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CHAPTER – 4

CORPORATE GOVERNANCE IN SELECTED COMPANIES

Profiles and Scenario of Corporate Governance in Select Paper

Industries

The study is based on 12 select paper industries in India. Basing on

the scoring pattern adopted by Institute of Company Secretaries of India

(ICSI), corporate governance is measured in these units. The basis for

selection is on the basis of Information available on the Annual Returns

provided by these companies the scores are assigned.

The brief profiles of select paper units are as follows:

1. BILT (Ballarpur Industries Ltd.)

2. ITC

3. TNPL (Tanilanadu News Print Ltd.)

4. Sirpur Paper Mills Ltd

5. West Coast Paper Ltd.

6. Orient Papers

7. ABC Papers

8. Rain Bow Papers

9. Yash Papers

10. Emami Paper Mills

11. Star Paper Mills Ltd.

12. AP Paper Mills Ltd.

BILT (Ballarpur Industries Ltd.,):

Ballarpur Industries Limited (BILT) founded in 1945, with the name of

Ballarpur Paper and Straw Board Mills Limited. The company changed its

name to Ballarpur Industries (BILT) in 1975. BILT is the largest paper

manufacturing company in India. The company product portfolio includes -

coated wood free paper, uncoated hi-bright paper (Maplitho), business

stationery, copy paper, and speciality & fine paper.

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In 2006, BILT controlled approximately 21 % of Writing and Printing

Paper (WPP) market and approximately 53 % of the coated paper market.

The company is pursuing both organic and inorganic strategy to increase its

installed capacity to 1.0 million tonnes paper by 2010. In 2006, the

company acquired a paper manufacturing firm, Sabah Forest Industries, in

Malaysia. The acquisition not only help the company to secure the future

supply but also provide a platform to the company to enter the South-east

and east Asian market To maintains its leadership in the market, BILT is

focusing on 4 key areas: - Securing raw material supply - Rapidly developing

larger scale of operations - Continuously innovating to introduce new

products and grow new markets.

The company operations span across 6 units, together with a capacity

of 480,000 tonnes and a pulp mill of capacity 100,000 tonnes

manufacturing rayon grade pulp, in the state of Andhra Pradesh

(Kamlapuram Unit). BILT is also expanding its production capacity in both

coated and non-coated paper, to take its current capacity of 480,000 tonnes

in 2006 to around 1.0 million tonnes by 2009-10. With the increase in

overall capacity, the company expects to double its turnover by 2009-10. In

October 2007, the company announced to increase the capacity of its coated

wood free paper unit at Bhigwan in Pune by adding 190,000 tonnes. After

the expansion, the total unit capacity would increase to 315,000 tonnes. The

main plant and machinery and its installation would be supplied by Voith,

Germany, while some equipment will be sourced locally from suppliers like

L&T, etc. In July 2007, the company also initiated a restructuring plan,

under which it would transfer 3 manufacturing units at Bhigwan, Ballarpur

and Kamalapuram, to a separate company called BILT Graphic Paper

Products, which would be transferred to Ballarpur Paper Holdings BV (BPH)

after court approval. By this exercise, the company would transfer its

commodity business, which is capital-intensive and would focus on the

specialty and consumer-focused products business.

149

ITC:

ITC’s paperboards and specialty paper unit was created after the

merger of ITC Bhadrachalam Paperboards Limited with ITC in 2002. The

company produces paperboards and specialty paper for all types of carton-

consuming segments including cigarettes, foods, beverages, pharma,

personal care & toiletries, durables and match shells. - ITC also makes some

of the premium graphic boards used for greeting cards , covers, sleeves, tags

and playing cards. - It produces both virgin and recycled boards spanning

the full requirement of a packaging customer. ITC paper unit exports nearly

15% of the coated papers to customer requirements in Malaysia, Sri Lanka,

Bangladesh, Iran, Australia, UAE, UK, Italy, Poland and Russia.

The paperboard, paper & packaging segment is one of main focus area

of the company, accounted for approximately 10% revenue of the ITC group.

The company wants to maintain its leadership in value-added coated boards

segment by using latest technology. ITC is also looking to integrate its

operation fully by creating in-house pulping capacity. In 2007, it has a

240,000 tonnes of Elemental Chlorine Free pulp capacity at Bhadrachalam

mill ITC Limited.

The company has four manufacturing units: - Bollaram unit is a value

addition plant, which gets paper from ITC & other units and adds value like

coating and polylaminating. Tribeni plant manufactures cigarette tissues to

fine papers, packaging papers and specialties. It has 3 paper machines

Bhadrachalam unit has 3 board machines and 2 smaller paper machines.

Kovai unit was acquired from BILT in 2004. It has a single board machine,

producing coated duplex boards greyback and white back made with 100%

recycled fibre.

ITC paperboards business has a manufacturing capacity of 352,000

tonnes per annum and it produced 390,000 tonnes of paperboards and

139,000 tonnes of value added paperboards in 2006-07. In 2007, the

company initiated 2 major capacity expansion projects - 90,000 tonnes

150

paperboard machine and 100,000 tonnes paper machine for manufacturing

uncoated paper including branded copier grades.

TNPL:

Tamil Nadu Newsprint and Papers Limited (TNPL) was established by

the Government of Tami Nadu during early eighties to produce Newsprint

and Printing & Writing Paper using bagasse, a sugarcane residue, as

primary raw material. The Company commenced production in the year

1984 with a initial capacity of 90,000 tonnes per annum (tpa). Over the

years, the production capacity has been increased to 2,45,000 tpa and the

Company has emerged as the largest bagasse based Paper Mill in the world

consuming about one million tonnes of bagasse every year. The

Company completed a Mill Expansion Plan during December 2010 to

increase the mill capacity to 4,00,000 tpa.

TNPL exports about 1/5th of its production to more than 30

countries. Manufacturing of quality paper for the past two and half decades

from bagasse is an index of the company’s technological competence. A

strong record in adopting minimum impact best process technology,

responsible waste management, reduced pollution load and commitment to

the corporate social responsibility make the company one of the most

environmentally compliant paper mills in the world.

Sirpur Paper Mills Limited:

Sirpur Paper Mills (SPM) was incorporated in 1938 as an integrated

paper manufacturing Company, management was controlled by Hyderabad

Construction Company Ltd. In 1942 production commenced with 14 TPD. In

1953, Management was taken over by Birla Brothers. It is one of the largest

manufacturers of variety and colour paper in India. It is headquartered in

Sirpur Kaghaznagar. Manufacturing facility at Sirpur Kaghaznagar was

originally designed to manufacture 5,100 tonnes per anum of paper. With a

series of expansions taken place during these years it has increased the

installed capacity to 83,550 tonnes per annum. SPM also has a machinery

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division and a consultancy division. The other company in the Poddar group

includes the profitable flagship, Aravali Leasing (ALL). The company

manufactures all kind of paper products including writing paper, printing

paper, bank ledgers, Indian account book paper, imitation art, imitation laid

craft, typewriting paper, duplicating paper, wrapping paper, art paper,

chrome paper and bond paper. All its products are sold under the Sirpur

trade name. The company to improve its realisation is taking adequate steps

to cut manufacturing cost. In this direction it has installed 75 TPH FBC

Boiler and it is expected to result in consumption of cheaper varieties of coal

thus cost saving. The company sponsored a farm forestry scheme for raising

fast growing species of pulpwood plants under its social forestry programme.

