Corporate Governance : The Tata Way Sukhada Waknis

Abstract:
Corporate Governance has become a buzzword for the organizations today. SEBI guide ines c ause !" ays emphasis on corporate governance. In his we come address# at a $Seminar on Corporate Governance$ organized %oint y by SEBI# &ICCI and C'ISI( on )*th &ebruary )++!# ,r. -. .. ,odi# /resident &ICCI said# 0Good corporate governance is the 1ey to enhance the ong2term va ue of the company for the benefit of shareho ders and other sta1eho ders. 3he pi ars on which the edifice of corporate governance stands are &airness and Accountabi ity.4 3hus it becomes necessary for every organization to achieve high standards of corporate governance. 5hen we ta 1 of higher shareho der 6 sta1eho der va ue# the first name that comes to our mind is undoubted y the $3atas$. 3ata brand stands for trust and confidence for past severa decades. Corporate Governance is not a science sub%ect to immutab e ru es. It is a cu ture of re ationships. 3his research paper# attempts to study corporate governance with specia reference to 3ata Group. &or the 3atas# customer satisfaction# emp oyee we fare# and returns to shareho ders a go hand in hand. 3hey maintain higher standards of Corporate Socia 'esponsibi ity. 3ata Code of Conduct# 3ata Business E7ce ence ,ode # G oba 'eporting Initiatives# core va ues practiced by the group# a ta 1 vo umes about the business e7ce ence with high standards fo owed by the 3ata Group. Corporate governance is a way of ife at the 3ata Group.

Methodology : 3he attempt is to study corporate governance with respect to the

3ata Group. 3atas have a egacy of more than 8++ years and continues to be one of the most revered brand even today. 3he group strict y adheres to a high degree of corporate governance practices. 3he research focuses on the various initiatives and business practices underta1en by the 3ata Group in re ation to corporate governance.

3he secondary data is gathered by the review of iterature pertaining to both

$Corporate Governance$ and the $3ata Group$. 3he research a so invo ves a few unstructured interviews with some of the e7ecutives wor1ing with the 3ata Group# to

get the primary data on the research topic. Companies were a so reviewed.

Annua 'eports of various 3ata

Corporate Governance : The Tata Way

What is Corporate Governance? Adrian Cadbury# whose report has become the Bib e of Corporate Governance# defines Corporate Governance as $a system or process by which companies are directed and contro ed.$ 3he bedroc1 of good corporate governance is conducting the affairs of a company in such a way as to ensure fairness to customers# emp oyees# investors# vendors# the government and the society at arge. It re9uires 9ua ity of eadership# va ues# transparent management# vision and goa s# respect for aw# and sense of socia responsibi ity for which there are no rigid standards. 3he Confederation of Indian Industry:s 8""; Code of <esirab e Corporate Governance imits c aimants in the first instance to shareho ders and various types of creditors. (i1ewise# the Securities and E7change Boards of India:s .umar ,anga am Bir a Committee on Corporate Governance stated that corporate governance shou d be =the enhancement of the ong term shareho der va ue# whi e at the same time# protecting the interests of the other sta1eho ders.4 3ruc1er >8";!? identifies four crucia components of corporate governance: Setting corporate direction Invo vement in e7ecutive action Supervision of management Accountabi ity Corporate Governance is a process or a set of systems and processes to ensure that a company is managed to suit the best interests of a . 3he systems# which can ensure this# may inc ude structura and organizationa matters. 3he sta1eho ders may be interna sta1eho ders >promoters# members# wor1men and e7ecutives? or e7terna sta1eho ders >shareho ders# customers# enders# dea ers# vendors# ban1ers# community# government and regu ators?. Corporate Governance is concerned with the It is estab ishment of a system whereby the <irectors are entrusted with the responsibi ities and duties in re ation to the direction of corporate affairs. concerned with accountabi ity of persons who are managing it towards the

