizational Overview & External What do we do and in what context?
Environment
⚙️Business Model What is our business model?
🧭 Strategy & Resource Allocation Where does the organization want to go, and how does it get
there?
🛡 Governance How does our governance support value creation?

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 ⚠️Risks & Opportunities What risks/opportunities impact our value creation, and how
do we handle them?
🌤 Outlook What challenges and uncertainties lie ahead?
📈 Performance How well have we met objectives and impacted capitals?
📊 Basis of Presentation How does the organization determine what to include in the
report?
🌟 Benefits of Integrated Reporting
1. 📷 Holistic Overview: Presents a complete view of an organization, integrating financial and non-financial
performance, including sustainability goals and governance issues, in a single report.
2. 🌱 Integration of Non-Financial Factors: Links non-financial performance directly to the business.
3. ⚖️Transparency and Accountability: Consolidates reporting on governance, financial, and sustainability
metrics into one document.
4. 💸 Cost Efficiency: Reduces costs related to multiple separate reports (e.g., publication and press conference
costs), particularly beneficial for small and medium-sized enterprises.
5. 🔍 Stakeholder Clarity: Avoids confusion by addressing all stakeholders' information needs in one
document, eliminating the need to prioritize specific groups.
6. 🧩 Internal Process and Decision Making: Improved internal processes leading to a better understanding
of the business and improved decision-making process.
7. 💖 Enhanced Reputation: Builds organizational reputation and brand by addressing stakeholders'
expectations for environmental, social, and governance (ESG) information.

⚠️Challenges in Implementing the Integrated Reporting Framework

1. 💼 Transition from Traditional Reporting:
o Transforming lengthy, finance-focused reports into concise, integrated ones is difficult.
o Balancing regulatory needs and sufficient context while keeping the report concise is difficult.
2. 🧾 Non-Financial Information:
o Inclusion of non-financial data increases preparation time.
o Requires high expertise to summarize complex details.
3. 📉 Business Model Complexity:
o Describing the business model within in terms of 6 capitals is challenging
4. 📏 Measurement:
o Difficulty in measuring and linking sustainability performance.
5. ❌ Other Challenges:
o Reluctance to disclose sensitive information.
o Lack of standardization.
o High reporting costs.

🌐 Global Reporting Initiative (GRI) Framework

🧭 Introduction
 GRI is an independent international organization promoting sustainability reporting across all types of
organizations.
 It provides a global common language to communicate environmental, social, and economic impacts.

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 Mission: Make sustainability reporting standard practice, supporting transparency and accountability
for a sustainable global economy.

🔗 GRI Standards For Reporting:

The GRI Standards (Global Reporting Initiative Standards) provide a structured and transparent system
for organizations to report their sustainability impacts. They are divided into three main series:
1. 🧩 GRI Universal Standards: These are applicable to all organizations.
o GRI 1: Foundation 2021: Explains purpose, concepts, and principles of GRI standards (e.g.,
accuracy, balance). Lists reporting requirements.
o GRI 2: General Disclosures 2021: Provides disclosures about the organization's structure,
workers, strategy, governance, activities, and stakeholder engagement.
o GRI 3: Material Topics 2021: Guides organizations in identifying and managing key material
topics relevant to their sustainability impact.
2. 🏭 GRI Sector Standards (Industry-specific)
Developed for 40 high-impact sectors: 🛢 Oil & Gas, 🌾 Agriculture, 🐟 Aquaculture and are required to be
used if applicable. These standards help organizations identify the material topics that are most relevant
to their sector and guide them on the relevant disclosures to report.
3. 📌 GRI Topic Standards (Topic-based)
 Examples: ♻️Waste, 🦺 Occupational Health & Safety, 💰 Tax
 Contain:
o Topic overview
o Specific disclosures
o How impacts are managed
 Organizations use only those Topic Standards that match their material topics.

📘Understanding the GRI Framework: Environmental Performance Indicators

The GRI Framework helps organizations track and report their environmental impact. It includes a
comprehensive set of 30 environmental performance indicators, divided into 9 main categories.
1. Materials: Raw materials, packaging, recycled content.
2. Energy: Consumption (direct, indirect, renewable), efficiency improvements.
3. Water: Usage, recycling, impact on water sources.
4. Transport: Environmental impacts of transportation.
5. Emissions, Effluents, Waste: GHG emissions, waste generation/disposal, spills.
6. Biodiversity: Impact on protected areas and strategies to mitigate.
7. Products and Services: Percentage of reclaimed/recycled products.
8. Compliance: Fines or sanctions for non-compliance.
9. Overall: Expenses and investments in environmental protection.

Reporting Process Under the GRI Framework (IPR)

The GRI Framework for sustainability reporting is designed to help organizations identify, assess, and
report their impacts on the economy, environment, and society.

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 GRI 1 is the starting point for organizations reporting using the GRI Standards, outlining key concepts,
principles, and requirements for compliance.
1. Identifying and Assessing Impacts:
o Context Understanding: Knowing the organization’s context (e.g., industry, location) is crucial to
accurately assess the significance of its impacts.
o Impact Identification: Organizations must identify impacts and assess their significance.
o Sector Standards: The Sector Standards help identify sector-specific impacts, and organizations
should check if these apply to them.
o GRI 2: provides detailed disclosures regarding organization’s operations (e.g., governance, reporting
practices).
o GRI 3: Step-by-step process to assess and organize impacts into material topics.

2. Prioritizing Impacts (Material Topics):

o Once the impacts are identified and assessed, the organization needs to prioritize which impacts to
report on (known as material topics).
o Grouping Topics: Impacts are grouped into topics (e.g., “water usage,” “child labor”), helping
organizations focus on what matters most.
o The Sector Standards aid in confirming if any important material topics were missed for that sector.

3. Reporting Disclosures:
o Once material topics are identified, data is gathered to report on each topic.
o Sector Standards provide specific disclosures that should be reported, including sector-specific
disclosures.
o GRI 2 and GRI 3 provide a structured way to report the necessary information.
o If full compliance isn’t possible, organizations can report on selected topics or omit information if
a valid reason is provided.

Navigating the Report

 Format: The report can be published in different formats (e.g., electronic or paper) and across
multiple platforms (e.g., standalone reports, webpages).
 Content Index:
o The report must include a GRI content index to make information easily traceable and improve
transparency.
o The index lists the location of disclosures (e.g., page number, URL) and specifies if any
disclosures were omitted, with a reason for the omission.
o If Sector Standards apply, their reference numbers will help users identify the relevant
disclosures in the report.

Five-Step GRI Reporting Process

1. Prepare: Define the vision for the report, assemble the team, and set a plan of action.
2. Connect: Identify key stakeholders, hold meetings, and define the reporting priorities and scope.
3. Define: Select issues for reporting and finalize report content.
4. Monitor: Track activities, collect data, ensure the quality of information, and follow up as needed.
5. Report: Choose the communication method, finalize, and launch the report.

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 Introduction to Sustainability Reporting
Definition (As per GRI):
A report that outlines a company’s economic, environmental, and social impacts caused by its operations.
It also reflects the organization’s values, governance, and strategy toward a sustainable global economy.
Sustainability Reporting, also called Non-Financial Reporting, communicates the social, environmental,
and governance (ESG) effects of business operations to stakeholders.

Key Features of BRSR

1. Quantifiable Metrics:
 BRSR places significant emphasis on quantifiable data to allow comparability across sectors,
companies, and over time.
2. Enhanced Disclosures:
 Companies must report more detailed information on things like climate impact and social
responsibility.
 Leadership Indicators: These are voluntary and encourage companies to report beyond the
mandatory requirements.
3. Principles from NGRBC:
 BRSR is based on the National Guidelines on Responsible Business Conduct, which guides companies
to adopt responsible practices in business.
 Encourages companies to implement policies and mechanisms that ensure ESG compliance.
4. Alignment with International Frameworks:
 Companies already following international standards (like GRI, SASB) can continue to use their existing
reports and align them with BRSR’s requirements.

Frameworks for Sustainability Reporting

Several global frameworks guide companies in measuring, monitoring, and disclosing their ESG
performance:
1. Global Reporting Initiative (GRI):
Focuses on reporting environmental, economic, and social impacts.
2. Integrated Reporting (IR):
Links financial performance with sustainability metrics.
3. Sustainability Accounting Standards Board (SASB):
Provides standards for disclosing financially material sustainability information.
4. United Nations Global Compact (UNGC):
Encourages sustainable business practices globally.
5. CDP:
Specializes in reporting on environmental impact, particularly carbon and water.
6. ISO 26000:
Offers voluntary guidance on social responsibility.

BRR guidelines on sustainability information can be classified into five (5) categories as below:
1. General Information about the Company
2. Financial Details of the Company
3. Business Responsibility Information

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4. Principal-Wise Performance
5. Other Details.

Business Responsibility and Sustainability Reporting

Structure/Framework of Business Responsibility and Sustainability Reporting (BRSR)
Key Approach Adopted for Developing BRSR Core
1. Quantifiable and Outcome-Oriented Metrics:
o The Key Performance Indicators (KPIs) in BRSR Core are designed to be measurable to ensure
comparability.
o Metrics such as gross wages by gender reflect sustainable practices like gender diversity and
inclusion in the workforce.

2. Relevance to Indian Context:

o Metrics are relevant to both manufacturing and service sectors.
o ‘S’ Parameter: Includes aspects like job creation and inclusive development.
o ‘G’ Parameter: Addresses issues like openness, related party transactions, and governance
structures.

3. Comparability Across Jurisdictions:

o The framework uses "intensity ratios" like greenhouse gas emissions, water usage, and waste
generation, adjusted for the size and scale of companies.
o Intensity ratios are based on revenue and volume, facilitating global comparability.
o Includes Purchasing Power Parity (PPP) adjustments to make comparisons fairer for
developing economies.

Framework: Reporting Sections

Section A: General Disclosures
 Name, CIN, registered office, and contact details
 Contact information for the responsible person overseeing the BRSR
 Information on operations, turnover, employee details (gender ratio, turnover rate, etc.)
 Details of subsidiaries, joint ventures, and CSR activities
 Transparency and disclosure compliance.

Section B: Management and Process Disclosures

 This section includes questions related to the company's policies, governance processes, and
management structure.
 Focus on how the company integrates the NGRBC principles (National Guidelines on Responsible
Business Conduct) into its decisions.
 Highlights the company’s Sustainability Governance Structure, including monitoring and
benchmarking sustainability initiatives.

Section C: Principle-Wise Performance Disclosures

 Companies must report on Key Performance Indicators (KPIs) based on the 9 NGRBC principles. This
section is divided into two sub-categories:
o Essential Indicators (mandatory): Examples include training programs, environmental data
(energy, emissions, water, waste), and social impacts.

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 o Leadership Indicators (voluntary): Advanced metrics like life cycle assessments, conflict
management policies, supply chain disclosures, and breakup of energy consumption.

🌱 Nine Principles of NGRBC (National Guidelines on Responsible Business Conduct)

Applicable to all businesses operating or investing in India, including foreign and Indian MNCs, irrespective
of size, sector, structure, or location.
Businesses are encouraged to apply these principles across their entire value chain – suppliers, vendors,
distributors, etc.
Principle Key Disclosures / Indicators
🔍 Integrity, Ethics, Transparency & - Trainings on ethics for Board/KMP/Employees
Accountability - Fines/penalties/settlements
- No. of complaints received
- Anti-corruption practices
🛠 Sustainable and Safe Goods/Services - % of R&D and capital expenditure
- Sustainable sourcing procedures
- Life Cycle Assessment (LCA)
- Extended Producer Responsibility (EPR)
👥 Employee Well-being - Measures for employee well-being
- Retirement benefits and schemes
🤝 Stakeholder Responsiveness - Process to identify and engage key stakeholders
🛒 Responsible Consumer Engagement - No. of consumer complaints (current & previous year)
- Policies on advertising, cyber security, unfair trade
- Data privacy & cyber risk framework + weblink
⚖️Human Rights Respect & Promotion - Human rights training
- Minimum wages paid
🌍 Environmental Protection & - Water withdrawal details
Restoration - Zero liquid discharge mechanism
- Air/GHG emissions
- Environmental impact assessments
🏛 Responsible Public & Regulatory - Membership in trade/industry chambers
Policy Advocacy - Actions taken on anti-competitive behavior
🌈 Inclusive Growth & Equitable - Social Impact Assessments (SIA)
Development - Preferential procurement policy.
ESG Metrics and Key Disclosures
1. General Disclosures
Key Quantitative/Qualitative KPIs:
 Business activities, products/services, markets served (national and international).
 Investments in R&D and capital expenditure for improving ESG impacts.
 ESG commitments, performance, and external evaluations of ESG policies.
 Contributions from exports.

2. Environmental Disclosures
Key Quantitative/Qualitative KPIs:
 Environmental impacts, risks, and concerns.
 Energy consumption, water usage, and intensity metrics.
 Greenhouse Gas (GHG) emissions (Scope 1, 2, and 3) and reduction projects.
 Plastic, waste, and wastewater management using practices like 3Rs (Reduce, Reuse, Recycle).

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  Compliance with environmental laws and extended producer responsibility.
 Business continuity and disaster management plans.

3. Social Disclosures
Key Quantitative/Qualitative KPIs:
 Employee wages, including median pay and compliance with minimum wage laws.
 Employee retention rates and union memberships.
 Occupational Safety and Health (OSH): safety incidents, risk assessments, and corrective actions.
 Human rights risks, grievance redressal, and process improvements.
 Insurance, retirement benefits, and worker complaints.
 Customer issues: complaints, product labeling, and sourcing from marginalized groups.

4. Governance Disclosures
Key Quantitative/Qualitative KPIs:
 Anti-bribery/corruption issues and corrective actions involving directors/employees.
 Conflict of interest cases and resolutions involving directors or KMPs.
 Anti-corruption and anti-bribery policies.

Benefits of BRSR Reporting

1. Improved ESG Performance
o Helps companies track and understand their environmental, social, and governance (ESG) practices.
o Facilitates better decisions for reducing environmental impact, improving social outcomes, and
enhancing governance.
2. Regulatory Compliance
o Ensures adherence to SEBI guidelines and National Voluntary Guidelines.
o Avoids fines or penalties and maintains a positive reputation.
3. Enhanced Stakeholder Engagement
o Builds trust with stakeholders like investors, customers, and employees.
o Encourages collaboration, leading to a more sustainable business model.
4. Risk Management
o Identifies and mitigates ESG-related risks.
o Reduces chances of negative impacts on the environment, society, or reputation.
5. Cost Savings
o Identifies areas to cut costs, such as energy or waste reduction.
o Saves money by avoiding fines for non-compliance.
6. Encourages Innovation
o Drives the development of sustainable products and technologies.
o For example, low-carbon products or water-efficient solutions.
7. Boosts Investor Confidence
o Transparent ESG reporting helps investors make informed decisions.
o Builds trust with investors who value sustainability.
8. Improved Reputation
o Shows commitment to sustainability, transparency, and accountability.
o Attracts customers, employees, and stakeholders while avoiding reputational damage.

Challenges of BRSR Reporting

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1. Diverse Views on Sustainability
o Lack of a universal definition makes sustainability a broad and complex topic.
o Gathering and presenting such vast information can overwhelm companies.
2. Multiple Reporting Standards
o Various global frameworks like GRI, SASB, and CDP have differing guidelines.
o Companies struggle to align their reporting with multiple standards.
3. Time-Intensive Process
o Collecting extensive ESG data is especially challenging for smaller companies.
4. Lack of Understanding in Management
o Staff need training to handle ESG data accurately.
o Poor coordination across departments can impact data quality and credibility.
5. Unclear Financial Returns
o Mixed evidence about the direct financial benefits of sustainability practices.
o Companies may hesitate to invest in sustainability without clear ROI.

Conclusion
Current State of ESG Reporting: Unlike well-established financial reporting systems, ESG reporting is still
developing. Investments in robust mechanisms are essential to:
 Capture accurate ESG data.
 Choose appropriate frameworks and metrics.
 Provide reliable assurance on ESG reports.

Lesson: 18 (Risk Management)

What is Risk?
Risk is the exposure to the possibility of loss, injury, or other adverse circumstances. In the business world, it
is seen as anything that could prevent an organization from achieving its goals.
From a financial perspective, risk refers to the probability that the actual return on an investment will
be lower than the expected return.

What is Risk Management?

Risk management refers to the processes that organizations use to identify, understand, assess, and
manage risks. Proper risk management increases the chances of success by minimizing the chances of
failure. It’s a critical component of corporate governance, helping businesses demonstrate compliance with
regulatory frameworks and assuring stakeholders that the business is being managed responsibly.
Key Features of Risk Management:
1. Involves understanding the internal and external environment of the organization.
2. Integrates into the overall company strategy, safeguarding assets for productive use.
3. Provides early warning signs to address risks proactively.
4. Extends beyond traditional risks (like natural disasters) to include technological, regulatory, and
environmental risks.

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 5. Promotes accountability and boosts productivity at all levels.

The Goal of Risk Management

The overall goal of risk management is to:
 Minimize losses: By identifying and mitigating risks before they escalate.
 Maximize opportunities: By managing risks effectively, businesses can also uncover new opportunities
for growth.

Advantages of Risk Management

1. 📈 Improved Strategic and Corporate Planning: Strengthens strategic planning by reducing legal and
financial risks.
2. 💰 Cost Savings: Reduces firefighting and unexpected costs through contingency planning.
3. 🧭 Preparedness for Opportunities: Risk management allows organizations to anticipate and capitalize on
opportunities that arise during a project or business cycle.
4. 🤝 Increased Reliability and Reputation: Builds trust and enhances the organization’s reputation among
stakeholders.
5. 🛡 Comfort for Stakeholders: Well-established risk management procedures give stakeholders confidence
across the entire organization, assuring them that risks are being properly handled.

🔍 Risk Identification
Risk identification is the foundation of effective risk management. If risks are not identified, they cannot be
controlled or mitigated, making the whole risk management process ineffective.

Key Goals:
 Minimize threats
 Maximize opportunities
 Prevent surprises in project delivery
 Feed accurate data into the next steps.

✅ Process of Risk Identification:

1. Systematic Start: Begin with project objectives & success factors.
2. Data Gathering: Use reliable information from multiple sources.
3. Tools & Techniques: Select suitable risk identification tools based on project nature.
4. Documentation: Record risks in a Risk Register or Risk Breakdown Structure, with causes and
impacts. Document the entire process for future ease.
5. Effectiveness Check: Post-project, assess how effective the identification process was.

📈 Risk Analysis
Purpose:
Once risks are identified, risk analysis assess the likelihood of identified risks and their potential impact
on the organization.

How it's done:

 List possible risks
 Estimate likelihood and impact
 Use sector-specific, objective analysis

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 Use scenario-based models to simulate potential outcomes

Useful When:
 Planning projects and reducing surprises
 Deciding project viability
 Ensuring workplace safety
 Preparing for events like equipment failure, theft, illness, disasters
 Adapting to new competitors or policy changes.

🧩 Tip: When all risks and actions are organized into a Risk Matrix, it gives decision-makers a clear picture
to proceed wisely.

⚙️Process of Risk Analysis

Risk analysis involves two core steps:

1. 🔎 Identify Threats
The first step is to recognize all potential hazards—current or future—that could impact the project or
business. These threats can arise from different areas:

Type of Threat Examples

👤 Human Illness, death, injury, loss of key personnel
⚙️Operational Disrupted supply chain, access loss to assets, delivery failures
🌐 Reputational Losing customer/employee trust, damage to brand
📋 Procedural Internal control failures, fraud, lack of accountability
🏗 Project Cost overruns, delays, quality issues
💰 Financial Market crashes, interest rate hikes, funding issues
💻 Technical Tech failures, rapid innovation gaps
🌪 Natural Disasters, extreme weather, disease outbreaks
🏛 Political Policy shifts, tax changes, government instability
🧱 Structural Unsafe infrastructure, chemical hazards, workplace risks

2. 📐 Estimate Risk
Once threats are identified, evaluate:
 Likelihood (Probability)
 Impact (Cost/Severity)
📌 Formula to remember:
Risk Value = Event Probability × Event Cost
This value helps prioritize which risks need urgent attention and strategic action.

⚖️Risk Assessment
Risk assessment helps businesses evaluate the importance of each risk in relation to achieving their goals.
✅ Key Requirements:
 Should be practical, scalable, and long-lasting

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 Must fit the company’s size, complexity, and location
 Should clearly identify:
o 🔸 Inherent Risk – Risk that exists without any controls
o 🔸 Residual Risk – Risk remaining after controls are applied

🔄 Process of Risk Assessment

1. 🧭 Develop Assessment Criteria
 Create standard evaluation criteria for:
o Impact
o Likelihood
o Vulnerability
o Onset Speed
 Used by all departments and units.

2. 📊 Assess Risks
 Assign values to risks using:
o 🔹 Qualitative Methods (for non-quantifiable risks):
 Questionnaires
 Workshops
 Interviews
o 🔹 Quantitative Methods:
 Deterministic models (point estimates)
 Probabilistic models (distributions)
 Causal at-risk models (predict cash flows, profits, etc.).

3. 🔗 Assess Risk Interactions

 Risks don’t act alone — they interact.
 Use tools to understand these interactions:
o 🧮 Risk Interaction Matrix
o 🎀 Bow-Tie Diagram
o 📈 Aggregated Probability Distributions.

4. 🧠 Prioritize Risks
 Treat risks as a portfolio to prioritize them.
 Prioritize them based on their likelihood and impact. The purpose is to decide which risks need
immediate attention, especially since managing all risks equally isn't feasible.
 Helps top management focus on key risks.

5. 🛡 Response to Risks
 Based on assessment results, decide:
o ✅ Accept
o ↘️Minimize
o 🤝 Share
o ❌ Avoid
 Do cost-benefit analysis
 Draft response strategies and plans.

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6. 🏗 Ensure Effectiveness & Sustainability
 The process must be:
o 🔹 Simple
o 🔹 Practical
o 🔹 Easy to apply
 Needs right tech support along with capable people.

Handling of Risk
Risk ownership must be distributed.
Everyone must know their responsibilities and be held accountable.
When risks occur, affected persons should report it to appropriate authorities for timely action.
🎯 Risk Management Options
1. Risk Avoidance 🚫
 Avoiding risky projects or activities altogether.
 Example: Not investing in stocks due to volatility; opting for safer debt instruments.

2. Risk Retention / Absorption 💸

 Accepting the risk and dealing with it internally.
 Used when insurance is unavailable or too costly.

Two Types:
🔹 Active Retention –
 Conscious decision after evaluating the risk.
 Considered in management planning.
🔹 Passive Retention –
 Occurs due to ignorance or carelessness.
 Risk is unknown or underestimated.
📝 Example: Choosing a high deductible in insurance to lower premium.

3. Risk Reduction ⚙️
 Also called Loss Prevention.
 Take precautionary measures to reduce the likelihood or impact of risk.
✅ Best done during project planning stage to reduce cost and improve efficiency.
💡 Tip: Evaluate risk reduction like an investment—costs vs. potential savings.

4. Risk Transfer 📄
 Shifting the financial burden of risk to another party, often for a fee.
 Main method: Insurance
 Modes of Transfer:
1. By Tort (Legal liability shifted)
2. By Contract (Non-insurance)
3. By Insurance Contract.

Risk Mitigation
Mitigation means taking action to lessen the negative effects of risk.
It helps to:

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 Reduce severity
 Reduce likelihood
 Reduce exposure
🧠 Goal: Bring risk to a manageable level through appropriate strategies.

📚 Types of Risk Mitigation Strategies

1. Transfer Risk 🔁
 Shift the risk to another party with better expertise (core competence).
 Common in project-based work, collaborations.
 ⚠️Risk like reputation loss or performance failure is handed over.
 ✅ Often done through contracts or outsourcing.

2. Retain or Tolerate Risk 💼

 Accept and absorb the loss.
 Useful for minor risks or when insurance is too expensive or unavailable.
 ➕ Also includes self-insurance.
 🔁 Default method when no other mitigation is applied.

3. Reduce Risk 🔧
 Control and lower the impact or probability to a tolerable level.
 Done through internal controls or partial outsourcing.
 Example: Outsourcing only IT or customer service, while retaining core operations.

4. Avoid Risk 🚫
 Completely eliminate exposure by not engaging in risky activity.
 Example:
o Not investing in a risky business.
o Cancelling a project mid-way.
o Avoiding air travel to escape hijack risk.
 ⚠️Downside: Also lose potential gains.

5. Combine Risk 🔗
 Club multiple risks together to lower net impact.
 Common in financial risks.
 Example: Creating a portfolio of shares + debentures to balance losses and gains.

6. Share Risk 🤝
 Risk is shared with another party, usually via insurance.
 Example:
o Company pays premium = risk is shared with insurer.
o Insurers then reinsure to share their own risk.

7. Hedging Risk 📉
 Protects against financial risks due to:
o Forex fluctuations
o Commodity prices
 ➕ Focuses on minimizing downside losses through financial instruments.

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Fraud Risk Management
Fraud risk management involves structured methods to detect, prevent, and address fraudulent
activities within an organization. Fraud is defined as any intentional act to gain dishonest advantages
through concealment or manipulation of facts, resulting in wrongful gain to one party and loss to
another.
🧰 What is Fraud Risk Management (FRM)?
A structured process to:
 🔎 Identify internal & external fraud risks
 🛑 Create anti-fraud programs
 ⚠️Detect fraud early
 🚫 Prevent fraud before it occurs
 ✅ Take corrective action when fraud is found

📌 Why is Fraud Risk Management Needed?

💻 Tech = Dual-edged sword
 Tech helps manage fraud, but also enables fraudsters
 📊 46% of orgs faced fraud (PWC 2022 survey of 1200 CEOs across 53 countries)
🎯 Impact of Fraud on Organisations
 🧨 Brand reputation damage
 💔 Loss of customer trust and loyalty
 🚶‍♂️Customers may stop doing business
 🚪 Loss of future potential clients.

