Professional Documents
Culture Documents
Narayan Murthy Committee
Narayan Murthy Committee
companies and felt that there was a need to look beyond the mere systems and procedures if
corporate governance was to be made effective in protecting the interest of investors. SEBI
therefore constituted a Committee under the Chairmanship of Shri N.R. Narayana Murthy, for
reviewing implementation of the corporate governance code by listed companies and for issue of
revised clause 49 based on its recommendations. Following are the highlights of
recommendations:
Audit committees of publicly listed companies should be required to review the following
information mandatorily:
_ Financial statements and draft audit report, including quarterly/half yearly financial
information;
_ Management discussion and analysis of financial condition and results of operations;
_ Reports relating to compliance with laws and to risk management;
_ Management letters/letters of internal control weaknesses issued by statutory/internal auditors;
and
_ Records of related party transactions.
• All audit committee members should be “financially literate” and at least one member should
have accounting or related financial management expertise.
Explanation 1: The term “financially literate” means the ability to read and understand basic
financial statements i.e. balance sheet, profit and loss account, and statement of cash flows.
The Audit Committee of the parent company shall also review the financial statements, in
particular the investments made by the subsidiary company.
The minutes of the Board meetings of the subsidiary company shall be placed for review at the
Board meeting of the parent company.
The Board report of the parent company should state that they have reviewed the affairs of the
subsidiary company also.
• The performance evaluation of non-executive directors should be by a peer group
comprising the entire Board of Directors, excluding the director being evaluated; and Peer group
evaluation should be the mechanism to determine whether to extend/continue the terms of
appointment of nonexecutive directors.
• SEBI should make rules for the following:
→ Disclosure in the report issued by a security analyst whether the company that is being written
about is a client of the analyst’s employer or an associate of the analyst’s employer, and the
nature of services rendered to such company, if any; and
→ Disclosure in the report issued by a security analyst whether the analyst or the analyst’s
employer or an associate of the analyst’s employer hold or held (in the 12 months immediately
preceding the date of the report) or intend to hold any debt or equity instrument in the issuer
company that is the subject matter of the report of the analyst.