sta1eho ders. It is concerned with the mora s# ethics# va ues# parameters# conduct and behaviour of the company and its management. 3he concept of Corporate Governance hinges on tota transparency# integrity and accountabi ity of the management# which inc udes non2e7ecutive directors. It is a system of ma1ing management accountab e to the shareho ders for effective management of the companies# in the interests of the company and a so with ade9uate concern for ethics and va ues. Corporate Governance recognizes issues i1e maintaining continuity by succession p anning# identifying opportunities# facing cha enges and managing changes within the business and a ocation of resources towards the right priority. ,a7imizing shareho der wea th is the corner stone of corporate governance. 3he arge and professiona investors# mutua funds and pension funds have ana ytica s1i s and business acumen and can p ay a vita ro e in Corporate Governance# because such investors and shareho ders wou d have the same ob%ective of ma7imizing the shareho ders wea th. Corporate Governance main y consists of two e ements i.e. A ong2term re ationship# which has to dea with the chec1s and ba ances# incentives of mangers and communications between the management and the investors. 3he second e ement is a transactiona re ationship invo ving matters re ating to disc osure and authority. Corporate Governance dea s with aws# procedures# practices and imp icit ru es that determine a company:s stabi ity to ta1e manageria decision vis2@2vis its e ements# particu ar y its shareho ders# creditors# state and emp oyees. Corporate Governance refers to an economic# ega and institutiona environment that a ows companies to diversify# grow# restructure and e7ist and do everything necessary to ma7imize ong2term shareho der va ue. &redrich Aeubauer and Ada <emb in =3he (egitimate Corporation4 identify si7 groups of common y distinguishab e sta1eho der# viz: /roviders of funds B Shareho ders Emp oyees Genera /ub ic Government Customers Supp iers

3he 8""; Corporate Governance 'eport to the CEC< by its Business Advisory Group headed by Ira ,i stein# the DS awyer and governance guru# emphasized that whi e une9uivoca y asserting the generation of ong2term economic gain to enhance shareho der va ue as Corporation:s centra mission# a so recognizes the in1 in success# and its abi ity to a ign the interests# the CEC< document admits that# at times# there may have to be a trade2off between short term socia costs and ong2term benefits to society in having a hea thy# competitive private sector# and recommends that societa needs that transcend the responsive abi ity of the private sector shou d be met by specific po icy measures rather than impending improvements in Corporate Governance and capita a ocation. Corporations that wish to adopt a Code of Corporate Governance can choose from severa mode s that have a ready been avai ab e by institutions as diverse as the 5or d Ban1 and the Internationa Corporate Governance Aet2wor1. 3hese wi he p companies address issues that are re ated to the composition and ro e of the board# the preferred eve of disc osures and transparency# the ro e of audit and compensation committee# accountabi ity to shareho ders# and corporate ethics. Some of these mode s inc ude the finer aspects of Corporate Governance i1e defining the mission of the modern corporation and describing its societa imperatives. Cne crucia aspect of governance is investor2friend iness. Companies wi have to focus on understanding the e7pectations of diverse groups of investors and constant y communicate with them. In the opinion of Adi Godre%# the benefits of having top2notch corporate governance are p enty# which inc ude:2 8. Good governance provides a competitive advantage in the g oba mar1etp ace. ). Governed companies raise capita wide y# easi y and cheap y. E. Governance eads to improved emp oyee mora e and higher productivity. !. 5e 2governed companies ast onger. Definitions: (et us now discuss some of the important definitions of Corporate Governance. 8. =Corporate Governance dea s with the ways in which supp iers of finance to corporations assure themse ves of getting a return on the investment.4 The Journal of Finance, Shleifer and Vishny, 1997 (page 737)