🪜 Steps in Fraud Risk Management Process

1. Identifying Risks 🔍
 Identify fraud-prone departments or employees
 Use brainstorming methods
 Prioritize high-impact risks when resources are limited.

2. Assessing Risks 🧠
 Study past fraud cases
 Focus on root causes, not just effects
 Think about the impact of each risk on the organization.

3. Responding to Risks ⚙️
 Build mitigation strategies
 Assign responsibility for action
 Plan for preventing recurrence
 Prepare a response plan for future repetition.

4. Monitoring & Reviewing 🔁

 Continuous process
 Update regularly to meet changing environments
 Stay ready for new, emerging fraud risks.

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 5. Reporting Risks 📢
 Information about potential fraud is communicated clearly and objectively
 Employees should be encouraged to report concerns without fear of retaliation, and reports should
include actionable steps to mitigate risks
 Organizations should establish a clear and transparent reporting process to ensure timely responses
to fraud risks.

Responsibility of Risk Management

1. Companies Act, 2013 (Section 134(3)(n)):
o Requires a statement on the development and implementation of a risk management policy.
o Policy must identify risks that could threaten the company’s existence.

2. SEBI (LODR) Regulations, 2015:

o Mandates procedures to inform Board members about risk assessment and minimization.
o Board is responsible for framing, implementing, and monitoring the risk management plan.

3. Risk Management Committee (Regulation 21, SEBI LODR, 2015):

o Every listed company must have a Risk Management Committee.
o Details on its functions and requirements are outlined in the relevant chapter on Board Committees.

4. Chief Risk Officer (CRO):

o A dedicated individual with vision and diplomatic skills to lead the risk management approach.
o Supported by risk groups to oversee and complete assessments.

5. Risk Management Policies:

o Should align with the company’s risk profile.
o Clearly outline all elements of the risk management and internal control system, including internal
audit functions.
o Define roles and accountabilities of the Board, audit committee, management, and internal audit
functions.

6. Key Elements of a Risk Management Plan:

o Include traditional risk factors such as likelihood and consequences.
o Address timing, correlation with other risks, and confidence in risk estimates.

Role of Company Secretary in Risk Management

Under Section 203(1)(ii) of the Companies Act, 2013, a Company Secretary is recognized as a Key
Managerial Person (KMP).
📌 Key Functions of CS in Risk Management

🔹 Function 📄 Description
🧑‍⚖️Advisor Advises Board on governance, risk, and compliance best practices
Compliance Champion Ensures compliance framework is followed to maintain integrity
Ethics Sounding Board Promotes standards of ethical and corporate behavior

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 ⚖️Interest Balancer Balances the interest of Board, management & stakeholder interests

🧩 Enterprise-Wide Risk Management (ERM)

Being a Key Managerial Person (KMP) under Sec 203, CS can ensure:
 Sound ERM across the company
 Presence of Risk Management Committee & Officer under SEBI (LODR) Regulations and monitors
compliance with Corporate Governance norms.
 Implementation of an Integrated Internal Control Framework
 Encourages risk-conscious decision-making at all organizational levels.

Key Questions Addressed by a CS in Risk Management

1. What is the organization’s risk management philosophy?
2. Is that philosophy clearly understood by all personnel?
3. What strategic objectives have been set for the organization, and what strategies have been or will be
implemented to achieve those objectives?
4. What internal and external factors and events might positively or negatively impact the organization’s
ability to implement its strategies and achieve its objectives?
5. What is the desired risk culture of the organization, and at what point has its risk appetite been set?
6. What is the organization’s level of risk tolerance?
7. Is the chosen risk response appropriate for and in line with the risk tolerance level?
8. Are appropriate control activities in place at every level throughout the organization?
9. Is communication effective - from the top down, across, and from the bottom up the organization?

🛑 Reputation Risk
A risk arising from negative perceptions by:
 Customers
 Shareholders
 Counterparties
 Investors
 Regulators
 Market analysts
Such perception can harm a company’s:
 🏦 Business relationships
 💰 Funding access (interbank, securitisation, etc.)

🧨 Consequences (Long-Term Damages):

❌ Reputation Loss Leads To… 🔍 Impact
🔥 Destroyed Brand Value Customers lose trust
📉 Share Value declines steeply Market loses confidence
💔 Broken Strategic Relationships Partners withdraw
🚨 Damaged Regulatory Relationship Stricter norms imposed
🧠 Tough to Recruit & Retain Talent Employer image suffers
Reputation Risk Management
✅ Core Principles
🔑 Principle 📌 Description

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 🎯 Integrate with business strategy Consider risks from planning stage
🧑‍💼 Board oversight Actively monitor and address reputation
📣 Image building Use effective communication
📜 Promote compliance & governance To build stakeholder trust
❤️Follow corporate values Stay aligned with ethics
👥 Stakeholder feedback Helps identify issues early
🧪 Internal checks & peer reviews Continuous improvement
📰 Quality reports/newsletters Maintain transparency
🤝 Cultural alignment Matches stakeholder expectations.
🧩 Internal Control
An organizational framework for ensuring:
 Efficient operations,
 Safeguarding assets, and
 Compliance with regulations.
Rather than being a hindrance, internal control serves as a strategic tool for minimizing risks and
maximizing opportunities associated with unfavorable events.
🌐 Scope of Risk Management & Internal Control
🏢 Responsibility
 Every business must implement suitable risk management & internal control systems.
 In a group, the parent company must ensure:
o Each subsidiary has its own systems tailored to its operations.
o It reviews and familiarizes itself with risk measures of affiliates (especially with significant
equity interest/influence).

🔄 Function & Integration

Concept Focus
⚠️Risk Management Identifies threats and opportunities
Internal Control Counters threats and leverages opportunities
✅ Both help:
 Make informed decisions about risk levels
 Implement controls to meet organizational objectives
Best practice: Integrated across all levels and operations with governance structures.

📘 Illustrative Risk Register

S. Risk Area Key Risk Root Cause Mitigation Measure
No.
1 Business Risk Market share Lack of innovation, weak Monitor trends & competitor
decline market survey moves
2 Financial Risk Capital structure Poor funding Adopt resource planning
imbalance assessment policy
3 Regulatory/Compliance Non-compliance Lack of awareness of Maintain robust compliance
legal changes checklist & updates
Internal Audit
📖 Definition of Internal Audit: By Institute of Internal Auditors (IIA):

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 Internal auditing is an Independent, objective assurance & consulting activity designed to add value and
improve operations.
🎯 Key Goals:
Focused on achieving organizational objectives through a systematic, disciplined approach to evaluate
and improve the effectiveness of:
 Risk Management
 Control Processes
 Governance Practices.

Applicability of Internal Audit Provisions

Under Section 138 of the Companies Act, 2013, internal audit is mandatory for the following entities:
(a) Listed Companies
All listed companies must appoint an internal auditor.

(b) Unlisted Public Companies

Applicable if they meet any of the following criteria:
1. Outstanding deposits: ₹25 crore or more at any point during the preceding financial year.
2. Paid-up share capital: ₹50 crore or more during the preceding financial year.
3. Outstanding loans/borrowings: ₹100 crore or more at any point during the preceding financial year
(from banks or public financial institutions).
4. Turnover: ₹200 crore or more during the preceding financial year.

(c) Private Companies

Applicable if they meet any of the following criteria:
1. Outstanding loans/borrowings: ₹100 crore or more at any point during the preceding financial year.
2. Turnover: ₹200 crore or more during the preceding financial year.

Companies must comply within 6 months of the commencement of the section if they meet the above
criteria.

Importance of Internal Audit

1. Increase Productivity:
o Helps improve business operations by evaluating and improving risk management, control, and
governance.
o Identifies areas for process improvement, making the organization more dependent on processes
rather than individuals.

2. Enhance Quality Control:

o Reviews the design and effectiveness of systems and processes.
o Offers recommendations for improvement, ensuring goals are achieved consistently.

3. Evaluate Risk and Safeguard Assets:

o Identifies fraud and control gaps, enabling risk mitigation plans.
o Tracks and documents changes, ensuring risks are managed.

4. Ensure Good Corporate Governance:

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 o Ensures timely and accurate financial reporting and operational efficiency.
o Ensures compliance with laws, timely financial reporting, and operational efficiency.

🧑‍💼 Role of Internal Auditor in Strengthening Internal Audit

🔁 Main Function
 Assesses the internal control system
 Recommends improvements
 Raises awareness among management
 Not involved in day-to-day system operation.

🧩 Key Activities
 Reviews compliance with laws, regulations, and management instructions
 Verifies internal reporting systems and information accuracy
 Develops a risk-based audit work programme
 Reports findings to executive management and the board (as per internal protocols).

📌 Specific Duties & Responsibilities

Sr. No. Responsibility
i. Evaluating risk management practices
ii. Checking compliance with laws and regulations
iii. Suggesting improvements in internal control
iv. Investigating fraud and applying fraud deterrence techniques
v. Providing independent and objective advice
vi. Performing assigned audit tasks
vii. Understanding policies and guidelines of the organization
viii. Developing annual audit plans
ix. Analyzing reports, data, and accounting documentation
x. Following up on previous audits for corrective action
xi. Promoting ethics and detecting improper conduct.
⚠️Crisis Management
Crisis Management is a process for identifying and responding to unexpected threats, unanticipated
events, or disruptions that can harm people, property, or business processes.
✅ Goal: Minimize harm + Enable quick recovery
✅ Bonus: Effective crisis handling improves public relations
Types of Crises

Type Description
Natural Disasters Unpredictable events like floods, earthquakes, storms – hard to manage, high
damage risk
Technological Crisis Issues like data breaches, malware – managers must act swiftly to control
damage
Organizational Crisis from unethical/illegal company actions – need strict compliance and
Misdeeds ethical behavior
Confrontational Crisis Clashes between departments/unions – requires neutral handling to avoid
escalation
Rumours False accusations harming reputation – needs swift fact-based counteraction.

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 📋 Crisis Management Plan – Key Guidelines
1. Appoint a Crisis Manager
o Either from existing staff or hire a professional.
2. Form a Crisis Team
o Trained and ready to respond immediately during crises.
3. Designate a Ground Coordinator
o A trusted employee to alert the team of any emerging crisis.
4. Maintain Contact Info
o List of key personnel with visible and accessible contact details.
5. Conduct Training & Drills
o Frequent sessions to keep everyone alert and well-practiced.
6. Plan for Various Crises
o Tailor responses for different types (natural, tech, etc.).
7. Install Monitoring Systems
o Early detection tools like smoke detectors or cyber alerts.
8. Identify Assembly & Exit Points
o Clearly mark emergency exits and gathering areas.
9. Test & Update Systems
o Regularly check the response process and update equipment.

Difference Between Crisis Management and Risk Management

Aspect Crisis Management Risk Management
Crisis management focuses on responding to Risk management focuses on identifying,
Definition unexpected, adverse events or disruptions assessing, and mitigating potential risks before
once they occur. they occur.
Reactive – deals with managing a situation Proactive – aims to prevent or minimize the
Nature
after it happens. impact of potential risks.
To limit damage, ensure recovery, and To identify threats and opportunities, and
Objective
maintain operations during and after a crisis. implement controls to mitigate risks in advance.

Short-term and urgent, emphasizing Long-term and strategic, focusing on ongoing

Approach
damage control and recovery. monitoring and mitigation.

Crisis response teams (e.g., crisis Risk management teams (e.g., risk analysts,
Team Involvement
communication team, recovery specialists). compliance officers, strategic planners).

Crisis management plans, business continuity Risk assessments, risk registers, internal
Key Tools/Plans
plans, emergency response protocols. controls, and insurance policies.
Implementing robust cybersecurity measures
Handling natural disasters, cyberattacks, or
Examples or diversifying supply chains to avoid
reputation-damaging events.
dependency risks.
♻️ESG Risk Assessment
ESG = Environmental, Social, and Governance
Investors use ESG non-financial factors to assess risks and opportunities that are not covered in traditional
financial reports.
📘 Supporting Standards

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 SASB – Sustainability Accounting Standards Board
 GRI – Global Reporting Initiative
 TCFD – Task Force on Climate-related Financial Disclosures

🌍 Types of ESG Risks

Category Key Risk Areas

Environmenta GHG emissions, deforestation, pollution, water usage, biodiversity, waste.
l
Social Human rights, labor practices, employee health/safety, diversity, inclusion, supply chain
ethics.
Governance Board structure, executive pay, corruption, fraud, succession planning, data security.
🎯 Significance of ESG Risk Assessment
1. Enhanced Sustainability
→ Better resource use, reduced costs, safer investments, higher retention, and resilience.
2. Improved Regulatory Compliance
→ Easier alignment with laws and stakeholder demands; fewer legal issues.
3. Increased Investment Potential
→ ESG-focused companies attract more socially responsible investors.
4. Better Employee Productivity
→ ESG values = higher job satisfaction, motivation, retention, and performance.
5. Greater Profitability
→ ESG strategies can boost profits up to 60% (McKinsey); also attract customers and talent.

ESG Risk Management – 3 Steps

1. Identify ESG-related risks
2. Quantify risk with ESG scores/ratings (lower score = better management)
3. Manage the risks for long-term sustainability and growth

All companies—regardless of size—must integrate ESG into decision-making to avoid financial and
reputational losses.

🌿 Environmental Risks
Environmental risks refer to any harm or potential harm caused to people or ecosystems through air,
water, soil, or biological chains. These risks can:
 Be caused by human actions (e.g., chemical industries, mining, agriculture)
 Arise from natural hazards (e.g., floods, earthquakes) that intersect with human activity

🔸 These risks affect people who have not voluntarily accepted them, making government regulation and
proactive management essential.
🧪 Sources of Environmental Risks
1. Man-Made

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 o New technologies, industrial chemicals, unsustainable development (e.g., oil refineries, thermal
power plants)
o Example: Fluorocarbons damaging the ozone layer
2. Natural + Human Interaction
o Natural processes affecting populated or industrial zones (e.g., floods damaging chemical plants)
3. Unanticipated Risks
o Long-term, unforeseen environmental effects (e.g., fertilizer runoff leading to water
eutrophication)
4. Voluntary vs Involuntary Exposure
o Voluntary: Rock climbing, smoking (less regulation, more education)
o Involuntary: Industrial pollution, contaminated water (requires strict regulation).

♻️Examples of Environmental Risks

Types of Environmental Risks
1. Climate Change and GHG Emissions
2. Water Security and Usage
3. Waste Reduction and Recycling
4. Pollution Control and Prevention
5. Deforestation
6. Biodiversity and Ecosystem Protection
7. Marine Resource Safeguarding
8. Circular Economy Transition
9. Environmental Management Techniques.

🤝 Social Risks
Social risks refer to issues that affect stakeholders directly involved or impacted by a company’s
operations—employees, customers, suppliers, communities, and society at large.
These risks are complex, interlinked, and reputation-sensitive, affecting a company’s:
 Brand trust
 Operational continuity
 Employee retention
 Investor confidence

📊 Examples of Social Risks

1. Inclusion, Equity, and Diversity
2. Workplace Safety
3. Human Rights Observance
4. Employee Development and Training
5. Fair Labor Practices
6. Data Security
7. Community Engagement.

🌟 Why Managing Social Risks Matters

 Maintains stakeholder trust
 Prevents legal and reputational damage
 Ensures sustainable growth in public-facing and community-reliant sectors

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 Creates a positive workplace culture and attracts talent
 Avoids boycotts, protests, or investor pull-outs.

Governance Risk
Governance refers to the culture, values, policies, mission, and internal structures that guide how an
organization is directed and controlled. It lays down what is acceptable and unacceptable through
structured policies, while compliance ensures these are properly implemented.
✅ Governance = Framework
✅ Compliance = Enforcement & Monitoring
Good governance establishes a framework for ethical decision-making, risk management, and
accountability to stakeholders.
📊 Role of Governance in Risk Management
 Makes sure the Board watches over risks to protect the company, shareholders, and others involved.
 Supports smart decision-making by keeping risks in mind while reaching business goals.
 Helps spot weak areas early and take action before problems grow.

🧠 Effective governance touches every part of the organization and must be embedded in corporate culture,
especially in today’s interconnected and globalized business world.
⚠️Examples of Governance Risks
1. Anti-competitive Conduct
2. Non-compliance with ESG Laws
3. Lack of Transparency
4. Grievance Redressal Issues
5. Fraud and Corruption
6. Board Diversity
7. Tax Non-Compliance
8. Weak Regulatory Control.

🧾 Case Study: PNB Scam (2018)

📍 Background
On 14 February 2018, Punjab National Bank (PNB) revealed fraudulent transactions amounting to
₹11,000 crore ($1.77 billion), orchestrated by Nirav Modi, Mehul Choksi, and others, in collusion with
PNB employees.
🔍 What Happened
 Fake Letters of Undertaking (LoUs) were issued to help the group raise credit from overseas banks.
 The LoUs were given without collateral and bypassed core banking systems.
 RBI’s 90-day export credit limit was violated.
 Overseas bank branches didn’t verify documents with PNB.

💻 Modus Operandi
 Dummy companies in tax havens like British Virgin Islands received funds.
 Foreign bank tokens and servers were destroyed to cover up the trail.
 Nirav Modi fled India before the scam went public.

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🧯 Governance Failures
 Internal controls within PNB were weak
 Compliance checks were bypassed
 RBI’s supervisory role was ineffective
 No integration of SWIFT with Core Banking Systems (CBS)

🧑‍⚖️Aftermath & Reforms

Measure Description
RBI Directions Mandatory SWIFT-CBS integration
Committee Setup To address divergence in asset classification and fraud detection
Fugitive Economic Offenders Act Passed to seize properties and prevent economic offenders from
(2018) fleeing India
🌍 ESG Risk Management
ESG Risk Management focuses on identifying, managing, and mitigating environmental, social, and
governance risks.
 Just like traditional risk domains, ESG risks require proper tools, strategy, and data analysis.
 Automation through ESG software can ease processes like evaluation, monitoring, and reporting.

🧩 No One-Size-Fits-All Approach
 No global standard exists for ESG risk evaluation.
 Companies must define ESG that matter to them and assess risks specific to their operations.
 Requires data-driven analysis to align internal business processes with ESG goals.
✅ Treat ESG risk like any other risk: assess, analyse, and align processes with objectives.

Climate Risk Management (CRM)

Climate risk refers to the risks arising from weather-related and climate-related events, such as extreme
weather patterns, sea-level rise, and long-term climate changes.
Climate Risk Management (CRM) Process
A 6-step method to handle climate risk at scale:
Step Description
1. Assess Needs Identify information needed based on risk management goals
2. Define System Clearly define the "System of Interest" (e.g., community, sector)
3. Develop Methodology Create a tailored, context-specific approach
4. Risk Identification Detect both high-level and low-level climate risks
5. Risk Evaluation Categorize risks as acceptable, tolerable, or intolerable
6. Management Options Choose strategies to reduce or handle identified risks.

🎯 "Aunt Daisy Dances Real Elegant Moves"

(Each word = 1st letter of each step: A-D-D-R-E-M)
Step Easy Meaning
A – Assess Needs What do we need to know to manage climate risks?

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 D – Define System Who/what are we protecting? (e.g., city, sector)
D – Develop Methodology Create a unique plan that fits the local situation
R – Risk Identification Spot every possible climate risk—big and small
E – Risk Evaluation Decide which risks are okay, bearable, or too dangerous
M – Management Options Choose how to tackle each type of risk.
Business Continuity Plan (BCP)
A BCP outlines how a company will continue functioning during disruptions (natural disasters,
cyberattacks, etc.).
📁 What It Includes
 Prevention strategies
 Recovery steps
 Department-specific plans (e.g. Finance, HR, Marketing)

🏢 Department-Specific BCPs
Department Key Focus
Finance Ensure financial systems run, data secured, regulatory compliance maintained
HR Payroll, benefits, and key HR functions continue uninterrupted
Marketing Maintain brand visibility, restore systems, and manage communication during crisis

Key Components of an Effective BCP

1. Strategy: Outline methods to maintain day-to-day operations during disruptions.
2. Organization: Define roles, responsibilities, and communication plans for employees.
3. Applications and Data: Ensures high availability and security of critical business software and data.
4. Processes: Focus on critical business and IT processes necessary for operation.
5. Technology: Ensure systems, networks, and backups are prepared to support continuous operations.
6. Facilities: Plans for disaster recovery sites in case the primary location is unavailable.

Steps to Creating a Business Continuity Plan

Step 1: Assemble a Business Continuity Management Team
 Form a team to plan and execute the BCP, including clear roles and responsibilities.
 Create a contact list with personal and work communication details of key members.
 Implement a process to update the BCP and communicate changes effectively.

Step 2: Ensure the Safety and Wellbeing of Employees

 Prioritize employee safety, addressing concerns and adjusting work arrangements (e.g., remote work).
 Use communication tools (such as BCP software with emergency messaging) to stay connected during
crises.
 Provide the resources needed to work safely and efficiently.

Step 3: Understand the Risks to Your Company

 Conduct a Business Impact Analysis (BIA) to identify and assess potential threats (e.g., financial loss,
operational disruptions, reputation damage).
 Analyze risks and brainstorm their potential effects on operations.

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Step 4: Implement Recovery Strategies
 Define how to restore critical operations after a disaster (e.g., HR, sales, manufacturing, support
teams).
 Plan for continuity of services and products, even if equipment or facilities are damaged.
 Ensure employees can work remotely or from alternate locations if needed.

Step 5: Test, Test Again, and Make Improvements

 Regularly test the BCP to identify gaps and validate its effectiveness.
 Continuously improve the plan based on feedback and evolving risks, as the business landscape
changes.

🔥 Crisis Management Plan (CMP)

Crisis Management is a process for identifying and responding to unexpected threats, unanticipated
events, or disruptions that can harm people, property, or business processes.
A Crisis Management Plan (CMP) is a specific type of BCP that focuses on:
Procedures and protocols for dealing with critical events like PR crises, safety emergencies, etc.
👥 Roles in Crisis Management: Department-wise
1. Finance Manager
 Manages the financial response to the crisis.
 Ensures sufficient financial resources are available.
 Maintains financial reporting and regulatory compliance.
 Coordinates with legal teams to follow applicable laws and regulations.

2. HR Manager
 Manages the personnel response.
 Ensures employee salaries, benefits, and welfare are maintained.
 Supports compliance with employee-related laws during crises.

3. Marketing Manager
 Oversees the marketing response.
 Maintains promotion of products/services.
 Works with PR teams to manage image and reputation.

📝 In all cases, department heads play key roles in protecting operations and supporting recovery.

📌 Need for Crisis Management

 Helps detect early warning signs and plan preventive actions.
 Prepares individuals to face adversity with courage.
 Encourages cause analysis and solution planning.
 Supports managers in strategic decision-making post-crisis.
 Helps employees adjust to sudden changes.

⭐ Essential Features of Crisis Management

 Involves analysis of potential events that may cause crises.
 Ensures effective response to organizational changes.

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  Promotes interdepartmental coordination.
 Focuses on clear internal communication during crises.

Avoiding Conflicts Between Management and the Board

Conflicts between management and the board can hinder effective governance and decision-making.
Adopting global best practices and establishing robust governance frameworks can help avoid such conflicts.

Best Practices to Avoid Conflicts

 Majority (75%) of board members should be independent.
 Separate roles for the Chairman and CEO.
 Annual board elections to ensure accountability.
 Regular self-assessments of board performance.
 Independent directors should meet periodically to discuss policies and decisions without management
interference.

Case Study: Tata Sons (Listed Entity: Tata Consultancy Services - NSE/BSE)
Conflict Overview:
In 2016, Tata Sons faced a board-management conflict when Cyrus Mistry, the chairman, was removed by
the board.
Allegations included governance lapses, differences in strategic direction, and management’s performance.
Resolution Measures:
 The board reinforced governance practices, including strengthening the independence of directors.
 Independent assessments were introduced to ensure accountability.
 Ratan Tata resumed the interim chairman role until a new leadership structure was established.
This case emphasizes the importance of clear roles, communication, and a well-defined governance
framework to mitigate conflicts.

Disaster Recovery Plan (DRP)

A Disaster Recovery Plan (DRP) is a strategy that outlines how an organization will restore critical
functions and systems after a disaster. It is essential for maintaining business continuity, protecting
assets, and minimizing operational downtime.
Key Objectives:
 Minimize Impact: Ensure quick recovery and continuity of operations after a disaster.
 Protect Data: Secure critical data and systems, safeguarding the organization's long-term stability.

Elements / Features of a Disaster Recovery Plan (DRP)

1. Disaster Recovery Team:
o A dedicated team is assigned to manage the DRP’s development, implementation, and regular
updates.
o Responsibilities are clearly defined for each member.
o Contact information of team members should be readily available.

2. Risk Assessment:
o Identify potential risks (natural disasters, cyberattacks, human error, etc.).
o Evaluate the likelihood and impact of each disaster type.

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 o Prioritize risks based on their potential disruption to operations.

3. Identify Critical Applications and Resources:

o Critical business processes (e.g., payroll, customer communication) are identified.
o Focus on short-term survival (cash flow, revenue generation) rather than long-term recovery.

4. Backup and Off-Site Storage:

o Data backup is performed regularly.
o Off-site storage ensures important documents (financials, employee contacts, etc.) are safe in case of
disaster.

5. Testing and Maintenance:

o Regular testing (e.g., annual or quarterly drills) ensures DRP’s effectiveness.
o Updates are made regularly to accommodate changes in business processes and disaster scenarios.

