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» Corporate Governance in IT Sector in India
Corporate Governance in IT Sector in India
This is a research report on
Corporate Governance in IT Sector in India
section of our research repository.
871 views, 0 comments, Last Update: Apr 24, 2012.
Executive Summary:Corporate Governance plays the most important role in various companies. . The growing competition requires prompt and efficient services to the customers at reasonable cost. These days companies aim to provide maximum satisfaction to their customers. This project helps me knowing the various corporate governance culture followed by big IT companies. Due to various scams like satyam fraud. SEBI had strengthened the norms so that they can control various insiders trading and so that they can maintain transparency and accountability. This project tell me how firms are doing relatively well in allowing shareholders to participate in decision-making and to exercise other shareholders' rights. Minority shareholders, however, seem to encounter difficulties in calling special shareholders' meetings, putting issues on the agenda of a shareholders' meeting, or voting by mail and are inadequately protected with priority subscription rights, rights to approve major related-party transactions, and dissenters' rights. Moreover, they play a small role in the election of directors and suffer from poor information disclosure and transparency.The leader change may sometime affect the corporate Governance as we can say that K.V Kamath was appointed as Chairman of Infosys which affected the share in the positive way. In today’s world corporate Governance plays an important role as it deals with 5 constituents of the organisation viz investor, shareholder, employees, vendors and society at large .In Infosys Employees are provided with stock Option Plans so that they are motivated.Whereas in case of Wipro & TCS Employees are provided with various training programme.This project tells that the top 3 companies are following corporate Governance and how efficiently they are implementing and do the business ethically. It is not just the rules but it is the way of life.
Objective of the Project:
To analyze corporate governance practice of IT companies with reference of mandatory disclosure described by SEBI for Indian companies. To analyze corporate governance depends on the culture of the company. To find out importance of corporate governance in Indian companies. To find out the awareness of functioning of Corporate Governance amongst investors. To evaluate the importance of corporate governance as a parameter for investor before investing.
Literature Review By Rediff Business Published In 19th January 2009
Corporate governance, which is the system that helps firms control and direct operations, is in the spotlight as key parts of the governance framework such as audit and finance functions have failed to check the promoter-driven agendas. A well-balanced board of directors, proactive shareholders and swift action against malpractices could restore market confidence. Role of the board Among the many shortcomings of the Satyam episode has been the role of independent directors who were supposed to safeguard the interests of all stakeholders. While the three committees (See: Corporate Governance Committees) have explicitly mentioned the role, independence, remuneration and responsibilities of independent directors, the same has not translated into becoming an adequate check on managerial excesses. Says Andrew Holland, CEO, equities, Ambit Capital, "Independent directors should also (in addition to the management) be held accountable for board decisions and audit-related compliance practices." While there have been suggestions for a selection committee to choose independent directors, mandatory training, performance assessments, limit on directorships and compulsory attendance of Board meetings, two key areas relating to CEO/Board chair segregation and number of independent directors could be the right steps forward. Says Neville Dumasia, head, Governance, Risk and Compliance, KPMG, "The concept of CEO and Board chair separation is well accepted in Europe, and American companies are steadily moving in that direction. This would bring a better balance in the boardroom. "The second issue of a majority of independent directors (number currently varies from a third to a half), which is the case with companies in NYSE and NASDAQ, could prove tricky as Indian boards are promoter-dominated. Regulations could however, change all that. "In fact, in a number of European and American companies the only sitting executive on the Board is the CEO," says Dumasia. 3
Role of auditors Though a lion's share of the focus in the Satyam episode was on the role of the independent directors, experts believe the role of auditors is now in spotlight. Asks a fund manager, "Auditors are not changed for ages together. Why can't we have a system similar to the one adopted by PSU banks where auditors have to be changed every three years?" Holland, however, believes that instead of changing auditors annually, one could look at changing audit heads of the same firm. A fallout of the Satyam case is the issue of delays involved in enforcement of Indian corporate laws. The need is to enforce corporate laws in a transparent, swift and uniform fashion. "Accountability and action against fraud/negligence are major concerns," believes N K Jain, secretary and CEO, Institute of Company Secretaries of India. "Professionals (auditors) should be made accountable and consequences (punishment) should follow if there are any deficiencies and slip-ups," he adds. Minority shareholders Experts believe that it is the institutional investors who have the tools, bandwidth and clout to extract information and play an activist role (as had happened in Satyam case) in ensuring that managements don't go off-track. If institutional investors act collectively, they can demand the required changes at companies they have invested in. Says Anup Bagchi, executive director, ICICI Securities, "While independent directors can certainly play an important role in ensuring better risk management, demand for good governance by institutional shareholders is the best driver towards higher governance standards." Establishing minority shareholders' groups can also be a positive step. Individual shareholders through these groups can communicate with institutional shareholders for taking up their concerns with the company's management. While retail investors cannot bring about many changes to a corporate agenda, they can take precautions before making investments. Says Shailesh Haribhakti, executive chairman and managing partner, Haribhakti & Co, "The criteria of consistent track record, transparency in dealings with stakeholders, disclosure of all relevant information and accountability at levels of the organisation should help in making the investment decision."
INTRODUCTION OF CORPORATE GOVERNANCE
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In simpler terms it means the extent to which companies are run in an open & honest manner. Corporate governance has three key constituents namely: the Shareholders, the Board of Directors & the Management. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large. The concept of corporate governance identifies their roles & responsibilities as well as their rights in the context of the company. It emphasizes accountability, transparency & fairness in the management of a company by its Board, so as to achieve sustained prosperity for all the stakeholders. Corporate governance is a synonym for sound management, transparency & disclosure. Transparency refers to creation of an environment whereby decisions & actions of the corporate are made visible, accessible & understandable. Disclosure refers to the process of providing information as well as its timely dissemination.
TITLE OF STUDY Title of study is “Corporate Governance in IT Sector”. The title itself shows the research study on the Corporate Governance with special focus on IT Sector. FORMAT OF PROJECT REPORT This Research has been conducted on the basis of descriptive Research through the secondary data from the various Annual Report of the Companies .This research has done through various books and various sites such as rediff moneywiz, Money control etc. Since the project concentrates on I.T Sector and not on particular company.Hence the project has been completed on the basis of secondary data
Primary Data:In this project primary data has not been used the project has been formed on the basis of secondary data. Since the project concentrates on the sector rather on companies hence the project has done with the help of secondary data.
Secondary Data:The secondary data has been collected from • • • • • • Annual Report of Companies Business Articles Details of Companies from their respective websites Business Magazines Library Research Internet Surfing
DEFINITION OF CORPORATE GOVERNANCE
1)“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
2)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. 3) “Corporate Governance: A framework for implementation’, said, “Corporate governance is holding the balance between economic & social goals and between individual & community goals. The aim is to align as nearly as possible, the interests of individuals, corporations & society”. -Sir Adrian Cadbury in his preface to the World Bank publication
HISTORY OF CORPORATE GOVERNANCE As mentioned earlier, the term ‘corporate governance’ is related to the extent to which the companies are transparent & accountable about their business. Corporate governance today has become a major issue of interest in most of the corporate boardrooms, academic circles & even governments around the globe. In the 19th century, state corporation laws enhanced the rights of corporate boards to govern without unanimous consent of shareholders in exchange for statutory benefits like appraisal rights, to make corporate governance more efficient. Since that time and because most large publicly traded corporations in the US are incorporated under corporate administration-friendly Delaware law and because the US's wealth has been increasingly securitized into various corporate entities and institutions, the rights of individual owners and shareholders have become increasingly derivative and dissipated. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for corporate governance reforms. In the 20th century, in the immediate aftermath of the Wall Street Crash of 1929, legal scholars such as Adolf Augustus Berle, Edwin Dodd, and Gardiner C. Means pondered on the changing role of the modern corporation in society. From the Chicago school of economics, Ronald Coase's "The Nature of the Firm" (1937) introduced the notion of transaction costs into the understanding of why firms are founded and how they continue to behave. Fifty years later, Eugene Fama and Michael Jensen's "The Separation of Ownership and Control" (1983, Journal of Law and Economics) firmly established agency theory as a way of understanding corporate governance: the firm is seen as a series of contracts. Agency theory's dominance was highlighted in a 1989 article by Kathleen Eisenhardt ("Agency theory: an assessement and review", Academy of Management Review). The expansion of US after World War II through the emergence of multinational corporations saw the establishment of the managerial class. Accordingly, the following Harvard Business School management professors published influential monographs studying their prominence: Myles Mace (entrepreneurship), Alfred D. Chandler, Jr. (business history), Jay Lorsch (organizational behavior) and Elizabeth MacIver (organizational behaviour). According to Lorsch and MacIver "Many large corporations 8
have dominant control over business affairs without sufficient accountability or monitoring by their board of directors." Since the late 1970’s, corporate governance has been the subject of significant debate in the U.S. and around the globe. Bold, broad efforts to reform corporate governance have been driven, in part, by the needs and desires of shareowners to exercise their rights of corporate ownership and to increase the value of their shares and, therefore, wealth. Over the past three decades, corporate directors’ duties have expanded greatly beyond their traditional legal responsibility of duty of loyalty to the corporation and its shareowners. In the first half of the 1990s, the issue of corporate governance in the U.S. received considerable press attention due to the wave of CEO dismissals (e.g.: IBM, Kodak, Honeywell) by their boards. The California Public Employees' Retirement System led a wave of institutional shareholder activism (something only very rarely seen before), as a way of ensuring that corporate value would not be destroyed by the now traditionally cozy relationships between the CEO and the board of directors (e.g., by the unrestrained issuance of stock options, not infrequently back dated). In 1997, the East Asian Financial Crisis saw the economies of Thailand, Indonesia, South Korea, Malaysia and The Philippines severely affected by the exit of foreign capital after property assets collapsed. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies. In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and WorldCom, as well as lesser corporate debacles, such as Adelphia Communications, AOL, Qwest, Arthur Andersen, Global Crossing, Tyco, etc. led to increased shareholder and governmental interest in corporate governance. Because these triggered some of the largest insolvencies, the public confidence in the corporate sector was sapped. The popular perception was that corporate leadership was fraught with greed & excess. Inadequancies & failure of the existing systems, brought to the fore, the need for norms & codes to remedy them. This resulted in the passage of the Sarbanes-Oxley Act of 2002, (popularly known as Sox) by the United States. In India however, only when the Securities Exchange Board of India (SEBI), introduced Clause 49 in the Listing Agreement, for the first time in the financial year 20009
2001, that the listed companies started embracing the concept of corporate governance. This clause was based on the Kumara Mangalam Birla Committee constituted by SEBI. After these recommendations were in place for about four years, SEBI, in order to evaluate & improve the existing practices, set up a committee under the Chairmanship of Mr. N.R. Narayana Murthy during 2002-2003.At the same time, the Ministry of Corporate Affairs set up a committee under the Chairmanship of Shri. Naresh Chandra to examine the various corporate governance issues. The recommendations of the committee however, faced widespread protests & representations from the industry, forcing SEBI to revise them. Finally, on the 29th October, 2004, SEBI announced the revised Clause 49, which was implemented by the end of the financial year 2004-2005. Apart from Clause 49 of the Listing Agreement, corporate governance is also regulated through the provisions of the Companies Act, 1956. The respective provisions have been introduced in the Companies Act by Companies Amendment Act, 2000.
SCOPE & IMPORTANCE OF CORPORATE GOVERNANCE
Corporate governance is all about ethics in business. It is about transparency, openness & fair play in all aspects of business operations. The key aspects to corporate governance include: 1. Accountability of Board of Directors & their constituent responsibilities to the ultimate owners- the shareholders. 2. Transparency, i.e. right to information, timeliness & integrity of the information produced. 3. Clarity in responsibilities to enhance accountability. 4. Quality & competence of Directors and their track record. 5. Checks & balances in the process of governance. 6. Adherence to the rules, laws & spirit of codes. An active & involved board consisting of professional & truly independent directors plays an important role in creating trust between a company & its’ investors and is the best guarantor of good corporate governance.
Corporate Governance process
Role of Members of Corporate Governance
THE THEORY AND PRACTICEOFCORPORATE GOVERNANCE There are four broad theories to explain and elucidate corporate governance. These are: • • • • Agency theory Stewardship theory Stakeholder theory Sociological theory
1. Agency Theory Recent thinking about strategic management and business policy has been influenced by agency cost theory, though the roots of the theory can be traced back to Adam Smith who identified an agency problem in the joint stock company. The fundamental theoretical basis of corporate governance is agency costs. Shareholders are the owners of any joint stock, limited liability Company, and are the principals of the same. By virtue of their ownership, the principals define the objectives of the company. The management, directly or indirectly selected by the shareholders to pursue such objectives, is the agents. While the principals generally assume that the agents would invariably carry out their objectives, it is often not so. In many instances, the objectives of managers are at variance from those of the shareholders. Such mismatch of objectives is called the agency problem; the cost inflicted by such dissonance is the agency cost. The core of corporate governance is designing and putting in place disclosures, monitoring, oversight and corrective systems that can align the objectives of the two sets of players as closely as possible and hence minimize agency costs.
Problems with agency theory Total control of management is neither feasible nor required under this theory. The underlying assumption in the trade-off that shareholders make on employing agents is that they must accept a certain level of self-interested behaviours in delegating responsibility to others. The objective of agency theory is to check the abuse in this trade-off, but its limited success raises the question of its utility as a theoretical model to promote corporate governance. Besides in agency theory the assumption is with the complexities of investorboard relationship in large organizations, shareholders should have correct and adequate information to wield effective control. Equity investors rarely get these and besides they rarely make clear their exact target returns, and yet delegate authority to meet the target. It is also to be understood that in terms of controls, equity investors hardly have sanctions over boards. Instead they have to rely on self-regulation to ensure that an orderly house is maintained. There are two broad mechanisms that help reduce agency costs and hence improve corporate performance through better governance: (1) Fair and accurate financial disclosures, and (2) Efficient and independent board of directors.