). =Corporate Governance is about promoting corporate fairness# transparency and accountabi ity.4 J.Wolfenson, residen! of !he World "an# as $uo!ed %y an ar!icle in Financial Ti&es June '1, 1999 E. =Corporate Governance B which can be defined narrow y as the re ationship of a company to its shareho ders# or# more broad y# as its re ationship to society F4 Financial Ti&es 1997 !. =Corporate Governance is the system by which business corporations are directed and contro ed. 3he Corporate Governance structure specifies the distribution of rights and responsibi ities among different participants in the corporation# such as# the board# managers# shareho ders and other sta1eho ders# and spe s out the ru es and procedures for ma1ing decisions on corporate affairs. By doing this# it a so provides the structure through which the company ob%ectives are set# and the means of attaining those ob%ectives and monitoring performance.4 ()*+ ,pril 1999 (()*+-s defini!ion is consis!en! .i!h !he one presen!ed %y *ad%ury, 199') *. =Corporate Governance is a fie d in economics that investigates how corporations can be made more efficient by the use of institutiona structures such as contracts# organizationa designs and egis ation. 3his is often imited to the 9uestion of shareho der va ue i.e. how the corporate owners can motivate andGor secure that the corporate managers wi de iver a competitive rate of return. /a!hiesen (1999) Corporate Governance and Management 3he comp e7 growth of modern business and emergence of corporate giants necessitate and re9uire professiona ized approach in governance and management of corporations. 3he changing g oba corporate scenario a so emphasizes that a good management owes not necessari y to effective organization cu ture but to a great e7tent to the mission# vision and proactive approach of the top management. 3he success of an organization great y depends on the eadership# human resources and information system# etc. Crganizations have to be we structured and steered by professiona managers. 3he structure of an organization must suit the mission and shou d aim at enhancing the commitment to optimize the resources. 3hus# there is need for a va ue committed professiona organization opportunities for the professiona managers to e7emp ify their potentia for the common ob%ectives of

accomp ishing the goa . In view of the advancement in information techno ogy# technica e7pertise coup ed with professiona vision# commitment# ob%ectivity# responsiveness and proactive approach can add to the professiona ization of Corporate Governance and Corporate ,anagement. Management of Corporate Governance ,anaging Corporate Governance is a comp icated tas1 as a corporate may not be professiona y managed. 3his position becomes further compounded when confronted with the manner of enforcement of code of good corporate practices. 3here is no scope for imposition of such code of the corporate from the above# but the need to evo ve such a code by the corporate financia institutions themse ves is nonethe ess re evant and important for the future of corporate# ma%or stoc1 ho ders and enders of finance# whose nominee directors are on the Boards of assisted concerns have a proactive ro e to p ay though Audit Committees in evo ving a code for incorporate practices to suit our needs and economic deve opment. Critical areas for good governance 1 The !oard of Directors : 3he Board of <irectors must overview the performance# vouch for the accuracy of company:s disc osure and disgorge persona profits from corporate wrongdoings. 3he board shou d contribute substantia y in the performance and growth of the company. 3he e7terna directors in the board shou d be se ected pure y on the basis of their e7perience and e7pertise. " #$ec%tive &ay : 3he e7ecutives must be rewarded handsome y for their contribution to the company. /eter <ruc1er has ong warned that the growing gap between CECs and wor1ers cou d threaten the very credibi ity of eadership. ' (cco%nting : Corporate accounting is very important. 3he Auditors shou d rotate after certain years to ensure a fresh oo1 by an audit firm. An e7panded auditor statement in the Annua 'eport shou d be there instead of %ust asserting that the financia statement meet genera y accepted accounting princip es. ) (nalysts : Ana ysts shou d present rea position of a company. 3hey shou d not p ay with words and figure and misguide investors. Corporate Governance * Glo+al ,cenario