Business Continuity Plan, Crisis Management, and Disaster Recovery Plan

In a crisis, the BCP provides the roadmap for continuity, the CMP guides the decision-making and
communication, and the DRP enables recovery of IT systems and infrastructure. These three
components together ensure organizational resilience during and after a disruptive event.
Aspect Business Continuity Plan Crisis Management Plan Disaster Recovery Plan
(BCP) (CMP) (DRP)
Definition A BCP outlines how a company Crisis Management is a A Disaster Recovery Plan
will continue functioning process for identifying and (DRP) outlines how an
during disruptions (natural responding to unexpected organization restores critical
disasters, cyberattacks, etc.). threats, unanticipated operations after a disaster,
events, or disruptions that ensuring a quick return to
can harm people, property, or normalcy.
business processes.
Scope Broad, covering all key Focused on specific crisis Focused on IT and
operations. scenarios. operational recovery.

Timeframe Long-term survivability and Short-term crisis resolution. Short-term restoration of

continuity. systems.
Focus Prevent service disruption. Manage public relations, Resume normal functioning
safety, or operational crises. post-disaster.
Implementati Business continuity team Crisis management team, IT team or external disaster
on Team comprising representatives including leaders from recovery specialists.
from all critical business finance, legal, HR, and
functions. operations.
Example Continuity of supply chain Managing a major Restoring IT systems after a
during a pandemic. reputational crisis. server crash.

🔐 Cyber Risk Management

Cyber risk management involves identifying, assessing, and responding to cyber threats that can
compromise financial assets, information systems, and intellectual property. In today’s complex threat
environment, organizations must adopt an active and integrated risk management strategy,
incorporating legal, technological, and insurance-based safeguards.

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🔁 Cyber Risk Management Process
Step Process Purpose
1. Identify Recognize cybersecurity risks by identifying system Understand what could go wrong and
vulnerabilities and potential threats where the weaknesses are
2. Analyse Assess the likelihood of risks and the impact if they occur Helps measure the severity and
potential consequences
3. Evaluate Determine whether each risk falls within the Helps in deciding if a risk is acceptable
organization’s risk appetite or needs action
4. Prioritise Rank risks based on their severity and impact Focus attention and resources on the
most critical threats
5. Respond Choose how to address each risk using one of the four Select the most effective mitigation
strategies: action
Treat – Apply controls to reduce likelihood or impact
Tolerate – Accept the risk if within tolerable levels
Terminate – Stop the activity that causes the risk
Transfer – Shift the risk via insurance or outsourcing

6. Monitor Continuously monitor risks, review controls, and adapt to Ensures ongoing effectiveness and
evolving threats relevance of the risk strategy
📌 Note: Cyber risk management is not a one-time task—it is a continuous, adaptive process.
Cyber Security Measures (As per International Telecommunication Union - ITU)
("Rules, Tools, Roles, Schools, Duels!")

Aspect Purpose
Legal Establishes laws and regulatory frameworks to govern and protect cyberspace
Technical Involves software, hardware, firewalls, encryption, etc. to detect, prevent, and
respond to threats
Organizational Ensures proper implementation of policies and national initiatives on
cybersecurity
Capacity Focuses on training, awareness, and skill development to build cybersecurity
Building expertise
Cooperation Encourages collaboration among stakeholders to build cyber resilience.
Strategic Risk
Strategic risk refers to the potential internal and external events that could make it difficult, or even
impossible, for an organization to achieve its long-term goals and objectives. These risks can have
significant, lasting effects on the company’s performance and direction.
Source of Strategic Risks:
Strategic risks can arise from:
 Decisions by leadership: Poor strategic decisions taken by the top management can expose the
organization to risk.
 The organization's position in its environment: Changes in the external environment can affect an
organization’s ability to execute its strategies effectively.
Examples of Strategic Risk:
The introduction of new products or services by a competitor;
1. Unsuccessful mergers or acquisitions;
2. Evolving customer demands;

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3. Changes in senior leadership;
4. Damage to the company reputation;
5. Poor cash flows and other financial challenges;
6. Changes to the competitive or industry landscape (such as a merger of two rivals into a single, larger
one);
7. Supply chain issues, such as problems with suppliers or vendors;
8. Technology risk.

Financial Risk
Financial risk refers to the possibility of losing money in an investment or business venture. This type of risk
can result in a loss of capital.
Key Takeaways:
1. Loss of Money:
Financial risk is mainly about the chance of losing money, whether in a business or investment.
2. Cash Flow Risk:
A common form of financial risk is when a company’s cash flow is not enough to meet its financial
obligations (e.g., paying debts, expenses).
3. Government Risk:
Financial risk can also apply to governments, especially when they fail to meet their bond payments.
4. Common Types of Financial Risks:
o Credit Risk: Risk of a borrower not repaying their debt.
o Liquidity Risk: Risk of not being able to sell an asset quickly or meet financial obligations.
o Asset-backed Risk: Risk that the asset backing an investment or loan loses value.
o Foreign Investment Risk: Risk from investing in foreign markets, which may involve currency or
political risks.
o Equity Risk: Risk related to the changes in stock market values.
o Currency Risk: Risk of changes in exchange rates affecting investments or business operations.

5. Risk Ratios:
Investors use financial risk ratios to assess the likelihood of financial risks in companies and
investments.

Pros and Cons of Financial Risk

Pros Cons
1. Can arise from uncontrollable or unpredictable
1. Encourages more informed decision-making.
external forces.
2. Helps assess value by evaluating the risk-reward 2. Financial risks can be difficult to overcome once
ratio. they occur.
3. Can be identified and assessed using analytical 3. Risks may spread and affect entire sectors or
tools. markets.

Types of Financial Risks

1. Income Risk:
The risk of a company or individual not generating enough income to meet financial needs, leading to
potential financial strain.

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2. Expenditure Risk:
The risk that expenses will exceed income or available capital, causing financial difficulties.
3. Asset or Investment Risk:
The risk of losing value in assets or investments due to market fluctuations or poor investment choices.
4. Credit Risk:
The risk that borrowers will not be able to repay loans, resulting in financial losses for the lender or
investor.

Operational Risk
Operational risk refers to the risk of loss due to failures in processes, policies, systems, or external
events that disrupt business operations. This could include factors like employee mistakes, fraud, or
physical events (e.g., natural disasters).
Challenges in Mitigating Operational Risks:
1. Data availability:
Often, the necessary data to assess operational risk is not easily accessible.
2. Growing complexity:
As businesses grow, operational processes become more complex, making risk management more
difficult.
3. Expanding risk types:
The range of potential operational risks continues to grow as organizations face new challenges.
4. Overlap with other risk functions:
Operational risk management can overlap with other types of risk management, which may cause
confusion or inefficiencies.
5. Resistance from other risk functions:
Some departments may feel that operational risk management is duplicating their efforts, leading to a
lack of cooperation.
6. Time constraints:
Operations staff may feel that monitoring and reporting risks takes time away from their regular duties,
which can hinder the effectiveness of risk management.

Environmental Risk
Environmental risk refers to the likelihood and impact of an unwanted accident that causes harm to the
environment. These risks are often related to the release of pollutants due to poor waste management,
improper waste transport, and unsafe waste disposal, which can negatively affect human health and
ecosystems.
Examples of Environmental Hazards:
1. Air Contaminants
2. Toxic Waste
3. Radiation
4. Disease-causing Microorganisms and Plants
5. Pesticides

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 6. Heavy Metals
7. Chemicals in Consumer Products
8. Extreme Temperatures and Weather Events.

Case Study Summary: Infosys – Mitigating Water Risk at India-based Hubs

Risk Management Strategy:
Infosys combines its Enterprise Risk Management (ERM) and sustainability teams to assess and mitigate
water-related risks both at the facility level and across the enterprise.
1. Risk Assessment Process:
o Inherent Risk: Initial assessment of water scarcity risks at individual campuses.
o Control Measures: Actions taken to reduce risks after the initial assessment.
o Residual Risk: Evaluating the remaining risk after applying mitigation measures.
2. Risk Response:
o Infosys uses five response strategies: accept, avoid, pursue, reduce, escalate, and share. For high
water scarcity risk locations, the focus is on reducing the risk.
o If mitigation actions fail, they may temporarily move operations or scale down business activities.
3. Root Cause Analysis:
o Infosys uses root cause analysis to understand the factors contributing to water scarcity (e.g., access,
storage issues).
o Mitigation measures include water conservation (e.g., efficient fixtures, wastewater treatment),
aquifer recharge, rainwater harvesting, underground reservoirs, and smart water metering systems.

Key Measures Implemented:

 Water Conservation: Reducing, recycling, and reusing water.
 Aquifer Recharge: Using injection wells to replenish groundwater.
 Rainwater Harvesting: Collecting and reusing rainwater.
 Underground Reservoirs: Storing enough water to sustain operations for five days.
 Smart Water Metering: Tracking water usage and encouraging reductions.

Monitoring and Data:

 The sustainability and ERM teams collaborate to monitor water risks, using data such as:
o Rainfall data over 10 years.
o Water table levels.
o Rainwater storage capacity.
o Availability of water via tankers and municipal sources.
 Key Metric: “Per capita water consumption” is tracked to monitor efficiency and predict future water
risk.

Case Study Summary: Enterprise Risk Management in Banking – TD Bank

TD Bank, based in Toronto, uses two main pillars to manage its risks: the Risk Management Framework
and the Risk Appetite Statement. These pillars guide how the bank identifies, evaluates, and controls risks
while ensuring it can achieve growth without taking on excessive risk.
1. Risk Management Framework:
This framework provides the procedures for identifying, evaluating, and controlling risks the bank faces. It
includes specific guidelines to manage different types of risks like credit, market, and operational risks.

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2. Risk Appetite Statement:
This statement outlines the risks TD Bank is willing to accept in pursuit of its goals. It helps define the level
of risk that is appropriate for the bank, balancing risk-taking with the need for stability.
Risk Appetite Criteria:
TD Bank only accepts risks that meet three conditions:
1. The risk aligns with the bank’s strategy and is manageable.
2. The risk doesn't expose the bank to the chance of significant loss.
3. The risk doesn't damage the bank’s reputation or brand.

Three Lines of Defense (3LOD):

TD Bank uses a three lines of defense approach to manage risks:
1. Business Units and Policies: These implement risk controls and keep track of risks.
2. Oversight and Rules: This line ensures compliance with the risk framework and monitors risk appetite.
3. Internal Reviews: Independent reviews confirm the effectiveness of the risk management practices.

Case Study Summary: Cybersecurity Risk Management – Medical Practice Hit with Ransomware
Recovery Solutions & Key Takeaways:
The practice avoided a worst-case scenario by having offsite backups, but the incident highlighted several
cybersecurity vulnerabilities. The recovery process involved not just restoring the data but also
implementing a comprehensive cybersecurity overhaul.
1. Technical Controls Implemented:
o Updated email filters and antivirus software.
o Installed both local and cloud backups.
o Firewall updates and admin access restrictions.
o Revised HIPAA policies to address security and privacy concerns.
2. Employee Awareness Training:
o Educating staff to recognize suspicious emails and phishing attempts.
o Training on using approved storage devices and downloading from trusted sources.
o Conducting HIPAA security and privacy training for new employees.
3. Disaster Response and Business Continuity Planning:
o Developing and testing a data backup plan and disaster recovery plan.
o Ensuring business continuity during potential future cyber incidents.
4. Ongoing Monitoring and Security:
o Phishing assessments and user activity monitoring to detect suspicious actions.
o Ensuring that IT staff possess the necessary cybersecurity knowledge.
5. Insurance Review:
o Updated professional liability insurance to cover data breaches.
o Reviewing cyber insurance policies to ensure adequate coverage for data breaches.

Case Study Summary: Phishing Attack and Employee Password Compromise

Remediation, Recovery & Awareness Training:
1. Immediate Response:
The cybersecurity team was contacted, and they immediately took the following steps:
o Reset all passwords to prevent further unauthorized access.

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 o Verified the email was a phishing attempt by inspecting the fake login page.
o Checked the security settings for any suspicious changes.

2. Preventive Measures:
o Two-factor authentication (2FA) was implemented for all accounts to alert users to suspicious
sign-ins.
o Security awareness training was scheduled for all employees. The training included tips on
identifying phishing emails, such as checking URLs and verifying any unexpected requests with the
sender.

3. Key Takeaways:
o The employee’s prompt action in reporting the incident helped prevent data theft.
o The quick response from management and the cybersecurity team halted the attack and ensured no
systems were compromised.
o The incident highlighted the need for ongoing employee education to reduce the risk of phishing and
other social engineering attacks.

Case Study Summary: Infrastructure Monitoring and Weak Passwords

Remediation and Recovery:
1. Immediate Response:
o The cybersecurity team changed the compromised password and conducted a forensic
investigation to preserve evidence for reporting and insurance purposes.
o They discovered the stolen data was not confidential or regulated, so no customer or regulatory
notifications were necessary.

2. Remediation Plan: To prevent future incidents, the company implemented the following actions:
o Update security policies and conduct regular compliance tests.
o Conduct regular employee security awareness training to educate staff on good cybersecurity
practices.
o Implement stronger password management and require regular password changes.
o Monitor administrative accounts for unusual activities to detect unauthorized access quickly.
o Monitor network traffic and data access to identify potential security threats.
o Protect and monitor infrastructure security more closely to safeguard critical systems and
data.

Key Takeaways:
 The attack underscored the importance of strong password management and the need for continuous
monitoring of network activity.
 Although the stolen data was not sensitive, the breach exposed gaps in the company’s overall
cybersecurity practices, highlighting the need for a proactive approach to risk management and security.

Case Study Summary: Financial Risk at USAA

Key Takeaways:
 The case emphasizes the importance of timely regulatory compliance and the risks of procrastination
in addressing identified issues.

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  A weak control environment can attract heavy fines, and ignoring regulatory findings can have severe
consequences.
 Financial institutions must implement automated systems for monitoring transactions, ensuring
accurate detection, and minimizing false positives and negatives.

Case Study Summary: China Aviation Oil (Singapore) Corporation Limited’s Jet Fuel Scandal (2005)
Key Takeaways:
1. Enhanced risk management:
Companies should have robust, independent risk management departments capable of overseeing complex
financial activities and providing on-the-ground vigilance.
2. Expertise in risk handling:
It's essential to have a knowledgeable team capable of handling specific risks, particularly when dealing with
complex financial instruments like options.
3. Early warning systems:
Companies should build early-warning systems to detect and report potential risks promptly.
4. Accurate financial reporting:
Financial reporting must adhere to the best accounting practices with frequent and transparent disclosures
to prevent misstatements.
5. Stress testing:
Stress testing is crucial to assess potential losses under different market conditions and avoid catastrophic
financial consequences.
6. Market knowledge:
Companies should not engage in markets they do not fully understand, especially when making speculative
bets.

Lesson: 1 (Conceptual Framework of Corporate Governance)

Meaning and Definitions of Corporate Governance

ICSI Definition: "Corporate Governance is the application of best management practices, compliance
with the law in true letter and spirit, and adherence to ethical standards for effective management,
wealth distribution, and discharge of social responsibility for sustainable development of all
stakeholders."
Scope of Corporate Governance
Corporate Governance includes both social and institutional aspects, fostering a trustworthy, moral, and
ethical corporate environment. It encompasses:
1. Stakeholder Management: Balances interests of stakeholders like shareholders, employees, vendors,
customers, society, and government.

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 2. Key Pillars:
o Fairness
o Accountability
o Transparency
o Responsibility.

🌟 Advantages of Corporate Governance

1. Cost Efficiency: Reduces cost and supports long-term sustainability and growth.
2. Minimized Risks: Reduces corruption, mismanagement, and waste.
3. Brand Development: Strengthens reputation and corporate reliability.
4. Share Price Stability: Enhances market valuation.
5. Investor Confidence: Maintains trust, enabling efficient and effective capital raising.
6. Stakeholder Alignment: Ensures that management decisions align with the best interests of all
stakeholders.
7. Economic Growth: Drives corporate success and sustainable development.

Need for Corporate Governance

Corporate governance is fundamental to a company's existence, fostering a corporate culture characterized
by transparency, accountability, and disclosure. It plays a vital role in several key areas:
 ⭐ Corporate Performance: Improved governance structures lead to better decision-making, effective
succession planning, and enhanced long-term prosperity, ultimately boosting share price and profitability.
 Combating Corruption: Transparent companies with sound accounting and auditing procedures and full
disclosure in business transactions create an environment where corruption is less likely to thrive.
Corporate governance helps prevent fraud and malpractices.
 ⚠️ Reduced Risk of Corporate Crisis and Scandals: Effective corporate governance ensures robust risk
mitigation systems are in place. Transparency and accountability enable the Board to be aware of potential
risks and implement control systems.
 🤝 Accountability: Maintaining good investor relations through timely and regular disclosures to all
shareholders is an essential aspect of good corporate governance. It ensures that Boards remain accountable
to their stakeholders.
 💡 Enhanced Investor Trust: Investors, both individual and institutional, seek well-governed boards to
safeguard their interests. High levels of disclosure and transparency regarding executive pay and
performance build confidence and encourage investment.
 🌐 Better Access to Global Market: Strong corporate governance systems attract global investors, leading to
greater efficiency in the financial sector. Adherence to internationally accepted principles is crucial for
accessing global capital markets and improving domestic investor confidence.
 💰 Easy Finance from Institutions: The increasing complexity of monitoring capital due to the growth of
financial intermediaries, enterprise size, investment choices, competition, and risk exposure heighten the
need for good corporate governance. Well-governed companies often receive higher market valuations and
are considered more creditworthy.

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 📈 Enhancing Enterprise Valuation: Improved management accountability and operational transparency
increase investor confidence, which, in turn, enhances the overall value of the corporation.

📘 Elements of Good Corporate Governance

1. 👑 Role and Powers of the Board
 The Board of Directors serves as the vital link between the company and its stakeholders.
 Directors are elected by shareholders to:
o Appoint executives
o Decide on dividends
o Oversee compensation
o Address social/environmental concerns if required
 A clearly defined role of the Board, CEO, and Chairman ensures:
o Accountability
o 🎯 Goal clarity
o 📜 Must be documented in a Board Charter.

2. 📜 Legislation
 Effective governance is supported by clear and interpretable laws.
 Laws must not be vague or overly complex, or they risk:
o ⚠️Misinterpretation
o Exploitation
 Sound legislation provides a solid legal framework for corporate conduct.

3. 🏢 Management Environment:
 This includes setting clear objectives and an appropriate ethical framework.
 Establishing due processes and ensuring transparency.
 Clearly defining responsibilities and accountability.
 Implementing sound business planning and encouraging risk assessment.
 Having the right people with the right skills for the jobs.
 Establishing clear boundaries for acceptable behavior.
 Implementing performance evaluation measures and recognizing contributions.

4. 🧠 Board Skills:
 The Board must possess a diverse blend of qualities, skills, knowledge, and experience to function
effectively.
 Each director should contribute meaningfully to the organization's policies, operations, and
management.
 Illustrative skills include:
o Operational or technical expertise and leadership commitment.
o 📊 Financial skills.
o ⚖️Legal skills.
o Knowledge of government and regulatory requirements.

5. 🤝 Board Appointments:
 Board positions should be filled after thorough searches to ensure the most competent individuals are
appointed.
 Reappointments and new appointments should:

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 o 🧭 Address skill requirements
o 📄 Include a formal letter detailing roles and responsibilities
o 🧑‍🏫 Be followed by an orientation program

6. 📚 Board Induction and Training:

 Directors need a broad understanding of the company's business operations, corporate strategy, and
challenges.
 Attending continuing education and professional development programs is crucial for directors to stay
updated on relevant developments.

7. 👤 Board Independence:
 An independent Board is crucial for sound corporate governance.
 Achieving this involves having a sufficient number of independent directors.
 Independence ensures no actual or perceived conflicts of interest.
 It enables the Board to effectively supervise and challenge management activities objectively.
 A proper balance between independent and non-independent directors is vital.

8. Board Meetings
 Regular and well-prepared Board meetings enhance the quality of decision-making.
📝 Effective meetings require:
o Well planned and pre-circulated agendas
o Relevant materials shared in advance
o Directors to be well-prepared and attentive

9. 📜 Code of Conduct
 Organizations must establish and communicate a clear code of conduct.
 Ensure employees understand and follow prescribed ethical practices.
 Systems for measuring and evaluating compliance should be established.

10. 🎯 Strategy Setting:

 The company's objectives must be clearly documented in a long-term corporate strategy.
 This includes an annual business plan with achievable and measurable performance targets and
milestones.

11. 🌍 Business and Community Obligations:

 Companies must balance profit goals with social responsibilities.
 Initiatives like CSR (Corporate Social Responsibility) should:
o Be approved by the Board
o Be transparent and communicated to stakeholders

12. 📊 Financial and Operational Reporting:

 📈 Boards need access to accurate, timely, and relevant data to evaluate company performance.
Reporting should:
o Use both financial & non-financial KPIs
o Be concise yet comprehensive
o Include implementation updates for Board-approved plans
 📩 Reports must be shared well in advance of meetings for better decision-making.

13. 🔍 Monitoring the Board Performance:

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 The Board must periodically monitor and evaluate its collective performance and that of individual
directors.
 This can be done using key performance indicators and peer review.
 An appropriate mechanism for reporting the results of the Board's performance evaluation should be
established.
 The Companies Act, 2013, mandates Board evaluation for specific classes of companies.

14. Audit Committee:

 The Audit Committee is responsible for liaising with management, internal and statutory auditors.
 It reviews the adequacy of internal controls and compliance with significant policies and procedures.
 It reports key issues to the Board.
 The quality of the Audit Committee significantly impacts the company's governance.

15. ⚠️Risk Management:

📉 Risks should be proactively identified, analyzed, and treated through:
o A defined risk management process
o Balanced risk-return strategy
o Prioritized resource allocation
🔐 A Risk Management Plan should address:
o Operational performance
o IT systems
o Outsourcing/contractual risks

The King Report summarized the role of the board as:

 🎯 To define the purpose of the company.
 💎 To define the values by which the company will operate.
 👥 To identify the stakeholders relevant to the company.
 To develop a strategy combining these elements.
 ⚙️To ensure the implementation of this strategy.

Evolution of Corporate Governance

1. Agency Theory:
 Core Idea: Managers act as agents for the shareholders (principals) and are responsible for achieving
the objectives set by the shareholders.
 Key Features:
o Shareholders lack the skill or knowledge to manage operations, so they delegate authority to
managers.
o Managers are expected to act in good faith and protect shareholder interests.
o Corporate governance ensures proper monitoring and disclosure to align goals.

2. Shareholder Theory:
 Core Idea: The corporation is the property of the shareholders, and managers are responsible for
maximizing shareholder wealth.
 Key Features:
o Directors must maximize returns for shareholders.
o Ensure legal and ethical conduct.

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 o Avoid conflicts of interest and protect shareholder trust.

3. Stakeholder Theory:
 Core Idea: A corporation is an input-output model, existing not only for shareholders but also for all
stakeholders, including creditors, employees, customers, suppliers, and society.
 Key Features:
o Includes employees, customers, suppliers, society, etc.
o Managers balance conflicting interests.
o Promotes long-term growth and collaboration.

4. Stewardship Theory:
 Core Idea: Managers and employees act as stewards, safeguarding the corporation's resources and
interests as if it were their own. They treat the corporation as their own, prioritizing the organization’s
welfare over personal gains.
 Key Features:
o Managers act in the organization's best interest, not for personal gain
o Promotes ethical behavior and social responsibility
o Focus on training, values, and moral support.

IFRS Sustainability Disclosure Standards: IFRS S1 and IFRS S2

The International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards aim to
standardize and enhance sustainability-related financial disclosures. Two key standards are IFRS S1 and
IFRS S2, effective from 1 January 2024, with early application permitted if both standards are adopted
together.
IFRS S1: General Requirements for Sustainability-Related Financial Disclosures
Objective:
To require entities to disclose sustainability-related risks and opportunities, helping users of financial
reports make informed decisions about providing resources to the entity.
Key Features:
1. Scope:
o Covers all sustainability-related risks and opportunities expected to impact cash flows, access to
finance, or cost of capital over the short, medium, or long term.
o Requires disclosures on governance, strategy, processes, and performance related to
sustainability.

2. Disclosure Requirements:
Entities must report on:
o Governance: The Governance processes, controls, and oversight mechanisms for sustainability-
related risks and opportunities.
o Strategy: How the entity plans to manage these sustainability-related risks and opportunities.
o Processes: Process for identifying, assessing, prioritizing, and monitoring sustainability risks and
opportunities.
o Performance: Entity’s performance in relation to sustainability-related risks and opportunities,
including progress toward targets set and compliance with legal or regulatory obligations.

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 IFRS S2: Climate-Related Disclosures
Objective:
To require entities to disclose climate-related risks and opportunities, ensuring transparency and decision-
useful information for stakeholders.
Key Features:
1. Scope:
o Focuses on climate-related risks (physical and transition risks) and climate-related
opportunities.
o Addresses short, medium, and long-term impacts on cash flows, access to finance, or cost of capital.

2. Disclosure Requirements:
Entities must report on:
o Governance: The Governance processes, controls, and oversight mechanisms for climate-related
risks and opportunities.
o Strategy: How the entity plans to manage these climate-related risks and opportunities.
o Processes: Methods for identifying, assessing, prioritizing, and integrating climate-related risks into
overall risk management.
o Performance: Entity’s performance in relation to climate-related risks and opportunities including
progress toward targets set and compliance with legal or regulatory obligations.

Corporate Sustainability Reporting Directive (CSRD)

The CSRD, launched on 5 January 2023, is a pivotal regulation in the European Union that strengthens and
modernizes corporate sustainability reporting. It replaces the Non-Financial Reporting Directive (NFRD)
and aims to provide clearer, more comprehensive, and comparable sustainability-related information to
stakeholders.
1. Reasons for Adoption
 Addressing Gaps: The existing NFRD framework was found insufficient for the growing demands of
consumers and investors.
 Transparency: The CSRD emphasizes providing detailed and actionable information about the
sustainability impacts of businesses.