2. Stewardship Theory: The stewardship theory of corporate governance discounts the possible conflicts between corporate management and owners and shows a preference for board of directors made u primarily of corporate insiders. This theory assumes that managers are basically trustworthy and attach significant value to their own personal reputations. The market for managers with strong personal reputations serves as the primary mechanism to control behaviour, with more reputable managers being offered higher compensation packages. Stewardship theory can be reduced to the following basics: • The theory defines situation in which managers are not motivated by individual goals, but rather they are stewards whose motives are aligned with the objectives of their principles. • • Given a choice between self-serving behaviour and pro-organizational behaviour, a steward’s behaviour will not depart from the interests of his organization. Control can be potentially counterproductive, because it undermines the proorganizational behaviour of the steward, by lowering his motivation. The greatest barrier to the adoption of stewardship mechanism of governance lies in the risk propensity of principals. Risk taking owners will assume that executives are proorganizations and favour stewardship governance mechanisms. Where executives, investors cannot afford to extend board power, agency costs are effective insurance against the self-interest behaviours of agents.
3. Stakeholder Theory: The stakeholder theory is grounded in many normative, theoretical perspectives including ethics of care, the ethics of fiduciary relationships, social contract theory, theory of property rights, and so on. While it is possible to develop stakeholder analysis from a variety of theoretical perspectives, in practice much of stakeholder analysis does not firmly or explicitly root itself in a given theoretical tradition, but rather operates at the level of individual principles and norms for which it provides little formal justification. Stakeholder theory is often criticized, mainly because it is not applicable in practice by corporations 4. Sociological Theory: The sociological approach has focused mostly on board composition and implications for power and wealth distribution in the society. Under this theory, board composition, financial reporting, and disclosure and auditing are of utmost importance to realize the socio-economic objectives of corporations.
Corporate Governance system: The role of the management is to run the enterprise while the role of the board is to see that it is being run well and in the right direction. Corporate governance systems vary around the world. Scholars tend to suggest three broad versions: • • • The Anglo-American model The German model The Japanese model
The Anglo-American model This is also known as unitary board model, in which all directors participate in a single board comprising both executive and non-executive directors in varying proportions. This approach to governance tends to be shareholder oriented. It is also called the ‘Anglo-Saxon’ approach to corporate governance being the basis of corporate governance in America, Britain, Canada, Australia and other Commonwealth law countries including India. The major features of this model are as follows: • • • • The ownership of companies is more or less equally divided between individual shareholders and institutional shareholders. Directors are rarely independent of management. Companies are typically run by professional managers who have negligible ownership stake. There is a fairly clear separation of ownership and management. Most institutional investors are reluctant activists. They view themselves as portfolio investors interested in investing in a broadly diversified portfolio of liquid securities. If they are not satisfied with a company’s performance, they simply sell the securities in the market and quit. • The disclosure norms are comprehensive, the rules against insider trading tight, and the penalties for price manipulations stiff, all of which provide adequate protection to the small investors and promote general market liquidity. They also discourage large investors from taking an active role in corporate governance.
German model Corporate governance in the German model is exercised through two boards, in which the upper board supervises the executive board on behalf of stakeholders and is typically societal oriented. In this model, although shareholders own the company, they do not entirely dictate the governance mechanism. They elect 50 percent of members of supervisory board and the other half is appointed by labour unions, ensuring that employees and labourers also enjoy a share in governance. The supervisory board appoints and monitors the management board. The Japanese model This is the business network model, which reflects the cultural relationships seen in the Japanese keiretsu network, in which boards tend to be large, predominantly executive and often ritualistic. The reality of power in the enterprise lies in the relationships between top management in the companies in the keiretsu network. In this model the financial institution has accrual role in governance. The shareholders and the main bank together appoint board of directors and the president. The distinctive features of the Japanese corporate governance mechanisms are as follows: • • The president who consults both the supervisory board and the executive management is included. Importance of the lending bank is highlighted.
INDIAN MODEL OF GOVERNANCE
Indian corporate is governed by the Company’s Act 1956 which follows more or less the UK model. The pattern of private companies is mostly that of closely held or dominated by a founder, his family and associates. India has adopted the key tenets of Anglo-American external and internal control mechanisms after economic liberalization. Obligation to society at large A corporation is a creation of law as an association of persons forming part of a society in which it operates. Its activities are bound to impact the society as the society’s value would have an impact on the corporation. Therefore, they have mutual rights and obligations to discharge for the benefit of each other.
National interest: A company (and its management) should ne committed in all its actions to benefit the economic development of the countries in which it operates and should not engage in any activity that would militate against such an objective.
A company should be committed to and support a
functioning democratic constitution and system with a transparent and fair electoral system and should not support directly or indirectly any specific political party or candidate for political office.
The management of a company should comply with all
applicable government laws, rules and regulations. Legal compliance will also mean that corporations should abide by the tax laws of the nations in which they operate and these should be paid on time and as per the required amount.
Rule of law: Good governance requires fair, legal frameworks that are enforced impartially. It also requires full protection of rights, particularly those of minority shareholders. Impartial enforcement of laws requires an independent judiciary and regulatory authorities.
Honest and ethical conduct: Every officer of the company including its directors, executives and non executive directors, managing director, CEO, CFO and CCO should deal on behalf of the company with professionalism, honesty, commitment and sincerity as well as high moral and ethical standards.
Corporate citizenship: A corporate should be committed to be a good corporate citizen not only in compliance with all relevant laws and regulations but also by actively assisting in the improvement of the quality of life of the people in the communities in which it operates with the objective of making them self reliant and enjoy a better quality of life.
Ethical behaviour: Corporations have a responsibility to set exemplary standards of ethical behaviour, both internally within the organizations, as well as in their external relationships.
Social concern: The Company should have concerns towards the society. It can help the needy people & show its concern by not polluting the water, air & land. The waste disposal should not affect any human or other living creatures.
Healthy and safe working environment: A company should be able to provide a safe and healthy working environment and comply with the conduct of its business affairs with all regulations regarding the preservations of environment of the territory it operates in.
Competition: A company should market its products & services on its own merits & should not resort to unethical advertisements or include unfair & misleading pronouncements on competitors’ products & services.
Timely responsiveness: Good governance requires that institutions & processes try to serve all stakeholders within a reasonable time frame. Corporations should uphold the fair name of the country.
CORPORATE GOVERNANCE SCORES
For calculation of corporate governance score it has six major variables, which are then divided into sub components. Weights are assigned to each of these components Following Variables are assessed 1) Structure, Composition and Management of Board: (20%) a) Independence of the Board b) Qualifications of the Board c) Authority to hire External Consultants d) Board Member Terms and Meetings of the Board e) Presence and implementation of Code of Ethics 2) Board Committees: (20%) a) Audit Committee b) Remuneration Committee c) Nominations Committee d) Other Board Committees 3) Transparency (20%) a) Related Party Transactions b) Executive Compensation 4) Shareholder Rights: (15%) a) Confidential Voting and Proxy Voting b) Voting for Corporate Changes 5) Other Shareholder Rights Issues : (15%) a) Ownership Structure b) Takeover Defences 6) Value Creation and Social Awareness: (10%) a) Credit Rating b) Growth in Number of Employees c) Social Responsibility 21 4% 3% 3% 9% 6% 7% 8% 10% 10% 6% 6% 5% 3% 6% 5% 2% 4% 3% Weights
Obligation to investors The investors as shareholders and providers of capital are of paramount importance to a corporation. A company has following obligations to investors:
Towards shareholders: A company should be committed to enhance shareholder value and comply with all regulations and laws that govern shareholders rights. The boa5rd of directors of the company shall and fairly inform its shareholders about all relevant aspects of the company’s business and disclose such information in accordance with the respective regulations and agreements. Every employee shall strive for the implementation of and compliance with this in his professional environment. Failure to adhere to the code could attract the most severe consequences including termination of employment or directorship as the case may be.
Measures promoting transparency and informed shareholder participation: A related issue of equal importance is the need to bring about greater levels of informed attendance and meaningful participation by shareholders in matters relating to their companies without such freedom being abused to interfere with management decision. An ideal corporate should address this issue and relate it to more meaningful and transparent accounting and reporting.
Transparency means that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement. It also means that enough information is provided and that it is provided in easily understandable forms and media.
Financial reporting and records: A company should prepare and maintain accounts of its business affairs fairly and accurately in accordance with the financial and accounting reporting standards, laws and regulations of the country in which it conducts the business affairs. Willful material misrepresentation of and/or misinformation on the financial accounts and reports shall be regarded as the 22
violation of the firm’s ethical conduct and also will invite appropriate civil or criminal action under the relevant laws. Obligation to employees In the context of enhanced awareness of better governance practices, managements should realize that they have their obligations towards their workers too.
Fair employment practices: An ideal corporate should provide equal access and fair treatment to all employees on the basis of merit; the success of the company will be improved while enhancing the progress of individuals and companies. The applicable labour and employment laws should be followed wherever it operates.
Equal opportunities: A company should provide equal opportunity to all its employees and all qualified applicants for employment without regard to their race, caste, religion, colour, marital status, sex, age, nationality and disability.
Humane treatment: Companies should treat employees as their first customers and above all as human. They have to meet the basic needs of all employees in the organization. There should be a friendly, healthy and competitive environment for the workers to prove their ability.
Participation: Participation of both men and women is a key cornerstone of corporate governance. Participation could be either direct or through representatives. It needs to be informed and organized. This means freedom of association and expression on one hand and an organized civil society on the other.
Empowerment: Empowerment unleashes creativity and innovation throughout the organization by truly vesting decision making powers at the most appropriate levels in the organizational hierarchy.
Equity and inclusiveness: A corporation is a miniature of a society whose well being depends on ensuring that all its employees feel that they have a stake in it and do not feel excluded from the main stream. This requires all groups, particularly the most vulnerable, have opportunities to improve or maintain their well being.
Participative and collaborative environment: There should not be any form of human exploitation in the company. There should be equal opportunities for all levels of management in any decision-making. The management should cultivate the culture where employees should feel they are secure and are being well taken care of. Collaborative environment would bring peace and harmony between the 23
working community and the management, which in turn, brings higher productivity, higher profits and higher market share. Obligation to customers A company’s existence cannot be justified without its catering to he needs of its customers. The companies have an obligation to its employees, without whose assistance they cannot realize their objectives.
Quality of products and services: The Company should be committed to supply goods and services of the highest quality standards, backed by efficient after sales service consistent with the requirements of the customers to ensure their total satisfaction. The quality standards of company’s goods and services should meet not only the required national standards but also should endeavour to achieve international standards.
Products at affordable prices: Companies should ensure that they make available to their customers quality goods at affordable prices while making normal profit is justifiable, profiteering and fattening on the miseries of the poor consumers is unacceptable. Companies must constantly endeavour to update their expertise, technology and skills of manpower to cut down costs and pass on such benefits to customers. They should not create a scare in the midst of scarcity or by themselves create an artificial scarcity to make undue profits.
Unwavering commitment to customer satisfaction: Companies should be fully committed to satisfy their customers and earn their goodwill to stay long in the business. They should encourage the warranties and guarantees given on their products and in case of harmful or sub-standard products should replace them with good ones.
Protecting company’s assets: The assets of the company should not be dissipated or misused but invested for the purpose of conducting the business for which they are duly authorized. These include tangible as well as intangible assets.
Behaviour toward government agencies: A company’s employees should not offer or give any of the firm’s funds or property as donation to any government 24
agencies or their representatives directly or through intermediaries in order to obtain any favourable performance of official duties.
Control: control is a necessary principal of governance that the freedom of management should be exercised within a framework of appropriate checks and balances. Control should prevent misuse of power, facilitate timely management response to change and ensure that business risks are pre-emptively and effectively managed.
Consensus oriented: Good governance requires mediation of the different interests in society to reach a broad consensus on what is in the best interest of the whole community and how this can be achieved.
Gifts and donations: The Company’s employees should neither receive nor make directly or indirectly any illegal payments, remuneration, gifts, donations or comparable benefits which are intended to or perceived to obtain business or uncompetitive favours for the conduct of its business.
CLAUSE 49 – MANDATORY REQUIREMENTS 1. BOARD OF DIRECTORS A. Composition of Board:
1. The Board of directors of the company shall have an optimum combination
of executive and non-executive directors with not less than fifty percent of the board of directors comprising of non- executive directors.
2. Where the Chairman of the Board is non- executive directors, at least one
third of the Board should comprise of independent directors and in case he is an executive director, at least half of the Board should comprise of independent directors. 3. For the purpose of sub – clause (ii) the expression ‘independent director’ shall mean a non executive director of the company who:
a. Apart from receiving director’s remuneration, do not have any material
pecuniary relationships or transactions with the company, its promoters, its directors its senior management or its holding company, its subsidiaries and associated which many affects independence of the director. b. Is not related to promoters or persons occupying managements positions at the board level or at one level below the board; c. It not been executive or was not partner or an executive during the preceding three years, of any of the following: d. Is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following: i. The statutory audit firm or the internal audit firm that is associated ii. iii. with the company, and ; The legal firm(s) and consulting firm(s) that have a material association with the company
e. Is not a material supplier, service provider or customer or a lesser or
lessee of the company, which may affect independence of the directors; and
f. Is not a substantial shareholder of the company i.e. owning two percent
or more of the block of voting shares. 4. Nominee directors appointed by an institution which has invested in or lent to the company shall be deemed to be independent directors. However if the Dr. J.J. irani Committee recommendations on the proposed new company law are accepted, then directors, nominated by financial institutions and the government will not be considered independent. B. Non executive directors compensation and disclosures: all fees/ compensation and disclosures: all fees/ compensation , if any paid to non executive directors, including independent directors, shall be fixed by the Board of Directors and 26
shall require previous approval of shareholders in general meeting. The shareholders’ resolution shall specify the limits for the maximum number of stock options that can be granted to non- executive directors, including independent directors, in any financial year and aggregate. However as per SEBI amendment made vide circular SEBI/ CFD/DIL/CG dated 12/1/06 sitting fees paid to non-executive directors as authorized by the Companies Act 1956, would not require the previous approval of shareholders. C. Other provisions as to Board and Committees: 1. The board shall meet at least four times a year, with a maximum time gap of three months between any two meetings. However SEBI has amended the clause 40 of the listing agreement vide circular SEBI/CFD/DIL/CG dated 12-1-06 as per which the maximum gap between two board meetings has been increased again to 4 months. 2. A director shall not be a member in more than 10 Audit and / or
Shareholders grievance Committee or act as chairman of more than five Audit Shareholders Grievance committee across all companies in which he is a director. Furthermore it should e mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place.