Governance in re ation to a business organization concerns with the intrinsic nature# purpose# integrity and identity of the organization and focuses primari y on the re evance# continuity and fiduciary aspects of the organization. It invo ves monitoring and overseeing strategic direction# socio2economic and cu tura conte7t# e7terna ities and constituencies of the organization. Hence# Corporate Governance may be ca ed as an umbre a term encompassing specific issues arising from interactions among senior management personne # shareho ders# and board of directors# other constituencies and the society at arge. It dea s with the e7ercise of power over the directions of enterprise# the supervision of e7ecutive actions# and acceptance of a duty to be accountab e and regu ations of the affairs of the corporation. 5ith the enactment of Ioint Stoc1 Companies Act# in 8;!!# the Eng ish Company (aw became one of the most permissive in the wor d and the concept in subse9uent years became the basis of the Corporate Governance and framewor1 for company aw in many %urisdictions inc uding India# Hong .ong# Aew Jea and# Singapore# South Africa as we as the states in Austra ia and provinces in Canada. Company (aw deve opments in Dnited States# though not direct y inf uenced by the Eng ish ,ode # evo ved a ong simi ar ines ref ecting simi ar ideo ogica traditions. However# deve opment in continenta Europe fo owed a different path. 3he German Corporate Governance system is genera y regarded as the standard e7amp e of an insider2contro ed and sta1eho der2oriented system. In many European countries# Dnti recent y in Iapan# shareho ders e7ercise esser contro than the wor1ers and simi ar y# in Germany the representatives of Dnion serve on Supervisory Boards. institutiona shareho ders virtua y p ayed no ro e e7cept to provide capita . In India too# the investors and other shareho ders were passive investors and the companies were governed as fami y business. However the situation is changing fast with perceptib e change in the profi e of corporate ownership and insinuative improvement in Corporate Governance. The -ndian #$perience By the virtue of being fami y owned and managed# in most Indian companies# in 8")+s and 8"E+s# the e7ecutives and directors were either the promoters themse ves or their 1ith and 1in B peop e they trusted. Independent directors used to be those who had c ose fami y# persona or professiona connections with the owners of the company. <uring the British 'a%# Indian industry had to maintain a ba ance B grow

the business# and simu taneous y# contribute to the freedom movement. 3he arge business houses of those times B I'< 3ata# 5a chand Hirachand# Iamuna a Ba%a%# and G < Bir a were active not on y in creating wea th# but to fue the freedom strugg e as we . After independence# the nation had the Aehru:s brand of socia ism and industria po icy which were# no doubt# good to begin with# but in the ong run# the po icy resu ted into inefficiency# ac1 of productivity# uncompetitiveness and disdain for 9ua ity. 3he decisions on the industry one wanted to enter# the e9uipment and techno ogy one needed# p ant ocation and its capacity etc. were ta1en either in Ddyog Bhavan# Shastri Bhavan or Aorth B oc1. 3he icense ra% and the command and contro of the economy in K+s and ;+s 1i ed entrepreneurship. However# <hirubhai Ambani# .arshan Bhai /ate # ,anu Chhabria and Lenugopa <hoot bui t up their fami y business during this period. It was in 8""8 when the government 1ic1ed off reforms# abo ished icensing and eased out norms for foreign2direct2investment. <irect ta7 structures were rationa ized and both customs and e7cise duties were cut. Since then# the reform process has continued# a though at a very ow pace. 5ith g oba ization of economy# there has been a very tough competition. In the 8""+s and ear y )+++s# the fami y businesses that thrived were 5ipro:s Azim /rem%i# <r.'eddy:s An%i 'eddy# Ster ite:s Ani Agarwa and Apo o:s /rathap 'eddy. But even during pre2independence period# Iamset%i 3ata# G < Bir a and .asturibhai (a bhai created MBusiness Empire: more out of a spirit of entrepreneurship than any motive of accumu ation of persona wea th. 3hey set their own standards of good Corporate Governance. 3here is no better standard of Corporate Governance than the phi osophy that owners are Mtrustees:. Iayapra1ash Aarayan wrote about the 3ata 3rusts B =3he concept of trusteeship fostered by ,ahatma Gandhi received a much2needed fi ip in 3ata enterprise. After a # what is this concept of trusteeshipN Dnder it# a wea th is a socia trust and every individua B the emp oyer# the engineer or even the ordinary mistry B is a trustee entit ed to its proper uti ization for the common good. 3rue to the idea s of its &ounder# the House of 3ata has a ways promoted this concept of trusteeship and today# more than ;*O of its profits go to trusts.4 5hi e the House of 3ata has maintained its trac1 record of good Corporate Governance# companies i1e Infosys# H((# ALB group# 5ipro# Ba%a% Auto# Satyam Infoway# <r.'eddy:s (ab# ,aruti Ddyog# ICICI# (63# CAGC# H<&C# Amu and 'anba7y are some of the companies we 1nown for good Corporate Governance.