2. Application Scope
 Expanded Coverage:
o Increases the number of companies under its ambit from 11,000 (NFRD) to nearly 50,000.
o Applies to:
 Large EU companies meeting two of three criteria:
1. €25 million in assets
2. €50 million net turnover
3. 250 or more employees
 Non-EU companies with EU turnover above €150 million.
o Listed SMEs: Subject to simplified standards, with an opt-out until 2028.

3. Reporting Requirements
 Facts to be Reported:

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 o Sustainability data must be disclosed in management reports alongside financial reports.
o Information should be submitted in a standardized digital format for comparability.
o Reports are subject to third-party assurance to ensure credibility.
 Double Materiality:
o Businesses must disclose both:
 Inward impacts: Risks posed by climate and societal changes to the business.
 Outward impacts: The business's effects on the climate and society.

4. Effective Dates
The CSRD is phased in over time:
 2024: Large public-interest companies under the NFRD (reports due in 2025).
 2025: Other large companies not under NFRD (reports due in 2026).
 2026: Listed SMEs (reports due in 2027).

European Sustainability Reporting Standards (ESRS)

The European Sustainability Reporting Standards (ESRS) were adopted by the European Commission
in July 2023 as part of the Corporate Sustainability Reporting Directive (CSRD). These standards
provide a comprehensive framework for companies to report on sustainability issues. The 12 ESRS cover a
wide range of environmental, social, and governance (ESG) topics to ensure companies disclose the
necessary information in a clear and standardized manner.
ESRS 1: How to prepare reports (General Requirements).
ESRS 2: Mandatory disclosures (General Information).

1. Teleological Theories
Core Idea: The morality of an action is determined by its consequences. Actions are considered ethical if
they produce the greatest possible good or the least harm.
Origin: The term "teleological" comes from the Greek word ‘telos’, meaning end or goal. The focus is on the
outcome of actions rather than the actions themselves.
2. Deontological Theories
Core Idea: The morality of an action is based on whether it adheres to rules, duties, or obligations,
regardless of the consequences.
Origin: The term “deontological” comes from the Greek word ‘deon’, meaning duty.

Concept of Management vs. Ownership

In a company, shareholders are considered the owners because they hold shares, but management is the
responsibility of the board of directors and the executives they appoint. While shareholders own the
company, they usually don’t take part in the day-to-day operations or make the everyday decisions of the
business. Instead, they elect a board of directors to oversee the company’s operations and corporate policy.
This separation between ownership and management is common, especially in larger companies. Even
though the shareholders own the company, it’s not practical for them to manage the company themselves,
given the complexity and scale of most corporations. Therefore, the management takes over the operational

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 responsibilities, and the owners (shareholders) only participate in important decisions like electing the
board and approving major changes (e.g., mergers or acquisitions).
In smaller companies, the owners may also be involved in management, but this is not a requirement, and
the owner-manager model is less common in large corporations.

Concept of Majority Rule vs. Minority Interest

In a company, decision-making power usually lies with the majority of shareholders. This means that
those who own the majority of the shares have the power to influence or decide on major corporate actions.
However, the minority shareholders (those who own fewer shares) also have certain rights, but they may
not be able to control the company’s decisions.
The Majority Rule principle is based on the idea that decisions should reflect the interests of the majority,
as it is impractical for every shareholder to vote on every small decision. The Minority Interest concept
ensures that the minority shareholders are protected against oppression by the majority, ensuring they are
not unfairly treated or disregarded.
The legal case Foss v. Harbottle (1843) established the rule that courts would typically not interfere with
decisions made by the majority, except in cases involving fraud, breach of fiduciary duty, or inadequate
notice to shareholders.
In practice, this means that:
 Majority Rule: The decisions approved by the majority of shareholders are generally upheld, even if the
minority disagrees.
 Minority Interest: Laws and regulations protect minority shareholders’ rights, ensuring they are treated
fairly and preventing the majority from making decisions that harm their interests or violate company rules.

Sarbanes-Oxley Act of 2002 (SOX) - Key Sections for Compliance

The Sarbanes-Oxley Act (SOX) of 2002 aims to improve corporate governance, enhance financial
disclosures, and protect investors by holding companies accountable for fraudulent financial practices. The
act was introduced in response to major corporate scandals, like those at Enron, WorldCom, and Tyco.
Impact of SOX:
 Corporate Accountability: SOX holds senior executives accountable for the accuracy of financial
statements.
 Internal Controls: It requires companies to implement and regularly assess robust internal controls.
 Whistleblower Protection: Employees can report fraudulent activities without fear of retaliation.
 Transparency: SOX promotes transparency by mandating real-time disclosures and protecting the integrity
of documents and financial statements.

🧭 UK Corporate Governance Code, 2018 - Key Principles

1. Board Leadership and Company Purpose
 A. Effective boards drive long-term value for shareholders and society.
 B. Boards must define and align purpose, values, strategy, and culture.
 C. Ensure resource allocation and performance monitoring, with strong internal controls.
 D. Engage stakeholders and encourage their participation.

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 E. Align workforce policies with values; provide safe channels for concerns.

2. Division of Responsibilities
 F. The Chair ensures board effectiveness, openness, and balanced discussions.
 G. A balanced mix of executive and independent non-executive directors is required.
 H. Non-executive directors must have time and independence to challenge and advise.
 I. The board, aided by the company secretary, must have the tools and support to function efficiently.

3. Composition, Succession, and Evaluation

 J. Appointment and succession planning must be transparent, merit-based, and diverse.
 K. Boards should have a mix of skills, experience, and regularly refreshed membership.
 L. Annual board evaluations should assess performance, diversity, and contribution.

4. Audit, Risk, and Internal Control

 M. Ensure independence and effectiveness of internal and external audits; maintain financial integrity.
 N. The board should present an accurate, balanced, and understandable assessment of the company’s
financial health and prospects.
 O. The board must have procedures to manage risks effectively. This includes overseeing the internal
control framework and defining risk tolerance for achieving strategic goals.

5. Remuneration
 P. Executive pay must align with strategy and long-term goals.
 Q. Pay-setting must follow a formal, transparent process; directors cannot decide their own pay.
 R. Remuneration decisions must reflect company and individual performance and broader context.

A) Organization for Economic Cooperation and Development (OECD)

The OECD principles are designed to assist both OECD and non-OECD governments in creating legal and
regulatory frameworks for corporate governance. The OECD is a platform to promote economic growth,
prosperity, and sustainable development.
📜 OECD Principles of Corporate Governance
1. Effective Governance Framework
 Must promote transparency, efficiency, and rule of law.
 Clearly define roles of regulators, supervisors, and enforcers.

2. Rights of Shareholders
 Protect and facilitate the exercise of shareholder rights:
o Register ownership securely
o Transfer shares
o Access timely and relevant information
o Vote in shareholder meetings
o Elect/remove board members
o Receive profits

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3. Equitable Treatment of Shareholders
 Ensure fairness for all, including minority and foreign shareholders.
 Key expectations:
o Equal treatment within the same class of shares.
o Prohibition of insider trading and self-dealing.
o Mandatory disclosure of conflicts of interest by board/executives.

4. Stakeholder Role
 Recognize and protect stakeholder rights (legal or contractual).
 Encourage cooperation between companies and stakeholders to promote:
o 💼 Job creation
o 💰 Wealth generation
o 🌱 Sustainability

5. Disclosure and Transparency

 Ensure timely and accurate disclosure of:
o Financial data
o Performance metrics
o Ownership structure
o Governance framework

6. Responsibilities of the Board

 Provide strategic direction.
 Monitor management effectively.
 Be accountable to the company and shareholders.

B) National Foundation for Corporate Governance (NFCG), India

📅 Established: 2003 by the Ministry of Corporate Affairs (MCA), Government of India.

🤝 Founding Partners:
 Confederation of Indian Industry (CII)
 Institute of Company Secretaries of India (ICSI)
 Institute of Chartered Accountants of India (ICAI)

📌 Later Additions as Trustees:

 2010: Institute of Cost Accountants of India & National Stock Exchange (NSE)
 2013: Indian Institute of Corporate Affairs (IICA)

🎯 Mission Objectives:
 Foster good governance, voluntary compliance, and stakeholder participation
 Support capacity building in emerging areas of corporate governance.

C) Institute of Directors (IOD), UK

📅 Founded: 1903
🏛 Type: Independent, non-party-political business organisation

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🎯 Objectives:
 🧠 Promote high skill, knowledge, competence, and integrity among directors and office holders
 📚 Encourage research and development in corporate governance law and practice
 🗣 Represent business interests to the government and public forums
 🛠 Advance members' interests and provide facilities, services, and benefits

🧑‍💼 Governance: Managed by the Executive Directorate, headed by a Director General.

D) Commonwealth Association of Corporate Governance (CACG)

📅 Established: April 1998
🌎 Scope: To promote excellent corporate governance practices across the Commonwealth countries.
🎯 Primary objectives of CACG:
1. Promote good standards of corporate governance across the Commonwealth.
2. Facilitate development of institutions that teach and spread these governance standards.

📖 CACG also works to develop institutional capacity to support corporate governance through education,
consultation, and information sharing in all Commonwealth countries.

The Commonwealth Foundation, which funds the CACG, is primarily supported by annual contributions
from member governments.

🏢 Governance of CACG:
 The policies are determined by a Board of Governors. This board mainly consists of representatives
from the UK-based governments and 5 civil society representatives.
 Membership is voluntary and open to all Commonwealth governments.

E) International Corporate Governance Network (ICGN)

The International Corporate Governance Network (ICGN) is a Non-Profit Company limited by
guarantee and not having share capital. Its mission is to promote high standards of corporate governance
and investor stewardship globally to help create efficient markets and sustainable economies.
Four Primary Purposes of ICGN:
1. To provide a network for investors to exchange views on corporate governance issues globally.
2. To examine and analyze corporate governance principles and practices.
3. To encourage adherence to corporate governance standards and guidelines.
4. To promote good corporate governance around the world.

Membership: ICGN membership is open to those committed to the development of good corporate
governance. The ICGN is governed by its Memorandum and Articles of Association and managed by a
Board of Governors. The Board appoints committees to recommend policies and implement approved
projects.
The Institute of Company Secretaries of India (ICSI) is a member of ICGN and acts as the country
correspondent from India.

F) The European Corporate Governance Institute (ECGI)

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 The European Corporate Governance Institute (ECGI) is an international, non-profit scientific
association with the primary goal of improving corporate governance by encouraging independent
research and activities related to it.
ECGI’s Role:
 Encourages interaction between different disciplines like law, economics, finance, and management.
 It provides a platform for debate and dialogue between academics, legislators, and practitioners,
focusing on major corporate governance issues.
 Undertakes, commissions, and disseminates objective research on corporate governance and advises
on policy formulation and development of best practices based on collective expertise.
Vision Statement: ECGI aims to gather knowledge from the top thinkers and policy makers in academia to
address business and governmental challenges and influence ideas, practices, and policies for the benefit
of global economies and societies.
Mission Statement: ECGI strives to bridge the gap between academia and practice by bringing cutting-
edge research to the attention of practitioners, policymakers, and thought leaders. Focuses on extending the
understanding of how corporate governance contributes to the success of businesses, economies, and
societies through innovation and knowledge-sharing.

G) Conference Board
 Type: Global, independent, non-profit business membership and research organization.
 It researches business issues and helps companies improve. Provides practical advice to companies so
they can perform better and also benefit society.

Activities:
 Conducting research, organizing conferences, making forecasts, assessing trends, and publishing analyses.
 Bringing executives together for networking and shared learning.

Governance Programs:
These programs help companies:
 Improve their internal governance systems (how companies are run).
 Build public trust and follow legal rules properly.

H) The Asian Corporate Governance Association (ACGA)

 Type: Independent, non-profit membership organization.
 Established: 1999.
 Focus: Promotes effective corporate governance in Asia for the long-term development of economies and
capital markets.
Scope of Work:
1. Research:
o Tracks corporate governance in 12 Asia-Pacific markets.
o Produces independent analyses of laws, regulations, corporate practices, and investor engagement.
2. Advocacy:

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 o Dialogues with regulators, stock exchanges, investors, and companies to address governance issues
and improve regulations.
3. Education:
o Organizes conferences and seminars to promote the benefits and implementation of sound corporate
governance practices.
Funding:
 Supported by sponsors and corporate members, including investment funds, listed companies,
accounting firms, and educational institutions.
Governance:
 Incorporated under Hong Kong laws.

I) Corporate Secretaries International Association (CSIA)

 Type: Geneva-registered international organization.
 Focus: Represents governance professionals globally to foster fair, profitable, and sustainable business
practices.

Twenty Practical Steps to Better Corporate Governance:

1. Ensure all directors have a thorough understanding of the company.
2. The board must take responsibility for formulating strategy and governing risks.
3. The board chairman should play a clear leadership role.
4. Non-executive directors need skills, experience, and courage.
5. Review relations between external auditors and the company.
6. Directors should access all necessary information.
7. Monitor board performance and identify opportunities for improvement.
8. Directors’ remuneration must be fair and justified.
9. Foster a culture of ethical behavior in the company.
10. Ensure that company secretary’s function is providing value.

J) International Integrated Reporting Council (IIRC)

Overview:
 Nature: International coalition of leaders from various sectors like corporate, investment, accounting,
regulatory, and civil society.
 Purpose: It was founded in 2010 to create a framework for integrated reporting that addresses
modern business needs.
Mission:
To establish integrated reporting and thinking as a standard practice in the public and private sectors.
Vision:
IIRC aims to help businesses and investors make decisions that support financial stability and sustainable
development. This is done through integrated reporting, which connects financial performance with
broader goals.
Key Objectives of Integrated Reporting Framework:
1. Shows how the business operates, its goals, and how it performs in its environment.
2. Combines different types of reports (financial, regulatory, etc.) into one simple framework.

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3. Ensures that businesses around the world follow similar standards, making their reports easier to
understand.
4. Looks at the business’s impact on various resources:
o Human (people),
o Natural (environment),
o Social (relationships),
o Financial,
o Intellectual (knowledge),
o Manufactured (infrastructure).
5. Shows how the company’s success is linked to the value it creates for investors, employees, customers, and
society.

Sustainable Banking and Finance Network (SBFN): Nature: Voluntary community of financial
regulators, central banks, ministries, and industry associations from emerging markets.
Goals:
 Enhance ESG risk management (including climate risk disclosures).
 Increase funding for climate-positive activities.
Role: Facilitates knowledge sharing, capacity building, and practical support for national initiatives.
Advisory Body: IFC (International Finance Corporation) acts as Secretariat and technical advisor.

Integrated Reporting (IR)

 Published: 2013 by the International Integrated Reporting Committee.
 Framework:
o Provides a tool for companies to report on their efforts to integrate ESG and non-financial
management into their core business.
o Combines ESG performance and financial performance into a single, streamlined report.

OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (2023 Edition)
 Nature: Recommendations from governments to multinational enterprises.
 Purpose:
o Encourage positive contributions to economic, environmental, and social progress.
o Minimize adverse impacts associated with enterprise operations, products, and services.
 Coverage:
o Key areas: Human rights, labor rights, environment, bribery, consumer interests, disclosure,
science & technology, competition, and taxation.
 Updates in 2023:
o Recommendations on climate change, biodiversity, technology, business integrity, and
supply chain due diligence.
o Revised implementation procedures for National Contact Points for Responsible Business
Conduct.

G20/OECD Principles of Corporate Governance (2023 Edition)

 Nature: International standard for corporate governance.
 Purpose:

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 o Help policymakers improve legal, regulatory, and institutional frameworks for corporate
governance.
o Support economic efficiency, sustainable growth, and financial stability.
 Updates in 2023:
o Reflect changes in capital markets and governance practices.
o New/updated recommendations on:
 Shareholder rights.
 Role of institutional investors.
 Corporate disclosure and reporting.
 Board responsibilities.
 Sustainability and resilience (e.g., managing climate and sustainability risks).
 History: First issued in 1999; revised in 2023 and endorsed by G20 Leaders.

Lesson: 3 (Board Effectiveness/ Building Better Boards)

Board Composition
(a) Companies Act, 2013
1. Minimum and Maximum Number of Directors (Section 149(1)):
o Minimum Directors:
 Public company: At least 3 directors.
 Private company: At least 2 directors.
 One Person Company (OPC): At least 1 director.

o Maximum Directors:
 15 directors.
 Appointment of more than 15 directors requires a special resolution.

2. Women Director Requirement (Rule 3, Companies (Appointment and Qualifications of Directors) Rules,
2014):
o Mandatory for:
 Every listed company.
 Public companies with:
 Paid-up share capital of ₹100 crores or more; or
 Turnover of ₹300 crores or more.

3. Resident Director Requirement (Section 149(3)):

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 o Every company must have at least 1 director who resides in India for 182 days or more during a
financial year.
o For newly incorporated companies, this applies proportionally at the end of the financial year of
incorporation.

4. Independent Directors for Listed Companies (Section 149(4)):

o At least one-third of the board must comprise independent directors.
o Fractions are rounded off to the next whole number.

(b) Regulation 17 of SEBI (LODR) Regulations, 2015

1. Board Composition Requirements (Regulation 17(1)(a)):

o Optimum mix of:
 Executive directors.
 Non-executive directors (at least 50% of the board).
o At least 1 woman director.
o Top 1000 listed entities must have an independent woman director.

2. Independent Directors Based on Chairperson’s Role (Regulation 17(1)(b)):

o Non-executive Chairperson:
 At least one-third of the board must comprise independent directors.
o No regular non-executive chairperson:
 At least half of the board must be independent directors.
o If the non-executive chairperson is a promoter or related to a promoter or key management:
 At least half of the board must be independent directors.

3. Minimum Directors in Top Listed Companies (Regulation 17(1)(c)):

o Top 2000 listed entities must have at least 6 directors.
o Classification of top entities is based on market capitalization at the end of the previous financial
year.

Suggested Board Size: NSE and Proxy Advisory Guidelines

(a) Additional Requirements for NSE Prime Companies
1. Minimum Board Size:
o The board must have at least 8 directors.

2. Chairperson’s Independence:
o The chairperson cannot be a relative of the Managing Director (MD) or Chief Executive Officer (CEO).

3. Independent Directors Based on Public Shareholding:

o Public Shareholding > 50%:
 More than half of the board must be independent directors (rounded up).
o Public Shareholding ≤ 50%:
 At least half of the board must be independent directors (rounded up).

4. Mandatory Women Directors (Effective July 1, 2025):

o At least 2 women directors, including:
 1 independent woman director.

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(b) Preferable Board Size as per Proxy Advisory Guidelines
1. IiAS (Institutional Investor Advisory Services):
o Recommended Board Size: 6–15 members.
o Optimal size ensures alignment with the Kotak Committee's recommendation of at least 6 directors.
o Key Concerns for Large Boards:
 Accommodation of family members.
 Challenges in reaching consensus on critical issues.

2. InGovern:
o Recommended Board Size: 7–15 members.
o Concerns for Board Size Outside the Range:
 <7 members: Low diversity in expertise, opinion, and representation of independent
directors.
 >15 members:
 Decision-making delays.
 Risk of promoter dominance or inclusion of related parties.

3. SES (Stakeholders Empowerment Services):

o Recommended Board Size: 6–15 members.
o Boards outside this range must provide a rationale for their size.

Board Independence: Regulatory Prescriptions

(a) Definition of Independent Director
As per Companies Act, 2013
An independent director is defined under Section 2(47) and Section 149(6). Key criteria include:
1. General Eligibility:
o A director who is neither a Managing Director (MD), Whole-Time Director (WTD), nor a Nominee
Director.
o Should possess integrity, relevant expertise, and experience.

2. Promoter and Relationship Restrictions:

o Not a promoter or related to promoters/directors of the company, holding, subsidiary, or associate
company.
3. Pecuniary Relationship Restrictions: (2) / CY
o No significant pecuniary relationship (other than remuneration as a director) exceeding 10% of
total income with the company, its holding, subsidiary, or associate company during the last two
financial years or the current year.
4. Relative Restrictions: (2) / CY
o Relatives must not:
 Hold securities exceeding a face value of ₹50 lakh or 2% of paid-up capital (or higher as
prescribed).

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  Be indebted to the company for an amount of ₹50 lakh at any time during the last two
financial years or the current year.
 Provide guarantees for indebtedness for an amount of ₹50 lakh at any time during the last
two financial years or the current year.
 Have pecuniary transactions exceeding 2% of the company's gross turnover or total
income.

5. Employment and Professional Relationships: (3)

o Neither the individual nor their relatives should:
 Have held positions of Key Managerial Personnel (KMP) or be employees of the company or
its affiliates in the last three financial years (with exceptions for relative employment).
 Be proprietors, partners, or employees of auditing or consulting firms associated with the
company, generating transactions exceeding 10% of the firm's gross turnover in the last
three financial years.

6. Voting Power Restrictions:

o Cannot hold (with relatives) 2% or more of the total voting power in the company.

7. Non-Profit Association Restrictions:

o Should not be associated as a CEO or director of an NGO receiving:
 25% or more of its receipts from the company/promoters/directors.
 Holding 2% or more of the company's voting power.

8. Other Qualifications:
o As prescribed under Rule 4 of the Companies (Appointment and Qualifications of Directors) Rules,
2014.
(a) Exceptions to Applicability of Rule 4(1)
Unlisted Public Companies Not Covered by Rule 4(1)
Rule 4(2) specifies that the following unlisted public companies are exempt from the independent director
requirements under Rule 4(1):
1. Joint Ventures.
2. Wholly Owned Subsidiaries.
3. Dormant Companies as defined under Section 455 of the Companies Act, 2013.

(b) SEBI (LODR) Regulations, 2015 – Regulation 16(1)(b)

Definition of an Independent Director for Listed Entities
An independent director is defined as a non-executive director, excluding nominee directors, who meets the
following criteria:
1. Integrity and Expertise:
o Possesses integrity and relevant expertise and experience as per the board's opinion.

2. Promoter and Relationship Restrictions:

o Is not, and has not been, a promoter or member of the promoter group of the listed entity or its
affiliates.

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 o Is not related to promoters or directors of the listed entity or its affiliates.

3. Pecuniary Relationship Restrictions:

o Has no material pecuniary relationship, apart from director's remuneration, with the listed entity
or its affiliates during the last three financial years or the current year.
4. Relative Restrictions:

None of the director's relatives should:

o Hold securities exceeding:
 Face value of ₹50 lakh.
 2% of paid-up capital, or a higher specified limit, of the entity or its affiliates.
o Be indebted beyond prescribed limits.
o Provide guarantees for indebtedness beyond prescribed limits.
o Have pecuniary transactions exceeding 2% of gross turnover or income of the listed entity or its
affiliates.

5. Employment and Professional Restrictions:

Neither the individual nor their relatives should:
o Be or have been KMPs or employees of the listed entity or its affiliates in the preceding three
financial years (exceptions for non-KMP relatives).
o Be a partner, proprietor, or employee of:
 Auditors, cost auditors, or company secretaries in practice.
 Legal or consulting firms transacting 10% or more of their turnover with the entity or its
affiliates.

6. Voting Power Restrictions:

o Neither the individual nor their relatives can hold 2% or more of voting power in the entity.

7. Non-Profit Associations:
o Cannot be a CEO/director of an NGO receiving:
 25% or more of receipts or corpus from the entity or its affiliates.
 2% or more of the entity's voting power.

8. Other Prohibitions:
o Cannot be a material supplier, customer, service provider, lessor, or lessee of the listed entity.

9. Age and Inter-Company Independence:

o Must be at least 21 years old.
o Cannot serve as a non-independent director of another company where a non-independent director
of the listed entity serves as an independent director.

(b) Minimum Independent Director Requirements

Rule 4(1): Applicability for Public Companies
Certain public companies must appoint at least 2 independent directors:
1. Paid-up share capital of ₹10 crore or more.

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2. Turnover of ₹100 crore or more.
3. Outstanding loans, debentures, and deposits exceeding ₹50 crore.

Additional Provisions:
 If a company requires a greater number of independent directors (e.g., for the audit committee), the higher
requirement applies.
 Intermittent Vacancies:
o Must be filled by the next board meeting or within three months, whichever is later.
 Non-Applicability:
o If a company ceases to meet the eligibility criteria for three consecutive years, the requirement does
not apply.
Clarifications:
 The paid-up share capital, turnover, and outstanding loans are assessed based on the latest audited
financial statements.

Parameters to Determine Directors' Independence by Proxy Advisors

(a) IiAS (Institutional Investor Advisory Services)
IiAS considers the following directors not independent:
1. Board Interlock:
o Directors with cross-linkages across multiple boards (i.e., serving on boards where other directors
also serve).
2. Non-Compliance with Legal Criteria:
o Directors who do not meet the eligibility standards under:
 Section 149(6) of the Companies Act, 2013.
 Regulation 16(1)(b) of SEBI (LODR) Regulations, 2015.
3. Large Shareholder Representation:
o Representatives of large shareholders (holding >2% stake) or lenders are considered non-
independent, even if not formally nominated.
Exceptions:
o Former employees of large shareholders may be treated as independent if they no longer hold
employment or if the shareholder has exited the company.
o Directors who were previously nominees but continue after the shareholder exits may also qualify as
independent.
o Retired IAS officers/civil servants are considered independent when serving on public sector
enterprise boards.

(b) InGovern
1. Professional Relationships:
o Independent directors (IDs) should have no professional relationships with the company.
o Remuneration must be limited to sitting fees or commissions for non-executive directors (NEDs).
2. Governance Failures:
o For companies with significant governance failures, InGovern does not recommend the
reappointment of the same independent directors.