D. Code of conduct:
1. The Board shall lay down a code of conduct for all Board members and senior management of the company. The code of conduct shall be posted the website of the company, 2. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. The Annual report of the company shall contain declaration to this effect signed by CEO.
2. AUDIT COMMITTEE.
A. Qualified and Independent Audit Committee: A qualified and independent
audit committee shall be set up, giving the terms of reference subject to the following:
1. The audit committee shall have minimum three directors as members.
Two thirds of the members for audit committee shall be independent directors. 2. All members of audit committee shall be financially literate an at least one member shall have accounting or related financial management expertise. 3. The chairman of the Audit Committee shall be an independent director. 4. The chairman of the Audit Committee shall be present at annual General Meeting to answer shareholder queries; 5. The audit committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to the present at the meetings of the committee. The finance director, head of internal audit and representative of the statutory auditor may be present as invitees for the meeting of the audit committee; 6. The Company Secretary shall act as the secretary to the committee.
B. Meeting of Audit Committee:
the audit committee should meet at least four
times in a year and not more than four months shall elapse between two meetings. The quorum shall be either tow members or one third of the members of the audit committee whichever is greater, but there should be minimum of two independent members present.
C. Powers of Audit Committee: The audit committee shall have powers:
1. To investigate any activity within the terms of reference; 2. To seek information from any employee; 3. To obtain outside legal or other professional advice; 4. To secure attendance of outsiders with relevant experts, if any.
D. Role of audit committee: the role for the audit committee shall include the
following: 1. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment re- appointment and if required the replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of payment too statutory auditors for any other services rendered by the statutory auditors.
4. Reviewing, with the management the quarterly and annual financial
statements before submission to the board for approval with reference to Director’s Responsibility statement under section 217 (2AA) k, significant adjustments made in financial statements, compliance with listing requirements, disclosure of any related pending transaction etc.
5. Reviewing with the management performance of statutory and internal auditor and adequacy of the internal control systems. 6. Discussion with internal auditors regarding any significant findings including suspected frauds or irregularities and follow up thereon. 7. Reviewing the findings of any internal investigation by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control system of a material nature and reporting the matter to the board. 8. Discussion with statutory auditors before the audit commence, about the nature and scope of audit as well as post- audit discussion to ascertain any area of concern.
9. To look into the reason for substantial defaults in the payments to the
depositors, debenture holders, shareholders (in case of nonpayment of declared dividends) and creditors. 10. To review the functioning of the Whistle Blower mechanism, in case the same is existing. 11. Carrying out any other function as it mentioned in the terms of reference of the Audit Committee.
3. SUBSIDARY COMPANIES 1. At least one independent director on the Board of Director of the holding company shall be a director on the Board of Directors of a material non listed Indian subsidiary company. 2. The audit committee of the listed holding company shall also review the financial statements, in particular, the investment made by the unlisted subsidiary company. 3. The minutes of the Board meeting of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company, the management 30
should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transaction and arrangements entered into by the unlisted subsidiary company.
A. Basis of related party transactions:
1. A statement in summary form of transactions with related parties shall be placed periodically before the audit committee. 2. Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee.
B. Disclosure of Accounting Treatment: where in the preparation of financial
statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report.
C. Board Disclosure- Risk Management: the company shall lay down procedures
to inform Board members about the risk assessment and minimization procedures.
D. Proceeds from public issues, rights issues, preferential issues etc.:
money is raised through an issue (public issues rights issues, preferential issues etc.), it shall disclose to the Audit committee, the uses/ applications of funds by major category (capital expenditure, sales and marketing, working capital, etc.), on a quarterly and annual basis.
E. Remuneration of Directors :
1. All pecuniary relationship or transactions of the non- executive directors vis-à-vis the company shall be disclosed in the Annual Report. 2. Further, certain prescribed disclosures on the remuneration of directors shall be made in the section on the corporation governance of the Annual Report; 3. The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report. 4. Non executive directors shall be required to disclose their shareholding (both own or held by/ for other persons on a (beneficial basis) in the listed company in which they proposed to be appointed as directors, prior to their appointment. These details should be disclosed in the notice to the general meeting called for appointment of such directors.
As part of the directors’ report or as an addition there to a Management Discussion and Analysis report, the following should form part of the Annual Report to the shareholders. This includes discussion on:
1. Industry structure and developments. 2. Opportunities and threats. 3. Segment wise or product wise performance 4. Outlook 5. Risks and concerns. 6. Internal control systems and their adequacy 7. Discussion on financial performance with respect to operational performance. 8. Material developments in Human resources/ industrial Relations front including number of people employed.
1. In case of the appointment of a new directors or reappointment 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 persons also holds directorship and the membership Committees of the Board; and d. Shareholding of non – executive directors.
2. A board committee under the chairmanship of a non- executive director
shall be formed to specifically look into the redressal of shareholder and investor complaints like transfer of shares, non receipt of declared dividends etc. This committee shall be designated as ‘Shareholders/Investors Grievance Committee’. 3. To expedite the process of share transfer, Board of the company shall delegate the power of share transfer to an officer or a committee or to the 33
registrar and share transfer agents. There delegated authority shall attend to share transfer formalities and least once in a fortnight.
5. CEO/CFO CERTIFICATION Through the amendment made by SEBI vide circular SEBI /CFD/DIL CG DATED 12-1-06, in Clause 49 of the Listing Agreement, certification of internal controls and internal control system .CFO/CEO would be for the purpose of financial reporting. Thus the CEO, i.e. the Managing Direcctor 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: 1. 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 company’s
affairs and are in compliance within existing accounting standards, applicable laws and regulations.
2. There are, to the best of their knowledge and belief, no transactions entered into by the company during the year which fraudulent, illegal or violative of the company’s code of conduct.
3. They accept responsibility for establishing and maintaining internal controls and they have evaluated the effectiveness of the internal control system of the company pertaining to financial reporting and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of
internal controls, if an, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies
4. They have indicated to the auditors and the Audit
changes in internal control over financial reporting during the year, significant fraud of which they have become aware and the involvement there in if any, of the management or an employee having a significant role in the company’s internal control system over financial reporting.
6. REPORT ON CORPORATE GOVERNANACE 1. There shall be separate section on Corporate Governance in Annual Reports of Company with a detailed compliance report on Corporate Governance. Non compliance of any mandatory requirement of this clause with reason there of and the extent to which the non- mandatory requirements have been adopted should be specifically highlighted. 2. The companies shall submit a quarterly compliance report to the stock exchange within 15 days from the close of quarter as per the format given in 3. Annexure IB. the report shall be signed either by the Compliance Officer or the Chief Executive Officer of the company.
7. COMPLIANCE 1. The company shall obtain a certificate from either the auditor 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. 35
2. The non- mandatory requirements may be implemented as per the discretion of the company. However, the disclosures of the compliance with mandatory requirements and adoption / non- adoption of the non mandatory requirements shall be made in the section on corporate governance of the Annual Report.
CORPORATE GOVERNANCE The Ministry of Company Affairs appointed various committees on the subject of corporate governance which lead to the amendment of the companies Act in 2000. These amendments aimed at increasing transparency and accountabilities of the Board of Directors in the management of the company, thereby ensuring good corporate governance. The dealt with the following: 1. COMPLIANCE WITH ACCOUNTING STANDARDS – SECTION 210A As per this subsection inserted by the Companies Act, 1999 every profit and loss account and balance sheet of the company shall comply with the accounting standards. The compliance of Indian Accounting standards was made 36
mandatory and the provisions for setting up of National Committee on accounting standards were incorporated in the Act.
2. INVESTORS EDUCATION AND PROTECTION FUND – SECTION 205C This section was inserted by the Companies Act 1999which provides that the central government shall establish a fund called the Investor Education and protection Fund and amount credited to the fund relate to unpaid dividend, unpaid matured deposits, unpaid matured Debenture, unpaid application money received by the companies for allotment of securities and due for refund and interest accrued on above amounts.
3. DIRECTOR’S RESPONSIBILITY STATEMENT- SECTION 217(2AA) Subsection (2AA) added by the Companies Act, 2000 provides that the Boards report shall also include a Director’s Responsibility statement with respect to the following matters: a. Whether accounting standards had been followed in the preparation of annual accounts and reasons for material departures, if any; b. Whether appropriate accounting policies have been applied and on consistent basis;
c. Whether directors had made judgments and estimate that are reasonable prudent so as to give a true and fair view of the state of affair and profit and loss of the company; d. Whether the directors had prepared the annual accounts on a going concern basis. e. Whether directors had taken proper and sufficient care for the maintenance of adequate accounting records for safeguarding the assets of the company. 37
4. NUMBER OF DIRECTORSHIPA- SECTION 275 As per this section of Companies Act, 2000 a person cannot hold office at same time as director in more than fifteen companies.
5. AUDIT COMMITTEES – SECTION 292A This section of the companies Act, 2000 provides for the constitution of audit committees by every public company having a paid- up capital of Rs. 5 crores or more. Audit Committee is to consist of at least 3 directors. Two of the members of the Audit Committee shall be directors other than managing or whole time director. Recommendation of the Audit Committee on any matter related to financial management including audit report shall be binding on the Board.
6. PROHIBITION ON INVITIN OR ACCEPTING PUBLIC DPOSIT The Companies Act, 2000 has prohibited companies to invite/accept deposit from public.
7. SMALL DEPOSITOR- SECTIONS 58AA AND 58AAA The Companies Act, 2000 had added two new sections, viz, section a 58AA and 58AAA, for the protection of small depositors. These provisions are designed to protect depositors who have invested upto Rs. 20, 000 in a financial year in a company.
8. CORPORATE IDENTITY NUMBER Registrar of Companies is to allot a Corporate Identity Number to each company registered on or after November 1, 2000 (Valid circular No.)12/2000 dated 25-10-2000) 9. POWERS TO SEBI – SECTION 22A This section added Companies Act, 2000 empowers SEBI to administer the provisions contained in section 44 to 48, 59 to 84, 10, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207 so far as they relate to issue and transfer of securities and nonpayment of dividend. However, SEBI’S power in this regard is limited to listed companies.
10. DISQUALIFICATION OF A DIRECTOR- SETION 274 CLAUSE (G) Clause (g) of Section 2i7i4, added by the companies Act, 200 disqualifies a person who is already director of a public company which (a) has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April 1999; or (b) has failed or repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure to continues for one year or more, however, the aforesaid disqualification will last for five years only.
11. SECRETARIAL AUDIT – SECTION383A
12. Secretarial Audit Section 383A was amended to provide for secretarial audit with respect to companies having a paid up share capital of Rs. 10 lakhs or more but less than, present Rs. 2 crores. As per the Companies Act, 2000 a whole time company secretary has to file with ROC a certificate as to whether the
company has complied with all the provisions of the Act. A copy of this certificate shall also be attached with the report of Board of Directors. Thus, the importance of codification of good Corporate governance practices having mandatory force cannot be mitigates. But in order to ensure implementation and compliance in true spirit, Corporate Governance practices need to be legislated by one regular or body so as to avert duplicity, confusion and uncertainty.
INTRODUCTION – WIPRO LTD
Wipro Technologies is an IT service company established in 1980 in India, it is a subsidiary of Wipro Limited NYSE: WIT. It is headquartered in Bangalore. It is the third largest IT services company in India.It has 61,000 employees as of Oct 2006, which is inclusive of its BPO arm which it acquired in 2002.The current chairman and majority stake owner is Azim Premji. From inception the software and hardware divisions have been headed by him. Azim H. Premji has been Wipro Ltd's Chairman of the Board and Managing Director since September 1968. Mr. Premji holds a Bachelor of Science in Electrical Engineering from Stanford University. Currently, he is also a Director of Media Lab Asia. Wipro was set up in Amalner in 1945. Primarily an edible oil factory, the chief products were Sunflower Vanaspati and 787 laundry soap (a by-product of the Vanaspati operations). The 40
company was called Western India Vegetable Products Limited, with a minor presence in Maharashtra and Madhya Pradesh.
The Global IT Services and Products segment provides IT services to customers in the Americas, Europe, and Japan. The India and Asia Pacific IT Services and Products segment operates in the Indian IT market and offers IT products and services to the companies in India, Asia-Pacific, and the Middle East region. Consumer Care and Lighting segment engages in the manufacture and sale of consumer care and lighting products. The consumer care products include soaps and toiletries, baby products, talcum powders, and Hydrogenerated cooking oils. The lighting products include light bulbs, fluorescent tubes, and luminaries. In the 1970s and 1980s it began to expand and made forays into computing. The Indian promoters hold more than 80 percent of the total share capital of the company while the Indian public holds about 7 percent and institutional investors hold about 6 percent. Wipro's has clients across a spectrum of industries such as consumer electronics, finance, Government, insurance, manufacturing, media & entertainment, mobile devices, Telecom equipment vendors and service providers, travel & transportation etc. To these clients the company offers services such as application development, deployment & maintenance, business intelligence, business consulting, CRM, data warehousing, enterprise application services and security, industrial automation, space communications, technology consulting, network management, testing services, system design, Web services, wireless networks, software application development and maintenance etc. The company also provides consultancy services like security governance, e-governance etc. Wipro Limited, through its subsidiaries, provides IT services worldwide. It offers software solutions, IT consulting, business process outsourcing services, and research and development services in the areas of hardware and software design. The company operates in three segments: Global IT Services and Products
India and Asia Pacific IT Services and Products, Consumer Care and Lighting.