3he MGo den /eacoc1 Award for E7ce ence in Corporate Governance )++*: instituted by the Institute of <irectors# Aew <e hi# in association with the (ondon based 5or d Counci for Corporate Governance and Centre for Corporate Governance was conferred upon I3C. 3he company attempts to stri1e the right ba ance between freedom of management and accountabi ity to shareho ders by segregating strategic supervision from strategic and e7ecutive management. Adi Godre%# Chairman# CII Aationa Counci on Corporate Governance and 'egu atory &ramewor1 6 Chairman# 3he Godre% Group ays emphasis on the fact that corporate governance shou d be princip e based and not ru e based. He states that =Good corporate governance and performance are not mutua y e7c usive# a performance2 in1ed variab e remuneration system can ma1e a significant difference.4 He further says that =At the Godre% Group# we be ieve that the constant effort to improve operationa performance# guided by our va ues# forms the basis for good corporate governance. Corporate Governance is strong y driven by our va ues such as 9ua ity# customer orientation# commitment# discip ine# integrity# earning# transparency# respect# teamwor1 and trust.4 In a survey conducted by C(SA >)++!?# Infosys 3echno ogies (imited >AAS<AP:IA&-? was voted as having the highest Corporate Governance score amongst a the Asian arge 2 cap corporations >e7c uding Iapan?. 3he survey covered the Corporate Governance deve opments across !*+ companies in the Asian >e7c uding Iapan? mar1ets . Infosys had a score of ;KO as against an average of ;8O for the top ten corporations. As per the report# Infosys continues to be the highest scorer in India and the Asia /acific# having essentia y maintained its top ran1ing since )++8 . 3he company has continued to stay a step ahead of the prevai ing Corporate Governance norms and has imp emented most of the reforms before they became mandatory . 3hus we see that the Indian companies have a rich heritage of maintaining high standards of corporate governance. .esearch Methodology: After having an overview of the concept of corporate governance and the Indian e7perience# et us discuss in detai # corporate governance as practiced in the 3ata Group. 3he research invo ves review of iterature pertaining to 3ata Group in genera and corporate governance at 3ata# in particu ar# which is the

secondary data. A few unstructured interviews with some of the e7ecutives across 3ata Group companies were a so conducted# to get primary data on the research topic. 3he Annua 'eports of various 3ata companies were a so reviewed with specia reference to $Corporate Governance Best /ractices$.

The Tata Way

3ata Group has a ways been a sub%ect of curiosity and interest for a student of management. 3ata Group comprises "Q operating companies in seven diverse business sectors: information systems and communicationsR engineeringR materia sR servicesR energyR consumer productsR and chemica s. 3he 3ata Group is one of India$s argest and most respected business cong omerates# with revenues in )++*2+Q of S)8." bi ion >'s "QK#))" mi ion?# the e9uiva ent of about ).; per cent of the country$s G</# and a mar1et capita ization of S!".) bi ion. 3ata companies together emp oy some )+)#K8) peop e. 3he Group$s ); pub ic y isted enterprises T among them stand out names such as 3ata Stee #3ata Consu tancy Services# 3ata ,otors and 3ata 3ea T have a combined mar1et capita ization that is the highest among Indian business houses in the private sector# and a shareho der base of over ) mi ion. 3he 3ata Group has operations in more than *! countries across si7 continents. <efined by a deep y rooted set of va ues and be iefs# corporate governance in the 3ata Groups during their 8++2p us years of e7istence rests on the twin pi ars of trust and integrity. 3he House of 3ata had progressive and nationa istic out oo1 right from the very beginning. Iamset%i 3ata# the &ounder of House of 3ata wrote in 8"+)# five years before the site of the Stee / ant was se ected# to his son <orab%i 3ata : ="e sure !o lay .ide s!ree!s plan!ed .i!h shady !rees, e0ery o!her of a $uic#1 gro.ing 0arie!y. "e sure !ha! !here is plen!y of space for la.ns and gardens. 2eser0e large areas for foo!%all, hoc#ey and par#s. )ar&ar# areas for 3indu !e&ples, /oha&&edan &os$ues and *hris!ian churches. 4We do no! clai& !o %e &ore unselfish, &ore generous or &ore philan!hropic !han o!her people. "u! .e !hin#5 .e s!ar!ed on sound and generous %usiness

