Question
Download Solution PDFComprehension
Read the following passage carefully, and answer the questions.
Securities and Exchange Board of India (SEBI) in 1999 set up a committee under Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the standards of good corporate governance. The primary objective of the committee was to view corporate governance from the perspective of the investors and shareholders and to prepare a 'Code' to suit the Indian corporate environment.
The mandatory recommendations apply to the listed companies with paid up share capital of Rs. 3 crore and above. The composition of board of directors should be a combination of executive and non-executive directors. Audit committee should contain 3 independent directors with one having financial and accounting knowledge. The Board should hold at least 4 meetings in a year with a maximum gap of 4 months between 2 meetings to review operational plans, capital budgets, quarterly results, minutes of committee's meeting. The director shall not be member of more than 10 committee and shall not act as chairman of more than 5 committees across all companies.
The non-mandatory recommendations were to apply to all the listed private and public sector companies, their directors, management, employees and professionals associated with such companies. The committee recognizes that compliance with the recommendations would involve restructuring the existing boards of companies. It also recognizes that smaller ones will have difficulty in immediately complying with these conditions.
Non-Mandatory Recommendations were to apply to:
A. Listed private
B. Listed public sector companies
C. Shareholders
D. Professionals associated
Choose the correct answer from the options given below:
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is A, B and D
Key Points
- Non-mandatory recommendations were to apply to listed private companies, listed public sector companies, and professionals associated:
- The passage clearly mentions that these recommendations apply to listed private and public sector companies, along with their directors, management, employees, and professionals associated with them.
- This ensures that voluntary compliance with governance standards is encouraged not just among large public entities, but also across smaller or privately held listed firms.
- For financial enterprises, professionals such as auditors, compliance officers, and governance advisors are critical in applying such recommendations and fostering transparency and accountability.
- Applying these recommendations to a broader range of participants ensures a culture of corporate ethics, especially vital in sectors dealing with public funds and investments.
Additional Information
- Shareholders are not included under non-mandatory recommendations:
- The passage does not state that shareholders are part of the target audience for non-mandatory recommendations.
- Shareholders benefit from corporate governance practices, but the application of these recommendations is focused on the internal structure of companies and associated professionals.
- Therefore, including shareholders in the list is incorrect, making any answer option containing “C” invalid.
- The recommendations aim to improve internal governance rather than investor behavior:
- While good governance indirectly protects investors, the non-mandatory code is about improving the conduct and structure within corporations, not imposing standards on shareholders themselves.