WIPRO VISION,MISION, GOALS & VALUES
Contribute for global e-society, where a wide range of information is being exchanged beyond time and space over global networks, which breaks down the boundaries among countries, regions and cultures, allowing individuals to take part in various social activities in an impartial, secure way. It’s Continuous effort to enhance people's lifestyle and quality by means of developing new technology in wireless communication.
Our mission is to be a RF System Solution Provider, through its innovative research and design works for a new world of broadband wireless communications.
To support customers who rely on our ability as an advanced RF System Solution Provider To build up core competencies through collaboration with technological partners To contribute to the Ubiquitous Networking Society by providing chip level RF system solutions
Outstanding Teamwork 42
Products of Wipro
• • • • •
IT Services Product Engineering Solutions Technology Infrastructure Services Business Process Outsourcing
Wipro Infotech Ltd.
Consulting Services Notebooks Desktops Servers Enterprise Products Sun Servers IBM Servers Business Application and Development Data Warehousing Technology Integration
Wipro Consumer Care & Lightning Wipro Infrastructure Engineering Wipro GE Medical Systems Ltd. Wipro Biomed
Fast Moving Consumer Goods Construction, Mining, Agriculture, Ports Medical systems Specialty Products
Life Sciences Diagnostic Medical Systems Managed Services
CORPORATE GOVERNANCE OF WIPRO LIMITED
The following Corporate Guidelines have been adopted by the Board of Directors to assist the Board in the exercise of its responsibilities. Corporate Governance is not a directive to be in stone for all time; rather, it is an ongoing process. From time to time Wipro’s principle of Corporate Governance will therefore be reviewed and if necessary amended in the light of experience gained, the needs of the day, the law, and national and international standards. Efficient corporate governance requires a clear understanding of the respective roles of the Board and of senior management and their relationships with others in the corporate structure. The relationships of the Board and management shall be characterized by sincerity; their relationships with employees shall be characterized by fairness; their relationships with the communities in which they operate shall be characterized by good citizenship; and their relationships with government shall be characterized by a commitment to compliance. Senior management, led by the Chairman and Managing Director, is responsible for running the day to day operations of the corporation and properly informing the Board of the status of such operations. Management’s responsibilities include strategic planning, risk management, financial reporting and compliance. The Board of Directors has the important role of overseeing management performance on behalf of stockholders. Stockholders necessarily have little voice in the day to day management of corporate operations, but have the right to elect representatives (Directors) to look out for their interests and to receive the information they need to make investment and voting decisions.
Over the last few years, the Board of Directors of our Company has from time to time developed corporate governance practices to enable the Directors to effectively and efficiently discharge their responsibilities individually and collectively to the shareholders of the Company in the areas of;
1. Fiduciary duties
2. oversight of the Management 3. evaluation of the Management performance 4. support and guidance in shaping company policies and business strategies An attempt has been made here in these guidelines to capture and codify in one place these corporate governance practices. These guidelines will not only provide a systematic and structured framework as to how it could review and evaluate the Company’s performance in an independent manner but would also provide assurance to the Directors in terms of their authority to oversee the Company’s management. These guidelines are subject to future amendments or changes as the Board may find it necessary or advisable for the Company in order to achieve these objectives. BOARD COMPOSITION Selection and appointment of Chairman and Managing Director The Board shall make this choice that seems best for the Company at any given point in time. The Board believes that this issue is part of the succession planning process and it is in the best interests of the Company. The Board shall make appropriate determination and consider succession planning at the appropriate time. Board of Directors’ Responsibilities The Company’s Board of Directors represents the shareholders’ interest in perpetuating a successful business and optimizing long term financial returns in a manner consistent with applicable legal requirements and ethical considerations. The Board is responsible for
identifying and taking reasonable actions to help and assure that the Company is managed in a way designed to achieve this result.
Board of Directors’ Duties
The basic responsibility of the Directors is to exercise their business judgment to act in what they reasonably believe to be in the best interests of the Company and its shareholders. In discharging that obligation, Directors shall be entitled to have access to its records, rely on the honesty and integrity of the Company’s officers, employees, outside advisors and independent auditors. The Directors shall acknowledge and sign the following documents; a. Code of Business Conduct and Ethics b. Formal letter of appointment c. Confidentiality Agreement d. Indemnification Agreement Directors are expected to review meeting materials prior to Board and Committee meetings and, when possible, shall communicate in advance of meetings any questions or concerns that they wish to discuss so that management will be prepared to address the same. The specific duties of the Board of Directors’ are as follows; 1. Selection, Evaluation and Retention of Chairman/Chief Executive Officers and Oversight of Selection and Performance of Other Executive Officers 2. Understanding, Reviewing and Monitoring Implementation of Strategic Plans and Annual Operating Plan and Budgets 3. Selection and Oversight of Independent Auditors, Oversight of financial statements as per the Charter of the Audit/Risk and Compliance Committee 4. Advising Management on significant issues 5. Review and approval of significant Company actions (e.g. Declaration of Dividend, major Mergers & Acquisition transactions, etc). 6. Evaluating and nominating directors and members of Board committees, overseeing the structure and practices of the Board and the committees and overseeing other corporate governance matters. 46
7. Consideration of other matters (In addition to fulfilling its obligation to increase shareholder value, the Board shall consider the impact of various actions and decisions on the Company’s customers, employees, suppliers. 8. Approval of the Charters, guidelines and policies as per the charters of the Board Governance and Nomination Committee. Size of the Board. As per the Memorandum & Articles of Association of the Company, the number of Directors shall not be less than four and not more than fifteen or such higher number of Directors as may be permitted under the Companies Act, 1956 as amended or replaced from time to time. Mix of Executive and Non-Executive Independent Directors The Board believes that at least 50% of the total strength of the Board shall constitute of Non Executive Independent Directors.
Board definition of what constitutes “Independent Directors” The Board shall be comprised of a majority of Directors who qualify as Independent Directors (“Independent Directors”) under the listing standards of the NYSE. The Board will review annually the relationship that each director has with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). Following such annual review, only those directors who the Board affirmatively determines have no material relationship with the Company will be considered Independent Directors, subject to additional qualifications prescribed under the listing standards of the NYSE. The basis for any determination that a relationship is not material shall be disclosed in accordance with applicable rules and regulations. Lead Independent Director The Lead Independent Director is responsible for coordinating the activities of the other independent directors and to perform various other duties. The general authority and responsibility of the Lead Independent Director are to be decided by the group of Independent Directors. The role of Lead Independent Director shall be determined by the group of Independent Directors. 47
Board membership criteria The Board Governance and Nomination Committee comprise entirely of Independent Directors and shall be responsible for identifying, screening, recruiting and recommending Directors for nomination by the Board for election as members of the Board. An assessment of the skills and characteristics needed by the Board in the context of the current status of the Board must be performed on a regular basis; The qualification guidelines for Board membership criteria shall include; 1. Strong management experience, ideally with major public companies with successful multinational operations 2. Other areas of expertise or experience that are desirable given the Company’s business and the current make-up of the Board, such as expertise or experience in Information Technology businesses, manufacturing, international, financial or investment banking, scientific research and development, senior level government experience and academic administration 3. Desirability of range in age, so that retirements are staggered to permit replacement of Directors of desired skills and experience in a way that will permit appropriate continuity of Board members 4. Knowledge and skills Independence as defined by the Board 5. Diversity of perspectives brought to the Board by individual members 6. Knowledge and skills in accounting and finance, business judgement, general management practices, crisis response and management, industry knowledge, labour laws, international markets, leadership, risk management and strategic planning 7. Personal characteristics matching the Company’s values, such as integrity, accountability, financial literacy, and high performance standards
Additional characteristics, such as; 1. Commitment to attend a minimum of 75% of meetings which will also include attendance through audio/video conferencing. 2. Ability and willingness to represent the stockholders’ long and short term interests 3. Awareness of the Company’s responsibilities to its customers, employees, suppliers, regulatory bodies, and the communities in which it operates The Board shall evaluate each individual as well as the Board as a whole, with the objective of recommending a group that can best be responsible for the success of the business and represent shareholder interests through the exercise of sound judgment using its diversity of experience in these various areas. The Committees of the Board shall also do the evaluation of its performance based on the processes of the Board Governance and Nomination Committee. In determining whether to recommend a director’s re-election, the Board Governance and Nomination Committee shall also consider the Director’s past attendance at meetings and participation in and contributions to the activities of the Board. One third of the Board members subject to retirement by rotation, are selected annually by the Company’s shareholders. Each year at the Company’ annual meeting, the Board recommends names of directors for re-election by shareholders. The Board’s recommendations are based on its determination (using advice and information supplied by the Board Governance and Nomination Committee) as to the suitability of each individual, to serve as directors of the Company, based on the Board membership criteria. The Board’s recommendation must be approved by a majority of the Independent Directors. Proportion and Determination of Independent Directors The Board believes that as a matter of policy, Independent Directors shall comprise of at least 50% of the Company’s Board. This will not, however, prevent the Board from taking valid actions, if due to a temporary vacancy or vacancies on the Board, there are fewer than 49
the intended proportion of Independent Directors. Any such vacancies shall be filled as soon as reasonably practicable.
An “Independent Director” is one who is not, and has not been within the last five years; 1. an employee of the Company or any of its affiliates 2. affiliated with or employed by a present or former independent auditor of the Company or any of its affiliates 3. part of an interlocking directorship in which an executive officer of the Company serves on the Board Governance & Nomination Committee and Compensation Committee of another publicly held company that employs such director
4. an immediate family member of anyone who has been an officer of the
Company or any of its affiliates or has had a relationship described above 5. or has never been the Chief Executive Officer of the Company and has been determined by the Company’s Board not to have any other material relationship with or to the Company or its management (either directly) or as a partner, shareholder or officer of an organization that has a material relationship with or to the Company or its management. 6. any other criteria of independence as may be prescribed by law as amended from time to time Selection of new Directors The Board and the Board Governance & Nomination Committee shall be responsible in actual practice and not merely as a procedural formality, for selecting members of the Board and in recommending them for election by the shareholders. The Board delegates the screening and selection process involved in selecting the new directors to the Board Governance & Nomination Committee with direct input from the Chairman of the Board and Chief Executive Officer. The Board shall be responsible for determining the qualification of an individual to serve on the Audit /Risk and Compliance Committee as a designated “Audit/Risk and Compliance Committee Financial Expert” as required by applicable SEC rules. In light of this responsibility of the Board, the Board Governance and Nomination Committee shall 50
coordinate closely with the Board in screening any new candidate and in evaluating whether to re-nominate any existing director who may serve in this capacity. The invitation to join the Board shall be extended by the Board itself, through its Chairman of the Board (if he is an Independent Director) and/or the Chairman of the Board Governance and Nomination Committee, together, in each case, with the Chief Executive Officer of the Company. Extending the Invitation to a Potential Director to join the Board The invitation to join the Board is extended on behalf of the Board by the Chairman of the Board. Tenure The tenure of Executive Directors must not exceed a period of five years on each occasion. Independent Directors shall be eligible for retirement by rotation as well as reappointment once in every two years. The age limit for retirement of the Executive and Non Executive Independent Directors shall be decided by the Board Governance and Nomination Committee. Board Compensation Executive Directors Executive Directors shall be paid remuneration within the limits envisaged under Schedule XIII of the Companies Act, 1956 and other regulations that may be applicable from time to time. The remuneration payable shall be recommended by the Compensation & Benefits Committee to the Board and shall be approved by the Board as well as the Shareholders of the Company. Non Executive Independent Directors No professional or consulting fee is payable to Non Executive Independent Directors. However, a commission may be payable to the Non Executive Independent Directors as may be recommended by the Compensation Committee and approved by the Board subject however to the condition that the commission shall not cumulatively exceed 1% of the net profits of the Company for all Non Executive Independent Directors in the aggregate. The commission payable in each individual case shall be capped upto an amount as may be 51
decided by the Compensation Committee. In case of commission payable to the members of the Compensation Committee, the same shall be decided and approved by the Board. No specific limitation on other Board Service The Board does not believe that its members be prohibited from serving on Boards and/or Committees of other organizations other than on Boards of companies which are in competition with the businesses pursued by the Company. Each Director is expected to ensure that his or her other existing and planned future commitments do not materially interfere with such Director’s service on the Board. Service on Boards and/or Committees of other organizations shall be consistent with the Company’s conflict of interest policy. New Director Orientation The Company has an orientation process for new directors that includes background material, visits to Company facilities, and meetings with senior management to familiarize the Directors with the Company’s strategic and operating plans, key issues, corporate governance, Code of Business Conduct and Ethics, its principal officers, risk management issues, compliance programs and its internal and independent auditors. In addition, new members to a Committee will be provided information relevant to the Committee and its roles and responsibilities. Continuing Director Education The Board believes that it is appropriate for Directors, at their discretion, to have access to educational programs related to their duties as Directors on an ongoing basis to enable them to perform their duties better and to recognize and deal appropriately with issues that arise. The views of the Directors will be obtained from time to time for areas in which Directors would like to know more.
