CORPORATE GOVERNANCE - A COMPARISON IN TWO CAR MANUFACTURERS

IN INDIA

Corporate Governance [CG] in a corporate set up leads to maximize the value of the shareholders legally,
ethically and on a sustainable
basis, while ensuring equity and transparency to every stakeholder - the company's customers, employees,
investors, vendor - partners,
the government of the land and the Community [Murthy - 2006]. A good CG is a must for ensuring the
required values to different stake-
holder groups. It enhances the performance of corporation, by creating an environment that motivates
managers to maximize returns on
investment, enhance operational efficiency and ensure long - term productivity growth. Consequently, such
corporations attract the best
talent on a global basis. It also ensures the confromance of corporations with the interests of investors and
society, by creating fairness,
transparency and accountability in business activities among employees, management and
the board.
A good CG increases public confidence in a corporation, and lowers the cost of capital for
investment. Accounting is a means for
establishing and retaining CG. Accounting, as we all know, is a process of compiling information for
reporting the internal affairs of any
entity to different stakeholders at the each of a cetain interval. It is defined as the language of business and
can play a vital role for
ensuring and continuing with CG. As a discipline, accounting practice is highly controlled by accounting
standards in a global set up. As
accounting becomes an international discipline and the practive of accounting is aligned with the varied
needs of the stakeholders, it can
be used as a toold for ensuring good governance within a corporate setup.
Corporate Governance is the set of processes, customs, policies, laws, and institutions affecting the
way a corporation is directed,
administered or controlled. CG also includes the relationships among the
many stakeholders involved and the goals for which the
corporation is governed. The principal stakeholders are the shareholders/members, management, and
the board of directors. Other
stakeholders include labor (employees), customers, creditors (e.g., banks, bond holders), suppliers,
regulators, and the community at large.
For Not-For-Profit Corporations or other membership Organizations the "shareholders" means
"members" in the definition.
CG is a multi-faceted subject. An important theme of CG is to ensure the accountability of certain
individuals in an organization through
mechanism that try to reduce or eliminate the principal-agent problem. A related but separate aspect of
discussions focuses on the impact
of a CG system in economic efficiency, with a strong emphasis on shareholders' welfare.
In A Board Culture of Corporate Governance, business author Gabrielle O'Donovan defines corporate
governance as 'an internal system
encompassing policies, processes and people, which serves the needs of shareholders and other
stakeholders, by directing and controlling
management activities with good business savvy, objectivity, accountability and integrity. Sound corporate
governance is reliant on
external marketplace commitment and legislation, plus a healthy board culture which safeguards
policies and processes'.
Report of SEBI committee (India) on Corporate Governance defines corporate governance as the
acceptance by management of the
inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on
behalf of the shareholders. It
is about commitment to values, about ethical business conduct and about making a distinction between
personal & corporate funds in the
management of a company.” The definition is drawn from the Gandhian principle of trusteeship and the
Directive Principles of the Indian
Constitution. Corporate Governance is viewed as ethics and a moral duty.

We shall now see the salient features of the Corporate Governance of Tata Motors Limited [TML] & one
of its competitors Maruti Suzuki
India Limited [MSIL].

TATA MOTORS LIMITED [ TML] MARUTI SUZUKI INDIA LIMITED [MSIL]