The company has acquired 100% shares of Sirpur Stationery Products Ltd

in 1999-2000, to establish a paper conversion unit. In 2003-04, the Andhra

Pradesh government disinvested its 6.34 percent stake in the Company

which was purchased by the promoters enhancing their stake in the

Company 43.25 percent.

West Coast Paper Mills:

The Company – promoted by Shree Digvijay Cement Company

Limited, Sikka, and Gujarat State in 1955 – is located at Dandeli in

Karnataka. The location of the factory – Dandeli - was opted as the most

suitable and advantageous, being situated in the heart of thick forests on

the banks of river Kali and the major factors that weighed in its favour were

the assurance of the then State Government of Maharashtra for continued

supply of forest-based raw materials, availability of water from the perennial

Kali river, assured power supply from the State Grid.

Initially, the plant was designed to manufacture 18,000 TPA of

writing, printing and packaging paper, the commercial production of which

commenced in May 1959. The Company obtained licence from the

Government of India in December 1964 for enhancing the production

capacity to 45,000 TPA by installing balancing equipments, which was

completed in 1972. Subsequently, the company had implemented Crash

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programme in 1974 to further increase the production capacity to 60,000

TPA against the licence issued in July 1972. The licenced capacity was re-

endorsed for 69,000 TPA in November 1991.

The production capacity has been increased to 1,19,750 TPA after

successful implementation of modernization/expansion programme in 1996-

97 diversifying into new product – duplex board – apart from the existing

varieties of paper and paperboard. This also included rebuilding of Paper

Machine No. III [by adding Trinip Press, Dryers and Calendar Stack, Size

Press, Colour Kitchen and Process Automation], balancing of Pulp Mill,

Power House and other sections of the Mills, besides setting up of 75 TPD

Duplex Board M/c. (Paper M/c No. V). After commissioning of 100 TPD

duplex board machine (PM IV), coupled with rebuilding of Paper M/c. No. II,

the total production capacity has further increased to 1,57,750 TPA in 2001-

02 and to 1,63,750 TPA in 2003-04 on rebuilding of PM I and achieving

higher production of duplex board on Paper M/c No. IV. The Company has

taken up in 2007 further expansion programme with a capital outlay of `

1375 Cr and completed it in May 2010, consequent to which present

production capacity is 3,20,000 TPA. The performance of the company

during the last 5 years period was as under (See Table 4.1):

TABLE – 4.1: PERFORMANCE OF WEST COAST PAPER MILLS

Year Ended

31st March

Production (Paper

& Board) [in M.T.]

Net Sales

with Excise Duty

Gross Profit

[` in Crores]

2006 1,76,221 606.84 69.22

2007 1,78,871 619.44 95.52

2008 1,69,891 653.52 114.38

2009 1,73,682 662.71 120.36

2010 1,73,638 650.50 105.24

Source: Company’s Web site

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The Company also has an excellent track record in timely repayment

of loans/lease rentals to financial institutions/leasing companies and

maintained the same even during recession period to which this industry

has been subjected many a time. This has been highly appreciated by the

financial institutions and lessors.

Orient Paper Mills:

Orient Paper Mills is an arm of premier and most dynamic business

houses of India G P Birla / C K Birla Group, which was incorporated on 25th

July 1936 with a single paper machine and now a multi-product, multi-

location company, that's much more than paper. That's Orient Paper and

Industries Limited (OPIL). No wonder then that in the Paper Industry, apart

from that, commands the status of a leader with a vision. In cement, it has

earned a solid reputation. In appliances, Orient, has become a household

name. And, all combined OPIL in seen as a company with a cutting edge. A

pilot pulp and paper plant of the company was commissioned in February of

the year 1978. The pulp mill was redesigned for production of bleached pulp

from rags, hemp, cotton, stalk, etc., as also from bamboo or other forest

and/or agricultural residents. The name of the company was changed from

Orient Paper Mills Limited to Orient Paper & Industries Limited with effect

from 31st September of the year 1978. In September 1982, a cement plant

was commissioned at Devapur (AP) with an annual capacity of 9 lakh

tonnes. The agreement with Panafrican paper Mills (E.A.) Limited for

providing technical know-how, management and other services was renewed

for a further period of 5 years with effect from 30th June 1989. In end of the

year 1990 the second unit of the cement factory was commissioned. In

1991, the company undertook to supply technical know-how for the

manufacture of paper in and outside India. The first stage of oxygen

bleaching was commissioned for improved brighteners of paper and the he

second stage of chlorine di-oxide bleaching were commissioned in the year

1992 and 1993 respectively. OPIL had granted technical and financial

collaboration to Panafrican Paper Mill (E.A.) Ltd., for setting up pulp and

paper mill in Kenya during the year of 1995. In 1996, the company's 6 MW

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Back Pressure Turbine was commissioned at Amlai to reduce power cost

and reduce dependence on outside supply. The new tissue plant at Amlai

was also commissioned in the year of 1997. Barajrajnagar plant of the

company was suspended since January of the year 1999. OPIL had decided

to sell its cement division in the year 2000. The Company bagged Gold

award for Environmental Excellence in 2001-02, 2002-03 and 2003-04 from

Greentech Foundation, Delhi for Best Environment Management practice

amongst Indian paper mills. In the year 2005, OPIL had introduced high

speed table fans under the appliances division. Amlai paper mill of the

company had installed and commissioned a fly ash brick making plant with

a capacity of 15,000 bricks per day in March of the year 2006. During the

year 2006-07, the cement division of the company d received the Phase-II of

TPM certification certified by ISO-9001 and also in the same year of 2007

OPIL had developed nine clones of eucalyptus suitable for semiarid regions

under paper division. In October 2007, the company had decided to diversify

its activities into manufacturing and marketing of CFL products at an

estimated investment of Rs 400 million. CARE assigned A+ rating to the

company's proposed Secured Redeemable Bonds/Non-Convertible

Debentures (NCD) issue of Rs 1 billion in November 2008.

ABC Papers:

ABC Group, which was earlier being carried on as a Division of Amrit

Corp. Ltd., has been vested in ABC Paper Ltd. under the Scheme of

Restructuring. The paper mill was set-up in the year 1980 in the State of

Punjab – 108 Kms from Chandigarh. As one of the largest wood-free paper

plant, ut uses only agro-wastes like wheat, rice-straw, kana grass etc. to

manufacture fine quality printing & writing paper. ABC Paper is focusing on

branded printing & writing paper, which is extensively used in the printing

of books, trade directories and even as newsprint.

The ABC Paper is located at Saila Khurd, Distt. Hoshiarpur, a small

village, which is a backward area, situated on the main National Highway

connecting Chandigarh – Hoshiarpur – Pathankot.

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The ABC Paper has in-built capacity of 100 TPD of finished paper. The

pulping & finishing section and ancillary facilities (steam, power, bleach and

storage) is over 150 TPD equivalent of paper. The pulping section, in

addition to facilities for straw and bagasse is equipped with a jute street to

handle upto 10% usage in the raw material furnish at 150 TPD paper

production levels. The paper making capacity is reckoned on 52 gsm output

basis. The first two Paper Machines (PM I & II) have a capacity of 15 TPD

each an the third machine (PM III) has a capacity of 70 TPD.