Types of Committees
The Board of the Company has the following Committees; a. Audit/Risk and Compliance Committee b. Board Governance & Nomination Committee c. Compensation Committee d. Shareholders’/Investors’ Grievance and Administrative Committee The membership of the Audit/Risk and Compliance Committee, Board Governance & Nomination Committee and Compensation Committee shall comprise of only NonExecutive Independent Directors of the Company. In the case of Audit/Risk and Compliance Committee, at least one member shall have accounting or financial management experience, as defined by the Securities and Exchange Commission rules or as required under applicable New York Stock Exchange listing requirements. In the case of Shareholders’/Investors’ Grievance and Administrative Committee, the same shall comprise of at least two directors of the Company. The members of the Committees other than the Executive Directors shall be paid sitting fees. The Shareholders’/Investors’ Grievance Committee meeting shall be held at least four times in a year. The Board has adopted written charters for Audit/Risk and Compliance Committee, Board Governance & Nomination Committee, and Compensation Committee in line with the responsibilities envisaged under SEBI laws/NYSE and SEC regulations. Audit/Risk and Compliance Committee meetings The meetings of the Audit/Risk and Compliance Committee shall at least be held five times a year and every quarter the meeting will happen preferably on the day preceding the date of each of the Board meeting. The docket for the Audit/Risk and Compliance Committee meeting shall be circulated at least 72 hours prior to the commencement of the meeting. The Audit/Risk and Compliance Committee meeting shall be attended by; a. The members of the Audit/Risk and Compliance Committee b. Independent Auditors under Indian/US GAAP c. Chairman d. Joint CEOs e. Chief Financial Officer and Executive Director 53
f. Head of Internal Audit g. Corporate Vice President-Legal & General Counsel h. Vice President-Corporate Controller i. Company Secretary j. Corporate Treasurer k. Such other invitees at the discretion of the Chairman of the Committee The Audit/Risk and Compliance Committee shall review the report of the Corporate Internal Audit once every quarter. During this review, the Business Unit Heads and Chief Financial Officers of the Business Units shall also be present. Once every quarter, the Audit/Risk and Compliance Committee shall hold separate independent meetings with;
a. The Head of Internal Audit b. The Independent auditors under Indian/US GAAP.
Independent criteria for Audit/Risk and Compliance Committee members In addition to being an Independent Director, as defined above, each member of the Company’s Audit /Risk and Compliance Committee must not, except in his or her capacity as a member of the Audit/Risk and Compliance Committee, the Board or any other Committee of the Board; 1. Accept directly or indirectly any consulting, advisory, or other compensatory fee from the Company OR 2. Be an affiliated person of the Company or any subsidiary thereof For this purpose, the term “affiliated person” means one who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Company or any of its subsidiaries. A person will not be deemed in control of the company or any subsidiary, if the person is not; 1. a beneficial owner directly or indirectly of more than 10% of any class of equity securities of the Company or such subsidiary; OR 2. an executive officer or director of the Company or such subsidiary As an amplification of the foregoing;
3. Director’s fees (including fees for service on Committees) must be sole compensation that an Audit/Risk and Compliance Committee member receives from the Company 4. Permissible director fees may include equity based awards and may also include fees that are structured to provide additional compensation for additional duties (such as extra fees for serving and/or chairing Board Committees) 5. A former employee of the Company who later qualifies as an Independent Director will not be barred from chairing or serving as a voting member of the Audit/Risk and Compliance Committee merely because he or she receives a pension or other form of deferred compensation from the Company for his or her prior service (provided such compensation is not contingent in any way on continued service as a director) 6. Neither an Audit/Risk and Compliance Committee member nor his or her firm may receive any fees from the Company, directly or indirectly, for services as a consultant or a legal or financial adviser. This applies without regard to whether the Audit/Risk and Compliance Committee member is directly involved in rendering any such services to the Company. Board Governance and Nomination Committee meetings The Board Governance and Nomination Committee shall at least be held at least four times a year on the day preceding the date of every Board meeting. The Board Governance and Nomination Committee meeting shall be attended by; a. the members of the Board Governance and Nomination Committee b. Chairman c. Corporate Head of Human Resources d. Company Secretary e. Such other invitees at the discretion of the Chairman of the Committee
The following information shall be disclosed in the Annual Report and Proxy Statement. a. A reference to the website where the Board Governance and Nomination Committee charter is posted and a brief overview of the functions and responsibility of the Committee with its membership details. b. Meeting the “independence” requirements by the members of the Board Governance & Nomination committee as per NYSE listing standards c. The process being followed by the Board Governance and Nomination Committee for consideration and evaluation of directors. d. Whether the Company pays any third party a fee to assist in the process or identifying and evaluating candidates.
e. The process being followed by the Company for director nomination and election of
Directors who are nominated by the shareholders. Generally, nominations for election of Directors can be made by shareholders in terms of statutory provisions. Company shall endeavour to place such nominations for the approval of shareholders in compliance with the legal requirements. f. Process followed by the company for communications by shareholders with directors and screening if any. The Directors shall be accessible at the Annual/Extra-ordinary General Meetings. g. Whether the company has rejected candidates put forward by large, long time shareholders or groups of shareholders. h. Number of Committee meetings held during the year and attendance of directors at these meetings including last general meeting. Compensation Committee meetings The Compensation Committee shall at least be held at least four times a year on the day preceding the date of every Board meeting. The Compensation Committee meeting shall be attended by; a. the members of the Compensation Committee b. Chairman c. Corporate Head of Human Resources d. Company Secretary e. Such other invitees at the discretion of the Chairman of the Committee
The following information shall be disclosed in the Annual Report and Proxy Statement. a. A reference to the website where the Compensation Committee charter is posted and a brief overview of the functions and responsibility of the Committee with its membership details b. Meeting the “independence” requirements by the members of the Compensation Committee as per NYSE listing standards and other applicable laws. c. The process being followed by the Compensation Committee in assisting the Board’s overall responsibility relating to executive compensation and appropriate compensation packages for Whole-time Directors and Senior Management personnel in such a manner so as to attract and retain the best available personnel for position of substantial responsibility with the Company d. Disclosure of remuneration paid to Whole-time Directors/Senior Management including stock options granted, if any with grant/exercise price and schedule of vesting, number of equity shares beneficially owned by them e. Number of Committee meetings held during the year and attendance of directors at these Committee meetings including last general meeting.
INTRODUCTION – INFOSYS LTD
Infosys was founded on July 2, 1981 by N.R. Narayan Murthy and six of his colleagues, namely, Nandan Nilekani, N. S. Raghavan, S. Gopalakrishnan, S. D. Shibulal, K. Dinesh and Ashok Arora. Narayan Murthy borrowed Rs.10,000 from his wife Sudha Murthy as seed capital for the company. In 1987 Infosys got its first foreign client, Data Basics Corporation from the United States and opened its first office in the USA. In 1993, Infosys became a public limited company and successfully completed IPO in India. Infosys is the second-largest IT services company in India with more than 88,000 professionals. It is also among the fastest-growing IT services organization in the world, and is a leader in the offshore services space. In the same year Infosys received ISO 9001/Tick IT certification. Infosys set up its first office in Europe in Milton Keynes, UK in 1996. In 1999, Infosys crossed $100 Million in annual revenue and was listed on NASDAQ. It was Indian company to be listed on NASDAQ. In the same year Infosys opened offices in Germany, Sweden, Belgium, and Australia. In 2000, Infosys crossed $200 Million in annual revenue. In 2004, Infosys crossed US $1 Billion in annual revenue. In 2006, Infosys completed 25 years of its existence and its revenues crossed $ 2 billion. Today Infosys has more than 50,000 employees and has presence in more than 20 countries across the world. Its corporate headquarters is in Bangalore. Infosys follows highest standards of corporate governance. No relative of the founders is eligible to work in Infosys and all the employees including founders are to retire at the age of 60. Some of the persons occupying key positions in Infosys are: N. R. Narayan Murthy (Founder, Non Executive Chairman and Chief Mentor), Nandan Nilekani (Co-
founder and Co-Chairman), S. "Kris" Gopalakrishnan (Co-founder, CEO and MD), and S. D. Shibulal (Co-founder and COO). Infosys Technologies is a leading Information Technology (IT) company which provides end-to-end business solutions that leverage technology. Infosys serves the client globally and as one of the pioneers in strategic offshore outsourcing of software services, it has leveraged the global trend of offshore outsourcing. Infosys helps large global corporations and new generation technology companies in building new products or services and in implementing prudent business and technology strategies in the contemporary dynamic digital environment. Services offered by Infosys are:
• • • • • • •
Application Development & Maintenance, Corporate Performance Management, Enterprise Quality Services Infrastructure Services Packages Application Services Product Engineering Systems Integration provides business consulting, application development and
and engineering services to more than 500 active clients across
verticals such as Banking, Financial Services, Insurance, Retail, Manufacturing and Utilities in the Americas, Europe and Asia Pacific. Infosys sells a core banking application, which is used by leading banks in India, the Middle East, Africa and Europe. Its subsidiary, Infosys BPO, which employs more than 13,000 people, is a provider of BPO services. It launched a subsidiary in April 2004, Infosys Consulting, which provides high-end IT consulting services.
To be a globally respected corporation that provides best of-breed business solutions, leveraging technology, delivered by best- in-class people”.
“To achieve our objectives in an environment of fairness, honesty and courtesy towards our clients, employee’s vendors and society at large”.
We believe that the softest pillow is a clear conscience. The values that drive us underscore our commitment to:
Customer Delight: To surpass customer expectations consistently
Leadership by Example: To set standards in our business and transactions and be an exemplar for the industry and ourselves
Integrity and Transparency: To be ethical, sincere and open in all our transactions
Fairness: To be objective and transaction-oriented, and thereby earn trust and respect
Pursuit of Excellence: To strive relentlessly, constantly improve ourselves, our teams, our services and products to become the best.
CORPORATE GOVERNANCE OF INFOSYS
Corporate governance philosophy of Infosys is based on the following principles: • • • • • • • • • Satisfy the spirit of the law and not just the letter of the law Corporate governance standards should go beyond the law Be transparent and maintain a high degree of disclosure levels When in doubt, disclose Make a clear distinction between personal conveniences and corporate resources Communicate externally, in a truthful manner, about how the Company is run internally Comply with the laws in all the countries in which the Company operates Have a simple and transparent corporate structure driven solely by business needs Management is the trustee of the shareholders' capital and not the owner
Code of conduct
Infosys has always followed the highest standards of corporate governance. We have set new levels in transparency and integrity. Today, our challenge is to continue doing this. Today every action of the company and its employees is the focus of public attention and we need to reinforce our tradition of values. Our challenge is to continue maintaining this high standard, even as we become a global company and work in multi-cultural environs. To this end, we have adopted this code of business conduct and ethics to guide our transactions with our colleagues, communities, customers, governments, investors, regulators and society. The essence of this code is based on the Infosys Core Values of C-LIFE – Customer Delight, Leadership by Example, Integrity and Transparency, Fairness and Pursuit of Excellence. We ask you to read, understand, enforce and adhere to this Code, and also ensure that others who work for you do the same. Our reputation and ability to comply with all applicable laws depends on the integrity and upright behaviour of each one of us and your pledge to continue to adhere to this code will help us to be Powered by Intellect and Driven by Values. This Code of Business Conduct and Ethics helps ensure compliance with legal requirements and our standards of business conduct. All Company employees and trainees are expected to read and understand this Code of Business Conduct and Ethics, uphold these standards in day-to-day activities, comply with all applicable policies and procedures, 61
and ensure that all agents and contractors are aware of, understand and adhere to these standards.
Corporate Governance-The Infosys Way
Infosys had accepted the recommendation of both the CII and the Kumar Mangalam Birla Committee. This section provides an overview of corporate governance practices followed by Infosys. Infosys had an executive chairman and chief executive officer (CEO) and a managing director, president and chief operating officer (COO). The CEO was responsible for corporate strategy, brand equity, planning, external contacts, acquisitions, and board matters. The COO was responsible for all day-to-day operational issues and achievement of the annual targets in client satisfaction, sales, profits, quality, productivity, employee empowerment and employee retention. The CEO, COO, executive directors and the senior management made periodic presentations to the board on their targets, responsibilities and performance.
Corporate Governance – The Infosys Way
• • • • • • The chairman of the board and the company secretary drafted the agenda for each board meeting and distributed it in advance to the board members Board members were free to suggest the inclusion of any item on the agenda Board Meeting – Quarterly to review the quarterly results and other issues, at annual shareholders' meeting, additional meetings on need basis Mandate to attend at least 4 board meetings for non-executive directors in a year Access to any information that it wanted about the company to the Board Members Board had three committees – – The Nominations Committee – The Compensation Committee, and – The Audit Committee
All the members of these committees were non-executive members 62
• • • • • •
The chairman of the board and the company secretary drafted the agenda for each board meeting and distributed it in advance to the board members Board members were free to suggest the inclusion of any item on the agenda Board Meeting – Quarterly to review the quarterly results and other issues, at annual shareholders' meeting, additional meetings on need basis Mandate to attend at least 4 board meetings for non-executive directors in a year Access to any information that it wanted about the company to the Board Members Board had three committees – – The Nominations Committee – The Compensation Committee, and – The Audit Committee
All the members of these committees were non-executive members • • • • The Nominations Committee Four non-executive directors looking after the issue of retirement of existing members and their re-appointment, on the basis of their performance Executive Members appointed by Shareholders for a term of 5 years – eligible for re-appointment Maximum age of retirement of Executive Directors, including CEO – 60 years – also the age of superannuation for company employees.
The Compensation Committee
Three Non-Executive Directors, looking after issues related to compensation and benefits for board members Annual compensation of the Executive Directors - approved by the compensation committee within the parameters set by the shareholders at the shareholders meetings
• • • • •
Compensation of the executive directors decided for the entire period of their term Compensation of the Non-Executive Directors was approved at a meeting of the full board None of the Directors gained financially from any other contract of significance which the company or any of its subsidiary undertakings was party to The Audit Committee Responsible for effective supervision of the financial reporting process, ensuring financial and accounting controls and compliance with the financial policies of the company
• • • •
The committee periodically interacted with the statutory auditors and the internal auditors to ascertain the quality of the company's transactions Provided overall direction on the risk management policies and also indicated the areas that internal and management audits should focus on Full access to financial data Reviewed the annual and half yearly financial statements before they were submitted to the board
Infosys-A Benchmark for Corporate Governance:Some analysts felt that Infosys ‘corporate governance practices offered many lessons to corporate India. Infosys had shown that increasing shareholder wealth and safeguarding the interests of other stakeholders was not incompatible. Infosys had given its non-executive directors the mandate to pass judgment on the efficacy of its business plans. Every nonexecutive director not only played an active role in decision making, but also led or served on at least one of the three (Nomination, Compensation and Audit) committees.