principles considering !he in!eres!s of !he shareholders as our o.n, and !he heal!h and .elfare of !he e&ployees, !he sure founda!ion of prosperi!y.6 3ata Group has a ways given paramount importance to Corporate Governance. 3hey have a ways be ieved in the phi osophy of M eadership with trust:. /ive Core 0al%es: 3ata group has a ways been a va ue2driven organization. (et us discuss in brief the five core va ues underpinning the 3ata way of business: -ntegrity : 3ata be ieve that they must conduct the business with honesty and transparency. Everything they do must stand the test of pub ic scrutiny. 1nderstanding : 3ata be ieve in showing care# respect# compassion and humanity for its co eagues and customers around the wor d and a ways wor1 for the benefit of the communities they serve. #$cellence : 3ata ma1e a conscious effort to achieve the highest possib e standards in the day2to2day wor1 and in the 9ua ity of the goods and services they provide. 1nity : 3ata be ieve that they must wor1 cohesive y with the customers and partners around the wor d# bui ding strong re ationships based on to erance# understanding and mutua cooperation. .esponsi+ility : 3ata continue to be responsib e# sensitive to the countries# communities and environment in which they wor1# a ways ensuring that what comes from the peop e goes bac1 to the peop e many times over. Corporate Governance in practice: &or any organization to ensure that corporate governance penetrates deep into a its branches# it important to brea1 the $ vicio%s circle2 and create a 2virt%o%s circle$# wherein there is greater accountabi ity and responsibi ity towards a the sta1eho ders. Cne Senior ,anager at 3ata Sons says that =<on$t wait for the aw to change. It is not mere comp iance to the aw# but to e7ce in va ue. 3atas do not mere y be ieve in ip2service. 5e be ieve in adoption through conviction# practice and respect.4 3ata initiated various abour we fare aws# i1e the estab ishment of 5e fare <epartment was introduced in 8"8K and enforced by aw in 8"!; or ,aternity Benefit was introduced in 8"); and enforced by aw in 8"!Q.

3he shareho ders form the topmost rung# fo owed by the Board of the <irectors and then the ,anagement. 3he Board of <irectors do not be ieve in interference in the day2to2day wor1ing of the companies# but practice comp ete oversight. 3he responsibi ity of the Board of <irectors is $Ba ancing the needs and re9uirement$ which inc udes# <irectiona # Cperationa and Structura overview of the companies. 3ata Stee wi ce ebrate 8++ years of e7istence in )++K. It won$t be %ust a mi estone in the company$s history# it wi be a mi estone of corporate transparency and generosity in India. Corporate Governance Model

!aldrige Model

Tata 0al%es

-ndian Management

3he Corporate Governance ,ode at the 3ata Group is based on the three important foundations viz. 3he Ba drige mode # from which the 3BE, is evo ved# 3ata La ues# which are virtuous y fo owed by the 3ata companies and the Indian ,anagement /ractices# because 3ata is a tru y Indian company. Management ,tr%ct%re: 3here are two decision2ma1ing bodies that define and direct the business endeavors of the 3ata Group. 3hese are ca ed the Group E7ecutive Cffice and the Group Corporate Centre. Gro%p #$ec%tive 3ffice : 3he Group E7ecutive Cffice >GEC? defines and reviews the business activities of the 3ata Group and is invo ved in imp ementing programmes in corporate governance# human resources# the environment# etc. 3he chief ob%ective of the GEC is to ma1e the 3ata Group more synergisticR it does this by strengthening the re ationship between the Group and its companies. 3he GEC assesses what uni9ue va ue a company adds to a particu ar business sector and converse y# what uni9ue va ue the Group can bring to that company. Besides Group chairman 'atan