The management of ABC Paper is undertaking a ` 156.93 Crores

expansion and modernization program by setting up

• Capacity Expansion

1. Installation of Paper Machine IV

2. Wood Pulp Street

• Chemical Recovery Plant

• Co-Generation Power Plant

• Power Grid upgradation

Rainbow Paper Mills:

Rainbow Papers commenced its journey with its first venture, a

creping and dyeing unit in 1981. Since then, there has been no looking

back. With two new units flourishing, Rainbow is producing almost 186

different varieties of paper, catering to the diverse segments of the Indian as

well as overseas usage market.

Rainbow, is one of the fastest growing corporations in the Indian

Paper Industry. RPL has marked its presence in the global market and is

currently exporting its products to various countries in the US, Middle East,

South Africa, South East Asia and U.K. We offer a plethora of world class

products ranging from Duplex to File Board, from writing paper to Art Card

and from packaging and Electric grade crepe to Decorative tissues crepe.

Rainbow does not only aim at manufacturing quality products but also has

a wide network of professional dealers and suppliers who strive to make

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sure the products reach the customers wherever they are. RAINBOW has

adhered to its philosophy of 'Ouality and Customer comes first' while facing

competition. 'Quality Consciousness along with Cost Competitiveness'; has

become an obsession with Rainbow. Rainbow is also accredited with ISO

9001, 14001 & OHSAS 18001.

Rainbow is committed to the society. In their quest to serve the needy,

it’s Chairperson and other Directors have joined hands with different trusts

which are running schools, hospitals and homes for senior citizens, thus

fulfilling their duties towards the upliftment of the society. Rainbow has a

dedicated Research & Innovation Team, working day and night to achieve

the organization's objectives and take the organization to far reaching

heights.

Yash Papers:

Yash Papers (located in Faizabad, India) is synonymous with machine-

glazed varieties of paper. Established in 1981, by entrepreneur-promoter KK

Jhunjhunwala - with an installed capacity of 1940 MT per annum in 1983,

Yash Papers started production of low grammage kraft grades. In the year

1991, the Company has set up its Paper Machine II, with a capacity of up to

6000 MTPA, taking the overall capacity to 10,000 MTPA. This machine also

specialized in low grammage kraft varieties.

In the year 1995, Yash Papers set up its own 2.5 MW Power Plant,

with an Extraction-cum-Condensation Turbine. This was a revolutionary

step for a mill of its size at that time. This lower cost of power gave it an

added advantage over other mills, and further helped brand Yash to become

established in the market. At the same time, the Company set up further

capacity enhancements to its Paper Machine II, and boosted total

production to 16,000 MTPA.

In 2007, Yash Papers, grew to more than double of its capacity, by

installing a totally new integrated plant, setting up a pulp mill, producing

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130 TPD, Paper Machine III, to produce bleached MG grades of papers with

a total capacity of 70 TPD, a chemical recovery unit, and a 6 MW Power

Plant.

At the present time, Yash Papers has grown into the largest

manufacturer of wrapping grades in India, with a present installed capacity

of 39,100 MT per annum. Yash Papers practices a singular discipline, focus

on specialty products and quality and has a culture of ploughing back

surpluses into additional capacity.

This preference for the value-approach is reflected in the Company’s

product mix - hard tissue, wrapping grades, packaging, and stationery

grades. These varieties are used in specialised downstream applications like

soap wrapping, food wrapping, pharmaceutical covers, interleaving sheets,

laminating sheets, paper bag, bidi wrapping, gum tape, notebook covering

paper, PE coating in mattress.

Emami Paper Mills:

Emami Paper is the largest newsprint manufacturer in India and has

embarked on an expansion to emerge as one of the largest in its industry in

India.

Emami Paper Mills Limited (established in 1982) is a paper mill based

on recycled - fiber located in Balasore (Orissa) and Kolkata (West Bengal).

The Company is a constituent of the Emami Group, which possesses

diverse business interests comprising FMCG, edible oil, writing instruments,

healthcare, retail departmental stores and real estate.

Star Paper Mills:

Star Paper Mills Limited operates in the Pulp mills sector. Star Paper

Mills Limited is an India-based company. The Company is an integrated

pulp and paper mill located in Saharanpur, Uttar Pradesh. It possesses an

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installed manufacturing capacity of 75,000 tons per annum of paper and

paperboard. It has a range of industrial and cultural paper. The Company

manufactures variety of industrial papers, such as Absorbent Kraft, Poster

ARSR, Ribbed Kraft and others. The Company produces a range of cultural

papers, such as SS Maplitho, Premier Maplitho Paper, MG cover Paper, Pulp

Board and business communication papers, such as Azurelaid and

copiervariety. Its clients include Hindustan Uniliver Limited, Greenply,

Eveready, Golden Laminates, Pearson Education (Singapore) Pte. Ltd.,

Century Laminating, Modecor-Saudi Arabia and publishers in India. Its

subsidiary includes Pallmall Edusystems and Medicare Services Private

Limited. It is a part of the Duncan Goenka Group of Companies.

AP Paper Mills:

The Company was incorporated on 29th June 1964 as "The Andhra

Pradesh Paper Mills Ltd." at Rajahmundry. The Certificate of

Commencement of business was obtained on 10th July 1964.

The Andhra Pradesh Paper Mills Ltd. was formed with infusion of

funds and high calibre management of the well-known industrial house of

Bangurs of Calcutta, who have interests in textile manufacturing, tea

plantation, wind energy generation and trading and investment business

other than paper. In 2001, Coastal Papers Ltd was taken over by the

company. The production capacity of both the units put together is 1,74,000

TPA. There are eight paper machines installed at the two locations which

produce papers of different M.F & M.G varieties in the range of 21 to 250

GSM as well as newsprint. With the commissioning of largest continuous

digester in the country, the total bleached pulp production at APPM (Unit

Rajahmundry) is 1,81,500 TPA. The paper production capacity will increase

to 2,41,000 TPA after commissioning of 67000 TPA paper machine which is

under erection.

159

The company provides direct employment to over 4000 families.

Moreover, the company provides livelihood to over 10,000 families through

indirect job opportunities.

Scenario of Corporate Governance in select paper industries:

Against the background of the existing regulations laid down by the

companies Act, 1956 and SEBI – Clause 49 listing agreements, an attempt

is made to critically examine the corporate governance practices under

vogue among Indian companies. For the purpose of the same, initially the

Industrial sector with respect to Paper Industry is segregated into 12 paper

units and with a detailed case study on JK Paper Mills.

The important parameters for consideration are mainly drawn from

the various regulations and enactments made by the Companies Act, 1956

and Securities and Exchange Board of India (SEBI) which includes:

1. Statement of Company’s Philosophy on Code of Corporate

Governance

2. Board Structure

3. Position of the Chairman and CMD (duality)

4. Various other sub committees and their practices such as Audit,

Remuneration, Nominee, Compensation, Grievance redressal

HSEC, Code on Ethics, Share Transfers etc;

5. Annual General Body meetings and other disclosure practices and

6. Other practices towards stakeholder involving social

responsibilities

To examine the above issues, documents supplied at the time of

industrial visits with the available officials of the selected companies and

various reports were analysed to secure relevant data for analysis. Study

focused on 12 paper industries. (See Table 4.2) Criterion for analysis is

detailed under table 4.3. Methodology for ranking is given under table 4.4.

The detailed measurement for all the 12 paper industries is presented in

table 4.5.