Corporate Governance Report
“Corporate governance is about maintaining an appropriate balance of accountability between three key players: the corporation's owners, the directors whom the owners elect, and the managers whom the directors select. Accountability requires not only good transparency, but also an effective means to take action for poor performance or bad decisions.” Mary L. Schapiro, Chairperson, Securities and Exchange Commission, USA, Address to Transatlantic Corporate Governance Dialogue – September 17, 2009. Corporate governance is about commitment to values and ethical business conduct. It is about how an organization is managed. This includes its corporate and other structures, its culture, policies and the manner in which it deals with various stakeholders. Accordingly, timely and accurate disclosure of information regarding the financial situation, performance, ownership and governance of the company is an important part of corporate governance. This improves public understanding of the structure, activities and policies of the organization. Consequently, the organization is able to attract investors, and enhance the trust and confidence of the stakeholders. Corporate governance guidelines and best practices have evolved over a period of time. The Cadbury Report on the financial aspects of corporate governance, published in the United Kingdom in 1992, was a landmark. The Sarbanes-Oxley Act, which was signed by the U.S. President, George W. Bush as a law in July 2002, has brought about sweeping changes in financial reporting. This is perceived to be the most significant change to federal securities law since the 1930s. Besides laying down the standards for directors and auditors, the Act has also laid down new accountability standards for security analysts and legal counsels. In India, the Confederation of Indian Industry (CII) took the lead in framing a desirable code of corporate governance in April 1998. This was followed by the recommendations of the Kumar Mangalam Birla Committee on Corporate Governance. This committee was appointed by the Securities and Exchange Board of India (SEBI). The recommendations were accepted by SEBI in December 1999, and are now incorporated in Clause 49 of the Listing Agreement. Our compliance with these various requirements is presented in this
section. We fully comply with, and indeed go beyond, all these recommendations on corporate governance. SEBI also instituted a committee under the chairmanship of N. R. Narayana Murthy which recommended enhancements in corporate governance. SEBI has incorporated the recommendations made by the Narayana Murthy Committee on Corporate Governance in clause 49 of the Listing Agreement. The revised clause 49 was made effective from January 1, 2006. During the year, the Ministry of Corporate Affairs, Government of India, published the Corporate Governance Voluntary Guidelines 2009. These guidelines have been published keeping in view the objective of encouraging the use of better practices through voluntary adoption, which not only serve as a benchmark for the corporate sector but also help them in achieving the highest standard of corporate governance. These guidelines provide corporate India a framework to govern themselves voluntarily as per the highest standards of ethical and responsible conduct of business. The Ministry hopes that adoption of these guidelines will also translate into a much higher level of stakeholders' confidence that is crucial to ensuring long-term sustainability and value generation by business. We believe that sound corporate governance is critical to enhancing and retaining investor trust. Accordingly, we always seek to ensure that we attain our performance goals with integrity. Our Board exercises its fiduciary responsibilities in the widest sense of the term. Our disclosures always seek to attain the best practices in international corporate governance. We also endeavor to enhance long-term shareholder value and respect minority rights in all our business decisions. Our corporate governance philosophy is based on the following principles :
Satisfy the spirit of the law and not just the letter of the law. Corporate governance standards should go beyond the law Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose Make a clear distinction between personal conveniences and corporate resources Communicate externally, in a truthful manner, about how the Company is run internally 66
• • •
Comply with the laws in all the countries in which we operate Have a simple and transparent corporate structure driven solely by business needs Management is the trustee of the shareholders' capital and not the owner.
The Board of Directors (‘the Board’) is at the core of our corporate governance practice and oversees how the Management serves and protects the long-term interests of all our stakeholders. We believe that an active, well-informed and independent Board is necessary to ensure highest standards of corporate governance. The majority of our Board, eight out of 14, are independent members. Further, we have audit, compensation, investor grievance, nominations and risk management committees, which comprise only independent directors. As part of our commitment to follow global best practices, we comply with the Euro shareholders Corporate Governance Guidelines, 2000, and the recommendations of the Conference Board Commission on Public Trusts and Private Enterprises in the U.S. We also adhere to the United Nations Global Compact policy. Further, a note on our compliance with the corporate governance guidelines of six countries (Australia, Canada, France, Germany, Japan and U.K.) in their national languages is available on our website, www.infosys.com.
EMPLOYEES RESPONSIBILITIES TO THE COMPANY AND ITS STOCKHOLDERS
A. General Standards of Conduct • • • • • Workplace free of Harassment Drug and Alcohol Abuse Safety in Workplace Dress Code and other personal standards Expense Claims
B. Applicable Laws C. Conflicts of Interest D. Corporate Opportunities E. Protecting the Company's Confidential Information F. Obligations under Securities Laws-"Insider" Trading G. Prohibition against Short Selling of Company Stock H. Use of Company's Assets I. Maintaining and Managing Records RESPONSIBILITIES TOWARDS CUSTOMERS AND SUPPLIERS A. Customer Relationships B. Payments or Gifts from Others C. Publications of Others D. Handling the Confidential Information of Others E. Selecting Suppliers F. Government Relations G. Lobbying H. Government Contracts I. Free and Fair Competition
OWNERSHIP STRUCTURE AND EXTERNAL INFLUENCE
Transparency of Ownership
Infosys is a widely held company with a transparent shareholding structure. The company discloses shareholdings by type and percentage. Infosys shares are widely held and its shareholding structure is transparent. In addition to disclosing shareholdings by category, the company’s annual report also discloses a distribution of shareholdings by size, class and categories of shareholders. Substantial shareholders are disclosed down to the level of five percent. The largest single shareholder (Mr.Narayana Murthy and his family) holds 6.7% of Infosys’ shares. Shareholdings of directors are adequately disclosed.
Ownership Concentration and Influence
Influence of ownership is most strongly felt among the founder/managers of the company, though strict separation between management and ownership is maintained, and the size of these stakes is slowly decreasing. Standard & Poor’s has seen evidence of a strict separation between ownership and control and between the roles of founders as owners and as executives. The separation is reflected in the absence of most personal benefits that would normally accrue to a founding executive (there is only one company car, for example) and a culture that restricts deals with executives outside the ordinary course of business. Undue influence of ownership is controlled by an active and zealous audit committee and by both the internal and external auditors. Moreover, as the founders may not receive stock options, their stake, which now stands at 26.62 percent, will decrease over time as other options are exercised Despite this, there is positive influence from the founders collectively, on everything from the company’s culture of transparency to its longterm strategy. The extent to which this can be maintained will depend to some degree on the continuity of current management. Indeed, one of the few potential areas where influence might be negatively felt is in a change of control, as there are reasonable questions about what would happen were a bid to be made that did not coincide with the company’s (and founders’) values. For its part, the company has seized the earliest opportunity to increase the limit on foreign ownership of its shares to 100 percent, showing increased openness to a bid (See Section 2.3). Also, Standard and Poor’s assesses as positive the recent amendment to the company’s Articles that removed protection for Mr.Murthy’s position as CEO (managing director) providing he held at least five percent of the company’s equity. 69
Shareholder Rights And Stakeholder Relations
Shareholder Meeting & Voting Procedures
Infosys’s commitment to shareholder democracy is strong. The company supplies comprehensive information to shareholders well in advance of company meetings. The company’s website is accessible and informative. Key Infosys has well-established procedures for disseminating shareholder meeting information. Registered shareholders are sent copies of the notice of meeting along with detailed explanatory notes when there is special business, additional information on nominated directors, a proxy form and an attendance slip. The notice clearly spells out voting procedures at shareholders’ meetings and provides information regarding relevant documents that can be inspected by shareholders. The company webcasts the meeting to enable shareholders across the world to view the proceedings. Voting at shareholder meetings is by show of hands, in line with Indian law. A poll is conducted only if demanded by a member or a proxy holding at least one-tenth of the total shares entitled to vote or by those holding paid-up capital of at least Rs.50, 000. A proxy may not vote except on a poll. However, a representative (as opposed to a proxy, a representative exercises the rights of a corporate member as if it were an individual) can vote by show of hands. As neither shareholders nor management insist that polls are called for every resolution, members present at a meeting with just a few shares could have a greater effect on voting than large shareholders who have sent their proxies for attending the meeting. Indian law permits voting by postal ballot under limited circumstances, including where the company proposes a share buyback, an acquisition, the appointment of new directors, or a new issue of shares. Though not required by law, Infosys introduced a non-mandatory postal ballot system for every agenda item at its 2003 meeting. Though these votes could not be used to calculate voting results, they were announced during the meeting to highlight the opinion of those shareholders who could not attend. Indian law does not permit electronic voting at shareholder meetings.
Ownership Rights & Takeover Defences
Ownership rights are clearly stated and well protected. There are no obstacles to a legitimate, value-enhancing bid for the company’s shares. Rights attached to Infosys shares are secure and fully transferable. Karvy consultants, who are reputable independent registrars and share transfer agents in India, are given charge of shares of the company. The company’s ADR issue is administered by Deutsche Bank. All ordinary (common) shares are equal; no preference is given to any particular holding. Owners of ordinary shares have the right to vote, receive dividend payments, and in the case of liquidation of the company, to receive proportional payment in turn. Voting rights are laid out by the Companies Act of India, 1956. Shareholders vote on all major company decisions including the election and removal of directors, appointment of auditors, dividends, remuneration plans, article amendments, share buyback plans and major acquisitions and disposals via either ordinary or special resolutions as laid out by the Companies Act. Shareholders may also put forward shareholder proposals and convene extraordinary shareholder meetings according to reasonable and well-articulated procedures. The company has a clearly stated dividend policy of distributing up to 20 percent of profit after tax, which it has followed. Infosys has been prompt in paying declared dividends. The company’s Memorandum and Articles of Association do not have any explicit anti-takeover provisions. The company has removed from its Articles a provision that, if invoked, could have thwarted an otherwise valueenhancing bid. Section 107 of the company’s charter stated that Mr. Murthy would not be required to stand for re-election as CEO (managing director) provided he or his relatives held five percent of the company’s shares. In line with the Indian Companies Act, a company cannot refuse any share transfer on the pretext of a takeover threat or a possibility of change in management. Share transfers can, however, be refused by the company’s board if good reason is given; including if the transferee is not a desirable person in the context of the overall interest of the company. Any person whose shareholding exceeds five percent should inform the company and the Securities and Exchange Board of India (SEBI, the capital market regulator) in writing and must make an open offer to remaining shareholders if shareholding exceeds 20 percent. Hence, Infosys can only with great difficulty refuse any take-over attempt by any person either by law or by provisions in its charter. Infosys has been proactive in this sense and shareholders approved a managementsponsored resolution at its shareholder meeting in June, 2002, to increase the maximum limit on foreign holdings in the company from 49 to 100 percent, a change that would allow a legitimate takeover to succeed, including one by a foreign company. Infosys proposed this change within months of India’s amendment of the Foreign Exchange Management Act 71
(FEMA), which permitted software companies to increase this limit and made the change despite some opposition from local shareholders concerned about how it might eventually affect the company’s nationality.
Relations with stakeholders appear to be moderately strong. Reporting on stakeholder issues at Infosys is adequate. The company contributes to The Infosys Foundation, which is involved in various charitable works and the Foundation reports on its activities annually. There do not appear to be any problematic relationships between the company and its employees, its suppliers, or other stakeholders. TRANSPARENCY, DISCLOSURE & AUDIT Content of Public Disclosure Infosys uses its strong disclosure standards as a differentiator and as a way to gain competitive advantage over its competitors. The company produces a very strong annual report, maintains a comprehensive website and presents its financial statements according to multiple accounting standards. Infosys has undertaken to disclose its financials and nonfinancials as if it were a US-incorporated, SEC-registered Company. Corporate governance ratings CRISIL CRISIL has been consistently assigning us the ‘CRISIL GVC Level 1’ rating over several years now. This Governance and Value Creation (GVC) rating indicates our capability to create wealth for all our stakeholders while adopting sound corporate governance practices.
ICRA assigned ‘CGR 1’ rating to our corporate governance practices. The rating is the highest on ICRA's Corporate Governance Rating (CGR) scale of CGR 1 to CGR 6. We are the first company in India to be assigned the highest CGR by ICRA. The rating reflects our transparent shareholding pattern, sound Board practices, interactive decision-making process, high level of transparency, disclosures encompassing all important aspects of our operations and our track record in investor servicing. A notable feature of our corporate governance practices is the emphasis on substance over form, besides our transparent approach to follow such practices. Corporate governance guidelines Over the years, the Board has developed corporate governance guidelines to help fulfill our corporate responsibility with our stakeholders. These guidelines ensure that the Board will have the necessary authority and processes in place to review and evaluate our operations when required. Further, these guidelines allow the Board to make decisions that are independent of the Management. The Board may change these guidelines from time-to-time to effectively achieve our stated objectives. Board composition Size and composition of the Board:-Our policy toward the composition of the Board
is to have an appropriate mix of executive and independent directors to maintain the independence of the Board, and to separate its functions of governance and management. Currently, the Board consists of 14 members, five of whom are executive or whole-time directors, one is nonexecutive and eight are independent directors. Three of the executive
directors are our founders. The Board believes that the current size is appropriate, based on our present circumstances. The Board periodically evaluates the need for change in composition of its size.
Responsibilities of the Chairman, CEO and the COO
Our policy is to have a Non-Executive Chairman and Chief Mentor – N. R. Narayana Murthy; a Chief Executive Officer (CEO) and Managing Director – S. Gopalakrishnan; and a Chief Operating Officer (COO) and Director – S. D. Shibulal. The responsibility and authority of these officials are as follows :
The Chairman and Chief Mentor is responsible for mentoring our core management team in transforming us into a world-class, next-generation organization that provides state-of-the-art, technology-leveraged business solutions to corporations across the world. He also interacts with global thought leaders to enhance our leadership edge. In addition, he continues to interact with various institutions to highlight the benefits of IT and help these benefits percolate to all sections of society. As Chairman of the Board, he is also responsible for all Board and corporate governance matters.