(c) SES (Stakeholders Empowerment Services)

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1. Pecuniary Relationship:
o IDs must have no pecuniary relationships with the company, apart from remuneration as directors.
2. Tenure:
o IDs who have been associated with the company or its group for more than 10 years are considered
non-independent, regardless of their appointment timing in relation to the Companies Act, 2013.

🌐 IFC Indicative Definition of Independent Director

An Independent Director is someone who: Has no material relationship with the company (direct or indirect)
other than board membership, and meets all the following criteria:
🧾 Employment & Service History
🔹Not employed by the company or its related parties in the past 5 years
🔹 No personal service contracts with the company, its related parties, or senior management

🧮 Audit Firm Independence

🧾 Not affiliated with or employed by a current or former auditor of the company or any of its related parties in
the past 5 years

🧠 Advisory & Consulting Independence

🔸 Not affiliated with an advisor or consultant to the company or related parties
🔸 Not affiliated with a significant customer or supplier

❤️Non-Profit Affiliation
💠 Not affiliated with a non-profit organization that receives significant funding from the company or its
related parties

👥 Board Cross-Links & Employment Conflicts

🧩 Not an executive in another company where company executives serve as board members
👪 Not an immediate family member of any person employed as an executive in the company/related parties in
the last 5 years

🔒 Control & Related Person Restrictions

🚫 Not a controlling person, or related to a controlling person (including extended family & heirs)
This includes:
 Siblings, parents, children, cousins, aunts, uncles, nieces, nephews, in-laws, spouses, successors
 Any trusts or arrangements where these individuals are sole beneficiaries
 Executors or legal representatives of such persons.

Tenure as per Companies Act, 2013

 Section 149(10):
o Independent directors (IDs) can hold office for a maximum term of 5 Consecutive Years.
o Reappointment requires:
 Passing a special resolution in the general meeting.
 Disclosure of the reappointment in the Board’s Report.

 Section 149(11):
o An ID can serve a maximum of 2 consecutive terms (total of 10 years).
o Reappointment as an independent director is allowed only after a cooling-off period of 3 years.

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Conditions during the cooling-off period:
o The individual cannot be associated with the company in any capacity (directly or indirectly).

🧩 Proxy Advisory Firms’ Guidelines on Tenure & Attendance

🟣 IiAS (Institutional Investor Advisory Services)

🔹 Treats directors with >10 years tenure on the board as non-independent, based on:
 📅 Date of first appointment (not from April 1, 2014 like the Act).
 ⌛ “Visa Rule”: If a director hits 10 years within 6 months of reappointment, IiAS does not consider them
independent.
🔹 Applies same rules to parent/holding/subsidiary boards.
🔹 Does not accept 3-year cooling-off if:
 Former executives still serve with their former supervisors.
 The director has longstanding group affiliations.
🔹 Attendance:
🟢 Requires ≥75% attendance (3-year aggregate) at Board & Committee meetings.
❗ Exceptions for critical executive or promoter presence.

🟤 InGovern
🔸 Limits ID service to 2 consecutive terms of 5 years (10 years max).
🔸 Rejects:
 IDs reappointed after cooling-off, regardless of 3 years’ gap.
 Former NEDs becoming IDs post 3-year cooling-off.
🔸 Attendance:
🟢 Also sets 75% minimum for reappointment support.

🔵 SES (Stakeholders Empowerment Services)

🔹Treats April 1, 2014 as the start point for all IDs’ terms.
🔹 IDs appointed before April 1, 2014:
 Term must end by March 31, 2019.
 If term extended beyond, raises compliance concerns.
🔹 Reappointment concerns if:
 Any ID continues past March 31, 2024, after completing 10 years since pre-2014 appointment.
🔹 Attendance Benchmarks:
 ✔️IDs & EDs: Minimum 75%.
 ✔️NEDs (Non-Executive Non-Independent): Minimum 50%.
🔹 Emphasizes:
 Presence of IDs ensures quorum + integrity of Board decisions.
 EDs act as a key link between management and the Board.

Appointment, Reappointment, and Removal of Independent Directors

1. Manner of Selection (Section 150):
o IDs are selected from a data bank maintained by a notified body or institute.
o Due diligence in selection is the company's responsibility.

2. Approval and Justification:

o Appointment approved by shareholders in a general meeting.
o Explanatory Statement in the meeting notice must justify the selection.

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3. Appointment Process (Schedule IV):
o Independent of company management.
o Board ensures appropriate balance of skills, experience, and knowledge.
o Approved by shareholders and formalized through a letter of appointment detailing:
 Term, Board expectations, duties, liabilities, remuneration, and ethical obligations.

4. Reappointment:
o Based on performance evaluation reports.

5. Resignation or Removal:
o Handled as per Sections 168 and 169 of the Act.
o Replacement must occur within three months, unless the Board already satisfies ID requirements.

6. Retirement by Rotation:
o Not applicable to independent directors (Section 149(13)).

Appointment, Removal, and Liabilities of Independent Directors (SEBI (LODR) Regulations, 2015)
Appointment and Reappointment
1. Shareholder Approval:
o Appointments, reappointments, and removals require approval by special resolution.
o Deemed Approval: If a special resolution fails to meet the requisite majority but:
 Votes in favor exceed votes against, and
 Votes by public shareholders in favor exceed those against, then the appointment is deemed
approved.

2. Evaluation by Nomination and Remuneration Committee:

o Evaluate skills, knowledge, and experience on the Board.
o Prepare a description of required roles and capabilities.
o Consider candidates based on:
 Diversity and time commitments.
 Input from external agencies, if necessary.

3. Alternate Directors:
o Appointment or continuation as alternate directors for independent directors is prohibited.

Removal of Independent Directors

1. Procedure:
o Removal also requires special resolution.
o Votes favoring removal must exceed those against, including those by public shareholders.
2. Vacancy:
o Must be filled within three months unless the Board complies with the minimum requirement for
IDs without a replacement.

Restrictions on Resigned Independent Directors

1. Post-Resignation Appointment:
o An ID who resigns cannot be appointed as a whole-time/executive director in the same entity, its
holding, subsidiary, associate, or promoter group company for one year after resignation.

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Functions, Duties, and Liabilities of Independent Directors
1. Under Companies Act, 2013 (Section 149(12)):
o Liable for acts of omission or commission by the company if:
 Occurred with their knowledge through Board processes, and
 With their consent or connivance, or
 Due to lack of due diligence.

2. Under SEBI (LODR) Regulations, 2015:

o Similar liability conditions as per Companies Act.
o Specifically linked to lack of diligence in compliance with SEBI regulations.

3. Judicial Precedents:
o Cheque Bounce Cases: IDs are not vicariously liable if:
 They are not signatories to the cheque.
 No specific role is attributed to them in the company’s day-to-day affairs.

Lead Independent Director (LID):

The role of the Lead Independent Director (LID) is essential in promoting effective governance and ensuring
the independence and functionality of the board.
Appointment of Lead Independent Director
 Considered a good governance practice internationally.
 Acts as an intermediary between the Chair, board members, and stakeholders.
 Monitors the relationship between the Chair and the CEO, ensuring independence and avoiding excessive
influence.

Role and Responsibilities of LID

1. Governance Activities
o Participates in the selection of board candidates alongside the Nominating Committee.
o Recommends hiring external advisors or consultants for board support.

2. Leadership Duties
o Acts as the Chair of the Board in the Chair’s absence.
o Leads performance appraisals of the Chair and ensures independent assessment of board
members.

3. Board Meetings and Agenda

o Develops and presides over executive sessions of independent directors.
o Advises on and approves board meeting schedules and agendas in consultation with the Chair.
o Ensures that directors receive timely and relevant information from management.

4. Advisory Role
o Advises the Chair on governance practices, quality of submissions, and management performance.
o Assists in ensuring compliance with governance guidelines.

5. Liaison Role
o Serves as the principal point of communication between independent directors and the Chair.
o Acts as a channel for consultation with shareholders and other stakeholders.

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 Compliance
Requirements for Independent Directors (Rule 6 of Companies Act, 2013)
1. Registration in Data Bank
 New Directors (Rule 6(1)(b)): Must register before their appointment as independent directors.
Key Provisions for Registration
 Registration can be for 1 year, 5 years, or lifetime.
 Individuals without a Director Identification Number (DIN) can voluntarily register.

2. Renewal of Registration
 Required within 30 days of expiry, unless lifetime fees have been paid.
 Failure to renew results in removal from the data bank.

3. Proficiency Self-Assessment Test

 Mandatory:
o Must pass within 2 years of registration, scoring at least 50%.
o Unlimited attempts are allowed.
 Institutes Conducting Test: Indian Institute of Corporate Affairs (IICA), Manesar.

4. Declaration to Board
 Compliance with data bank registration and proficiency requirements must be declared annually under
Section 149(7).

5. Restoration of Name in Data Bank

 Individuals removed for non-compliance can apply for restoration by:
o Paying a fee of ₹1,000.
o Passing the proficiency test within 1 year of restoration.
 Failure to pass within this period leads to permanent removal, requiring fresh registration.

Exemptions from Proficiency Test

Experience-Based
 3+ years as Director/KMP in:
o Listed public companies.
o Unlisted public companies with paid-up capital of ₹10 Crore or more.
o Statutory corporations set up under an Act of Parliament or any State Legislature carrying on
commercial activities.
o Bodies corporate incorporated outside India having a paid-up share capital US$ 2 million or more.
o Body corporate listed on any recognized stock exchange in a FATF member country. The country’s
securities market regulator must be a member of IOSCO.

Government Officials
 If serving as a Director or equivalent rank in Ministries or Departments of the Central or State
Government, or regulatory bodies like SEBI, RBI, IRDAI, handling finance, corporate laws, or economic laws.

Professional Exemptions
 Practicing advocates, chartered accountants, cost accountants, or company secretaries with 10+ years
of experience.

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 Declaration of Independence – Regulation 25(8)
 When to Submit:
1. At the first board meeting attended as an independent director.
2. At the first board meeting of each financial year.
3. Whenever there is a change in circumstances affecting the director's independence.

 Contents of Declaration:
o Confirms compliance with the independence criteria as per Regulation 16(1)(b).
o Declares no knowledge of any circumstances that may impair objective and independent judgment.

Verification by Board – Regulation 25(9)

 The Board must:
1. Record the declaration provided by the independent director.
2. Undertake a due assessment to ensure its authenticity.

Directors and Officers (D&O) Insurance – Regulation 25(10) & 25(12)

 For Top 1000 Listed Entities:
o Must provide D&O insurance for independent directors covering quantum and risks as determined
by the board.
 For High-Value Debt Listed Entities:
o Similar D&O insurance coverage is required for independent directors.

Schedule IV of the Companies Act, 2013 – Code for Independent Directors

I. Guidelines of Professional Conduct
Independent directors must adhere to the following principles:
1. Integrity: Maintain ethical standards and honesty.
2. Independence: Avoid actions that compromise independence.
3. Objectivity: Contribute constructively and make unbiased decisions.
4. Transparency: Inform the Board promptly if independence is impacted.
5. Responsibility: Act in the company’s best interest with genuine intent.
6. Commitment: Dedicate adequate time for informed decision-making.
7. Impartiality: Avoid external influences or conflicts in judgment.

II. Role and Functions

Independent directors play a critical role in:
1. Strategic Decisions: Provide independent judgment on key issues like strategy, risks, and performance.
2. Appointments and Removals: Assist in appointing or recommending removal of executives.
3. Remuneration Advice: Recommend executive and management pay.
4. Performance Review: Objectively evaluate management and Board performance.
5. Accountability: Ensure financial controls and risk management systems are effective.
6. Stakeholder Protection: Safeguard the interests of all stakeholders, especially minority shareholders.
7. Conflict Resolution: Balance competing stakeholder interests and arbitrate disputes.

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 III. Duties of Independent Directors
1. Active Participation: Attend Board, committee, and general meetings.
2. Continuous Learning: Attend induction programs and update knowledge about the company and its
environment.
3. Stay Informed: Keep up-to-date on company operations and external factors affecting it.
4. Oversee Related Party Transactions: Ensure these are fair and in the company’s interest.
5. Ensure Vigil Mechanism: Verify the existence and functionality of mechanisms to report unethical
behavior or fraud, protecting whistleblowers.
6. Seek Expert Advice: Clarify and consult experts when needed at the company’s expense.
7. Report Violations: Highlight concerns about unethical practices, fraud, or breaches of the company’s
policies.
8. Protect Legitimate Interests: Safeguard the interests of shareholders, employees, and the company
within their authority.
9. Confidentiality: Refrain from disclosing sensitive or proprietary information unless required by law or
approved by the Board.

Board Evaluation
Review of Performance of Non-Independent Directors
As per Regulation 25(4) of the SEBI (LODR) Regulations, 2015, the independent directors, during the
meeting referred to in Regulation 25(3), must:
1. Evaluate Non-Independent Directors and the Board:
o Assess the performance of non-independent directors.
o Review the functioning and effectiveness of the Board of Directors as a whole.
2. Evaluate the Chairperson:
o Review the chairperson’s performance, incorporating inputs from executive and non-executive
directors.
3. Assess Information Flow:
o Examine the quality, quantity, and timeliness of information shared between the management
and the Board to ensure the Board can perform its duties effectively.

Evaluation Mechanism for Independent Directors

1. Board Evaluation:
o The performance of independent directors is evaluated by the entire Board, excluding the
independent director being evaluated.
2. Reappointment Decision:
o Based on the performance evaluation, the Board decides whether to extend or continue the term of
the independent director.

Exceptions for Government Companies

The provisions for Board evaluation do not apply to government companies if specific requirements are
issued by the relevant ministries or departments and those requirements are met.

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OECD's Four Dimensions of Board Evaluation

Board Evaluation under the Companies Act, 2013

1. Role of the Nomination and Remuneration Committee (NRC)
 Objective: The NRC plays a crucial role in evaluating the performance of the Board, its committees, and
individual directors.
 Provisions (Section 178(2)):
o Identify qualified candidates for directorships and senior management roles.
o Recommend appointments and removals to the Board.
o Define criteria and methods for Board and director evaluations.
o Specify if evaluations will be conducted by the Board, NRC, or an independent external
agency.
o Monitor implementation and compliance with the evaluation mechanism.

2. Role of Independent Directors in Performance Evaluation

As per Schedule IV:
 Objective Viewpoint: Independent directors provide impartial perspectives on the performance of the
Board and management.
 Dedicated Meeting (Schedule IV, Part VII):
Independent directors must meet at least once a financial year without the presence of non
independent directors or management. During this meeting, they:
o Review the performance of non-independent directors and the Board as a whole.
o Evaluate the Chairperson, incorporating input from executive and non-executive directors.
o Assess information flow from management to the Board to ensure it is adequate for effective
decision-making.

3. Performance Evaluation of Independent Directors

Provisions under Schedule IV:
 Reappointment (Part V):
The decision to reappoint independent directors depends on their performance evaluation reports.

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 Evaluation Mechanism (Part VIII):
o The entire Board, excluding the independent director under evaluation, conducts the
performance assessment.
o Based on the evaluation, the Board decides whether to continue or extend the independent
director’s term.

4. Inclusion of Performance Evaluation in Board’s Report

Rule 8(4) of the Companies (Accounts) Rules, 2014:
 Applicability:
o Listed Companies.
o Public Companies with a paid-up share capital of ₹25 crore or more at the end of the
previous financial year.
 Requirement:
The Board’s Report must include a statement outlining the manner of formal annual evaluations
conducted for:
o The performance of individual directors.
o The Board's overall performance.
o The performance of its committees.

3. Role of Nomination and Remuneration Committee (Regulation 19(4) & Part D of Schedule II)
The Nomination and Remuneration Committee (NRC) has the following responsibilities:
1. Formulating criteria:
o For qualifications, positive attributes, and independence of directors.
o For evaluating performance of independent directors and the Board.
2. Appointment of Independent Directors:
o Evaluate the balance of skills, knowledge, and experience on the Board.
o Develop a role description based on the Board’s needs.
o Use external agencies, if required, to identify suitable candidates, considering diversity and time
commitments.
3. Policy Development:
o Formulate a policy on Board diversity.
o Develop policies for remuneration of directors, key managerial personnel, and employees.
4. Decision on Term Extension:
o Decide whether to extend or continue the appointment of independent directors based on their
performance evaluation reports.
5. Remuneration Recommendations:
o Recommend all forms of remuneration for senior management to the Board.
4. Disclosure in the Annual Report
 Performance Evaluation Criteria:
The criteria for evaluating independent directors must be disclosed in the Nomination and
Remuneration Committee section of the Corporate Governance Report in the annual report.

Evaluation of the Chairperson of the Board

1. Board Relationships and Leadership:
o Effectively managing relationships with Board members and management.
o Demonstrating strong leadership qualities.

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 oUpholding high standards of integrity, honesty, and knowledge.
2. Board Dynamics and Communication:
o Fostering open communication within the Board.
o Ensuring ease for directors to raise concerns or issues.
o Promoting constructive debate and enabling effective decision-making.
3. Stakeholder Engagement:
o Building trust and ensuring effective communication with shareholders and other stakeholders.
o Strengthening shareholder confidence in the Board.

Duties of Directors (Section 166)

1. Act in accordance with the Articles: A director must act in alignment with the company’s articles of association.
2. Act in good faith: Directors must always act in good faith to promote the company's objectives for the benefit of
its members, employees, shareholders, community, and environment.
3. Exercise due care, skill, and diligence: Directors are required to perform their duties with reasonable care,
skill, and diligence, using independent judgment in decision-making.
4. Avoid conflicts of interest: Directors must refrain from engaging in situations where there may be a conflict of
interest, either directly or indirectly, with the interests of the company.
5. No undue gain or advantage: Directors must not seek to gain any undue benefit or advantage for themselves,
their relatives, or associates. If found guilty, they must pay an amount equal to the gain to the company.
6. Non-transferable office: A director cannot assign their office to another individual. Any such assignment will be
deemed void.
7. Penalties for contravention: If a director violates these provisions, they can be fined between ₹1 lakh and ₹5
lakh.

Director Responsibilities
1. Intimation of Director Identification Number (DIN): Under Section 156, directors must intimate their DIN to
the company within one month of receiving it from the Central Government.
2. Number of Directorships (Section 165): A person cannot hold directorships in more than 20 companies, with
a maximum of 10 public companies.
o Directorships in private companies that are subsidiaries or holding companies of public companies are
included in the count for public companies.
3. Reduction in Number of Directorships (Section 165(2)): Shareholders can, through a special resolution,
specify a lower number of directorships a director may hold in the company.
4. Surrender of Excess Directorships (Section 165(3)): Directors holding directorships beyond the prescribed
limit must:
 Choose a number of companies within the limit.
 Resign from other companies.
 Inform each company and the Registrar about their decision within one year.

Penalty for Exceeding Directorship Limits (Section 165(6))

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A penalty of ₹2,000 per day will be imposed for each day a person continues to act as a director in violation of
these limits, up to a maximum of ₹2 lakh.

3. Disclosure of Interest by Directors – Section 184

Initial Disclosure (Section 184(1))
 At the first Board meeting in which a director participates, they must disclose their concern or interest in
any company, firms, or other associations, including shareholding, in the prescribed manner.
 This disclosure must also be made annually at the first Board meeting of every financial year or when there
is a change in the disclosed information.
Disclosure of Interest in Contracts (Section 184(2))
 Directors must disclose their interest when they are involved, directly or indirectly, in a contract or
arrangement with:
o A body corporate where they hold more than 2% of the shareholding or are a promoter, manager,
or CEO.
o A firm or other entity in which they are a partner, owner, or member.

 They must not participate in the meeting where such contracts or arrangements are discussed.
Non-Disclosure Consequences (Section 184(3))
 Any contract entered into without disclosure of interest or with the participation of a director with
undisclosed interest is voidable at the company's option.
Penalty for Non-Disclosure (Section 184(4))
 A director failing to disclose as required under Section 184(1) or Section 184(2) shall be liable for a penalty
of ₹1 lakh.

4. Interest of Director in Any Contract – Section 185(5)

Exceptions:
 The section does not affect any legal restrictions preventing a director from having an interest in a contract or
arrangement with the company.
 It also does not apply to contracts between two companies where the director of one company holds 2% or
less of the share capital in the other company.

1. Grounds for Vacation of Office – Section 167(1)

A director’s office will become vacant under the following conditions:
1. Disqualifications under Section 164: If the director incurs any disqualification listed in Section 164. If the
disqualification is under Section 164(2), the office becomes vacant in all companies except the one in
default.
2. Contravention of Section 184: If the director acts in violation of the provisions under Section 184, which
concerns entering into contracts or arrangements where the director has a direct or indirect interest.

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3. Failure to Disclose Interest: If the director fails to disclose his interest in any contract or arrangement as
required under Section 184.
4. Absence from Board Meetings: If a director is absent from all Board meetings for 12 months (whether or
not leave is sought).
5. Removal under the Act: If the director is removed as per the provisions of the Companies Act.
6. Court or Tribunal Order: If the director is disqualified by a court order or an order of the Tribunal.
7. Conviction: If the director is convicted of any offense, whether involving moral turpitude or not, and
sentenced to imprisonment for at least six months.
o The office will not be vacated immediately if an appeal or petition is filed within 30 days. In such
cases, the office remains vacant only after:
 The expiry of 7 days from the disposal of the appeal.
 Any further appeals must be resolved before the office is vacated.

[Link] the Office Knowing It’s Vacant – Section 167(2)

 Penalty: If a person continues to function as a director even though they know that their office is vacant due
to any of the disqualifications under Section 167(1), they will be liable to a fine:
o Minimum of ₹1 lakh.
o Maximum of ₹5 lakh.

3. Filling Vacant Director Positions – Section 167(3)

 Appointment by Promoter or Central Government: If all directors of a company vacate their offices due to
disqualifications, the promoter (or if absent, the Central Government) must appoint the required number
of directors. These appointees will hold office until the company appoints new directors in a general
meeting.

4. Additional Grounds for Vacation in Private Companies – Section 167(4)

 Private Company’s Articles: A private company can, in its Articles of Association, specify additional
grounds for the vacation of a director’s office beyond those listed in Section 167(1).

Resignation of Director (Section 168)

1. Resigning: A director can resign by sending a written notice to the company. The company must
acknowledge the resignation and inform the Registrar (the government body handling company records).
2. Effective Date: The resignation becomes effective on the date the company receives the notice or the date the
director mentions in the notice (whichever is Later). Even after resignation, the director is still responsible
for any offenses that happened during their time as a director.
3. If All Directors Resign: If all directors resign, the promoter or the Central Government can appoint new
directors until the company appoints new ones at a general meeting.
Removal of Director (Section 169)
1. How to Remove a Director: A company can remove a director by passing an ordinary resolution (a simple
majority vote) after giving the director a chance to explain themselves. However, for an independent director
reappointed for a second term, removal requires a special resolution (a higher vote) and giving them a
chance to be heard.

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2. Special Notice for Removal: If the company wants to remove a director, they need to give special notice.
This includes sending a copy of the notice to the director who is being removed.
3. Director's Right to Represent: If a director is facing removal, they can write a statement to the company
explaining their side. If the company has enough time, they must send this statement to all members. If they
don’t send it in time, the director has the right to have their statement read out at the meeting. However, if the
Tribunal (court) believes the statement is meant to gain attention with defamatory content, they may
restrict it.
Appointment of Another Director (Section 169)
1. Filling a Vacancy Due to Removal (Section 169(5)):
If a director is removed from office, the company can appoint another director in their place at the same
meeting, provided special notice of the intended appointment was given in advance.
2. Tenure of the New Director (Section 169(6)):
The new director who replaces the removed director will hold office until the date the removed director
would have served if they hadn’t been removed.
3. Casual Vacancy (Section 169(7)):
If the vacancy caused by the removal isn’t filled during the meeting, it can be filled as a casual vacancy
according to the provisions of the Act. However, the removed director cannot be re-appointed by the
Board.
4. Compensation to Removed Director (Section 169(8)):
A director removed from office is still entitled to compensation or damages under their contract, even if
they are removed under this section. This does not affect the power to remove a director under other sections
of the Act.

Separation of roles between the Chairman and the Chief Executive Officer (CEO)
The separation of roles between the Chairman and the Chief Executive Officer (CEO) in a company is an
important governance practice.
🧑‍⚖️Chairman – The Board Leader (Not a Legal Post)
📌 Not legally defined under Companies Act, 2013
- Chairman is elected by board for meetings
- No need to be the same person every time
- Legally, all directors are equal, chairman has no extra powers

📌 Role: Ensures board functions effectively

 Promotes ethical leadership & culture
 Sets board agenda (focus on strategy, value, accountability)
 Ensures timely and clear info reaches directors
 Encourages shareholder communication
 Helps with succession planning & board composition

👨‍💼 CEO – The Company Operator (Legal Post)

📌 Defined in Section 2(18) of Companies Act, 2013
→ “CEO” is an officer designated by the company

📌 Role: Manages the whole company

 Implements strategy

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  Makes major business decisions
 Manages operations & resources
 Acts as a link between board and corporate operations
 Accountable to the board
 Must think strategically & long-term

Separation of Chairman and CEO Roles:

The separation of these two roles is seen as a best practice for improving the effectiveness of corporate
governance. Here’s why:
1. Enhanced Director Communication: Board can openly express views through an independent Chairman
2. Balanced Power: Prevents too much control by one individual
3. Focus on Shareholder Interests: The Chairman can prioritize shareholder interests, while the CEO focuses
on running the company.
4. Strategic Focus: The Chairman can focus on the long-term strategy of the company, while the CEO is more
concerned with achieving short-term business objectives.
5. Improved Governance: With separate roles, the board can more effectively monitor the company’s
performance and ensure it meets regulatory requirements.
6. Succession Planning: A separate Chairman allows for more effective succession planning, ensuring the
right leadership is in place for the future.