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TABLE – 4.2: DETAILS OF UNITS FOR STUDY

No. of Units Name of the Paper unit

1. BILT

2. ITC

3. TNPL

4. SIRPUR PAPER MILLS

5. WEST COAST PAPER MILLS

6. ORIENT PAPER MILLS

7. ABC PAPER MILLS

8. RAIN BOW PAPER MILLS

9. YASH PAPER MILLS

10. EMAMI PAPER MILLS

11. STAR PAPER MILLS

12. AP PAPER MILLS

TABLE – 4.3: CRITERION FOR EVALUATION OF GOVERNANCE

STANDARD

Points S.

No. Governance Parameters

Assigned Scored

1 Statement of Code of Governance - 2

2 Structure and Strength of the

board

2

3 Chairman and CEO duality (Max)> 5

i Promoter Executive Chairman-

Cum-MD/CEO

1

ii Non-promoter Executive

Chairman-Cum-MD / CEO

2

iii Promoter Non-Executive Chairman 3

iv Non Promoter Non-Executive

Chairman

4

v Non-Executive Independent

Chairman

5

4 Disclosure of Directors Particulars - 2

161

5 Disclosure of Age & Tenure - 3

i Definition of Independent Director 1

ii Definition of Financial Expert 1

iii Selection Criteria for BOD 1

6 Post-board meeting follow up - 2

7 Appointment of Lead Director - 2

8 Disclosure of other provisions

relating to BOD and committees

- 1

9 Disclosure of: - 2

i Remuneration Policy 1 -

ii Remuneration of Directors 1 -

10 Code of Conduct: - 2

i Information on Code of Conduct 1 -

ii Affirmation of compliance 1 -

11 Board Committees:

11-A Audit Committee: - 8

i Transparency in Composition of

audit committee

1 -

ii Compliance of minimum

requirement of the number of

independent directors

1 -

iii Compliance of minimum

requirements of the number of

meetings of the committee

1 -

iv Information about qualifications

and expertise of the members of

the committee

1 -

v Information about participation of

head of finance, statutory auditor

and chief internal auditor in the

committee meeting

2 -

vi Disclosure of audit committee

charter and terms of reference

1 -

viii Publishing of audit committee

report

1 -

11-B Remuneration / Compensation - 6

162

Committee

i Formation of the committee 1 -

ii Information about number of

committee meetings

1 -

iii Compliance of minimum

requirement of number of Non-

Executive Directors in the

committee

- -

iv Compliance of the provision of

Independent Director as a

Chairman of the Committee

v Information about participation of

all members in the Committee

meetings

1

vi Publishing of Committee report 1 -

11-C Shareholders’/ Investors Grievance

Committee

- 5

i Transparency in composition of the

committee

1 -

ii Information about the nature of

complaints and queries received

and disposed item-wise

1 -

iii Information about committee

meetings

1 -

iv Information about action taken

and investors / shareholders

survey

1

v Publishing of Committee report 1 -

11-D Nomination Committee - 2

i Formation of the Nomination

Committee

1 -

ii Publishing of Committee Charter

and Report

1 -

iii Health, Safety and Environment

Committee

- 1

11-E Ethics and Compliance Committee - 1

163

11-F Investment Committee - 1

11-G Share Transfer Committee - 1

12 Disclosure and Transparency - 25

A Significant transactions having

potential chance of conflicts with

the interest of the company

2 -

B Non-Compliance related to capital

market matters during last three

years

2 -

C Accounting Treatment 2 -

D Board Disclosure-Risk

Management

- -

i) Information to the board on

Risk Management

2

ii) Publishing of Risk

Management Report

1

E Management Discussion and

Analysis

2

F Shareholders’ Information - -

i) Appointment of new

Director/Re-appointment of

existing director

1 -

ii) Quarterly Results and

Presentation

1 -

iii) Share Transfers 1 -

iv) Directors’ Responsibility

Statement

1 -

G Shareholder Rights 2 -

H Audit Qualification 2 -

I Training of Board Members 2 -

J Evaluation of Non-Executive

Directors

2 -

K Whistle Blower Policy 2 -

13 General Body Meetings - 3

i Location and time of general

meetings held in last three years

1 -

164

ii Details of Special Resolution

passed in last three AGMs / EGMs

1 -

iii Details of Resolution Passed in the

previous year

- -

iv Resolution through postal ballot, in

conducting official and voting

process

1 -

14 Means of communication and

general shareholder information

- 2

15 CEO / CFO Certification - 2

16 Compliance of Corporate

Governance Auditors’ Certificate

- 10

i Clean Certificate from Auditor 10

ii Qualified Certificate from auditors 5

17 Disclosure of Stakeholders’

interests:

- 10

i Environment, Health and Safety

Measures (EHS)

2 -

ii Human Resource Development

(HRD) Initiative

2 -

iii Corporate Social Responsibility

(CSR)

2 -

iv Industrial Relations (IR) 2 -

v Disclosure of Policies on EHS,

HRD, CSR and HR

2 -

Total - 100

TABLE – 4.4: METHODOLOGY FOR RANKING OF UNITS ON THE BASIS OF SCORES

Score Range Rank

86 – 100 Excellent

71 – 85 Very Good

56 – 70 Good

41 – 55 Average

Below 41 Poor

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TABLE – 4.5: MEASUREMENT OF CORPORATE GOVERNANCE IN SELECT PAPER MILLS

Points / Score S.

No.

Governance Parameters

Overall View (100) Assigned Score BIL

T

ITC

TN

PL

Sirp

ur

Wes

t

Coa

st

Orie

nt

AB

C

Rai

n

BoW

Yas

h

Em

ami

Sta

r

AP

Pap

er

1 Statement of Code of Governance 0 2 2 2 2 2 2 2 2 2 2 2 2 2

2 Structure and Strength of the board 0 2 2 2 2 2 2 2 2 2 2 2

3 Chairman and CEO duality 5

i Promoter Executive Chairman-Cum-MD /

CEO 1 1 1 1 1 1 1 1 1

ii Non-promoter Executive Chairman-Cum-

MD / CEO 2 2 2

iii Promoter Non-Executive Chairman 3 3 3

iv Non Promoter Non-Executive Chairman 4

v Non-Executive Independent Chairman 5

4 Disclosure of Age & Tenure of Directors 0 2 2 2 2 2 2 2

5 Disclosure of Directors Particulars 0 3

i Definition of Independent Director 1 1 1 1 1 1 1 1

ii Definition of Financial Expert 1

iii Selection Criteria for BOD 1 1 1 1 1 1 1 1 1 1 1 1 1

6 Post-board meeting follow up 0 2 2 2 2 2 2 2 2 2 2

7 Appointment of Lead Director 0 2

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8 Disclosure of other provisions relating to