The CEO and Managing Director is responsible for corporate strategy, brand equity, planning, external contacts and other management matters. He is also responsible for achieving the annual business targets and acquisitions.
The COO is responsible for all customer service operations. He is also responsible for innovation and research in technology advancements, new initiatives and investments.
The CEO, COO, the other executive directors and the senior management personnel are responsible for achieving targets. They make periodic presentations to the Board on their responsibilities and performance.
Board definition of independent directors According to Clause 49 of the Listing Agreement with Indian stock exchanges, an independent director means a person who is not an officer or employee of the Company or its subsidiaries or any other individual having a material pecuniary relationship or transactions with the Company which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. We adopted a much stricter definition of independence as required by the NASDAQ listing rules and the Sarbanes-Oxley Act, U.S. Lead Independent Director Prof. Marti G. Subrahmanyam is a Lead Independent Director. He represents and acts as spokesperson for the independent directors as a group, and is responsible for the following activities:
Presiding over all executive sessions of the Board's independent directors Working closely with the Chairman and the CEO to finalize the information flow, meeting agendas and meeting schedules Liaising with the Chairman, CEO and the independent directors on the Board Taking the lead role, along with the Chairman in the Board evaluation process
Infosys named best Indian company in Corporate Governance Technology behemoth Infosys Technologies has been named as the best company in India in terms of Corporate Governance in The Asset Magazine’s annual Corporate Governance Index 2008. This year, The Asset has drilled down further into understanding corporate governance practices in companies in the region by comparing these with international best standards. Infosys has said that its basis for corporate governance standards is the Combined Code Principles of Good Governance and Code of Best Practice derived by the committee on its final report and from the Cadbury and Greenbury Reports. Besides, the White Paper on Corporate Governance in Asia produced by the Organization for Economic Cooperation and Development (OECD) has also been a base for the initiatives. Companies were invited to present their annual results in complying with best practices. In addition, participating companies were asked to submit their compliance to best practices in such 75
areas such as composition of board of directors, which was 20 per cent weighted; audit committee (15 per cent); remuneration committee (15 per cent), risk management committee (15 per cent), nomination committee (15 per cent), corporate social responsibility (10 per cent), investor relations (5 per cent) and digital communication (5 per cent). The scores are then weighted and combined with the score achieved in the presentation part of the process with an 85 per cent /15 per cent weighting between compliance and voting by the board of editors.
Good Examples of Infosys Corporate Governance The Phaneesh Murthy Case
• In Dec. 2001, former Infosys employee Reka Maximovitch, a Bulgarian American national filed a complaint against Mr. Phaneesh Murthy (head of U.S. Operations and member of BOD) alleging verbal sexual harassment, unwanted sexual advancements and unlawful termination of employment. • • • Infosys started an internal settlement and after initial reluctance Phaneesh submitted himself for all the conditions that company had set. Infosys announced amicable dispute settlement on 11th May 2003 and Reka was paid $3 million as compensation. The company had paid $570,000 to Phaneesh Murthy as part of the final settlement of his dues when he resigned in July 2003 as head of Infosys' worldwide sales and marketing and from the company's board of directors. • • • After this episode, Infosys put in place principles of work ethics and a whistle blower policy. Infosys also started sexual harassment cell “call ASHI” (Anti Sexual Harassment Initiative), to provide an environment free of harassment After this case there has been no allegations of any kind on the company.
• • • • Sound corporate structure and policy does not guarantee avoidance of scandals like Phaneesh Murthy’s case It’s the managers ethical standards, who man the structure, which decide the level of integrity and value system within an organization Mr. Narayana Murthy: “For me corporate governance is a mindset, a question of value systems. It is a way of saying that I put public good ahead of private good; of not using the corporation's resources for personal benefit. As a society becomes more and more evolved, what appears in the realm of ethics automatically enters the realm of the legal framework.”
Introduction- Tata Consultancy Services
It began as the "Tata Computer Centre", for the company Tata Group whose main business was to provide computer services to other group companies. F C Kohli was the first general manager. J. R. D. Tata was the first chairman, followed by Pankaj Roy. One of TCS' first assignments was to provide punched card services to a sister concern, Tata Steel (then TISCO). It later bagged the country's first software project, the Inter-Branch Reconciliation System (IBRS) for the Central Bank of India. It also provided bureau services to Unit Trust of India, thus becoming one of the first companies to offer BPO services. TCS is a leader in the implementation of Microsoft product solutions-based information technology. With a sincere interest in the success of our clients, TCS elevates the corporate bottom line and provides its clients with a competitive advantage in the computer systems and networking support arena. Whether designing a new enterprise solution, executing transition to an improved networking environment, or automating company infrastructure operations, we create innovative computer solutions to help businesses survive and flourish in a today’s competitive business market. At TCS, we are creating a next-generation technology solutions consulting firm. As a total computer solutions firm, we design, provision, and build end-to-end Internet and intranet infrastructures that support business critical applications. TCS is different from other consulting firms in that we focus exclusively on computer technology systems and infrastructure. TCS is a global IT services, business solutions and outsourcing company headquartered in Mumbai, India and a subsidiary of the Tata 78
Group conglomerate. It is the second-largest India-based provider of business process outsourcing services. TCS has been ranked 20th in the list of top companies of India, by Fortune India 500magazine. It is the largest technology service company in India by revenue and market capitalization. TCS has 142 offices across over 47 countries and generates around 30 per cent of India's IT exports. Tata Consultancy Services started in 1968. Mr.F.C Kohli who is presently the Deputy Chairman was entrusted with the job of steering TCS. The early days marked TCS resonsibility in managing the punch card operations of Tisco. The company, which was into management consultancy from day one, soon felt the need to provide solutions to its clients as well.TCS was the first Indian company to make forays into the US market with clients ranging fromIBM, American Express, Sega etc. TCS is presently the top software services firm in Asia. During the Y2K buildup, TCS had setup a Y2Kfactory in Chennai as a shortterm strategy. Now, with E-business being the buzzword, the factory is developing solutions for the dotcom industries. Today, about 90 percent of TCS' revenue comes from consulting, while the rest from products. TCS has great training facilities. In addition to training around 5 percent of the revenue is spent upon its R&D centres like the Tata Research Design and Development Centre at Pune, along with a host of other centres at Mumbai and Hyderabad. It benchmarked its quality standing, invested heavily in software engineering practices and built intellectual property-in terms of patents,code and branded products. At the same time, it expanded its relationships with technology partners and organizations, increased linkages with academic institutions and incubated technologies and ideas of people within TCS and outside. TCS has already patented 12 E-Commerce solution product packages and has filed six more applications for patent licenses. Over $25 million were spent on enhancing hardware and software infrastructure. The company now has 72 offices worldwide. As many as seven centres were assessed at SEI CMM Level 5 last year(3.4 mistakes in a million opportunities).These include Chennai, Mumbai, Bangalore, Calcutta, Hyderabad and Lucknow. Several business and R&D relationship with global firms like IBM, General Electric, Unigraphics Solutions have been made.The present CEO of the company is Mr.S.Ramadorai. The companies strength is about 14,000.
"TCS will be recognized and respected as professional, innovative, profitable information, and knowledge based logistics/services enterprise. TCS embeds internet based technologies into its internal operating structures and as business solutions for customers; with customer, employee and shareholder interests at the core of its operations; demonstrating a clear concern for ethical conduct and good corporate citizenship; with the objective of growing into a regional and global player, with emphasis on the Middle East, Europe and North America".
"To direct all our organizational efforts at building upon the existing organizational strengths and brand recognition to achieve enhanced levels of profitable growth in the core business, and diversify into new areas that compliment and supplement the core business, with the diversification aimed at achieving excellence and industry leader status in the new areas. The TCS People will however be encouraged to be open to unconventional ideas and services and recognize new trends at very early stages".
TCS Technology Products
Some business challenges exist across industries, particularly those relating to CRM, database integration, knowledge management and other processes that involve huge amounts of data. TCS’ technology products can help you achieve superior operational efficiency and optimize your time, cost and energy investments.
TCS Knowledge Products
Exegenix Intelligent Document Conversion Solutions® 80
• • • • • • • • •
SupportCentral - Business Social Productivity Platform TCS Digital Certification Services - Public Key Infrastructure - PKI Suite TCS SmartTest Manager: An Integrated End-to-End Test Management Platform TCS Experience-based Knowledge Management - KM TCS Code Generator Framework TCS Data Cleansing Framework TCS Masketeer - Data Privacy Solutions TCS Certificate Validation Server TCS Call Management Solution
TCS Engineering Products
• • • • • • • • •
TCS Direct Metal Deposition CAM TCS Stand Alone Post Processor TCS SmartBox - Next Generation Industrial Controller Development Framework TCS Sevak - Self Service Terminals TCS Rapid Sigma - Six Sigma Solution for Continuous Improvement TCS Teamcenter for Medical Devices TCS Enterprise Integration and Control Environment (Certified as "Powered by SAP NetWeaver.") TCS Teamcenter for Softlines, Hardlines and Footwear - Retail VERICUT - Machine Simulation Software
TCS Life Sciences & Healthcare Products
• • • •
Med Mantra - TCS Hospital Management and Information Solution TCS Clin-e2e - Clinical Trial Management Solution TCS Silicone Ambulatory ECG Device and Solution TCS Bio-informatics Solution
Corporate Governance of TCS
Company’s Philosophy on Corporate Governance
Corporate governance helps to serve corporate purposes by providing a framework within which stakeholders can pursue the objectives of the organisation most effectively. Corporate governance signifies acceptance by management of the inalienable rights of shareholders as the true owners of the organisation and of their own role as trustees on behalf of the shareholders. By combining ethical values with business acumen, globalization with national interests and core business with emerging business, the Company aims to be amongst the largest and most respected global organizations. The Company will continue to focus its resources, strengths and strategies to achieve its vision of becoming a truly global leader in software services, while upholding the core values of excellence, integrity, responsibility, unity and understanding, which are fundamental to the Tata companies. The Company has a strong legacy of fair, transparent and ethical governance practices. The Company has adopted a Code of Conduct for its employees including the Managing Director and the Executive Directors. In addition, the Company has adopted a Code of Conduct for its Non-Executive Directors. Both these codes are available on the Company’s website. The Company’s corporate governance philosophy has been further strengthened through the Tata Business Excellence Model, the Tata Code of Conduct for Prevention of Insider Trading, as also the Code of Corporate Disclosure Practices. The Company has in place an Information Security Policy that ensures proper utilization of IT resources. The Company is in compliance with the requirements of the guidelines on corporate governance stipulated under Clause 49 of the Listing Agreements with the Stock Exchanges. With the adoption of a Whistle Blower Policy and the setting up of a Nominations Committee and an Executive Committee of the Directors, the Company has moved ahead in its pursuit of excellence in corporate governance.
Board of Directors
(i) As on March 31, 2011, the Company has twelve Directors with a Non-Executive Chairman and a Non-Executive Vice Chairman. Of the twelve Directors, nine (i.e. 75.00%) 82
are Non-Executive Directors and six (i.e. 50.00%) are Independent Directors. The composition of the Board is in conformity with Clause 49 of the Listing Agreements entered into with the Stock Exchanges. (ii) None of the Directors on the Board, are Members of more than ten Committees or Chairman of more than five Committees across all the companies in which they are Directors. Necessary disclosures regarding Committee positions in other public companies as on March 31, 2011 have been made by the Directors. (iii) The names and categories of the Directors on the Board, their attendance at Board Meetings held during the year and the number of Directorships and Committee Chairmanships/Memberships held by them in other companies are given herein below. Other directorships do not include alternate directorships, directorships of private limited companies, Section 25 companies and of companies incorporated outside India. Chairmanships/Memberships of Board Committees include only Audit and Shareholders/Investors Grievance Committees.
(i) The Audit Committee of the Company is constituted in line with the provisions of Clause 49 of the Listing Agreements with the Stock Exchanges read with Section 292A of the Companies Act, 1956. (ii) The terms of reference of the Audit Committee are broadly as under:
• Overview of the company’s financial reporting process and the disclosure of its
financial information to ensure that the financial statements reflect a true and fair position and that sufficient and credible information is disclosed. • Recommending the appointment and removal of external auditors, fixation of audit fees and also approval for payment for any other services. • Discussion with the external auditors before the audit commences of the nature and scope of audit as well as post- audit discussion to ascertain any area of concern • Reviewing the financial statements and draft audit report, including the quarterly/half-yearly financial information. • Reviewing the company’s financial and risk management Policies. 83
• Disclosure of contingent liabilities. • Reviewing with the management, external and internal auditors, the adequacy of internal control systems.
Reviewing the adequacy of internal audit function, including the audit charter, the structure of the internal audit department, approval of the audit plan and its execution, staffing and seniority of the official heading the department, reporting structure, coverage and frequency of internal audit.