Provisions under Companies Act, 2013 Regarding Chairman and CEO

The Companies Act, 2013 addresses the separation of the roles of Chairman and Chief Executive Officer (CEO)
through the first proviso to Section 203(1).
1. Separation of Roles:
o An individual cannot be appointed or reappointed as both the Chairperson and the Managing Director
or CEO of the same company unless:
 The company's articles of association allow it.
 The company does not carry multiple businesses.

o Exception: This proviso does not apply to public companies with:

 Paid-up share capital of ₹100 crore or more.
 Annual turnover of ₹1000 crore or more.
 These companies can have multiple CEOs for different businesses, even if they have a combined
Chairperson and CEO.

2. Paid-up Share Capital and Annual Turnover:

o The conditions for the exemption mentioned above are based on the latest audited balance

Chairperson Emeritus
 A growing trend in Indian companies is the appointment of a Chairperson Emeritus. This title is often given
to:
o Founders or individuals who have made significant contributions to the company's growth over
time.
o Not legally recognized in the Companies Act.

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 o The Chairperson Emeritus is generally a permanent invitee to board meetings but does not have
voting rights.

Chairman Emeritus According to Proxy Advisors Guidelines (IiAS)

 Role of Chairperson Emeritus:
o Expected to play a mentorship role within the company.
o Not encouraged to be part of the board or any of its committees to avoid creating two power
centers or ambiguity regarding the chain of command.
o IiAS has included discussions on their appointment and compensation, considering the potential
rise in such appointments with the separation of Chairman and CEO roles.

🎓 Directors’ Training, Development & Familiarisation

📌 Purpose:
To ensure that all directors (including Functional, Government, Nominee, and Independent Directors) are well-
informed about:
 The business model and risk profile of the company
 Their roles, responsibilities, and duties
 Applicable Corporate Governance principles
 The model code of business ethics and conduct

Regulatory Provision – SEBI (LODR), 2015

“The board of directors shall encourage continuing directors’ training to ensure that the members of board are
kept up to date.”

Role and Functions of a Company Secretary

As per Section 2(24) of the Companies Act, 2013:
A Company Secretary is one who is defined under the Company Secretaries Act, 1980 and is appointed by a
company to perform functions under the Companies Act.
Also classified as an “officer” under Section 2(60), and can be held liable for defaults under the Act.
📜 Statutory & Regulatory Framework
📍 Section 203(1) – Mandatory appointment of a whole-time company secretary for:
 All listed companies
 All public companies with paid-up share capital ≥ ₹10 crore
📍 Rule 8 – Also applies to private companies with paid-up capital of ₹10 crore or more.
📍 Section 204 – Recognizes Company Secretaries as Secretarial Auditors
📍 Regulation 6(1) of SEBI (LODR), 2015 – Every listed entity must appoint a qualified Company Secretary as
Compliance Officer.

🔑 Key Roles of a Company Secretary

1. Link Between Company and Stakeholders: The Company Secretary serves as a vital link between the
company’s Board of Directors, shareholders, and regulatory authorities.

2. Board
 The Company Secretary provides guidance to the Board on their duties, responsibilities, and powers
under various laws, rules, and regulations.

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  Plays a key role in ensuring that the Board procedures are followed and regularly reviewed.
 Guides the Board on roles, duties, and governance standards.
 Ensures Board gets quality information and helps with director induction and development.

3. Compliance Office: Acts as a compliance officer and in-house legal counsel, advising the Board and
management on corporate, business, economic, and tax laws.

4. Conscience Keeper: The Company Secretary is an important member of the corporate management team
and serves as the conscience keeper of the company, ensuring adherence to ethical standards and corporate
governance.

🤝 Enhancing Board Effectiveness

 Reports directly to the Chairman on governance matters
 Ensures effective Board and Committee meetings
 Helps implement Board evaluation, training, and skill development
 Builds mutual trust with Chairman, Independent Directors, and Executives
 Periodically reviews governance processes with the Chairman.

Succession Planning
Succession planning is a strategy to identify, assess, and develop future leaders, especially for top roles like
CEOs and board members. It ensures smooth leadership transitions when directors or key personnel resign,
retire, or die.

Why is it Important in India?

 Around 2/3rd of S&P BSE 500 companies are family-owned.
 Many still haven’t separated ownership from management.
 Leadership roles often stay within the family, making succession sensitive and critical.

📌 Key Elements of Board Succession Planning

 Managed by the Nomination and Remuneration Committee (NRC)
 Ongoing and dynamic process
 Ensures continuity and balance (experience + fresh perspectives).

📌 Role of Nomination and Remuneration Committee (NRC)

 Sets transparent appointment criteria
 Reviews skills required on the board
 Identifies gaps
 Periodically assesses the outcome and updates the process.

📌 Internal vs External Succession

 CEOs/Executive directors can be hired externally, but:
 Companies should also build internal talent via:
o Mentoring & leadership exposure
o Engagement with board members
o Middle management programs

📌 Leading Practices for Board Succession Planning

1. Use a Skills Matrix

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  Match current and future board needs with the skills, experience, and knowledge required (based on
strategy, industry trends, and challenges).

2. Set Clear Director Qualification Standards
 Clearly define what qualifications, traits, and values directors must have.
 Include these in the company’s governance policies or bylaws.

3. Evaluate Board Performance Annually

 Do a performance review every year.
 Sometimes, use an independent expert to give unbiased feedback.

4. Consider Shareholder Feedback

 Look at election results and what investors say about board independence, leadership, and diversity.

5. Provide Mentoring for New Directors

 Help new directors learn and adjust through training or mentoring.

📌 Legal Framework
 Companies Act, 2013:
No direct provision for succession planning; usually covered by NRC’s duties.
 SEBI (LODR) Regulations, 2015:
Regulation 4(2)(f)(ii)(3) mandates that boards must:
o Select, compensate, monitor
o Replace KMPs when needed
o Oversee succession planning.

Conflict of Interest
Conflict of interest arises when personal or external interests of individuals in senior management or the board
conflict with the interests of the organization as a whole. Key measures include:
 Board Independence: Assigning a sufficient number of non-executive directors capable of exercising
independent judgment for tasks with potential conflict risks.
 Senior Management Disclosures: Requiring disclosures of material financial and commercial transactions
by senior management where personal interests may conflict with those of the entity.
 Adequate Related Party Disclosures: Ensuring proper disclosure of materially significant related party
transactions to mitigate conflicts of interest with the organization.

Related Party Transactions (RPTs)

Related Party Transactions refer to transactions involving the transfer of resources, services, or obligations
between an entity and its related parties.
Under the Companies Act, 2013
Related Party includes:
1. Individuals and Relatives:
o Directors, Key Managerial Personnel (KMP), or their relatives.
2. Entities with Influence:

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 o A firm in which a director, manager, or their relative is a partner.
o A private company where a director or manager (or their relative) is a member or director.
o A public company where a director or manager (with relatives) holds more than 2% of its paid-up
capital.
3. Control Relationships:
o Body corporates acting on the directions of a director or manager (excluding professional advice).
4. Corporate Linkages:
o Holding, subsidiary, or associate companies.
o Subsidiaries of a common holding company.
o Investing or venturing companies leading to associate relationships.
5. Other Prescribed Parties: Specified by rules as required.

Under SEBI (LODR) Regulations, 2015

Related Party Transactions include:
1. Transactions involving transfer of resources, services, or obligations:
o Between a listed entity (or its subsidiaries) and a related party.
o Benefiting a related party of the listed entity (or subsidiaries), effective April 1, 2023.
2. Exemptions:
o Issuance of securities under preferential allotment in compliance with SEBI (ICDR) Regulations,
2018.
o Uniform corporate actions such as dividends, rights issues, bonus issues, and buybacks.
o Acceptance of fixed deposits by banks/NBFCs on uniform terms offered to all.

📌 Section 188(1): Restrictions on Related Party Transactions (RPTs)

A company shall not enter into contracts/arrangements with a related party for the following, unless Board
approval is taken by resolution in a Board meeting:
✅ Covered Transactions:

1. Sale, purchase, or supply of goods or materials

2. 🏠 Selling, buying, or disposal of property
3. 📃 Leasing of property
4. Availing or rendering services
5. 🤝 Appointing agents for goods, services, or property
6. 💼 Related party's appointment to office/place of profit
7. 💹 Underwriting securities or derivatives of the company.

📜 Additional Approval Requirements

 Shareholders’ prior approval is needed if:

o Paid-up share capital or transaction value crosses prescribed thresholds under Rule 15 of the
Companies (Meetings of Board and its Powers) Rules, 2014.
 Related party shareholders cannot vote on the resolution approving such transactions.

⚠️Exceptions (No approval required if...):

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✅Transactions are in the ordinary course of business AND on arm’s length basis
✅ Transactions between holding and wholly owned subsidiary (if consolidated accounts are presented to
shareholders)
✅ If 90% or more members are relatives of promoters or related parties, voting restriction does not apply.

💡 Key Definitions:
 Office or Place of Profit
▪️Held by director: If he gets anything beyond normal director remuneration
▪️Held by others: If they receive any salary, fee, rent-free accommodation, etc.
 Arm’s Length Transaction
▪️Transaction conducted as if between unrelated parties — fair pricing, no conflict of interest.

📘 Rule 15: Contracts/Arrangements with Related Parties

✅ 1. Disclosures Required in Board Meeting Agenda

Before approving an RPT, the Board must be provided with:
 🔹 Name of the related party & nature of the relationship
 🔹 Nature & duration of contract, and key terms
 🔹 Value & material terms
 🔹 Details of any advance paid/received
 🔹 Pricing/commercial terms (included & excluded from the contract)
 🔹 Whether all relevant factors have been considered; if not, rationale
 🔹 Any other relevant information

🚫 2. Interested Directors
 A director interested in the transaction must not be present during discussion/approval of that transaction.

📜 3. Shareholders’ Prior Approval Required (via Resolution) When RPTs Exceed Thresholds
a) For contracts in clauses (a)–(e) of Section 188(1), if the transaction value exceeds:
Transaction Type Threshold for Shareholders’ Approval
Sale, purchase, supply of goods or material ≥10% of turnover
🏠 Buying/selling property ≥10% of net worth
📃 Leasing of property ≥10% of turnover
Availing/rendering services ≥10% of turnover
🤝 Appointment of agent for above Based on nature of main transaction (goods, property,
services)

These thresholds are cumulative per financial year (individual + previous transactions combined).
b) For Office or Place of Profit:
 If monthly remuneration > ₹2.5 lakh → 🧾 Prior shareholder approval needed
c) For Underwriting of Securities:
 If underwriting fee > 1% of net worth → 🧾 Prior shareholder approval needed
Turnover & Net Worth based on last audited financial statements.

🧾 4. Explanatory Statement (Section 101 Notice) must include:

 🧍 Name of the related party
 👤 Name of the director/KMP involved
 🔁 Nature of relationship
 📑 Terms, value, and particulars of contract

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 📝 Other relevant information

🏢 5. Wholly-Owned Subsidiary Exception

 If resolution is passed by holding company, separate approval is not required for transactions with its
wholly owned subsidiary.

📌 Section 188(2): Disclosure in Board’s Report

 Every RPT entered into must be disclosed in the Board’s Report to shareholders.
 Must include justification for entering into the contract or arrangement.

❌ Section 188(3): If RPT Not Ratified

 If RPT is entered without prior approval and is not ratified within 3 months by:
o the Board, or
o the shareholders (if required),
 ➡️The contract is voidable at the option of the Board/shareholders.
 If the RPT:
o is with a related party to any director, or
o is authorized by a director,
➡️Such director(s) must indemnify the company for any loss.

⚖️Section 188(4): Company Can Take Action

 Company can sue director/employee for recovery of loss if RPT was made in contravention.

💰 Section 188(5): Penalties

Company Type Penalty for Violation (Director/Employee)
📈 Listed Company ₹25 lakh
🏢 Other Companies ₹5 lakh

5. RPTs Under SEBI (LODR) Regulations, 2015 – Regulation 23

Policy and Thresholds
 Listed entities must formulate a policy on materiality of RPTs, including clear threshold limits. This shall be
reviewed by the board of directors at least once every three years and updated accordingly:
 Material RPTs:
o Transactions exceeding ₹1,000 crores, or
o 10% of annual consolidated turnover (whichever is Lower).
o For brand usage or royalty payments, the threshold is 5% of the annual consolidated turnover.

Audit Committee’s Role

 Audit committee approval is mandatory for all RPTs and material modifications.
 Only independent directors in the audit committee can approve such transactions.
 Omnibus approvals are allowed for repetitive transactions and valid for one year subject to their value not
exceeding rupees 1 crore per transaction.

Shareholder Approval
 Material RPTs and significant modifications require prior approval of shareholders through a resolution.
 No related party (whether directly involved or not) can vote on the resolution.

Exemptions
 Transactions between:

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 o Two government companies.
o A holding company and its wholly owned subsidiary (if consolidated accounts are presented).
o Two wholly owned subsidiaries of the same listed holding company.
Disclosures
 Listed entities must disclose RPTs:
o In the prescribed format to stock exchanges.
o On their website.
o Biannually (every six months) and with standalone/consolidated financial results.

Role of Directors in Prevention of Insider Trading

1. Definition of Insider (Regulation 2(1)(g))
o Insider refers to:
 A connected person or
 Someone in possession of unpublished price-sensitive information (UPSI).

2. Definition of Unpublished Price Sensitive Information (UPSI) (Regulation 2(1)(n))

o UPSI is information related to a company or its securities that:
 Is not publicly available and
 May materially affect the securities' price when disclosed.
o Includes details on:
 Financial results.
 Dividends.
 Changes in capital structure.
 Changes in key managerial personnel (KMP).
 Mergers, acquisitions, de-mergers, etc.

Communication and Handling of UPSI

1. Prohibition on Sharing UPSI (Regulation 3(1) & 3(2))
o Insiders cannot share UPSI unless:
 It serves legitimate purposes,
 Is required for performing duties, or
 Fulfills legal obligations.
o Any person receiving UPSI is also considered an insider.

2. Policy on Legitimate Purposes (Regulation 3(2A))

o Boards of listed companies must define "legitimate purposes" in their Codes of Fair Disclosure
and Conduct.
o Examples: Sharing UPSI in the normal course of business with advisors, collaborators, or partners.

3. Structured Digital Database (Regulation 3(5))

o Boards/head(s) must maintain a digital database recording:
 Nature of UPSI shared.
 Names and identifiers (e.g., PAN) of persons sharing and receiving UPSI.
o Database must include time stamps, audit trails, and be preserved internally for at least 8
years or longer during investigations.

Exceptions to UPSI Sharing Prohibition

1. Transactions Requiring Sharing of UPSI (Regulation 3(3))

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 o UPSI may be shared if it involves:
 Obligations to make an open offer under takeover regulations, or
 Transactions approved by the board where sharing UPSI is in the company's best interest.
o In such cases, UPSI must be disclosed publicly at least two trading days before the transaction is
executed.

2. Confidentiality Agreements (Regulation 3(4))

o Parties receiving UPSI must:
 Sign confidentiality agreements.
 Refrain from trading securities while in possession of UPSI.

Responsibilities of Directors in Preventing Insider Trading

1. Establishing Policies:
o Develop a robust policy on handling UPSI, aligned with SEBI (PIT) Regulations.
2. Ensuring Compliance:
o Implement internal controls for safeguarding UPSI.
o Oversee maintenance and security of the structured digital database.
3. Enforcing Confidentiality:
o Require agreements for confidentiality and non-disclosure for all parties involved in transactions
using UPSI.
4. Monitoring Transactions:
o Ensure proper disclosures and adherence to legitimate purposes for sharing UPSI.
5. Training and Awareness:
o Educate employees and key managerial personnel about insider trading laws and company policies.

Regulation 4: Trading Restrictions for Insiders

1. Prohibition on Trading
o Insiders are prohibited from trading in securities when in possession of UPSI.
o Presumption of Motive: If an insider trades while in possession of UPSI, it is presumed that the trade
was influenced by knowledge of such information.

2. Defenses for Insiders

Insiders can prove innocence under specific circumstances, such as:
o Regulatory Obligation: Trades executed due to legal or regulatory obligations.
o Trading Plan: Trades executed according to an approved trading plan.
o Stock Option Exercise: Trades made through the exercise of pre-determined stock options under
applicable regulations.
o Non-Individual Insiders: In cases of non-individual insiders, the individuals possessing UPSI should
be different from those making trading decisions, ensuring no violation of regulations.
o Block Deal Window: Transactions conducted through the block deal mechanism, provided the
insiders had informed decisions and did not violate Regulation 3.
o Off-market Transfers: Transfers between insiders with the same UPSI, where both made informed
decisions. Must report such trades within two working days to the company and stock exchange.

3. Burden of Proof
o Connected Persons: Must prove they were not in possession of UPSI.
o Other Insiders: The onus lies on the board to prove the violation.

📘 Trading Plans – Regulation 5

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🎯 Insider can create a trading plan and submit it to the Compliance Officer for approval and public disclosure.
Plan conditions:
 Trading cannot start earlier than 6 months after public disclosure.
 No trading 20 days before and 2 days after financial results.
 Plan lasts at least 12 months.
 No overlapping plans.
 Must specify trade value/number, type, and dates.
 Must not involve market abuse or manipulation.
👩‍💼 Compliance Officer:
 Reviews and approves plan.
 Monitors execution.
 No pre-clearance or trading window restrictions for approved plans.
🔒 Irrevocable:
 Plan can’t be changed or canceled.
 Insider must follow it exactly.
 If UPSI still exists when the plan is due to start, the start must be delayed until it becomes public.
📢 Notification:
 Compliance officer informs stock exchanges after approval.

📘 Code of Fair Disclosure – Regulation 8 (Simplified)

📝 Companies must have a Board-approved code for fair disclosure of unpublished price sensitive info, published
on their website, following Schedule A principles.
📨 Any changes must be promptly notified to stock exchanges.

Regulation 9: Code of Conduct for Trading and Monitoring Insider Trading

This is the internal control system every company must set up to prevent insider trading.
1. Formulating the Code of Conduct
The CEO/MD, with board approval, must create a Code of Conduct to regulate, monitor & report trading by
designated persons and their immediate relatives

🎯 2. Who is Covered – “Designated Persons”

These are employees or consultants likely to have access to UPSI. Could include:
 Directors
 Finance/Accounts/Strategy/Legal teams
 Executive assistants
 Auditors and consultants
📌 The list is made by the Board + Compliance Officer together. These firms are called “fiduciaries”.

3. Compliance Officer
Every listed company must appoint a Compliance Officer, usually the Company Secretary.
👤 Role of the Compliance Officer:
 Monitor adherence to the Code
 Track and approve trades
 Handle reporting to stock exchanges
 Manage UPSI lists & trading windows.

👤 4. Firms Handling UPSI (Fiduciaries)

These include:

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  Auditors (CA firms)
 Law firms
 Consultants
 Investment banks
👉 They too must create their own Code of Conduct to regulate their employees (designated persons) who may
get access to UPSI while working with listed companies.

Inquiry and Whistleblower Policies

 Policies for UPSI Leak: Listed companies must have written policies and procedures for investigating leaks
of UPSI or suspected leaks. The board must approve these policies and initiate inquiries promptly.
 Whistle-blower Policy: A policy must be in place to enable employees to report instances of UPSI leaks.
Employees should be made aware of this policy.
 Cooperation: Intermediaries and fiduciaries must cooperate with the listed company if an inquiry into a leak
of UPSI is initiated.

Board Effectiveness Indicator: Sample Questions

1. Competencies:
o Do you have a set of required competencies articulated for your board and committees?
2. Industry Experience:
o Does at least one board member have extensive experience in your industry?
3. Board Independence:
o Are the majority of your board members independent from the organization?
4. Director Engagement:
o Do directors show a keen interest and passion for the organization's work?
5. Meeting Attendance:
o Do directors regularly attend board and committee meetings?
6. Chairman's Role:
o Does the Chairman solicit views from each director specifically?
o Does the Chairman ask members to refrain from expressing personal views at the outset of
discussions?
o Does the Chairman manage the timing of meetings to ensure sufficient time for discussion after each
topic?
7. Strategic Planning:
o Does the board approve the business plan and major expenditures?
o Does the board collaborate with the CEO and senior staff to develop and review the strategic plan?
8. Risk Management:
o Does the board regularly review the risk identification and management system of the
organization?
9. External Experts:
o Does the board regularly invite outside experts to present on specific topics?
10. Continuing Education:
o Are directors offered continuing education in governance or a program for director certification?

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 Lesson: 12 (Board’s Accountability on ESG)

The International Finance Corporation, World Bank Group defines ESG:

ESG as a set of environmental, social, and governance factors considered by companies when managing
their operations, and investors when making investments, in respect of the risks, impacts, and
opportunities.
ESG Factors
Environmental Factors
Focus on the natural environment, addressing:
1. Usage:
o Natural Resources.
o Energy and Water Consumption.
2. Generation:
o By-products.
o Waste Management.
o Carbon Emissions.
3. Pollution:
o Greenhouse Gas (GHG) Emissions.
o Air and Water Pollution.
4. General Impact:
o Climate Change.
o Biodiversity Conservation.

Social Factors
Relate to the well-being of employees and society, addressing:
1. Employee-Related:
o Labour Practices.
o Health and Safety.
o Child Labour.
o Employee Welfare.
2. Society-Related:
o Diversity and Inclusion.
o Community Management.
o Human Rights Policies.

Governance Factors
Concern the organization’s corporate governance and ethical practices, addressing:
1. Board-Related:
o Board Composition and Diversity.
o Independence and Succession Planning.
o Board Evaluations.
2. Others:
o Risk Management.
o Ethics and Compliance.
o Internal Policies and Controls.

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 o IT Security and Data Protection.
o Anti-Corruption Measures.
o Stakeholder Engagement
o Disclosures and Reporting.

Relevance of ESG to Today’s Organizations

ESG (Environmental, Social, and Governance) considerations have become integral to a company’s
operations due to their wide-ranging implications for sustainability, profitability, and compliance.
1. Regulatory and Governmental Interventions
Governments worldwide are implementing strict climate change laws, sustainability goals, and carbon
reduction policies. Non-compliance can lead to penalties, additional costs, or even shutdowns.

2. Cost Reductions
Adopting ESG strategies leads to cost savings, such as:
a) Efficient resource utilization (energy, water, raw materials)
b) Waste reduction & recycling
c) Lower GHG emissions reducing compliance costs.

3. Improvement in Productivity
A company focused on ESG fosters a positive work culture, attracting better talent and enhancing employee
motivation and efficiency.

4. Increased Business Revenue

Consumers today prefer sustainable products, driving higher sales and market competitiveness for ESG-
focused businesses.

5. Better Financing Options

Investors prioritize ESG-compliant businesses, offering lower interest rates, better financing terms, and
higher valuations.

6. Better Social Standing and Brand Image

Companies with strong ESG commitments earn greater public trust, strengthening brand reputation and
stakeholder relationships.

Indian Regulatory Perspective on ESG Accountability

1. Companies Act, 2013
 Section 166(2): Directors are required to act in good faith for the benefit of:
o Members, employees, shareholders, the community, and the environment.
 Emphasizes environmental protection as part of directors’ fiduciary duties.

2. National Guidelines on Responsible Business Conduct (2019)

 Issued by the Ministry of Corporate Affairs to ensure companies incorporate ESG in their
operations.

3. Reporting Requirements

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  SEBI and the Companies Act mandate ESG reporting by Boards to ensure transparency and
accountability in sustainability efforts.

Board's Accountability for ESG

1. Identification of ESG Risks and Opportunities
Boards must identify ESG risks and opportunities relevant to their business and stakeholders.
Top Ten ESG Risks (Global Risks Report 2024):
1. Extreme Weather Events.
2. Critical changes to Earth systems.
3. Biodiversity Loss and Ecosystem Collapse.
4. Natural Resource Shortages.
5. Misinformation and Disinformation.
6. Adverse AI Outcomes.
7. Involuntary Migration.
8. Cyber Insecurity.
9. Societal Polarization.
10. Pollution.

2. Integration of ESG Goals into Strategy and Policy

Identified ESG risks and opportunities must be embedded into the organization’s strategies, policies, and
oversight mechanisms.
Key Considerations:
1. Alignment: Link ESG goals with corresponding operational functions.
2. Policy Framework: Formulate organizational policies on ESG.
3. Oversight Mechanism: Establish a separate system for monitoring ESG standards and goals.

ESMS stands for Environmental and Social Management System.

It’s a structured framework that organizations use to identify, manage, and monitor their Environmental
(E) and Social (S) impacts and risks:
ESMS Helps Boards With:
1) ESG Policy
2) Risk Identification
3) Management Programs
4) Capacity & Training
5) Emergency preparedness
6) Stakeholder engagement
7) Grievance Redressal
8) Community Reporting
9) Monitoring and review.

3. ESG Reporting and Monitoring

Boards must ensure accurate ESG reporting and the achievement of sustainability targets.
ESG Reporting: Mandatory vs. Voluntary
1. Mandatory Reporting
 Section 134(4) (Companies Act, 2013): One of the first ESG disclosure mandates, requiring
companies to report on energy conservation efforts alongside their annual financial statements.
 SEBI’s Business Responsibility and Sustainability Report (BRSR) Framework (2021):

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 o Introduced for the top 1,000 listed companies based on market capitalization.
o Aligned with the National Guidelines on Responsible Business Conduct (NGRBC),
covering nine principles focused on ESG factors.

2. Voluntary Reporting
Many Indian companies voluntarily report their sustainability performance using various frameworks,
including:
 Integrated Reporting: Combines financial and non-financial information.
 Sustainability Reporting: Based on established international standards such as:
o International Sustainability Standards Board (ISSB)
o Task Force on Climate-related Financial Disclosures (TCFD)
o Carbon Disclosure Project (CDP)
o Global Reporting Initiative (GRI).