BOD and committees 0 1 1 1 1 1 1 1 1

9 Disclosure with respect to compensation 0 2 2

i Remuneration Policy 1 1 1 1 1 1 1 1

ii Remuneration of Directors 1 1 1 1 1 1 1 1 1 1 1

10 Code of Conduct 2

i Information on Code of Conduct 1 1 1 1 1 1 1 1 1 1 1

ii Compliance to Clause to 49 1 1 1 1 1 1 1 1 1 1 1 1 1

11 Board Committees -

A Audit Committee 8

i Composition of Audit Committee 1 1 1 1 1 1 1 1 1 1 1 1 1

ii Compliance of minimum requirement of

the number of independent directors 1 1 1 1 1 1 1 1 1 1 1 1 1

iii Compliance of minimum requirements of

the number of meetings of the committee 1 1 1 1 1 1 1 1 1

iv Information about qualifications and

expertise of the members of the committee 1 1 1 1 1 1 1 1 1 1 1 1 1

v Information about participation of head of

finance, statutory auditor and chief internal

auditor in the committee meeting

2 2 2 2 2 2

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vi Disclosure of audit committee charter and

terms of reference 1 1 1

vii Publishing of audit committee report 1

B Remuneration/Compensation Committee 6

i Formation of the committee 1 1 1 1 1 1 1 1 1 1 1 1

ii Information about number of committee

meetings 1 1 1 1 1 1 1

iii Compliance of minimum requirement of

number of Non-Executive Directors in the

committee

1 1 1 1 1

iv Compliance of the provision of

Independent Director as a Chairman of the

Committee

1 1 1 1 1

v Information about participation of all

members in the Committee meetings 1 1 1 1

vi Publishing of Committee report 1 1 1 1 1 1 1 1 1 1 1 1 1

C Shareholders’/ Investors Grievance

Committee 5

i Transparency in composition of the

committee 1 1 1 1 1 1 1 1 1 1

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ii Information about the nature of complaints

and queries received and disposed item-

wise

1 1 1 1 1 1 1 1 1

iii Information about committee meetings 1 1 1 1 1 1 1 1 1 1 1 1

iv Information about action taken and

investors / shareholders survey 1 1 1 1 1 1 1 1 1 1 1 1

v Publishing of Committee report 1

D Nomination Committee 2

i Formation of the Nomination Committee 1

ii Publishing of Committee Charter and

Report 1

Other Committees 4

E Health, Safety and Environment

Committee 1

F Ethics and Compliance Committee 1

G Investment Committee 1

H Share Transfer Committee 1

12 Disclosure and Transparency

25 (6+3+2+4+2+2+2+2+2) 25

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A Significant transactions having potential

chance of conflicts with the interest of the

company

2 2 2 2 2 2 2 2 2 2 2 2

B Non-Compliance related to capital market

matters during last three years 2 2

C Accounting Treatment 2 2 2 2 2 2

D Board Disclosure-Risk Management

i. Information to the board on Risk

Management 2 2 2 2 2 2 2 2 2 2 2

ii. Publishing of Risk Management

Report 1

E Management Discussion and Analysis 2 2 2 2 2 2 2 2 2 2 2 2 2

F Shareholders’ Information 1 1

i. Appointment of new Director / Re-

appointment of existing director 1 1 1 1 1 1 1

ii. Quarterly Results and Presentation 1 1 1 1 1 1 1 1 1

iii. Share Transfers 1 1 1 1 1 1 1

iv. Directors’ Responsibility Statement 1 1 1 1 1 1 1 1 1 1 1 1

G Shareholder Rights 2

H Audit Qualification 2 2

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I Training of Board Members 2

J Evaluation of Non-Executive Directors 2

K Whistle Blower Policy 2 2

13 General Body Meetings 3

i Location and time of general meetings held

in last three years 1 1 1 1 1 1 1 1 1 1 1

ii Details of Special Resolution passed in last

three AGMs / EGMs 1 1 1 1 1 1 1

iii Details of Resolution Passed in the

previous year through postal ballot, incl.

conducting official and voting process

1 1 1 1

14 Means of communication and general

shareholder information 2 2 2 2 2 2 2 2 2 2 2 2

15 CEO / CFO Certification 2 2 2 2 2 2 2 2 2 2 2 2

16 Compliance of Corporate Governance

Auditors’ Certificate 10

i Clean Certificate from Auditor 10 10 10 10 10 10 10 10 10 10 10 10 10

ii Qualified Certificate from auditors 5 5 5 5 5 5 5 5 5 5

17 Disclosure of Stakeholders’ interests: 10

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i Environment, Health and Safety Measures

(EHS) 2 2 2 2 2 2 2 2 2

ii Human Resource Development (HRD)

Initiative 2 2 2 2 2 2 2 2

iii Corporate Social Responsibility (CSR) 2 2 2 2 2 2 2 2

iv Industrial Relations (IR) 2 2 2 2 2 2 2 2 2 2 2

v Disclosure of Policies on EHS, HRD, CSR

and HR 2

Total 100 72 52 64 75 52 60 53 59 47 48 53 66

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Analysis of Results on Corporate Governance Practices in the Selected

Paper Units:

With respect to analysis under the current study, the parameters

required for examination are given in the form of scores giving due weightage

to each and important parameter in the Corporate Governance system. In

order to examine the extent of compliance by each selected company, the

above point value system is applied and the total points obtained by each

selected unit out of 100 total points are considered. The discussion is

continued further by ordering the companies on the basis of points secured

by them and grading them. The list of selected units and their final score out

of analysis is given under table 4.6.

TABLE – 4.6: SHOWING THE FINAL SCORES OBTAINED IN SELECT

UNITS

S. No. Name of the Paper Unit Score obtained

1 BILT 72

2 ITC 52

3 TNPL 64

4 SIRPUR PAPER MILLS 75

5 WEST COAST PAPER MILLS 52

6 ORIENT PAPER MILLS 60

7 ABC PAPER MILLS 53

8 RAIN BOW PAPER MILLS 59

9 YASH PAPER MILLS 47

10 EMAMI PAPER MILLS 48

11 STAR PAPER MILLS 53

12 AP PAPER MILLS 66

The study observed some interesting points with respect to corporate

governance practices followed in paper industry India. Out of these 12 listed

companies no company obtained excellent category and only 2 companies

got very good ranking and 4 secured good and 6 companies are under the

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category average and quite surprisingly no company is poor with respect to

following of corporate governance practices.

In order to understand in a better fashioned way the results are

tabulated in table 4.7 as under:

TABLE – 4.7: RANKS OF COMPANIES

Score Range Rank No. of Units

86 – 100 Excellent 0

71 – 85 Very Good 2

56 – 70 Good 4

41 – 55 Average 6

Below 41 Poor 0

The analysis of results indicates that corporate governance practices

in paper industry are not upto mark in spite of various stipulations and

recommendations on Corporate Governance practices in Indian Industry. A

pictorial representation of the data better highlights the problem in an

understandable form (See Figure 4.1).

FIGURE – 4.1: THE STATE OF CORPORATE GOVERNANCE IN SELECT

UNITS

Where, E stands for Excellent,

VG stands for Very Good,

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G stands for Good,

Avg. stands for Average, and

P stands for Poor

Study Observations:

State of Corporate Governance in Indian Paper Industry:

The state of Corporate Governance in Indian Paper Industry as per the

study is not up to the mark. The results of scorings in select paper

companies not even a single company reached “Excellent” category, and only

2 found to be very good and 6 were average and 4 were poor in adoption of

corporate governance practices. However, in the year 2006 the major

tobacco giant ITC won the National Award for Excellence for Corporate

Governance from the Institute of Company Secretaries of India. However, the

present study is confined to Paper Industry alone and the scoring are given

sector wise and accordingly even ITC also not obtained “Excellent” ranking.

The same company also won the Golden Peacock Award for Corporate Social

Responsibility (Asia) in 2007, the award for “CSR in Emerging Economies

2005 “.

However, the point to notice here is that the erstwhile “Satyam” got

the Golden Peacock Award for excellence in Corporate Governance was

stripped off in the year 2008 after the scandals became visible to the world.

Therefore, awards may not be full proof of excellence.

Nomination Committee:

In majority of the select units the nomination committee and its role

in selecting competent, experienced, and expert professionals from outside

as truly independent directors in the board of a company is ignored.