1.The company has a remuneration committee of Directors
2. The broad terms of reference of the Remuneration committee are as under: i. ii. To approve the annual remuneration plan of the company To approve the remuneration and commission/incentive remuneration payable to the Managing Director for each financial year; iii. To approve the remuneration and annual performance bonus payable to the chief financial officer and the Executive vice presidents of the company for each financial year. iv. Such other matters as the board may from time request the remuneration committee to examine and recommend/approve. 3. Meetings of the Remuneration Committee were held during the year on April 30,2010 and March 18, 2011. 4. Company does not have any stock option Scheme
The Company’s remuneration policy is driven by the success and performance of the individual employee and the Company. Through its compensation programme, the 84
Company endeavors to attract, retain, develop and motivate a high performance workforce. The Company follows a compensation mix of fixed pay, benefits and Economic Value Added Analysis based variable pay. Individual performance pay is determined by business performance and the performance of the individuals measured through the annual appraisal process. The Company pays remuneration by way of salary, benefits, perquisites and allowances (fixed component) and commission (variable component) to its Managing Director and the Executive Directors. Annual increments are decided by the Remuneration Committee within the salary scale approved by the members and are effective April 1, each year. The Remuneration Committee decides on the commission payable to the Managing Director and the Executive Directors out of the profits for the financial year and within the Ceilings prescribed under the Companies Act, 1956, based on the performance of the Company as well as that of the Managing Director and each Executive Director. During the year 2010-11, the Company paid sitting fees of Rupees Ten thousand per meeting to its Non-Executive Directors for attending meetings of the Board and meetings of Committees of the Board. The Members have at the Annual General Meeting of the Company on June 30, 2009 approved of payment of commission to the Non-Executive Directors within the ceiling of 1% of the net profits of the Company as computed under the applicable provisions of the Companies Act, 1956. The said commission is decided each year by the Board of Directors and distributed amongst the Non-Executive Directors based on their attendance and contribution at the Board and certain Committee meetings, as well as the time spent on operational matters other than at meetings. The Company also reimburses the out-of-pocket expenses incurred by the Directors for attending the meetings.
Shareholders/Investors Grievance Committee
(i) The Company has a Shareholders/Investors Grievance Committee of Directors to look into the redressal of complaints of investors such as transfer or credit of shares, non-receipt of dividend/notices/annual reports,etc. (ii) One meeting of the Shareholders/Investors Grievance Committee was held during the year on March 18, 2011. (iii) The composition of the Shareholders/Investors Grievance Committee and the details of meetings attended by its members (iv) The Company has always valued its customer relationships. This philosophy has been extended to investor relationship and an Investor Relations Department (IRD) was set up in June 2004,prior to the company’s Initial Public Offer of Shares. The IRD focuses on servicing the needs of investors, analysts, brokers and the general public. (v) Name, designation and address of Compliance Officer: Mr. Suprakash Mukhopadhyay Vice President and Company Secretary Tata Consultancy Services Limited 11th Floor, Air India Building Nariman Point Mumbai 400 021 Telephone: 91 22 6778 9285 Fax: 91 22 6630 3672
(i) Ethics and Compliance Committee: In terms of the Company’s Code of Conduct for Prevention of Insider Trading and Code of Corporate Disclosure Practices (Insider Trading Code), applicable to the Directors, officers and other employees, the Company has an Ethics and Compliance Committee of Directors. The Committee considers matters relating to the Insider Trading Code and also considers matters relating to the Company’s Code of Conduct (CoC). Monthly Reports are sent to the members of the Committee on matters relating to the Insider Trading Code and the CoC. One meeting of the Ethics and Compliance Committee was held during the year on January 17, 2011. (ii) Bank Account Committee: 86
The Company has a Bank Account Committee of Directors to approve of the opening and closing of bank accounts of the Company and to authorise persons to operate the bank accounts of the Company. The Committee comprises of Mr. Aman Mehta (Independent, Non-Executive), Mr. N. Chandrasekaran (Non-Independent, Executive) and Mr. S. Mahalingam (Non-Independent, Executive). (iii) Nominations Committee: The Company has a Nominations Committee of Directors comprising of Mr. V. Thyagarajan (Independent, Non-Executive) as the Chairman, Mr. R. N. Tata (NonIndependent, Non- Executive) and Prof. Clayton M. Christensen (Independent, NonExecutive). The Nominations Committee is responsible for making recommendations regarding the composition of the Board and in this regard shall identify Independent Directors to be inducted to the Board and take steps to refresh the composition of the Board from time to time. (iv) Executive Committee: The Company has an Executive Committee of Directors comprising of Mr. R. N. Tata (Non-Independent,Non-Executive) as the Chairman, Mr. S. Ramadorai (Non-Independent, Non-Executive), Prof. Clayton M. Christensen (Independent, Non-Executive), Dr. Ron Sommer (Independent, Non-Executive) and Mr. N. Chandrasekaran (Non-Independent, Executive). (v) Software Technology Parks of India (STPI)/Special Economic Zone (SEZ) Committee: The Company has a Software Technology Parks of India (STPI)/Special Economic Zone (SEZ) Committee of Directors comprising of Mr. V. Thyagarajan (Independent, NonExecutive), Mr. N. Chandrasekaran (Non-Independent, Executive) and Mr. S. Mahalingam (Non-Independent, Executive). The STPI/SEZ Committee is responsible for approval from time to time, registration/renewal of registration/de-registration of various offices of the Company under the STPI/SEZ schemes and such other schemes as may be deemed fit by them, and also approve of other STPI/SEZ/other scheme(s) related matters.
(vi) Risk Management Committee: 87
The Company has a Risk Management Committee of Directors comprising of Mr. Ishaat Hussain (Non-Independent, Non-Executive), Mr. S. Ramadorai (Non-Independent, NonExecutive), Mr. N. Chandrasekaran (Non-Independent, Executive) and Mr. S. Mahalingam (Non-Independent, Executive). The Risk Management Committee is responsible for advising the Company on foreign exchange matters and framing the broad guidelines for investment of surplus funds of the Company. A Meeting of the Risk Management Committee was held on January 12, 2011 which was attended by Mr. Ishaat Hussain, Mr. N. Chandrasekaran and Mr. S. Mahalingam. In addition to this, Mr. Ishaat Hussain and Mr. S. Mahalingam met the Company Management on April 23, 2010, May 7, 2010, July 7, 2010 and December 2, 2010 to review the developments in the currency market and the hedging operations. General Body Meetings (i) General Meeting (a) Annual General Meeting: Details Annual General Meeting 2007-08 Annual General Meeting 2008-09 Annual General Meeting 2009-10 July 2, 2010 June 30, 2009 3.30 p.m. Date July 1, 2008 Time Venue Birla Sabhagar, 19, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai – 400 020 Matushri
(b) Extraordinary General Meeting: No Extraordinary General Meeting of the Members was held during the year 2010-11. (ii) Postal Ballot No Postal Ballot was conducted during the year 2010-11.
(iii) Special Resolutions
At the Annual General Meeting of the Company held on June 30, 2009, a Special Resolution was passed for the payment of commission to the non-whole-time Directors of the Company. The resolution was passed with the requisite majority. At the Annual General Meeting of the Company held on July 2, 2010, a Special Resolution was passed for alteration of the Articles of Association of the Company revising the limit for maximum number of Directors in the Company to fifteen. The resolution was passed with the requisite majority.
(i) There are no materially significant related party transactions of the Company which have potential conflict with the interests of the Company at large. (ii) Details of non-compliance by the Company, penalties, strictures imposed on the Company by the Stock Exchanges or SEBI or any statutory authority, on any matter related to capital markets, during the last three years 2008-09, 2009-10 and 2010-11 respectively: NIL (iii) The Company has fulfilled the following non-mandatory requirements as prescribed in Annexure I D to the Clause 49 of the Listing Agreements with the Stock Exchanges: (a) The Company has set up a Remuneration Committee, details of which have been given earlier in this Report. (b) A communication on the half-yearly financial performance of the Company including a summary of the significant events in the six month period ended September 30, 2010 was sent to every Member in October 2010. (c) The statutory financial statements of the Company are unqualified. (d) The Company has adopted a Whistle Blower Policy and has established the necessary mechanism for employees to report concerns about unethical behaviour. No person has been denied access to the Audit Committee.
(iv) Secretarial Audit 89
A qualified practicing Company Secretary carried out secretarial audit to reconcile the total admitted equity share capital with the National Securities Depository Limited (NSDL) and the Central Depository Services (India) Limited (CDSL) and the total issued and listed equity share capital. The secretarial audit report confirms that the total issued/paid-up capital is in agreement with the total number of shares in physical form and the total number of dematerialised shares held with NSDL and CDSL. Means of Communication The quarterly, half-yearly and annual results of the Company are published in leading newspapers in India which include The Indian Express, Financial Express, Deccan Chronicle, Lok Satta, Business Standard, The Hindu Business Line, Hindustan Times and Sandesh. The results are also displayed on the Company’s website “www.tcs.com”. Halfyearly results have been sent to the Members along with a message from the Managing Director on the Company’s performance during the half-year ended September 30, 2010. Press Releases made by the Company from time to time are also displayed on the Company’s website. Presentations made to the institutional investors and analysts after the declaration of the quarterly, half-yearly and annual results are displayed on the Company’s website. A Management Discussion and Analysis Statement is a part of the Company’s Annual Report.
The Managing Director (CEO) and the Chief Financial Officer (CFO) have certified to the Board in accordance with Clause 49(V) of the Listing Agreement pertaining to CEO/CFO certification for the financial year ended March 31, 2011.
ANALYSIS OF CORPORATE GOVERNANCE OF INFOSYS & WIPRO IN BSE 30 COMPANIES
Top 10 shareholders of the company • Comment:
Their performance is consistent in every year. Company has disclosed all important disclosure for investor.
Top 10 shareholders Industry structure Opportunities and threats Transcript • Comment:
When disclosures were made mandatory, in Initial year Infosys were not following many disclosures. But it improves its performance in coming years. Only Top 10 share holders of the company were not disclosed by Infosys in last year.
Only Top 10 share holders of the company and transcript were not disclosed by TCS every year. Otherwise 30-31 disclosures were there in annual reports. • Comment:
Their performance in disclosed of data is consistent in every year. Company has disclosed all important disclosure for investor.
CASE STUDY:1) Satyam .
A Satyam Computers service limited was a consulting and an Information Technology (IT) services company founded by Mr. Ramalingam Raju in 1988. It was India’s fourth largest company in India’s IT industry, offering a variety of IT services to many types of businesses. Its’ networks spanned from 46 countries, across 6 continents and employing over 20,000 IT professionals. On 7th January 2009, Satyam scandal was publicly announced & Mr. Ramalingam confessed and notified SEBI of having falsified the account. Raju confessed that Satyam balance sheet of 30 September 2008 contained: • Inflated figures for cash and bank balances of Rs 5,040 crores (US$ 1.04 billion) [as against Rs 5,361 crores (US$ 1.1 billion) reflected in the books]. • An accrued interest of Rs. 376 crores (US$ 77.46 million) which was non-existent. • An understated liability of Rs. 1,230 crores (US$ 253.38 million) on account of funds which were arranged by himself.
• An overstated debtors’ position of Rs. 490 crores (US$ 100.94 million) [as against
Rs.2,651 crores (US$ 546.11 million) in the books]. The letter by B Ramalinga Raju where he confessed of inflating his company’s revenues contained the following statements: “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable 94
proportions as the size of company operations grew significantly [annualised revenue run rate of Rs 11,276 crores (US$ 2.32 billion) in the September quarter of 2008 and official reserves of Rs 8,392 crores (US$ 1.73 billion)]. As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. It was like riding a tiger, not knowing how to get off without being eaten.” The Scandal: The scandal all came to light with a successful effort on the part of investor’s to prevent an attempt by the minority shareholding promoters to use the firm’s cash reserves to buy two companies owned by them i.e. Maytas Properties and Maytas Infra. As a result, this aborted an attempt of expansion on Satyam part, which in turn led to a collapse in price of company’s stock following with a shocking confession by Raju, The truth was its’ promoters had decided to inflate the revenue and profit figures of Satyam thereby manipulating their balance sheet consisting non-existent assets, cash reserves and liabilities. The probable reasons: Deriving high stock values would allow the promoters to enjoy benefits allowing them to buy real wealth outside the company and thereby giving them opportunity to derive money to acquire large stakes in other firms on another hand. There could be the reason as to why Raju’s family build its shareholding and shed it when required. After the scandal, on 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. On 5th February 2009, the six-member board appointed by the Government of India named A. S. Murthy as the new CEO of the firm with immediate effect. The board consisted of: 1) 2) 3) 4) 5) Banker Deepak Parekh. IT expert Kiran Karnik. Former SEBI member C Achuthan S Balakrishnan of Life Insurance Corporation. Tarun Das, chief mentor of the Confederation of Indian Industry and T N Manoharan, former President of the Institute of Chartered Accountants of India
Limitations of the Study
While preparing this report there are various constraints becoming obstacles for the study. There are some limitations which makes limited study about the topic. The following are the limitations of the study:
Time constraint is the major limitation for the study as there is no primary data are available. The data which are used for the study is totally secondary data. Since the project is vast as it covers the top 3 companies of IT Sector.
From the project we can say that the Corporate governance laws are in the infant stage and cannot be implemented with authority. We can say that corporate governance is a way of life
and not a set of rules, a way of life that necessitates talking into account the stakeholder’s interest in every business decision.
Also corporate governance depends on the culture of the company . In company where people believe in transparency and accountability, Employess and stakeholders are forced to follow corporate governance. And due to globalization when these companies set up their operations in other countries the culture is automatically passed on to these countries. Thus it helps in improving the corporate culture in these countries as well. Also with increased competition consumers prefer to buy products of companies who follow good corporate governance policies. Even the investors invest in such companies. The Satyam Scam happened due to lack of Transparency and Accountability. Thus it is we, the future managers of this country, who should work towards creating a favourable climate in the companies we join in. Thus it is very important to study corporate governance and forms an important topic of our curriculum. ? By and large, Indian listed companies have been legally mandated to follow fairly strict standards of corporate governance and disclosure ? Indian corporate sector regulators and companies have been quick to incorporate some of the best international corporate governance and disclosure practices ? The need of the day is more training… of directors, audit committee members and senior executives of companies ? The challenge is to design and sustain a system that imbibes the spirit of corporate governance… and not merely the letter of the law
• Corporate Governance by A.C Fernando (Pearson Education Publications) – PRINCIPLES OF CORPORATE GOVERNANCE (page 39) – BUSINESS ETHICS AND CORPORATE GOVERNANCE (page 47) – STRUCTURES FOR CORPORATE GOVERNANCE (page 50) •
• • •
Corporate Governance by Subhash chandra Das Corporate Governance by Jayant Rama Varma. Corporate Governance by Venkat Rathi. Corporate Governance by H. R. MACHIRAJU.
• • •
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