Corporate Governance

Satyam Vada Dharmam Chara

Forever speak the truth and follow the dharma

- Taittariya Upanishad
Governance Concept in Ramayana

To provide the maximum happiness for the

maximum number of people for the maximum period,
based on the principles of Dharma righteousness
and moral values.
- Ayodhya Kand
 Corporate Governance

Governance implies a
A corporation or degree of control to
company is an be executed by
enterprise
stakeholders
authorised by law to
conduct business. representatives for
corporate growth and
protection of
stakeholders
interests.
 Corporate Governance
What is Governance?

Corporate Governance is the application of best management

practices, Compliance of law in true letter and spirit and
adherence to ethical standards for effective management and
distribution of wealth and discharge of social responsibility for
sustainable development of all stakeholders.

-The Institute of Company Secretaries of India

Corporate governance includes company

accountability to shareholders & other
stakeholders such as employees, suppliers,
customers & local community.
 Driving Forces of CG in India
1) Unethical Business Practices
Security Scams ---Harshad Mehtha Security Scam
Equity allotments at discount rates to the controlling
groups
Disappearance of Companies (1993-94) - around 4,000
companies with 25,000 crores without starting business

2) Impact of Globalization
Integration with Foreign Market
Foreign Investors expectations
New Business Opportunities --- IT & ITES, BPO etc.,
New Capital formation FII, FDI

3) Impact of Privatisation
New structure of ownership
Multinational Companies
 Principles of C. G.

Transparency

Reporting C.G. Accountability

Independence
 Brief history of corporate governance
in India
Unlike South-East and East Asia, the corporate
governance initiative in India was not triggered by any
serious nationwide financial, banking and economic
collapse

The initiative in India was initially driven by an industry

association, the Confederation of Indian Industry

The final draft of this code was widely circulated in

1997.

In April 1998, the code was released. It was called

Desirable Corporate Governance: A Code.

Between 1998 and 2000, over 25 leading companies

voluntarily followed the code: Bajaj Auto, Hindalco,
Infosys, Dr. Reddys Laboratories, Nicholas Piramal,
Bharat Forge, BSES, HDFC, ICICI and many others
 Brief history of corporate governance
in India
Following CIIs initiative, the Securities and Exchange Board of
India (SEBI) set up a committee under Kumar Mangalam Birla
to design a mandatory-cum-recommendatory code for listed
companies

The Birla Committee Report was approved by SEBI in

December 2000

Became mandatory for listed companies through the listing

agreement, and implemented according to a rollout plan:

2001-02: All companies with paid-up capital of Rs.100

million or more or net worth of Rs.250 million or more.

2002-03: All companies with paid-up capital of Rs.30

million or more

Following CII and SEBI, the Department of Company Affairs

(DCA) modified the Companies Act, 1956 to incorporate
specific corporate governance provisions regarding
independent directors and audit committees.
 Mandated CG guidelines and
disclosures

Board of Directors: frequency of meetings and composition

Board must meet at least four times a year, with a

maximum time gap of four months between two
successive meetings.

If the chairman of the Company is a non-executive then

one-third of the board should consist of independent
directors, and 50% otherwise.

Independent defined as those directors who, apart

from receiving directors remuneration do not have any
other monetary relationship or transactions with the
company, its promoters, management or subsidiaries,
which in the view of the board may affect independence
of judgment.
 Mandated CG guidelines and
disclosures
Board of Directors: frequency of meetings and composition

The frequency of board meetings and board committee

meetings, with their dates, must be fully disclosed to
shareholders in the annual report of the company.

The attendance record of all directors in board meetings

and board committee meetings must be fully disclosed to
shareholders in the annual report of the company.

Full and detailed remuneration of each director (salary,

sitting fees, commissions, stock options and perquisites)
must be fully disclosed to shareholders in the annual report
of the company.

Loans given to executive directors are capped (no loans

permitted to non-executives), and must be fully disclosed
to shareholders in the annual report of the company.
 Mandated CG guidelines and
disclosures
Board of Directors: information that must be supplied

Annual, quarter, half year operating plans, budgets and

updates.
Quarterly results of company and its business segments.
Minutes of the audit committee and other board
committees.
Recruitment and remuneration of senior officers.
Materially important legal notices and claims, as well as
any accidents, hazards, pollution issues and labor
problems.
Any actual or expected default in financial obligations.
Details of joint ventures and collaborations.
Transactions involving payment towards goodwill, brand
equity and intellectual property.
Any materially significant sale of business and investments.
Risks and risk management.
 Mandated CG guidelines and
disclosures
Audit Committee: It is mandatory.

Must have minimum of three members, all non-executive

directors, the majority of whom are independent.

Chairman must be an independent director, and must be

present at the annual shareholders meeting to answer
audit or finance related questions.

At least one member must be an expert in finance/

accounts.