State of CSR in Paper Industries requires more concern:

Paper industries are highly pollute in nature and the output has a

great bearing on the environment. The adoption of clonal plantation may to

some extent make the green pastures alive, but majority of the paper

companies are not in a position to undertake drastic CSR activities due

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industrial sickness or for other reason. Purchasing of land is the serious

concern and in some cases outdated technology in minimizing the pollutant

level is another concern.

Paper Industries ranking and Measurement untapped:

With respect to measurement of financial position of company, it can

be done without much difficulty but the same is not possible with respect to

measurement of corporate governance, there is no universally accepted tool

available to measure the corporate governance. However, with the growing

awareness on the concept, there are some tools available to measure it. One

of such measurement is corporate governance scoring or rating, this is in

one way address much of the corporate problems and best practices.

The issue of Corporate Governance ratings was initiated by SEBI and

it called Credit Rating Information Services (CRISIL) and Investment and

Information and Credit Rating Agency (ICRA) to prepare a comprehensive

instrument for rating the corporate governance practices of listed

companies. A rating system enhances corporate performance and gives the

corporate where it stands.

The awareness level of corporate governance ratings as a tool for

measuring the effectiveness of corporate governance practices is generally

low in India as compared to other western markets. Though the valuation

techniques followed by much of the corporate are similar yet, there are

differences with respect to compilation, evaluation of information and the

scope of coverage.

The whole structure of corporate governance rating was questioned

starting from board of directors of a company and its auditors and

accordingly it can be said that “whether corporate governance rating

systems are another tool to exploit the innocent investors?”.

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Yet, the practice of measuring corporate governance in paper

industries is not upto mark in India during the interaction and visits to

select industries none of the industry has resorted to the practice of

measurement for corporate governance.

Protection to Whistle Blowers:

The concept of Whistle Blower is almost ignored in majority of the

paper companies. Majority of the paper companies should recognize the

“whistle blower” concept by introducing a separate section to provide for

protection to individuals who expose offences by companies, particularly

those involving fraud. Such protection should extend to normal terms and

conditions of service and from harassment.

Generally a whistle blower is likely to ostracized by other employees in

the organization and he/she may be isolated by the management. Further,

they may face dismissal, demotion, or relocation to a less favourable place.

Sometimes, the whistle blower himself/herself at fault thereby jeopardizing

his/her as well as the organization’s reputation for a very long time.

Code of Conduct:

There were no uniformities with respect to code conduct in paper

industry and the applicability is unknown. Whether it applies uniformly to

all employees including top managerial personnel is another observation.

Compliance to rules and regulations:

Compliance to rules and regulations appears to be on par with the

listing agreement and a surprising fact is duplication and overlapping

between SEBI regulations and the Companies Act have created not only

confusion and inconvenience to majority of select units but have also

increased the compliance cost, ultimately making the industry

uncompetitive all of these are going against the interest of shareholders. The

present situation needs to be rectified.

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APPENDIX – I

CORPORATE SOCIAL RESPONSIBILITY VOLUNTARY GUIDELINES, GOI,

MINISTRY OF CORPORATE AFFAIRS, 2009:

Fundamental Principle

Each business entity should formulate a CSR policy to guide its

strategic planning and provide a roadmap for its CSR initiatives, which

should be an integral part of overall business policy and aligned with its

business goals. The policy should be framed with the participation of various

level executives and should be approved by the Board.

Core Elements:

The CSR Policy should normally cover following core elements:

1. Care for all Stakeholders: The companies should respect the

interests of, and be responsive towards all stakeholders, including

shareholders, employees, customers, suppliers, project affected

people, society at large etc. and create value for all of them. They

should develop mechanism to actively engage with all stakeholders,

inform them of inherent risks and mitigate them where they occur.

2. Ethical functioning: Their governance systems should be

underpinned by Ethics, Transparency and Accountability. They

should not engage in business practices that are abusive, unfair,

corrupt or anti-competitive.

3. Respect for Workers' Rights and Welfare: Companies should

provide a workplace environment that is safe, hygienic and

humane and which upholds the dignity of employees. They should

provide all employees with access to training and development of

necessary skills for career advancement, on an equal and non-

discriminatory basis. They should uphold the freedom of

association and the effective recognition of the right to collective

bargaining of labour, have an effective grievance redressal system,

should not employ child or forced labour and provide and maintain

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equality of opportunities without any discrimination on any

grounds in recruitment and during employment.

4. Respect for Human Rights: Companies should respect human

rights for all and avoid complicity with human rights abuses by

them or by third party.

5. Respect for Environment: Companies should take measures to

check and prevent pollution; recycle, manage and reduce waste,

should manage natural resources in a sustainable manner and

ensure optimal use of resources like land and water, should

proactively respond to the challenges of climate change by adopting

cleaner production methods, promoting efficient use of energy and

environment friendly technologies.

6. Activities for Social and Inclusive Development: Depending

upon their core competency and business interest, companies

should undertake activities for economic and social development of

communities and geographical areas, particularly in the vicinity of

their operations. These could include: education, skill building for

livelihood of people, health, cultural and social welfare etc.,

particularly targeting at disadvantaged sections of society.

Implementation Guidance:

1. The CSR policy of the business entity should provide for an

implementation strategy which should include identification of

projects/activities, setting measurable physical targets with

timeframe, organizational mechanism and responsibilities, time

schedules and monitoring. Companies may partner with local

authorities, business associations and civil society/non-

government organizations. They may influence the supply chain for

CSR initiative and motivate employees for voluntary effort for social

development. They may evolve a system of need assessment and

impact assessment while undertaking CSR activities in a particular

area. Independent evaluation may also be undertaken for selected

projects/activities from time to time.

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2. Companies should allocate specific amount in their budgets for

CSR activities. This amount may be related to profits after tax, cost

of planned CSR activities or any other suitable parameter.

3. To share experiences and network with other organizations the

company should engage with well established and recognized

programmes/platforms which encourage responsible business

practices and CSR activities. This would help companies to improve

on their CSR strategies and effectively project the image of being

socially responsible.

4. The companies should disseminate information on CSR policy,

activities and progress in a structured manner to all their

stakeholders and the public at large through their website, annual

reports, and other communication media.

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APPENDIX – II

CORPORATE GOVERNANCE VOLUNTARY GUIDELINES ISSUED BY GOI,

MINISTRY OF CORPORATE AFFAIRS, 2009

The Ministry of Corporate Affairs has been working towards

strengthening of the Corporate Governance framework through a two

pronged strategy. Some aspects which needed to be incorporated in the law

have been included in the draft Companies Bill, 2009. However, keeping in

view the objective of encouraging the use of better practices through

voluntary adoption, the Ministry has decided to draft a set of voluntary

guidelines which not only serve as a benchmark for the corporate sector but

also help them in achieving the highest standard of corporate governance.

Preamble:

Corporate Governance Voluntary Guidelines provide for a set of good

practices which may be voluntarily adopted by the public companies. Private

companies, particularly the bigger ones, may also like to adopt these

guidelines. The guidelines are not intended to be substitute for or addition

to the existing laws but are recommendary in nature.