Business Responsibility & Sustainability Reporting (BRSR) – Management & Process Disclosures
The Guidance Note for BRSR provides structured ESG disclosure requirements for the Board’s
accountability.
Key Disclosure Fields & Instructions
1) Specific ESG Commitments, Goals & Targets
Companies must disclose goals, targets, and commitments related to ESG principles.
The disclosure should include:
✔ Coverage (subsidiaries, associates, JVs, value chain partners)
✔ Expected Outcomes (quantitative/qualitative)
✔ Timeline for Achievement
✔ Mandatory or Voluntary (with reference to legislation)
✔ Performance Achieved (including changes, delays & reasons)

2) Director’s Statement on ESG

A director responsible for the report must highlight ESG issues and the company’s sustainability approach.
The statement should cover:
✔ Vision & Strategy (short, medium, long-term)
✔ Significant Environmental & Social Impacts
✔ Key Trends Affecting ESG Priorities
✔ Major ESG Achievements & Challenges
✔ Performance Review & Outlook

3) Highest Authority for ESG Oversight

Companies must disclose who oversees ESG implementation, which could be:
✔ A Board Director
✔ A Board Committee
✔ A Senior Management Executive
✔ A Committee of Employees

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If a Committee is responsible:
✔ Disclose Committee Composition (names, designations, Director’s DIN & category)
If an Individual is responsible:
✔ Disclose Name, Designation, DIN & Category (Chair / ED / NED / ID)
Multiple ESG Authorities: If different policies are handled by different individuals/committees, the
company should specify the responsibilities separately.

4) ESG Decision-Making Authority

Companies must confirm if they have a Board Committee or Director responsible for sustainability
decisions.
If Yes, disclose:
✔ Committee composition (names, designations, DIN & category)
✔ If a director is responsible, provide their DIN & category.
Summary
of Questions on Board Accountability for ESG
1. Board Composition/Committees:
 Does the company have a diversified Board, including an ESG expert as a member?
 Has the Board constituted an exclusive committee to identify ESG risks and opportunities?

2. Policies and Strategies:

 Does the company have ESG goals and targets?
 Are the company’s vision, mission, and values aligned with ESG goals?
 Are the Board, senior management, and employees aware of ESG issues?
 Are ESG targets set for the Board and senior management?
 Are ESG issues considered in investment decisions?
 How effectively does the Board engage with stakeholders?

3. Reporting:
 Does the company disclose ESG-related matters as per regulatory prescriptions?
 Does the company voluntarily disclose critical ESG issues beyond the prescribed requirements?
 Does the company follow global standards for ESG reporting?
Case Study:
Sterlite Industries (India) Ltd - Copper Smelting Plant at Thoothukudi, Tamil Nadu
Background: Sterlite Industries (India) Ltd established a 40,000-tonne capacity copper smelter in
Thoothukudi, Tamil Nadu, in 1997. The plant began operations in 1998 and continued until its closure in
2018. Throughout its operation, the plant faced significant public outcry and complaints related to pollution
violations. Local residents, environmental groups, and activists raised concerns over the plant's impact on
air and water quality, which led to a series of protests and demands for its closure.
Closure of the Plant: In response to these concerns, the Tamil Nadu Pollution Control Board (TNPCB)
issued an order to shut down the plant on May 28, 2018. The Madras High Court upheld this order, and
Sterlite Industries subsequently appealed the decision. On February 29, 2024, a three-judge bench of the
Supreme Court of India rejected the appeal, reinforcing the decision to keep the plant closed. The Court
highlighted several critical principles in its ruling:

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  Public Trust Doctrine
 Polluter Pays Principle
 Sustainable Development.

Lesson: 2 (Legislative Framework of Corporate Governance in India)

Principles Governing Disclosures and Obligations Under Regulation 4
Key Areas Covered by SEBI (LODR) Regulations, 2015
1. Board Composition Requirements
2. Board Committee Requirements
3. Board Process and Meetings
4. Corporate Actions
5. Shareholding Pattern Requirements
6. Obligations for Intimations and Disclosures to Stock Exchanges
7. Website Requirements
8. Advertisement Mandates
9. Policies Requirements.
General
Principles for Listed Entities (Regulation 4(1))
1. Transparency and Accuracy in Disclosures:
o Adhere to applicable accounting and financial disclosure standards.
o Ensure financial statements comply with accounting standards in both letter and spirit,
safeguarding stakeholders' interests.
2. No Misrepresentation:
o Avoid misleading or false information to stock exchanges and investors.
3. Timeliness and Clarity:
o Disclose adequate and timely information using simple language.
4. Equal Access to Information:
o Ensure all investors have equal, timely, and cost-efficient access to relevant information.
5. Compliance with Laws:
o Abide by securities laws and other guidelines issued by regulatory bodies.
6. Periodic Filings:
o Include relevant and sufficient details to enable stakeholders to track performance and assess the
listed entity's status over time.
7. Stakeholder Consideration:
o Make disclosures in letter and spirit, focusing on stakeholders’ interests.

Corporate Governance Provisions (Regulation 4(2))

1. Rights of Shareholders (Regulation 4(2)(a)):
Protect and facilitate shareholders' rights, including:
o Exercise of ownership rights by all shareholders.
o Right to participate in key decisions and be informed of such as corporate changes and board
elections.
o Opportunity to participate and vote in general shareholder meetings.
o Being informed of voting procedures in general meetings.

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 o Opportunity to ask questions to the board of directors.
o Mechanisms for grievance redressal and minority shareholder protection.

2. Timely Information (Regulation 4(2)(b)):

Provide adequate details about:
o Meeting schedules, locations, and agendas.
o Share capital structures and control mechanisms.
o Rights attached to shares before investors acquire them.

3. Equitable Treatment (Regulation 4(2)(c)):

Ensure equal treatment for all shareholders, including:
o Fair processes for voting and participation in governance decisions.
o Facilitation of foreign shareholder voting rights.
o Procedures of listed entity shall not make it difficult or expensive to cast votes.
o Prevention of insider trading and abusive self-dealing.

4. Role of Stakeholders in Corporate Governance (Regulation 4(2)(d)):

Recognize and respect stakeholders' rights through:
o Providing reliable and timely access to information.
o Ensuring stakeholders can participate in governance processes.
o Implementing an effective whistleblower policy for reporting unethical practices.
o Opportunity to obtain effective redress for violation of their rights.

5. Disclosure and Transparency – Regulation 4(2)(e):

1. Timely and Accurate Disclosures:
o Ensure disclosures on material matters, such as financial position, performance, ownership,
and governance.
2. Standards of Disclosure:
o Prepare and disclose information as per prescribed accounting and financial/non-financial
standards.
3. Equal Access to Information:
o Use cost-effective channels for timely and equal information access.
4. Meeting Minutes:
o Maintain minutes explicitly recording dissenting opinions.

6. Responsibilities of the Board of Directors – Regulation 4(2)(f):

1. Disclosure of Information – Regulation 4(2)(f)(i):
o Board members and key managerial personnel (KMPs) must disclose any material interests in
transactions directly or indirectly affecting the entity.
o Conduct operations transparently while safeguarding confidentiality for informed decision-
making.

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 2. Key Functions of the Board – Regulation 4(2)(f)(ii):
o Strategic Oversight:
 Review and guide corporate strategy, risk policies, budgets, and key projects.
 Monitor performance, governance practices, and major transactions.
o Governance Practices:
 Maintain systems for risk management, compliance, and financial reporting integrity.
 Oversee disclosures, board nominations, and ensure diversity.
o Leadership and Succession:
 Select, monitor, and replace KMPs while ensuring proper succession planning.
 Align remuneration with the entity’s long-term goals and shareholder interests.
o Conflict Management:
 Address conflicts of interest and prevent misuse of corporate assets.
o Evaluation and Communication:
 Monitor the board’s performance evaluation framework and improve disclosure
processes.

3. Other Responsibilities – Regulation 4(2)(f)(iii):

o Ethical Leadership:
 Set high ethical standards and ensure fair treatment of all shareholders.
o Diligence and Fairness:
 Act in good faith, with care and due diligence, prioritizing shareholder interests.
o Director Training:
 Facilitate ongoing training for board members to stay updated.
o Balanced Decision-Making:
 Assign independent non-executive members to resolve conflicts and challenge key
assumptions.
o Support for Independent Directors:
 Enable independent directors to contribute effectively in their roles.
o Access to Information:
 Provide accurate, relevant, and timely information for informed decisions.

(3) Precedence of Principles – Regulation 4(3):

 In case of conflict or ambiguity between principles and regulations, the principles outlined in
Chapter II shall prevail.

Corporate Governance in Unlisted Companies: Provisions under the Companies Act, 2013
1. Disclosure of Interest by Director – Section 184
This section outlines the key provisions related to the disclosure of interest by directors in unlisted
companies.
(i) Disclosure by New Director in First Meeting of the Board – Section 184(1):
 Every director must disclose their concern or interest in any company, firm, or body corporate
during the first Board meeting they attend as a director.
 Additionally, they must update any changes in their interests at the first Board meeting of each
financial year or when there is any change in the disclosed information.

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(ii) Disclosure of Interest in a Contract – Section 184(2):
 A director must disclose their interest in any contract or arrangement entered into or to be entered
into:
o With a body corporate where the director, or their associate, holds more than 2% of the
shareholding or is a promoter, manager, or CEO.
o With a firm or entity where the director is a partner, owner, or member.

 The disclosure should be made at the meeting where the contract is discussed, and the director
should refrain from participating in the decision-making process.
 If a director becomes concerned or interested in a contract after it has been entered into, they must
disclose their interest promptly or at the first Board meeting following the change.

(iii) Participation in the Meeting by Interested Director – Section 184(3):

 If a director participates in a meeting where they have an undisclosed interest, or the company
enters a contract without proper disclosure, the contract or arrangement may be voidable at the
company's discretion.

(iv) Penal Provision – Section 184(4):

 A director who violates the provisions of Section 184 (1) or (2) will be subject to a penalty of ₹1
lakh.

(v) No Restriction in Contracts, Only Disclosure Required – Section 184(5):

 This section does not prevent a director from having an interest in a contract with the company, but
the director must disclose their interest.
 It does not apply to contracts between two companies where the director holds a shareholding of up
to 2% of the paid-up capital in the other company.

Register of Contracts or Arrangements in Which Directors are Interested – Section 189

(i) Company to Keep Registers of Contracts – Section 189(1):
 Companies are required to maintain registers detailing all contracts or arrangements to which
Section 184(2) or Section 188 applies.
 These registers must contain prescribed particulars and be presented at the next Board meeting,
where they will be signed by the directors present.

(ii) Director to Disclose Interest Within 30 Days of Appointment – Section 189(2):

 Directors or key managerial personnel must disclose their interest within 30 days of their
appointment or relinquishment of office.
 The disclosed information, as specified in Section 184(1), must include concerns or interests in
other associations and be added to the register.

(iii) Register of Contracts to Be Kept at Registered Office – Section 189(3):

 The register must be kept at the company's registered office and be open for inspection during
business hours.
 Members can request extracts or copies of the register on payment of prescribed fees.

(iv) Register of Contracts to Be Produced Before AGM – Section 189(4):

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  The register must be presented at the Annual General Meeting (AGM) and be available for
inspection by any attendee during the meeting.

(v) Contracts Not Exceeding Rs. 5 Lakh in a Year – Section 189(5):

 The provisions of Section 189(1) do not apply to:
o Contracts for the sale, purchase, or supply of goods, materials, or services where the value
does not exceed ₹5 lakh in total within the year.
o Contracts by a banking company for the collection of bills in the ordinary course of business.

(vi) Penal Provisions – Section 189(6):

 Directors who fail to comply with the requirements of this section and the related rules will be
penalized with a fine of ₹25,000.

Duties of Directors – Section 166

(1) Adherence to Articles of the Company: Directors must act in accordance with the company's articles.

(2) Acting in Good Faith for the Benefit of the Company: Directors must act in good faith to promote the
company's objects, ensuring the benefit of its members, employees, shareholders, the community, and the
environment.

(3) Exercise of Duties with Care, Skill, and Diligence: Directors must perform their duties with due
diligence, care, skill, and independent judgment.

(4) Avoiding Conflicts of Interest: Directors must not engage in situations where their personal interests
conflict, or may conflict, with the company's interests.

(5) No Undue Gain or Advantage: Directors must not seek or obtain undue gain or advantage for
themselves or their associates. If found guilty of doing so, the director must pay an amount equal to the
gain to the company.

(6) Non-Assignment of Office: Directors cannot assign their office to others, and any assignment made will
be void.

(7) Penalty for Contravention: Directors violating the provisions of this section will face a fine ranging
from ₹1 lakh to ₹5 lakh.

Basel Committee’s Corporate Governance Principles:

Principle 1: Board’s Overall Responsibilities
The board is responsible for approving and overseeing the bank's strategic objectives, governance
framework, and corporate culture, as well as providing oversight of senior management.
Principle 2: Board Qualifications and Composition
Board members must be qualified both individually and collectively. They must understand their oversight
and corporate governance roles and be capable of exercising sound, objective judgment.
Principle 3: Board’s Structure and Practices
The board should define governance structures and practices, ensuring they are followed and reviewed
periodically for effectiveness.

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Principle 4: Senior Management
Senior management, under the board's direction, should carry out the bank’s activities in alignment with the
approved strategy, risk appetite, and policies.
Principle 6: Risk Management Function
Banks should have an independent risk management function, led by a Chief Risk Officer (CRO), with
sufficient resources, stature, and access to the board.
Principle 7: Risk Identification, Monitoring, and Controlling
Risks should be continuously identified, monitored, and controlled across the bank, adapting to changes in
the bank's profile, external risks, and industry practices.
Principle 8: Risk Communication
Effective communication about risk should be ensured within the bank, including reporting to the board and
senior management.
Principle 10: Internal Audit
The internal audit function should provide independent assurance, support effective governance, and
contribute to the bank's long-term soundness. It should be independent and have sufficient authority,
resources, and skills.
Principle 9: Compliance
The board is responsible for overseeing compliance risks, approving the bank’s compliance approach, and
establishing a permanent compliance function.
Principle 12: Disclosure and Transparency
Governance practices should be transparent to shareholders, depositors, and relevant stakeholders,
ensuring accountability and trust.

Key Elements of the Master Direction - 'Fit and Proper' Criteria for PSBs:
1. Authority:
Public Sector Banks must form a Nomination and Remuneration Committee comprising at least 3 non-
executive directors. Of these, at least half should be independent, and one member should be from the
bank’s Risk Management Committee. This committee is tasked with conducting due diligence to
determine the ‘fit and proper’ status of potential candidates for election to the board.
2. Exclusions:
Government of India nominee directors and directors nominated under specific sections of the Acts
cannot be part of this Committee. However, the non-executive chairperson may be a member, but cannot
chair the committee.
3. Quorum:
Three members, including the Chairman. In case of a quorum shortfall due to absence, the Board can
nominate another non-executive director for that meeting.
4. Manner and Procedure:
Banks must gather necessary information and obtain declarations from individuals nominating themselves
for election.
5. Criteria for Evaluation:
The following criteria are used to determine if a candidate is ‘fit and proper’:

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  Age: Candidates should be between 35 to 67 years as of the cutoff date for nominations.
 Educational Qualification: The candidate must be a graduate.
 Experience and Expertise: The candidate should have practical experience or special knowledge in
areas relevant to banking governance, as outlined in the SBI Act and the Banking Companies Act.
These include areas like finance, banking operations, risk management, and regulatory matters.

Disqualifications for Directors in Public Sector Banks (PSBs)

1. Membership of Certain Boards:
The candidate must not be a member of the board of any bank, the Reserve Bank, a financial institution (FI),
an insurance company, or a Non-Operative Financial Holding Company (NOFHC) holding another bank.
2. Previous Service on Other Boards:
A person who has served as a director on the board of any bank, FI, RBI, or insurance company for six years,
whether continuously or intermittently, is not eligible for election.
3. Political Positions:
Candidates should not hold positions as members of the Parliament, State Legislature, Municipal
Corporation, Municipality, or other local bodies.
4. Involvement in Certain Businesses:
Candidates with direct involvement in hire purchase, financing, money lending, investment, leasing, or other
para-banking activities are disqualified. However, investors in these entities are not disqualified as long as
they do not have managerial control.
5. Stock Broking Business:
The candidate should not be engaged in the business of stock broking.
6. Association with Chartered Accountant Firms:
Candidates acting as partners in a Chartered Accountant firm serving as:
 Statutory Central Auditor for a nationalized bank or SBI.
 Statutory Branch Auditor or Concurrent Auditor for the bank in which they are seeking election. are
disqualified.

Tenure and Professional Restrictions

1. Tenure:
Elected directors can serve for 3 years and are eligible for re-election. However, they cannot serve
for more than 6 years in total, whether continuously or intermittently.
2. Professional Restrictions:
 The candidate must not have any business connection with the concerned bank that could result in
a conflict of interest.
 If the candidate has such a connection at the time of filing, they must sever the relationship before
being appointed as a director.
 The candidate should not have any professional relationship with a NOFHC holding another bank.

Track Record and Integrity

 The candidate should not be under any adverse notice by regulatory or law enforcement agencies.
 The candidate should not be a defaulter of any lending institution.

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Required Declarations and Covenants
 Banks must obtain:
o Deed of Covenant before assuming office.
o Annual declaration by the director as of March 31st, confirming no changes in the provided
information.
o If there are changes, a fresh declaration must be submitted.

Non-Compliance Consequences
If a director fails to:
 Submit the Deed of Covenant or annual declaration.
 Make proper disclosures or refrains from credit/investment decisions where they have a conflict of
interest.
 Or engages in activities that make them ‘not fit and proper’, they will be deemed not to meet the
criteria and face the necessary consequences.

Guidelines on Corporate Governance for NBFCs

Applicability
These guidelines are applicable to the following entities, collectively termed 'Applicable NBFCs':
1. Systemically Important Non-Deposit Taking NBFCs (NBFC-ND-SI).
2. Deposit Taking NBFCs (NBFC-D).
3. NBFC-Factors with an asset size of ₹500 crore or above.
4. NBFC-Micro Finance Institutions (NBFC-MFIs) with an asset size of ₹500 crore or above.
5. NBFC-Infrastructure Finance Companies (NBFC-IFCs) with an asset size of ₹500 crore or above.
6. Infrastructure Debt Funds (IDF-NBFCs).

Key Provisions
1. Audit Committee
 All applicable NBFCs must constitute an Audit Committee with at least 3 Directors.
 The Audit Committee formed under Section 177 of the Companies Act, 2013 will also serve this
purpose.
 Functions and Powers:
o Align with Section 177 of the Companies Act.
o Conduct an Information System Audit of internal systems and processes at least once
every two years to evaluate operational risks.

2. Nomination Committee
 A Nomination Committee must ensure the 'fit and proper' status of directors.
 Powers, functions, and duties align with Section 178 of the Companies Act, 2013.

3. Risk Management Committee (RMC)

 To handle integrated risks, NBFCs must form an RMC, in addition to the Asset Liability
Management Committee (ALMC).

Appointment of Chief Risk Officer (CRO)

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NBFCs with an asset size exceeding ₹50 billion in specified categories (Investment and Credit
Companies, Infrastructure Finance Companies, MFIs, Factors, IDFs) must appoint a CRO with a defined
role to uphold risk management standards.
Key Instructions for CRO Appointment
1. Eligibility:
o Senior-level official with professional qualifications/experience in risk management.
o Appointed for a fixed tenure with Board approval.

2. Tenure Policies:
o Transfer/removal before tenure completion requires Board approval.
o Premature changes must be reported to:
 The Department of Non-Banking Supervision of the RBI.
 Stock exchanges, if the NBFC is listed.

3. Reporting:
o Direct reporting to the MD & CEO or the RMC of the Board.
o In case the CRO reports to the MD & CEO, the RMC/Board must meet the CRO quarterly
without the MD & CEO.
o The CRO must not handle any business verticals, targets, or dual responsibilities.

4. CRO’s Role:
o Risk Assessment: Identifying, measuring, and mitigating risks.
o Credit Proposals: Vetting all credit products (retail or wholesale) for risks.
 In committees for high-value credit sanctioning, the CRO, if a decision-maker, must
have voting power.

Fit and Proper Criteria

Applicable NBFCs must ensure compliance with the following measures to assess and maintain the "fit and
proper" status of directors:
1. Policy Development: Develop a Board-approved policy to evaluate directors' fitness at the time of
appointment and on an ongoing basis.

2. Declaration and Undertaking: Obtain a declaration and undertaking from directors with additional
personal information.

3. Deed of Covenant: Require directors to sign a Deed of Covenant.

4. Quarterly Reporting: Submit a quarterly statement to the RBI detailing changes in directors and a
certificate from the Managing Director confirming adherence to fit and proper criteria.

Rotation of Audit Partners

1. Applicable NBFCs must ensure that the partners of the audit firm conducting statutory audits are
rotated every three years.
2. A partner who has completed their tenure can only return after a gap of three years, subject to the
NBFC’s decision.
3. NBFCs must include this rotation requirement in the audit firm's appointment letter.

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Corporate Governance Guidelines For Insurance Companies
Board of Directors
Composition Requirements:
 Insurers must ensure a competent and qualified Board capable of driving sustainable growth and
protecting stakeholder interests, especially policyholders.
 The Board size should align with the scale, nature, and complexity of the business and comply with
legal requirements.
 Directors should have expertise in areas such as finance, law, insurance, economics, and
management.

Independent Directors:
 A minimum of 3 independent directors is required, reduced to 2 for the first five years after
registration.
 Independent Directors must meet the qualifications under Section 149 of the Companies Act,
2013.
 Vacancies in independent directorship must be filled by the next Board meeting or within three
months, whichever is later, with IRDAI informed.

Mandatory Woman Director:

 Every insurance company must appoint at least One-Woman Director on its Board, as per Section
149 of the Companies Act, 2013.

Committees for Insurers

Mandatory Committees Advised by the Authority
1. Audit Committee
2. Nomination and Remuneration Committee
3. Corporate Social Responsibility (CSR) Committee
4. Risk Management Committee
5. Investment Committee
6. Policyholder Protection Committee.

Provisions for Significant Owners and Controlling Shareholders

1. Lock-In Period for Promoters:
o Promoters of insurance companies must adhere to a lock-in period of 5 years from the date of
receiving the certificate of commencement of business.
o Share transfers within this period require IRDAI approval.

2. Foreign Investment:
o Capped at 49% for Indian insurance companies, ensuring they are Indian-owned and
controlled as defined in Section 2(7A) of the Insurance Act, 1938.
o Control includes rights to appoint directors, management decisions, or agreements ensuring
ownership and control rest with Indian citizens.

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3. Share Registration and Transfer:
o Prior IRDAI approval is required for:
 Transfers exceeding 1% of paid-up capital.
 Shareholding exceeds 5% of the paid-up capital after transfer.

Asset Liability Management (ALM) Committee

ALM is a continuous process that involves planning, implementing, monitoring, and revising strategies for
managing assets and liabilities.
Functions of the ALM Committee
 ⚙️Develop strategies to manage assets and liabilities properly.
 🎯 Setting the insurer's risk/reward objectives and assessing policyholder expectations.
 📊 Checks exposure to risks like market, credit, and liquidity.
 ⚖️Ensuring liabilities are backed by appropriate assets and managing mismatches between what the
company owes and what it owns.
 ✅ Ensuring that the valuation of all assets and liabilities comply with relevant standards, prevailing
legislation, and internal and external reporting requirements.
 📢 Submitting ALM findings and updates regularly with the Board.
Integration with Risk Management Committee: If the ALM Committee is not formed, these
responsibilities fall under the Risk Management Committee.

With Profits Committee

Objective:
To oversee the management of the With Profit Fund and ensure fair allocation of assets, income, and
expenses to policyholders.

Constitution of the Committee:

Every life insurer must establish a With Profits Committee, comprising:
1. The CEO
2. An Independent Director
3. The Appointed Actuary
4. An Independent Actuary

Functions of the Committee:

The committee must meet as needed to:
1. Determine the share of assets attributable to policyholders.
2. Calculate Income from investments to be credited to the With Profit fund.
3. Allocate expenses to policyholders.

Reporting Requirements:
The committee's report on the above matters must be attached to the Actuarial Report and Abstract,
which insurers submit to the IRDA.

Board Responsibilities:

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The insurer's Board must ensure compliance with all regulations governing the With Profits Committee,
including those periodically issued by the Authority.

Role of Appointed Actuaries

The IRDA (Appointed Actuary) Regulations, 2000, outline the qualifications, duties, and obligations of the
Appointed Actuary.
Prior approval from the IRDAI is mandatory for their appointment.
Responsibilities of the Appointed Actuary
1. Eligibility: Must meet the "Fit & Proper" criteria and eligibility conditions under IRDA regulations.

2. Advisory Role: Responsibilities and rights must be clearly defined by the insurer, covering statutory
and advisory duties to the Board and management. Ensure the actuary has complete access to
relevant company data to fulfill responsibilities.

3. Risk Reporting: The Appointed Actuary must inform the Board if the insurer fails or is likely to fail
in maintaining: Solvency margin or Sound operational parameters, the actuary must notify IRDAI.

4. Professional Advice: Provide certifications and advice on: (especially in Life Insurance)
 ⚠️Identifying and managing material risks
 🧾 Ensuring Solvency Margin compliance
 💰 Advising on premium and surrender values
 🎁 Recommending bonus allocations (for with-profit policies)
 📈 Managing participating funds

Life vs. Non-Life Companies: Appointed Actuaries in non-life insurance companies are expected to provide
similar advice and certification to the extent that it is applicable to their business.

