The shareholders are the owners of the Company and as such they have certain rights and responsibilities. But in reality companies cannot be managed by shareholder referendum. The shareholders are not expected to assume responsibility for the management of corporate affairs. A company's management must be able to take business decisions rapidly. The shareholders have therefore delegated many of their responsibilities as owners of the company to the directors who then become responsible for corporate strategy and operations. The implementation of this strategy is done by a management team. This relationship therefore brings in the accountability of the boards and the management to the shareholders of the company. A good corporate framework is one that provides adequate avenues to the shareholders for effective contribution in the governance of the company while insisting on a high standard of corporate behaviour without getting involved in the day to day functioning of the company.

1. The Committee believes that the General Body Meetings provide an opportunity to the shareholders to address their concerns to the board of directors and comment on and demand any explanation on the annual report or on the overall functioning of the company. It is important that the shareholders use the forum of general body meetings for ensuring that the company is being stewarded for maximising the interests of the shareholders. This is important especially in the Indian context. It follows from the above, that for effective participation shareholders must maintain decorum during the General Body Meetings.

   The effectiveness of the board is determined by the quality of the directors and the quality of the financial information is dependent to an extent on the efficiency with which the auditors carry on their duties. The shareholders must therefore show a greater degree of interest and involvement in the appointment of the directors and the auditors. Indeed, they should demand complete information about the directors before approving their directorship.

2. The Committee recommends that in case of the appointment of a new director or re-appointment of a director a shareholder must be provided with the following information:

   
   

   • A brief resume of the director;

   • Expertise in specific functional areas; an

   • Names of companies in which the person also holds the directorship and the membership of Committees of the board
     [This is a mandatory recommendation]

4. The basic rights of the shareholders include right to transfer and registration of shares, obtaining relevant information on the company on a timely and regular basis, participating and voting in shareholder meetings, electing members of the board and sharing in the residual profits of the corporation.

5. The Committee therefore recommends that as shareholders have a right to participate in, and be sufficiently informed on decisions concerning fundamental corporate changes, they should not only be provided information as under the Companies Act, but also in respect of other decisions relating to material changes such as takeovers, sale of assets or divisions of the company, changes in capital structure which will lead to change in control or may result in certain shareholders obtaining control disproportionate to the equity ownership.

6. The Committee recommends that information like quarterly results, presentation made by companies to analysts may be put on company's web-site or may be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site.

7. The Committee recommends that the half-yearly declaration of financial performance including summary of the significant events in last six-months, should be sent to each household of shareholders
   [This is a mandatory recommendation ]

8. A Company must have appropriate systems in place, which will enable the shareholders to participate effectively and vote in the shareholders' meetings. The company should also keep the shareholders informed of the rules and voting procedures, which govern the general shareholder meetings.
   [This is recommendatory. ]

9. The annual general meetings of the company should not be deliberately held at venues or the timing should not be such which makes it difficult for most of the shareholders to attend. The company must also ensure that it is not be inconvenient or expensive for shareholders to cast vote.
   [This is recommendatory]

10. Currently, although the formality of holding the general meeting is gone through, in actual practice only a small fraction of the shareholders of that company do or can really participate therein. This virtually makes the concept of corporate democracy illusory. It is imperative that this situation which has lasted too long needs an early correction. In this context, for shareholders who are unable to attend the meetings, there should be a requirement which will enable them to vote by postal ballot for key decisions such as investment proposals, appointment of directors, auditors, committee members, loans and advances above a certain percentage of net worth, changes in capital structure which will lead to change in control or may result in certain shareholders obtaining control disproportionate to equity shareholding, sale of assets or divisions and takeovers etc. A detailed list of the matters which should require postal ballot is given in Annexure 3. This would require changes in the Companies Act. The Committee was informed that SEBI has already made recommendations in this regard to the Department of Company Affairs. The Committee recommended that the Department of Company Affairs should again be requested to implement this recommendation at the earliest, if possible by issue of an ordinance so that the corporate democracy becomes a reality in the true sense.

11. The Committee recommends that a board committee under the chairmanship of a non-executive director should be formed to specifically look into the redressing of shareholder complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. The Committee believes that the formation of such a committee will help focus the attention of the company on shareholders' grievances and sensitise the management to redressal of their grievances.
    [This is a mandatory recommendation]

12. The Committee further recommends that to expedite the process of share transfers the board of the company should delegate the power of share transfer to the registrars and share transfer agents.
    [This is a mandatory recommendation. ]

13. Institutional shareholders have acquired large stakes in the equity share capital of listed Indian companies. They have or are in the process of becoming majority shareholders in many listed companies and own shares largely on behalf of the retail investors. They thus have a special responsibility given the weightage of their votes and have a bigger role to play in corporate governance as retail investors look upon them for positive use of their voting rights.

14. The Committee recommends that institutional investors maintain an arm's length relationship with management and do not seek participation at the board level which may make them privy to unpublished price sensitive information. Given the weight of their votes, the institutional shareholders can effectively use their powers to influence the standards of corporate governance Practices elsewhere in the world have indicated that institutional shareholders can sufficiently influence because of their collective stake, the policies of the company so as to ensure that the company they have invested in, complies with the corporate governance code in order to maximise shareholder value. What is important in the view of the Committee is that, the institutional shareholders put to good use their voting power

15. The Committee recommends that the institutional shareholders

    • Take active interest in the composition of the Board of Director

    • Be vigilant

    • Maintain regular and systematic contact at senior level for exchange of views on management, strategy, performance and the quality of management.

    • Ensure that voting intentions are translated into practice Evaluate the corporate governance performance of the company