Guidelines:

I. Board of Directors

II. Responsibilities of the Board

III. Audit Committee of Board

IV. Auditors

V. Secretarial Audit

VI. Institution of mechanism for Whistle Blowing

Details of these Guidelines:

I. Board of Directors:

A. Appointment of Directors

A.1 Appointments to the Board

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i. Companies should issue formal letter of appointment to Non-

Executive Directors (NEDs) and Independent Directors – as is

done by them while appointing employees and Executive

Directors. The letter should specify:

• The term of the appointment

• The expectation of the Board from the appointed director; the

Board-level committee(s) in which the director is expected to

serve and its tasks.

• The fiduciary duties that come with such an appointment

along with accompanying liabilities;

• Provision for Directors and Officers (D&O) insurance, if any;

• The Code of Business Ethics that the company expects its

directors and employees to follow

• The list of actions that a director should not do while

functioning as such in the company

• The remuneration, including sitting fees and stock options

etc, if any

ii. Such formal letter should form a part of the disclosure to

shareholders at the time of the ratification of his / her

appointment or re-appointment to the board. This letter should

also be placed by the company on its website, if any, and in case

the company is a listed company, also on the website of the

stock exchange where the securities of the company are listed.

A.2. Separation of Offices of Chairman & Chief Executive Officer:

To prevent unfettered decision making power with a single

individual, there should be a clear demarcation of the roles and

responsibilities of the Chairman of the Board and that of the

Managing Director/Chief Executive Officer (CEO). The roles and offices

of Chairman and CEO should be separated, as far as possible, to

promote balance of power.

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A.3 Nomination Committee

i. The companies may have a Nomination Committee comprising

of majority of Independent Directors, including its chairman.

This Committee should consider:

• Proposals for searching, evaluating, and recommending

appropriate Independent Directors and Non-Executive

Directors (NEDs), based on an objective and transparent set

of guidelines which should be disclosed and should, inter-

alia, include the criteria for determining qualification,

positive attributes, independence of a director and

availability of time with him or her to devote to the job

• Determining processes for evaluating the skill, knowledge,

experience and effectiveness of individual directors as well as

the Board as a whole

ii. With a view to enable Board to take proper and reasoned

decision, Nomination Committee should ensure that the Board

comprises of a balanced combination of Executive Directors and

Non-Executive Directors.

iii. The Nomination Committee should also evaluate and

recommend the appointment of Executive Directors.

iv. A separate section in the Annual Report should outline the

guidelines being followed by the Nomination Committee and the

role and work done by it during the year under consideration.

A.4. Number of Companies in which an individual may become a Director:

i. For reckoning the maximum limit of directorship, the following

categories of companies should include:-

• Public limited companies

• Private companies that are either holding or subsidiary

companies of public companies

ii. In case an individual is a Managing Director or Whole-time

Director in a public company the maximum number of

companies in which such an individual can serve as a Non-

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Executive Director or Independent Director should be restricted

to seven.

B. INDEPENDENT DIRECTORS

B.1 Attributes for Independent Directors

i. The Board should put in place a policy for specifying positive

attributes of independent directors such as integrity, experience

and expertise, foresight, managerial qualities and ability to read

and understand financial statements. Disclosure about such

policy should be made by the Board in its report to the

shareholders. Such a policy may be subject to approval by

shareholders.

ii. All independent Directors should provide a detailed Certificate of

Independence at the time of their appointment, and thereafter

annually. This certificate should be placed by the company on

its website, if any, and in case the company is a listed company,

also on the website of the stock exchange where the securities of

the company are listed.

B.2 Tenure for Independent Director

i. An individual may not remain as an Independent Director in a

company for more than six years

ii. A period of three years should elapsed before such an individual

is inducted in the same company in any capacity

iii. No individual may be allowed to have more than three tenures

as Independent Director in the manner suggested in ‘I’ and ‘ii’

above.

iv. The maximum number of public companies in which an

individual may serve as an independent director should be

restricted to seven.

B.3 Independent Directors to have the option and freedom to meet

company management periodically

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i. In order to enable independent directors to perform their

function effectively, they should have the option and freedom to

interact with the company management periodically

ii. Independent directors should be provided with adequate

independent office space and other resources and support by

the companies including the power to have access to additional

information to enable them to study and analyze various

information and data provided by the company management.

C. Remuneration of Directors

C.1 Remuneration

C.1.1 Guiding Principles-Linking Corporate and Individual

Performance

i. The companies should ensure that the level and composition of

remuneration is reasonable and sufficient to attract, retain and

motivate directors of the quality required to run the company

successfully. It should also be ensured that relationship of

remuneration to performance is clear. Incentive schemes should

be designed around appropriate performance benchmarks and

provide rewards for materially laid down by the company should

be disclosed to the members annually.

ii. Remuneration Policy for the members of the Board and Key

Executives should be clearly laid down and disclosed.

Remuneration packages should involve a balance between fixed

and incentive pay, reflecting short and long term performance

objectives appropriate to the company’s circumstances and goal.

iii. The performance-related elements of remuneration should form

a significant proportion of the total remuneration package of

Executive Directors and should be designed to align their

interests with those of shareholders and to give these Directors

keen incentives to perform at the highest levels.

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C.1.2. Remuneration of Non-Executive Directors (NEDs):

i. The companies should have the option of giving a fixed

contractual remuneration, not linked to profits, to NEDs. The

companies should have the option to:

• Pay a fixed contractual remuneration to its NEDs, subject to

an appropriate ceiling depending on the size of the company;

or

• Pay upto an appropriate percent of the net profits of the

company

ii. The choice should be uniform for all NEDs, i.e.some should not

be paid a commission on profits while other are paid a fixed

amount.

iii. If the option chosen is ‘i(a)’ above, then the NEDs should not be

eligible for any commission on profits.

iv. If stock option are granted as a form of payment to NEDs, then

these should be held by the concerned director until three years

of his exit from the Board.

C.1.3. Structure of Compensation to NEDs

i. The companies may use the following manner in structuring

remuneration to NEDs:

• Fixed component: This should be relatively low, so as to align

NEDs to a greater share of variable pay. These should not be

more than one-third of the total remuneration package.

• Variable component: Based on attendance of Board and

Committee meetings (at least 75% of all meetings should be

an eligibility pre-condition)

• Additional variable payment(s) for being:

i. The chairman of the Board, especially if he/she is a non

executive chairman

ii. The chairman of the audit committee and/or other

committees

• Members of board committees

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iii. If such a structure (or any similar structure) of

remuneration is adopted by the board, it should be

disclosed to the shareholders in the Annual Report of the

company.

C.1.4 Remuneration of Independent Directors (IDs)

i. In order to attract, retain and motivate Independent Directors of

quality to contribute to the company, they should be paid

adequate sitting fees which may depend upon the twin criteria

of Net Worth and Turnover of companies.

ii. The IDs may not be allowed to be paid stock options or profit

based commission, so that their independence is not

compromised.

C.2. Remuneration Committee:

i. Companies should have Remuneration Committee of the Board.

This committee should comprise of at least three members,

majority of whom should be non executive directors with at least

one being an Independent Director

ii. This committee should have responsibility for determining the

remuneration for all executive directors and the executive

chairman, including any compensation payments, such as

retirement benefits or stock options. It should be ensured that

no director is involved in deciding his or her own remuneration

iii. This committee should also determine principles, criteria and

the basis of remuneration policy of the company which should

be disclosed to shareholders and their comments, if any,

considered suitably. Whenever, there is any deviation from such

policy, the justification / reasons should also be indicated /

disclosed adequately

iv. This committee should also recommend and monitor the level

and structure of pay for senior management, i.e. one level below

the Board.

