Key Recommendations of Kumar Mangalam Birla committee Report

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 committee divided the recommendations into two categories, namely, mandatory and non- mandatory.

  • The recommendations which are absolutely essential for corporate governance can be defined with precision and which can be enforced through the amendment of the listing agreement is classified as mandatory.
  • Others, which are either desirable or which may require change of laws be classified as non-mandatory.

Mandatory Recommendations

  • The mandatory recommendations apply to the listed companies with paid up share capital of 3 crore and above.
  • Composition of board of directors should be optimum combination of executive & non-executive directors.
  • Audit committee should contain 3 independent directors with one having financial and accounting knowledge.
  • Remuneration committee should be setup
  • The Board should hold at least 4 meetings in a year with maximum gap of 4 months between 2 meetings to review operational plans, capital budgets, quarterly results, minutes of committee’s meeting.
  • Director shall not be a member of more than 10 committee and shall not act as chairman of more than 5 committees across all companies
  • Management discussion and analysis report covering industry structure, opportunities, threats, risks, outlook, internal control system should be ready for external review
  • Any Information should be shared with shareholders in regard to their investments.

Non-Mandatory Recommendations

The committee made several recommendations with reference to:

  • Role of chairman
  • Remuneration committee of board
  • Shareholders’ right for receiving half yearly financial performance.
  • Postal ballot covering critical matters like alteration in memorandum
  • Sale of whole or substantial part of the undertaking
  • Corporate restructuring
  • Further issue of capital
  • Venturing into new businesses

These 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.