Must have at least three meetings per year, including one

before finalisation of annual accounts.

Must have the powers to seek any financial, legal or

operational information from the management; obtain
outside legal or professional advice.
 Mandated CG guidelines and
disclosures
Audit Committee functions

Oversight of the companys financial reporting process to

ensure that the financial statement is correct, sufficient and
credible.

Appointment / removal of external auditor and fixing of

audit fees

Reviewing with management the annual financial

statements before submission to the board, focusing on:
Changes in accounting policies and practices
Major accounting entries
Significant adjustments arising out of audit
Compliance with accounting standards, with stock
exchange and legal requirements
Any related party transactions
 Mandated CG guidelines and
disclosures

Adequacy of internal audit and internal

control systems, through discussion with
internal and statutory auditors as well as
management.

Reviewing financial and legal risks and

companys risk management policies.

Examining reasons behind any materially

significant default to creditors, bond-
holders, suppliers and shareholders.
 Mandated CG guidelines and disclosures
Disclosures to shareholders in addition to balance sheet, P&L
and cash flow statement

Board composition (executive, non-exec, independent).

Qualifications and experience of directors.
Number of outside directorships held by each director (capped at
director not being a member of more than 10 board-level
committees, and Chairman of not more than 5).
Attendance record of directors.
Remuneration of directors.
Relationship (familial or pecuniary) with other directors.

Warning against insider trading, with procedures to prevent such

acts.
Details of grievances of shareholders, and how quickly these were
addressed.
Date, time and venue of annual general meeting of shareholders.
 Mandated CG guidelines and
disclosures
Shareholders
In case of the appointment of a new director or re-appointment of a director the
shareholders must be provided with the following information:
(a) A brief resume of the director;
(b) Nature of his expertise in specific functional areas;
(c) Names of companies in which the person also holds the directorship and the
membership of Committees of the Board

Compliance
The company shall obtain a certificate from either the auditors or practicing
company secretaries regarding compliance of conditions of corporate
governance as stipulated in this clause and annex the certificate with the
directors report, which is sent annually to all the shareholders of the company.
The same certificate shall also be sent to the Stock Exchanges along with the
annual report filed by the company.
 Mandated CG guidelines and
disclosures
CEO/CFO certification
The CEO, i.e. the Managing Director or Manager appointed in terms of the
Companies Act, 1956 and the CFO i.e. the whole-time Finance Director or
any other person heading the finance function discharging that function shall
certify to the Board that:
(a) They have reviewed financial statements and the cash flow statement for the
year and that to the best of their knowledge and belief :
(i) these statements do not contain any materially untrue statement or omit any
material fact or contain statements that might be misleading;
(ii) these statements together present a true and fair view of the companys
affairs and are in compliance with existing accounting standards, applicable
laws and regulations.
(b) They accept responsibility for establishing and maintaining internal controls
and that they have evaluated the effectiveness of the internal control systems
of the company and they have disclosed to the auditors and the Audit
Committee, deficiencies in the design or operation of internal controls, if any,
of which they are aware and the steps they have taken or propose to take to
rectify these deficiencies.
(c) They have indicated to the auditors and the Audit committee about significant
changes in internal control during the year;
Infosys Technologies: The Best among
Indian Corporates
As per the Credit Lyonnais Securities Analysis (CLSA), the
corporate governance ratings of the Software firms are higher
than those of other Indian firms.

Infosys, based in Bangalore, is a publicly held, ISO 9001 certified

company offering information technology consulting & software
services.

The software offered include application development, E-

Commerce & Internet Consulting, Software Maintenance.

Respected across the country, with very strong systems, high

ethical values & a nurturing working atmosphere.

Net income of US 1,155 million and revenue of US 4,176 million.

 Achievements

Voted as the Best Managed Company in Asia.

Biggest exporters of Software.

First to follow the US Generally Accepted Accounting

Principles before going for Nasdaq listing in 1991.

Championed Corporate Governance in India.

Narayana Murthys Global Strategy

1) Global Delivery Model Producing where it is most cost

effective to produce & selling where it is most profitable to
sell.

2) Moving up the Value Chain Getting involved in a

software development project at the earliest stage of its life
cycle.

3) PSPD Model Predictability of Revenues, Sustainability of

Revenues, Profitability, De-risking.
ICSI National Award for Excellence in
Corporate Governance

Best Governed Companies

 Concluding Observations

Code of CG should be redesigned to reflect international best

practices

Stringent enforcement of Law

More effective coordination and cooperation between SEBI, DCA

CG mechanism should be flexible and suitable

Overall ethical values in all segments should be promoted for

effective accounting, auditing, disclosure and transparent system.
 WINNING GROWING
EMPLOYEES INVESTORS

HAPPY
DELIGHTED
SOCIETY
CUSTOMERS

SATISFIED
TRUSTED
GOVERNMENT AND
SUPPLIERS
REGULATORS