187

v. This committee should make available its terms of reference, its

role, the authority delegated to it by the Board, and what it had

done for the year under review to the shareholders in the

Annual Report.

II. Responsibilities of the Board

A. Training of Directors

i. The companies should ensure that directors are inducted

through a suitable familiarization process covering, inter-alia,

their roles, responsibilities and liabilities. Efforts should be

made to ensure that every director has the ability to understand

basic financial statements and information and related

documents / paper. There should be a statement to this effect

by the Board in the Annual Report

ii. Besides this, the board should also adopt suitable methods to

enrich the skills of directors from time to time

B. Enabling Quality Decision making

The Board should ensure that there are systems, procedures

and resources available to ensure that every Director is supplied, in a

timely manner, with precise and concise information in a form and of

a quality appropriate to effectively enable/discharge his duties. The

Directors should be given substantial time to study the data and

contribute effectively to Board discussion.

C. Risk Management

i. The Board, its Audit Committee and its executive management

should collectively indentify the risks impacting the company’s

business and document their process of risk identification, risk

minimization, risk optimization as a part of a risk management

policy or strategy.

ii. The Board should also affirm and disclose in its report to

members that it has put in place critical risk management

framework across the company, which is overseen once every

six months by the Board. The disclosure should also include a

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statement of those elements of risk, that the Board feels, may

threaten the existence of the company.

D. Evaluation of Performance of Board of Directors, Committees thereof

and of individual Directors

The Board should undertake a formal and rigorous annual

evaluation of its own performance and that of its committees and

individual directors. The Board should state in the Annual Report how

performance evaluation of the Board, its committees and its individual

directors has been conducted.

E. Board to place Systems to ensure Compliance with Laws

i. In order to safeguard shareholders’ investment and the

company’s assets, the Board should, at least annually, conduct

a review of the effectiveness of the company’s system of internal

controls and should report to shareholders that they have done

so. The review should cover all material controls, including

financial, operation and compliance controls and risk

management systems.

ii. The Directors’ Responsibility Statement should also include a

statement that proper systems are in place to ensure

compliance of all laws applicable to the company. It should

follow the “comply or explain” principle.

iii. For every agenda item at the Board meeting, there should be

attached an “Impact Analysis on Minority Shareholders”

proactively stating if the agenda item has any impact on the

rights of minority shareholders. The independent directors

should discuss such impact analysis and offer their comments

which should be suitably recorded.

II. Audit Committee of Board

A. Audit Committee -- Constitution

The companies should have at least a three-member Audit

Committee, with Independent Directors constituting the majority. The

Chairman of such Committees should be an Independent Director. All

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the members of audit committee should have knowledge of financial

management, audit or accounts.

B. Audit Committee – Enabling Power:

i. The Audit Committee should have the power to –

• Have independent back office support and other resources

from the company

• Have access to information contained in the records of the

company; and

• Obtain professional advice from external sources

ii. The Audit Committee should also have the facility of separate

discussions with both internal and external auditors as well as

the management.

C. Audit Committee – Role and Responsibilities

i. The Audit Committee should have the responsibility to –

• Monitor the integrity of the financial statements of the

company

• Review the company’s internal controls, internal audit

function and risk management systems

• Make recommendations in relation to the appointment, re-

appointment and removal of the external auditor and to

approve the remuneration and terms of engagement of the

external auditor

• Review and monitor the external auditor’s independence and

objectivity and the effectiveness of the audit process

ii. The Audit Committee should also monitor and approve all

Related Party Transactions including any

modification/amendment in any such transaction

iii. A statement in a prescribed/structure format giving details

about all related party transactions taken place in a particular

year should be included in the Board’s report for that year for

disclosure to various stakeholders

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Auditors

A. Appointment of Auditors

i. The Audit Committee of the Board should be the first point of

reference regarding the appointment of auditors

ii. The Audit Committee should have regard to the profile of the

audit firm, qualification and experience of audit partners,

strengths and weaknesses, if any, of the audit firm and other

related aspects

iii. To discharge its duty, the Audit Committee should:

• Discuss the annual work programme and the depth and

detailing of the audit plan to be undertaken by the auditor,

with the auditor

• Examine and review the documentation and the certificate

for proof of independence of the audit firm, and

• Recommend to the board, with reasons, either the

appointment / re-appointment or removal of the statutory

auditor, along with the annual audit remuneration

B. Certificate Independence

i. Every company should obtain a certificate from the auditor

certifying his/its independence and arm’s length relationship

with the client company

ii. The Certificate of Independence should certify that the audit

together with its consulting and specialized services affiliates,

subsidiaries and associated companies or network or group

entities has not/have not undertaken any prohibited non-audit

assignments for the company and are independent vis-à-vis the

client company

C. Rotation of Audit Partners and Firms

i. In order to maintain independence of auditors with a view to

look at an issue (financial or non-financial) from a different

perspective and to carry out the audit exercise with a fresh

outlook, the company may adopt a policy of rotation of auditors

which may be as under:-

191

• Audit partner – to be rotated once every three years

• Audit firm – to be rotated once every five years

ii. A cooling off period of three years should elapse before a partner

can resume the same audit assignment. This period should be

five years for the firm.

D. Need for clarity on information to be sought by auditor and/or

provided by the company to him/it:

i. With a view to ensure proper and accountable audit, there should

be clarity between company management and auditors on the

nature and amount of information / documents / records etc and

periodicity / frequency for supply / obtaining such information /

documents / records etc.

ii. In any case the auditor concerned should be under an obligation to

certify whether he had obtained all the information he sought from

the company or not. In the latter case, he should specifically

indicate the effect of such non receipt of information on the

financial statements

E. Appointment of Internal Auditor

In order to ensure the independence and credibility of the

internal audit process, the Board may appoint an internal auditor and

such auditor, where appointed, should not be an employee of the

company.

Secretarial Audit

Since the Board has the overarching responsibility of ensuring

transparent, ethical and responsible governance of the company, it is

important that the Board processes and compliance mechanisms of

the company are robust. To ensure this, the companies may get the

Secretarial Audit conducted by a competent professional. The Board

should give its comments on the Secretarial Audit in its report to the

shareholders.

192

Institution of Mechanism for Whistle Blowing

i. The companies should ensure the institution of a mechanism

for employees to report concerns about unethical behavior,

actual or suspected fraud, or violation of the company’s code of

conduct or ethics policy

The companies should also provide for adequate safeguards against

victimization of employees who avail of the mechanism, and allow direct

access to the Chairperson of the Audit Committee in exceptional cases

References:

1. Field visits and interactions

2. Annual Report of BILT for the assessment year 2009-10

3. Annual Report of ITC for the assessment year 2009-10

4. Annual Return of TNPL for the assessment year 2009-10

5. Annual Return of Sirpur Paper Mills for the assessment year 2009-10

6. Annual Return of West Coast Paper Mills for the assessment year 2009-

10

7. Annual Return of Orient Papers for the assessment year 2009-10

8. Annual Return of ABC Paper for the assessment year 2009-10

9. Annual Return of Rainbow for the assessment year 2009-10

10. Annual Return of Yash for the assessment year 2009-10

11. Annual Return of Emami for the assessment year 2009-10

12. Annual Return of Star Paper Mills for the assessment year 2009-10

13. Annual Return of AP Paper Mills Ltd. for the assessment year 2009-10

14. Analysis through structured Questionnaire

15. Websites of the concerned companies