CORPORATE GOVERNANCE

By : Mandar Borkar

WHAT IS CORPORATE GOVERNANCE?

Corporate Governance is the application of best management practices, compliance of law 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

BRIEF HISTORY OF CORPORATE GOVERNANCE IN INDIA

Unlike South-East and East Asia, the corporate governance initiative in India was not triggered by any serious nationwide financial, banking and economic collapse. The initiative in India was initially driven by an industry association, the Confederation of Indian Industry(CII). In December 1995, CII set up a task force to design a voluntary code of corporate governance The final draft of this code was widely circulated in 1997 In April 1998, the code was released which was called Desirable Corporate Governance: A Code Between 1998 and 2000, over 25 leading companies voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddys Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others.

Following CIIs initiative, the Securities and Exchange Board of India (SEBI) set up a committee under Kumar Mangalam Birla to design a mandatory-cum-recommendatory code for listed companies The Birla Committee Report was approved by SEBI in December 2000. Following CII and SEBI, the Department of Company Affairs (DCA) modified the Companies Act, 1956 to incorporate specific corporate governance provisions regarding independent directors and audit committees

LATEST DEVELOPMENT CLAUSE 49

Clause 49 of the Listing Agreement of the Indian stock exchange came into effect from 31 December 2005. In corporate hierarchy two types of managements are envisaged: i) companies managed by Board of Directors; and ii) those by a Managing Director, whole-time director or manager subject to the control and guidance of the Board of Directors. As per Clause 49: for a company with an Executive Chairman, at least 50 per cent of the board should comprise independent directors. In the case of a company with a non-executive Chairman, at least one-third of the board should be independent directors.

It would be necessary for chief executives and chief financial officers to establish and maintain internal controls and implement remediation and risk mitigation towards deficiencies in internal controls, among others. A company is also required to obtain a certificate either from auditors or practicing company secretaries regarding compliance of conditions as stipulated, and annex the same to the director's report. The clause mandates composition of an audit committee; one of the directors is required to be "financially literate". It is mandatory for all listed companies to comply with the clause by 31 December 2005.

CORPORATE GOVERNANCE IN INFOSYS

Corporate governance is about maximizing shareholder value legally, ethically and on a sustainable basis, while ensuring fairness to every customers, employees, stakeholder - investors, vendor-partners, the governments of the countries in which the company operate, and the community. Thus, corporate governance is a reflection of the companys culture, policies, relationship with stakeholders and commitment to values. Infosys believes that sound corporate governance is critical to enhance and retain investor trust.

Companys 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. 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

CORPORATE GOVERNANCE PHILOSOPHY

BOARD COMPOSITION IN INFOSYS

Infosys believes that an active, well-informed and independent Board is necessary to ensure the highest standards of corporate governance. The majority of the Board, eight out of 15, are independent members. Further, the Company has audit, compensation, investor grievance, nominations and risk management committees, which comprise independent directors. As a part of commitment to follow global best practices, company complies 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.

CORPORATE GOVERNANCE IN TATA

As part of the Tata group, the Companys philosophy on Corporate Governance is founded upon a rich legacy of fair, ethical and transparent governance practices, many of which were in place even before they were mandated by adopting highest standards of professionalism, honesty, integrity and ethical behaviour. As a global organisation the Corporate Governance practices followed by the Company and its subsidiaries are compatible with international standards and best practices. Through the Governance mechanism in the Company, the Board along with its Committees undertake its fiduciary responsibilities to all its stakeholders by ensuring transparency, fairplay and independence in its decision making.

As a good corporate governance practice, the Company has voluntarily undertaken an Audit by M/s Parikh & Associates, Practicing Company Secretaries, of the secretarial records and documents for the period under review in respect of compliance with the Companies Act, 1956, listing agreement with the Indian stock exchanges and the applicable regulations and guidelines issued by Securities and Exchange Board of India. The Company is in full compliance with the requirements of Corporate Governance under Clause 49 of the Listing Agreement with the Indian Stock Exchanges (the Listing Agreement). The Companys Depositary Programme is listed on the New York Stock Exchange. Risk management and internal control functions have been geared up to meet the progressive governance standards.

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