Revised Guidelines on Stewardship Code for Insurers in India

Insurers are required to formulate a policy for stewardship based on these principles and get it approved
by their Boards for implementation.
Stewardship Principles
1. Policy on Stewardship Responsibilities
o Insurers must establish a policy that outlines how they will discharge their stewardship
responsibilities.

2. Conflict of Interest Management

o A clear policy on handling conflicts of interest while fulfilling their stewardship duties.

3. Monitoring Investee Companies

o Insurers should actively monitor the activities and governance of the companies in which
they invest, ensuring their investments align with the policyholder’s interests.

4. Policy on Intervention
o A defined policy for intervention in investee companies should be in place, specifying
situations and actions for intervention.

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 5. Voting and Disclosure
o Insurers should have a policy on voting rights on matters related to their investments and
ensure transparency.

6. Reporting Stewardship Activities

o Insurers should report periodically on their stewardship activities, ensuring transparency
and accountability.

Guidelines for CSR Expenditure by CPSEs (2018):

The guidelines were issued by the Ministry of Heavy Industries & Public Enterprises (DPE) on December
10, 2018, to align CSR activities of Central Public Sector Enterprises (CPSEs) with national priorities.
Key Features:
1. Thematic Approach to CSR:
o Each year, CPSEs are to adopt a common theme for their CSR activities.
o Aspirational Districts should be prioritized.

2. Future Planning:
o Themes for subsequent years will be decided by the Competent Authority.

3. Coordination with NITI Aayog:

o NITI Aayog will oversee and pilot the programme.

4. Responsibilities of CPSEs in Aspirational Districts:

CPSEs must:
o Appoint a senior-level nodal officer to liaise with the District Administration.
o Share nodal officer details and selected districts with NITI Aayog, DPE, and their
administrative Ministry/Department.
o Submit CSR project details and updates to the relevant authorities.
o Keep the Central Prabhari Officer (designated for the district) informed about ongoing CSR
activities.

5. Compliance with Companies Act, 2013:

o CPSEs must ensure CSR activities comply with the Companies Act, 2013 and its associated
rules and schedules.

6. Supersession of Previous Guidelines:

o These guidelines replace the 2016 advisory that required 33% of CSR funds for Sanitation
and SBM (Swachh Bharat Mission) activities.

7. Implementation by Ministries/Departments:
o Administrative Ministries/Departments must ensure compliance by CPSEs under their
jurisdiction.

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 Lesson: 11 (Business Ethics, Code of Conduct and Anti-Bribery)
Establishment of Lokpal (Section 3)
1. Formation:
o The Lokpal is established from the commencement of the Act.

o It consists of:

 Chairperson: Either a Chief Justice of India, a Supreme Court Judge, or an eminent

person meeting eligibility criteria.
 Members: Maximum of 8 Members, with 50% Judicial Members.
 Reservation: At least 50% of Members must belong to Scheduled Castes,
Scheduled Tribes, Other Backward Classes, Minorities, or women.
2. Eligibility:
o Judicial Members: Must have been a Judge of the Supreme Court or Chief Justice of a High
Court.
o Non-Judicial Members: Must have 25 years of expertise in fields like anti-corruption,
public administration, finance, or law.

ICSI Anti-Bribery Code

Objective
 Ensure no bribery by the company, its employees, or representatives in economic, financial, or
commercial activities.
Scope
Applicable to:
1. Board of Directors
2. Employees (full-time, part-time, or contractual).
3. Agents, Associates, Consultants, Advisors, Representatives, and Intermediaries.
4. Contractors, Sub-contractors, and Suppliers of goods/services.
Key Clauses
1. Adherence to Anti-Corruption Laws:
o The company must comply with all applicable anti-corruption laws in India.

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 2. Bribery in Private Sector:
o Bribery is strictly prohibited for employees, directors, or representatives.

3. Facilitation Payments:
o No facilitation payments are allowed, directly or indirectly.

4. Bribery to Foreign Public Officials:

o Prohibited in international business to influence officials for improper advantage.

5. Policy for Gifts, Hospitality & Expenses:

o Must follow a Board-approved policy.

6. Whistle-Blower Mechanism:
o Employees and stakeholders can report violations via a Board-approved whistle-blower
mechanism.
7. Training & Awareness:
o Annual Anti-Bribery training and awareness programs for employees, agents, and
contractors.
8. Monitoring Mechanism:
o Regular monitoring of compliance with the Anti-Bribery Code.

9. Sanctions for Non-Compliance:

o Disciplinary action for non-compliance includes:

 Nature of the offense.

 Penalty.
 Authority overseeing the matter.

Lesson: 15 (Green Initiatives)

Vital Measures taken by the Government for pollution abatement:
1. ♻ Circular Economy & Waste to Wealth
Promotes recycling and reuse of waste like batteries, tyres, e-waste, oil, etc.
Encourages industries to take responsibility for managing the waste they produce.
2. 🌬 National Clean Air Programme
Aims to reduce air pollution in cities and improve air quality.
Involves city- and state-level action plans and capacity building support.

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3. 🐦 Ramsar Wetlands (Protected Wetlands)
A Ramsar Site is a wetland area (like lakes, rivers, marshes, mangroves) declared internationally important
under the Ramsar Convention of 1971. It helps protect biodiversity, supports migratory birds, provides
clean water and food, controls floods, and helps fight climate change. Ramsar Sites are essential for both
nature and human well-being.
 India has 75 Ramsar sites (as of Aug 2022) – most in Asia.
 Wetlands are rich in birds, reptiles, and animals.
 To protect these critical ecosystems, India follows the Wetlands Rules, 2017.

4. 🚯 Ban on Single Use Plastic (SUP) – from 1 July 2022

 India banned many plastic items like:
o Plastic earbuds, balloon sticks, straws, plates, spoons, banners <100 microns.
 Plastic bag thickness raised to 120 microns (Dec 2022).
 Boost to eco-friendly alternatives:
o Like packaging from seaweed, banana leaves, rice stubble.
o MSMEs and start-ups encouraged.
 Campaigns by NSS, NCC, and eco-clubs in schools.

5. 💰 Budgetary Environmental Focus

Allocates funds and support for eco-restoration (like mangroves and wetlands).
Supports sustainable livelihoods and biodiversity through financial planning.

6. 💸 Green Bonds
 India will sell Sovereign Green Bonds.
 Money will fund eco-projects (like clean energy).
 Helps meet climate goals from the Paris Agreement (NDCs).

📘 Resource Efficiency
Resource Efficiency means using limited natural resources sustainably while minimizing environmental
impact, and maximizing value/output with fewer inputs.

🌍 "Doing more with less" – maximizing economic value while minimizing energy, water, materials, and waste.

Ways to Improve Resource Efficiency in Business

1. Apply Waste Hierarchy
 Follow: Prevent → Reuse → Recycle → Recover → Dispose
 Identify waste → Reduce, reuse or turn into energy (like compost).
2. Waste Assessment
 Check where most waste is coming from.
 Find better processes or materials to reduce waste.
3. Control Waste
 Train staff, use proper tools, and improve systems.
 Better accuracy = less waste = lower cost + greener work.
4. Environmental Management Systems (EMS)
 Use standards like ISO 14001 to improve environmental performance and reduce liability.
5. Reduce Energy Consumption

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  Turn off lights/equipment when not needed.
 Use cold water, energy-saving settings.
6. Increase Energy Efficiency
 Example: Shift to LED lights (save up to 90% energy).
7. Communicate with Staff
 Explain goals clearly.
 Use a participative management style to get feedback.
 Staff awareness = better practices = less waste.
8. Reuse & Refill Approach
 Example: Tide bottles use 25% recycled plastic.
 SodaStream helps reduce plastic bottles.
 Mumbai Dabbawalas – metal lunchboxes reused daily.
 Refill models reduce packaging & attract eco-conscious customers.
9. Reduce Office Waste
 Discourage printing – use digital documents.
 Follow the hierarchy – prevent waste first, even if recyclable.
10. Know the Law
 Understand rules on waste disposal:
o Keep waste minimum
o Store & sort properly
o Fill transfer notes
o Register waste carrier
o Ensure legal disposal.

🌱 Renewable Energy Intensity

 Energy Intensity refers to the amount of energy required to produce one unit of GDP.
 Renewable Energy Intensity indicates the growing share of renewables in energy production, both
globally and nationally.

📘 Water Management
🌍 Importance of Water Management
 Water is essential for human health, hygiene, economic development, and environmental
sustainability.
⚠️Challenges in Global Water Resources
 Misuse, over-extraction of groundwater, and contamination have worsened water stress.
 Climate change, underinvestment, degraded ecosystems, and poor cooperation on transboundary
waters contribute to the problem.

💧 Water Management & Stewardship

Water management = Planning, distributing, and managing water resources optimally.
 Water is a shared resource — mismanagement by one affects all.
 Companies increasingly view water as a material risk:
o Scarcity, droughts, and floods impact operations and supply chains.
o Can lead to higher costs, regulatory risks, and reputational damage.
📌 Sustainable water management is now a strategic business priority.

🤝 Water Stewardship – A Collective Approach

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Water stewardship = Using water in a way that is:
 Environmentally sustainable
 Socially equitable
 Economically beneficial
Achieved through multi-stakeholder engagement, including:
 Companies
 NGOs
 Investors
 Governments.

✅ Top Water Management Trends (DAD WWF ID)

Why this matters: There’s a water crisis – not enough clean water, too much pollution, and climate change
is making floods and droughts worse. So, people are finding smart ways to manage and save water.

1. Decentralized Infrastructure
🏡 Idea: Build small water systems in villages or homes, so people don’t depend only on big city supply.
💡 Example: A machine that makes water from air in areas with no clean water.
Tech: Digital tracking, atmospheric water generators (converts air to water).

2. Advanced Filtration
🧃 Idea: Use new types of filters to remove tiny dirt and chemicals from water.
💡 Example: Filters that use super small materials (nano) or helpful bacteria.
Tech: Nanocomposite membranes, biological filtration.

3. Desalination
🌊 Idea: Remove salt from sea water to make it drinkable in cheaper, eco-friendly ways.
💡 Example: Using sunlight instead of heavy machines to clean sea water.

4. Wastewater Processing
🧼 Idea: Clean used water from homes and factories so it can be reused.
💡 Example: Using sunlight and good bacteria to clean water instead of letting it go to waste.

5. Water-saving Tech
🚿 Idea: Use smart toilets, taps, and farming methods to use less water.
💡 Example: A shower head that gives the same feel but uses half the water.
Tech: Smart taps, toilets, shower heads.

6. Flood Prevention
Idea: Use smart tools to warn about floods early and stop damage.
💡 Example: Use drones or weather tools to predict heavy rain or flooding in advance.
Tech: Smart dams, Drones, satellites and flood blocks.

7. Innovative Materials
🔬 Idea: Use new types of materials to clean or manage water better.
💡 Example: Special sponges or filters that clean water quickly and cheaply.
Tech: Adsorbents, electrodes, nanoparticles.

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8. Digital Water Management
🧠 Idea: Use computers, sensors, apps to watch and control water use.
💡 Example: An app that tells you where water is leaking or a system that controls water pumps
automatically.
Tech used: AI, IoT, cloud.

Eg: JK Tyre – Inside the Factory ("Within the Fence")

🏭 Focus: Recycle and reuse water
💡 Actions Taken:
 Closed open drains
 Stopped wastage
 Used cooling towers smartly
 Harvested rainwater
✅ Result: Big drop in water use.

✅ Efficient Water Management in Industries (DSP WORE C)

(For Manufacturing Sector and Beyond)

1. Demineralization (DM) Plant Conservation

🧪 These plants remove minerals to make very pure water. By reusing the final rinse water, fixing leaky taps &
pipes and using special filters, the plant saves water that would otherwise be wasted.

2. Steam Water (Condensate) Recovery

🔥 Steam turns back into water after use (called condensate). If this water is collected, cleaned, and reused, it
reduces the need for fresh water and saves money on cleaning and chemicals.

3. Softening Plant Efficiency

🧂These plants remove hardness from water but use salt in the process. By recycling salty water and reusing
it in cleaning, the factory reduces both water and salt usage, saving water and chemicals.

4. Pre-Treatment Plant Measures

🏭 Water is cleaned before use using big tanks and filters
📋 Water is cleaned before use. Instead of throwing away dirty water from cleaning, the factory cleans it again
and uses it multiple times. This recycling reduces the amount of fresh water needed.

5. Water Audit
📌 Purpose:
 Find where water is overused or wasted
 Know how much is used and where
 Compare with best practices
 Optimize treatment and cost
📋 By checking carefully where and how much water is used, factories find places where water is wasted or
overused. This helps them plan to reduce water use and avoid unnecessary wastage.

6. Offices and Residential Colonies

🏠 In living and working areas, using sensor taps, timing water supply, and recycling used water for non-
drinking purposes help reduce unnecessary water wastage.

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7. Rainwater Harvesting
Collecting rainwater from rooftops and sending it to underground wells helps refill groundwater. This
means less dependence on other water sources, saving water especially in dry areas.

8. Effluent Treatment and Reuse

💧 Factory wastewater (effluent) is cleaned and reused instead of being thrown away. Using this treated
water for gardening, toilets, or even back in the factory lowers fresh water consumption and aims for zero
water waste.

9. Cooling Water Conservation

💧 Most water in factories is used for cooling machines
📋 Since machines need a lot of water to stay cool, saving water here makes a big difference. Using air-based
cooling instead of water to cool machines, cleaning and reusing cooling water, and reducing evaporation all
help lower the fresh water needed.

🌍 Waste Management
Waste management involves handling and disposing of waste in ways that reduce unusable material and
prevent health and environmental hazards.
It includes activities such as:
 Discarding
 Destroying
 Processing
 Recycling
 Reusing
 Controlling waste
Modern waste management follows 7 R’s:
Reduce, Reuse, Recycle, Rethink, Refuse, Regulate, Research.

🧺 Types & Sources of Waste

🏠 Domestic Waste
 Kitchen waste: vegetable and fruit peels, leftover food
 Sewage: human waste, grey water
 Household garbage: newspapers, hair, plastic bags, bottles
🌾 Agricultural Waste
 Crop residues: husk, straw, animal waste
 Chemicals: pesticides, herbicides, rodenticides, fertilizers
 These can run off into water sources, harming aquatic life
🏭 Industrial Waste
 Ashes, metal/plastic containers, building debris, toxic chemicals
 Food industry: organic matter from dairy, meat, breweries
 Mining: leaves tailings (rock waste)
 Refineries: hydrocarbons, organic acids, sulphur compounds
🏢 Commercial Waste
 Markets, restaurants, hospitals, offices: generate waste like packaging, medical waste, used oil, etc.

🟩 Waste Classification

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(A) Biodegradable Waste
Wastes that can be decomposed by microorganisms (like bacteria and fungi). They undergo rotting or
degradation.
Examples: food waste, paper, leaves

🟢 Segregation:
 Separate waste into biodegradable (green bins) and non-biodegradable (blue bins).
 Green bins are for organic matter that rots.
 Blue bins are for recyclable materials.
 This facilitates easier sorting and recycling.

🌱 Composting: Recycling organic wastes (vegetable peels, food scraps, leaves, etc.) by burying them in
compost pits. Microorganisms decompose the waste into nutrient-rich manure.

🪱 Vermicomposting: A type of composting using red worms (red wrigglers). Red worms break down
organic matter into high-quality manure, enhancing soil fertility.

Landfills:
 Large areas for waste disposal where garbage is buried.
 Used for managing large amounts of biodegradable waste.
 Decomposition is slow in landfills.
 Full landfills can potentially be converted into parks.

(B) Non-Biodegradable Waste

Wastes that cannot be easily decomposed; they do not rot.
Examples: plastics, metals, glass, polythene bags
Risks:
 Block drains, causing stagnant water
 Leach harmful substances into groundwater
 Pollute rivers, lakes, and seas
 Pose health risks to humans and animals.
🔄 Recycling: A key method for managing non-biodegradable waste like plastic, paper, glass, iron, and cloth.
Reduces landfill waste, prevents deforestation, and saves energy and has economic value.

🔥 Incineration: Used for non-recyclable non-biodegradable waste. Decomposes waste at very high
temperatures (above 5000°C) and reduces volume of waste.

🙋 Individual Management: Proper waste disposal at home helps stop water contamination and keeps the
environment clean. Use separate bins:
 Separating biodegradable and non-biodegradable waste at the source.
 Adopting recycling practices whenever possible at an individual level.

♻️Forms of Waste Management

There are 4 main types of waste management:
1. Solid Waste Management
2. Liquid Waste Management

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 3. Biomedical Waste Management
4. E-Waste Management

🧱 1. Solid Waste Management

💡 What is it?
Managing waste like:
 Household garbage
 Industrial waste
 Market and street waste

⚠️Why It’s a Problem:

 In poor countries, 90% waste is dumped or burned openly
 This causes:
o Health problems (disease, dirty environment)
o Pollution (air, water, land)
o Global warming (methane gas from waste)
o Urban issues (like violence due to poor sanitation)

💰 Challenge:
 Waste management is costly — it takes up 20–50% of city budgets
 Needs proper systems that are efficient, eco-friendly, and accepted by people.

💧 2. Liquid Waste Management

Liquid waste includes:
 Household waste like wastewater, fats, oils, grease (FOG), and used oil
 Commercial/industrial liquids like cleaning fluids, pesticides, and chemicals
 Sludges and gases that are harmful to health or the environment
Many of these are hazardous and require careful treatment and disposal.

🧾 Types of Liquid Waste

🧼 (a) Household Liquid Waste
 Comes from kitchen and bathroom cleaning, cooking, etc.
 Two types:
o Sullage: Greywater from sinks and baths (not toilets)
o Sewage: Includes sullage + blackwater (wastewater with human excreta).

🏭 (b) Industrial Liquid Waste

 From factories and industrial processes
 Can be toxic, acidic, or chemical-heavy
 Dangerous if directly released into rivers/lakes
 Major projects (like oil drilling) also produce large-scale spillage and runoff.

(c) Commercial Liquid Waste

 Comes from places like restaurants and food stalls
 Contains grease, oils, and high-volume wastewater.

(d) Stormwater

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  Rainwater runoff from roads, buildings, and streets
 Carries dirt, chemicals, and waste into natural water bodies
 Not treated like domestic wastewater.

🏥 3. Bio-medical Waste Management

🧬 What is Biomedical Waste?
Biomedical waste refers to any solid or liquid waste (including its container) that is produced during:
 Diagnosis, treatment, or immunization of humans or animals
 Medical research or testing of biologicals
 Health camps or related healthcare activities

It is dangerous mainly because of:

 Infectivity (can spread diseases)
 Toxicity (contains harmful substances)

🧾 Examples of Biomedical Waste

🧍‍♂️Human Anatomical Waste: Tissues, organs, body parts
🐾 Animal Waste: From veterinary hospitals or research labs
🦠 Microbiology/Biotech Waste: Culture plates, lab material
💉 Sharps: Needles, syringes, scalpels, broken glass
💊 Discarded Medicines: Expired or unused drugs, cytotoxic drugs
🩹 Soiled Waste: Blood-stained dressings, bandages, catheters
🧪 Liquid Waste: From infected labs or wards
🔥 Incineration Ash & Chemicals: From burning biomedical items

🧯 Methods of Biomedical Waste Disposal

♨️(i) Autoclaving
 Uses high-pressure steam to sterilize waste
 Destroys all microorganisms
 Low-cost, safe and widely used
 Does not release toxic gases like incineration.

⚡ (ii) Microwaving
 Uses microwave radiation to heat moist waste and kill microbes.
 Waste is shredded, mixed with water, then heated using microwaves to kill microorganisms
internally
 Eco-friendly and reduces waste volume.

🔥 (iii) Incineration
 Burns infectious and pharmaceutical waste at high temperatures to destroy it completely.
 Effective but may release harmful air pollutants.

🧪 (iv) Chemical Disinfection

 Applies disinfectants (like chlorine) to kill germs, mainly in liquid waste.
 Decontaminated liquid can be safely discharged into drains.
 For solid waste: It’s better if grinded before applying chemicals.

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🔌 4. E-Waste Management
💻 What is E-Waste?
E-Waste refers to electronic and electrical items that are:
 No longer in use
 Broken, outdated or nearing end of life

This includes:
📺 Computers, TVs, VCRs
Copiers, fax machines
🔌 Household appliances, lighting, tools, toys, gadgets

These wastes often contain both valuable materials (like metals) and hazardous substances (like lead,
mercury), and need special recycling and disposal methods.

♻️Measures to Reduce E-Waste

📌 (i) Avoid Unnecessary Purchases
 Buy durable, recyclable products
 Keep secure data in old devices before disposal
📌 (ii) Donate or Resell
 Donate usable electronics
 Use buy-back programs to return old gadgets for new ones
📌 (iii) Cloud Storage
 Use cloud services to reduce need for physical storage devices.

📘 Plastic Waste Management

✅ Plastic Waste Management Rules, 2016 (Replaced 2011 rules)
Aimed to align with Swachh Bharat vision and improve sustainability:
♻️Key Highlights:
 Minimum thickness raised to 120 microns (for bags & sheets)
 Extended applicability to rural areas
 EPR introduced: Producers/importers responsible for collecting plastic waste
 Mandatory pre-registration via a central online portal
 Packaging to display producer/importer name & registration number
 Quarterly/annual reports required from recyclers, manufacturers, and sellers
 Plastic waste to be used in road construction, energy recovery, waste-to-oil
 Environmental Compensation on violators based on the polluter pays principle.

Environmental & Health Impacts of Plastic Waste

⚠️Major Issues:
 Toxic gases during plastic manufacturing & burning (CO, dioxins, furans, etc.)
 Plastics dumped in soil reduce fertility
 Non-recyclable plastic (multilayered, metallized) is difficult to dispose
 Clogging of drains → Urban floods
 Mixed garbage with plastics hampers waste processing

Challenges in Implementation
 High use of single-use plastics with short life span

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  Weak enforcement by local authorities
 Poor segregation and collection systems
 Inadequate infrastructure for recycling and disposal.

Extended Producer Responsibility (EPR)

🌱 Core Idea:
Based on the polluter-pays principle, EPR holds producers (manufacturers, importers, brand owners)
responsible for financing and managing waste from their products at end-of-life.

🎯 What EPR Tries to Achieve

1. Make Producers Responsible: Design → Production → Disposal = Entire lifecycle responsibility
2. 🔄 Keep Materials in Use (Circular Economy): Reduce, reuse, recycle – so fewer resources are
wasted
3. 🚯 Prevent Waste: Push companies to design smarter, less wasteful products
4. 🧪 Promote Eco-Design: Products/packaging made with sustainable, recyclable materials
5. 🧹 Improve Waste Collection: Collaborate with local authorities for efficient collection and sorting
6. 🌍 Develop Circular Systems: New business models focused on reuse and regeneration.

🌟 Why EPR is Beneficial

1. 🤝 Involves Everyone: Govt + Industry + People = Shared responsibility
2. 📉 Reduces Carbon Emissions: More recycling = Less energy used = Lower emissions
3. 📦 Improves Product Design: Encourages recyclable and longer-lasting products
4. 🔍 Enables Better Tracking: Follow products through their life cycle.
5. 💸 Eases Public Costs: Companies pay via EPR funds – less tax burden on people.

🏢 Role of PROs (Producer Responsibility Organisations)

PROs are collective bodies created by companies to carry out their EPR duties.
They handle:
1. 📢 Awareness Campaigns: Teach consumers about sorting and reducing waste
2. 🚛 Collection & Recycling: Coordinate pick-up and processing of packaging & product waste
3. 🎨 Eco-Design Promotion: Help companies innovate better packaging/product design
4. 🔬 Support for R&D: Fund innovation for smarter recycling & material recovery.
5. Collaboration with Local Bodies: Work with municipalities for smoother waste handling.

🚫 Not a Tax!
💰 Contributions to PROs are not public tax
They’re directly used for waste management – not absorbed into govt budgets.

📦 Extended Producer Responsibility (EPR) in India – PIBO Obligations

👥 Who is covered?
All Producers, Importers, and Brand Owners (PIBOs) who use plastic packaging in India — regardless
of size or turnover.

📋 PIBO Obligations under EPR Framework:

🔗 1. Registration:
Register on the EPR portal of the Government of India.

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2. Action Plan:
Submit a detailed Action Plan explaining how EPR targets will be met.
♻️3. Fulfilment Areas:
PIBOs must meet targets in the following key areas:
(a) Recycling
(b) Use of Recycled Content
(c) Reuse
(d) End-of-Life Disposal
(e) Collection & Recovery (Optional)
(f) Annual Returns
(g) Plastic Credits (Certificates)
(h) Individual Responsibility.

🌍 European Green Deal

The European Green Deal is the EU’s strategic roadmap to make its economy sustainable by addressing
climate and environmental challenges. It’s not just about saving the environment — it’s about transforming
challenges into economic opportunities and ensuring no one is left behind in the transition.

🎯 Main Goals of the European Green Deal:

🌱 1. Climate Neutrality by 2050: Achieve net-zero greenhouse gas emissions across the EU by 2050.
🔗 2. Decoupling Growth from Resource Use: Enable economic growth without increasing the use of
natural resources.
🧍‍♂️ 3. Inclusive Transition: Ensure that no person and no region is left behind in the green
transformation.

Key Benefits for Citizens & the Planet:

Fresh air & clean water
🪴 Healthy soil & restored biodiversity
🏠 Renovated, energy-efficient buildings
🥗 Healthy and affordable food
🚉 More public transportation options
🔋 Cleaner energy sources & clean-tech innovation
🔁 Durable products – easy to repair, recycle & reuse
👷‍♂️Future-proof jobs and green skill development
🏭 A globally competitive, resilient industry.

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