Rakesh is the Managing Director of ABC Co. Ltd., a listed company having its registered office in Bangalore. In December, 2018 an allegation of the Managing Director's immediate family members and Alfa Co. Ltd. which got

CS Professional · Governance, Risk Management, Compliances and Ethics · PYQS · December 2020
Rakesh is the Managing Director of ABC Co. Ltd., a listed company having its registered office in Bangalore. In December, 2018 an allegation of the Managing Director's immediate family members and Alfa Co. Ltd. which got a ₹1,000 crore contract from ABC Co. Ltd. entering into a quid pro quo deal surfaced in the public domain. The matter was personally enquired by the Chairman of the Board of Directors and nothing improper was found. In March, 2019 another complaint from an anonymous "Whistle Blower" was received alleging non-adherence to code to conduct, conflict of interest and quid pro quo by the Managing Director while dealing "with certain customers." The allegations were refuted by the Board of Directors of ABC Co. Ltd. as "being malicious and baseless" but when the controversy started getting blown out of proportion the company stated in a regulatory filing that its Board had decided to institute an independent enquiry in the matter and pending such enquiry, the Managing Director had been asked to go on leave. The enquiry revealed that Rakesh did not make proper disclosure about his family links with the corporate customer to the Board. It also transpired that Rakesh gave scant respect to "conflict of interest and due disclosure or recusal requirements" while awarding contracts to Alfa Co. Ltd. with which his close family members had business interests. Upon the findings of the enquiry being made public, Rakesh resigned and the company stated that it will treat his resignation as "termination for cause" and will also stop payments of unpaid benefits due to him. In the background of the aforesaid case, answer the following questions: Discuss the principles for Corporate Governance in order to improve the practices followed by ABC Co. Ltd. to prevent such situations from recurring.

Answer & Explanation:

To improve its functioning and efficiency, ABC Co. Ltd. should align its corporate governance practices with the board principles for corporate governance by listed entities as given below: The company should ensure timely and accurate disclosure of all material matters including the financial position, performance, ownership and governance of the company. The responsibilities of the board of directors should be clearly defined. The board of directors shall lay down a code of conduct for all members of board of directors and senior management of the listed entity. All members of the board of directors and senior management personnel shall affirm compliance with the code of conduct of board of directors and senior management on an annual basis. The Board should monitor and manage potential conflicts of interest of management, members of the board of directors and shareholders, including misuse of corporate assets and abuse in related party transactions The board of directors shall exercise objective independent judgement on corporate affairs. The board of directors shall consider assigning a sufficient number of non-executive members of the board of directors capable of exercising independent judgement to tasks where there is a potential for conflict of interest. Members of the board of directors shall act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the listed entity and the shareholders. The board of directors shall set a corporate culture and the values by which executives throughout a group shall behave. The board of directors shall maintain high ethical standards and shall take into account the interests of stakeholders.

Topics: Corporate Governance

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