As a part of the Tata group, the company's As a conscious and vigilant organization, Maruti
philosophy on CG is founded upon a rich legacy of Suzuki had initiated good 'Corporate Governance'
fair, ethical & transparent governance practices, practices even before Clause 49 became applicable
many of which were in place even before they were and these practices form an integral part of the
mandated by adopting highest standards of company’s governance culture. The Company
professionalism, honesty, integrity & ethical strives to foster a corporate culture in which high
behaviour. standards of ethical behavior, individual
accountability and transparent disclosure are
ingrained in all its business dealings and shared by
its Board of Directors, Management and Employees.
The Board, which is elected by the shareholders, has It has a multi-tier management structure,
a fiduciary relationship & a corresponding duty to comprising of the Board of Directors at the top and
all its stakeholders to ensure that their rights are followed by Management Executive Officers,
protected. Executive Officers and Divisional Heads.
The CG philosophy has been further strengthened Board looks into Strategic supervision
with the implementation of the Tata Business provisioning; Control & Implementation of
Excellence Model [TBEM], Tata Code of Conduct Company's strategy, Operational Management
[TCoC] applicable to the Company, its subsidiaries, focus on implementation, Adequate availability of
Directors & Employees. information on Company operations and financial
performance, delegation of decision making with
accountability, optimal level of financial &
operational control and integrity, suitable
evaluation of the the risk & its dealings.
Full compliance of the CG requirements under
Clause 49 of the Listing Agreement with the Indian
Stock Exchanges. The company's Depositary
Programme being listed on the New York Stock
Exchange also complies with US regulations as
aplicable to Foreign Private Issuers [Non-US listed
companies].
The Board of Directors - 10 Directors of which 8 are
Non - Executive Directors. The Company has a
Non-Executive Chairman & 4 Independent
Directors comprise more than one third of the total
strength of the Board. The Company has taken
initiatives to comply with the recent amendment of
Clause 49 of the Listing Agreement pertaining to
composition of directors for induction of
Independent Directors.
No Director on the Board is amember of more than
10 Committees & Chairman of more than 5
Committees. Necessary disclosures are obtained
from the directors.
During 2007-08; 10 Board Meetings were held with
a maximum time gap between two consecutive
meetings not exceeding 4 months.
The Board has adopted a Code of Conduct for Non-
Executive Directors as well and its compliance is
declared by MD (CEO).
Various Committees - Audit Committee;
Remuneration Committee; Executive Committee of
Board; Ethics & Compliance Committee & Special
Need Based Committees
Audit Committee reviewed 128 audit reports
covering operation, financial & compliance areas. It
also reviewed the internal control system in
subsidiary companies.
Audit Committed comprises 3 Independent
Directors and have conducted & attended 10 Audit
Committee meetings in FY 08-09. The Chairman of
the Audit Committee attended the last Annual
General Meeting [AGM] of the Company.
The Remuneration Committee coprises of 2
Independent Directors including the chairman of
The Board of Directors consists of 11 members. The
Chairman of the Board is a Non-Executive Director.
The Board is made up of 5 Executive Directors and
6 Non-Executive Directors of whom 4 are
Independent. No Director is related to any other
Director. All Non-Executive Directors are persons
of eminence and bring a wide range of expertise and
experience to the board.
None of the Directors was a member of more than
10 committees or a Chairman of more than 5
committees across all companies in which he / she is
a Director. No employee of the Company is related
to any Director of the Company.
During 2007-08; 6 Board Meetings were held. The
Board meets at least once in a quarter with a gap of
not more than 4 months between any two meetings.
Additional meetings are held whenever necessary.
The Board has access to all information of the
company. Some of them are Annual operating
plans, capital & revenue budgets, quarterly results,
minutes of meetings of various committees,
recruitment & remuneration of senior management
etc.
Various Committees: Audit Committee;
Shareholder's / Investor's Grievance Committee;
Audit Committee compromises of 3 Independednt
Directors of which one is the Chairman of the
committee. It has one Executive Director. This
committee met for 4 times in the FY 07-08.
the committee & 2 Non-Executive Directors. One
Remuneration Committee meeting was held in FY
08-09. The Chairman of the Remuneration
Committee was not present at the last AGM.
One sitting fees = Rs. 20,000/- for Board Meeting, Performance of Whole-time Directors including
Audit Committee, Remuneration Committee & MD: Growth in Sales, Profits compared to previous
Executive Committee. Rs. 5000/- per sitting for the year, Actual achievement of growth Vs Budgeted
meetings of Ethics & Compliance Committee & Growth, Growth of Market share Vs Key
Investors Grievance Committee. competitors.
Payment of remuneration by way of commission to The overall limit of commission to the Directors was
the non-whole-time directors of the company of a increased to 1 Crore per anum wef April 2006 as
sum not exceeding 1% per anum of the net profits decided in the AGM of Sep 2007. The Independent
of the company. Directors receive their remuneration not exceeding
1% of the net profits of the Company subject to a
ceiling of Rs. 100 Lakhs per anum.
The company has not issued any stock options to its
Directors / employees.
Retirement Age: MD & ED - 65 Years; Non-
Executive Directors - 75 Years. The current
Retirement Policy was approved in the AGM of Sep
1995.
The Investor's Grievance Committee comprises of The Investor's / Shareholder's Grievance
an Independent Director as a Chairman, a Non- Committee comprises of 5 member; The Non-
Executive Director & the Managing Director. Executive Director being the Chairman along with 3
During FY 07-08, 2 Investor's Grievance Committee Executive Directors and one Independent Director.
were held. The Committee met twice in FY 07-08. A total of 34
complaints were received & resolved.
The Executive Committee of Board conducted 7
meetings in FY 07-08. This committee reviews
capital & revenue budgets, long-term business
strategies & plans, organizational structure of the
company, real estate & investment transactions,
allotment of shares / debentures, borrowings, legal
cases, acquisitions & divestments, new business
forays & donations.
The Executive Committee of Board formed The company has laid down a code of conduct for
Donations Committee & Corporate Social the members of the Board and identified senior
Responsibility Committee to fulfill the community management personnel of the company. All the
& social responsibilities of its stakeholders. members of the Board have affirmed their
compliance for the said code of conduct. A
declaration has been signed by the MD.
The Nominations Committee of the Board was The company has instituted a comprehensive code
constituted with the objective of identifying of conduct for its Board, senior executive,
independent directos to be inducted on the Board managerial staff and relevant business associates in
from time to time. This committee did not meet even compliance with the SEBI regulations on prevention
once in the FY 07-08. of Insider Trading.
The Ethics & Compliance Committee met 2 times in
the FY 07-08. The CFO acts as the Compliance
Officer under the said code.
Disclosure: The Audit Committee & the Board have
adopted a Whistle - Blower Policy which provides a
formal mechanism for all the employees of the
company to approach the Management of the
Company & make protective disclosures to the
Management about unethical behaviour, actual or
suspected fraus or violation of the TCoC policy.
The Managing Director (CEO) has given a
declaration under the clause 49 of the Listing
Agreement regarding the adherence to the Code of
Conduct on behalf of all Directors & Senior
Management of the Company.
The Auditors of the Company have also given a
certificate of compliance on Corporate Governance
to TML as per the Clause 49 of the Listing
Agreement.
The Company has 7 plants, 2 at Pune, one each at
Lucknow, Jamshedpur, Pantnagar, Dharwad,
Singur / Sanand.
RECOMMENDATIONS TO THE MANAGEMENT ON IMPROVING SOME OF THE
ABOVE ACTIVITIES:
<1> The credit ratings of the company should be a part of the CG Report. If there is any
downgrading of the credit ratings, the company
The Company Secretary & Chief Legal Officer acts
as the Secretary to the Committee and is the
Compliance Officer.
Disclosure: There was no transactions of material
nature with the promoters, the Directors or the
management, their subsidiaries or relatives that had
potential conflict with the interest of the company.
All disclosures related to financial & commercial
transactions where directors may have a potential
interest are provided to the Board. None of these
transactions has a potential conflict with the interest
of the company.
The Managing Director (CEO) has given a
declaration under the clause 49 of the Listing
Agreement regarding the adherence to the Code of
Conduct on behalf of all Directors & Senior
Management of the Company.
The Auditors of the Company have also given a
certificate of compliance on Corporate Governance
to MSIL as per the Clause 49 of the Listing
Agreement.
The Company has in place a well defined and
transparent control self assessment mechanism to
evaluate the effectiveness on internal controls over
financial reporting. To facilitate certification by
CEO/CFO for the FY 07-08, key internal controls
over financial reporting were identified and
adequately assessed to provide sufficient comfort.
To ensure complete transparency & effectiveness of
the self assessment, the whole process was carried
out thorugh an online web based tool called
"Controls Manager".
The company has 4 plants, 3 located in Palam
Gurgaon Road, Gurgaon, Haryana and one located
at Manesar, Haryana.
A dividend of Rs.5 per share was paid after Sep
2008.
 should express the reasons for the same and should give an action plan and time duration by
when it will regain the earlier higher
credit ratings.

<2> As TML has its Listing in NYSE; it should provide information of its performance in that
market in its CG / Annual report in a more
elaborate way.

<3> The company should also give a detailed information on the Mergers & Acquisitions with
respect to their current status and current
performance in the subsequent years after M & A. Probably the funds spent on the M&A has a
repurcussion on the subsequent years
which needs to be brought forward in the reports so that transparency is
maintained.

<4> The primary source of income for TML is sale of Cars & Commercial Vehicles. If in any given
month or quarter, if the company's
performance is poor in comparison to the competitors and the industry, then there should be a
mechanism to immediatley take
sutiable counter measures to ensure that sales are improved so as to be inline with the industry
and exceed the competition.

<5> The percolating of goals to the operational staff and the matching stragtegies to achieve them
needs to be more well defined and
reviewed so as to evaluate whether what we have actually got is in line with what we had
planned at the start of the year. A report
on the variance would give a good insight about how the organization is faring in the
current business environment.