3ata# the GEC comprises '. Gopa a1rishnan# Ishaat Hussain# .ishor Chau1ar# Arun Gandhi and A an 'os ing. Gro%p Corporate Centre : 3he mandate of the Group Corporate Centre >GCC? is to guide the future strategy and direction of the 3ata Group and to wor1 in c ose coordination with the Group E7ecutive Cffice. 3he GCC comprises 'atan 3ata# A.A. Soonawa a# I I Irani# '... .rishna .umar# '. Gopa a1rishnan# Ishaat Hussain# .ishor Chau1ar# Arun Gandhi and A an 'os ing. GCC is the ape7 body that reviews group operations once every month. Tata Code of Cond%ct: A the 3ata companies have forma y adopted 3ata code of conduct >3CCC?. 3CCC has )* c auses which ay down the code of conduct for the emp oyees. Any proven vio ation from the 3CCC is viewed serious y. At 3ata Stee # one of the emp oyees was dismissed from the company for vio ation of the code of conduct. 3he news was wide y pub icized though the name of the emp oyee was not revea ed. 3CCC is imp emented e7tensive y and serious y at 3ata is amp y supported by the fact that# one of the e7ecutives at 3ata Stee stated# =I received an honorarium of 's. )+++ for de ivering a ecture in one of the prestigious management institute. I proactive y as1ed the ethics counse or whether I cou d accept such payment. I did not want to vio ate the code of conduct even by mista1e. I strong y be ieve in the ethics of the company.4 3he boo1 et of 3CCC is given to each emp oyee of the 3ata group. 3here is an ethics counse or in every 3ata company. 3he 7chief e8ecu!i0e officer- of a 3ata company is a so its 7chief e!hics officer-. Lio ations of 3CCC can be brought to the attention of Ethics Counse ors# by raising concerns. Tata Code of Cond%ct * -ss%es Covered

Concerns received are addressed and

corrective actions are ta1en and communicated. Aationa Interest &inancia reporting and records Competition >support for open mar1et economy? E9ua opportunities emp oyer Gifts and donations >emp oyees sha neither receive nor offer or ma1e# direct y or indirect y# any i ega payments# remuneration# gifts# donations

or comparab e benefits which are intended to or perceived to obtain business or uncompetitive favours for the conduct of business?

Government agencies >Aot to offer or give any company funds or property as donation to any government agencies or their representatives...?

/o itica non2a ignment Hea th# safety and environment Pua ity of products and services Corporate citizenship >comp iance of a Cooperation of 3ata companies /ub ic representation of the company and the group 3hird party representation Dse of the 3ata brand Group /o icies Shareho ders Ethica conduct 'egu atory comp iance Concurrent emp oyment Conf ict of interest Securities transactions and confidentia information /rotecting company assets Citizenship Integrity of data furnished 'eporting concerns G'I is now a re evant aws... and active y assisting in the improvement of the 9ua ity of ife?

Glo+al .eporting -nitiative : G'I was a pro%ect of the DA Environment /rogramme. approach : financia # socia and environmenta . 3he 3ata Group is a signatory to the G oba Compact issued by the Secretary Genera of the Dnited Aations in 8""". 3ata has a person designated to he p 3ata companies prepare these 3B( reports. 3ata Stee is one of the first companies in India to adopt trip e bottom ine performance reporting in its Corporate Sustainabi ity 'eport. permanent independent organization. It emphasizes on 3B( i.e. 3rip e Bottom (ine

3he Dnited Aations Secretary 2 Genera

.ofi Annan has appointed

B ,uthuraman# ,<# 3ata Stee # a ong with a group of 8" business# abour and civi society eaders from around the wor d to serve on the Board of the DA G oba Compact. ,r. ,uthuraman is the on y person from the Indian subcontinent to represent the business group. 5ith more than )#*++ participating companies in over "+ countries# it is the wor d:s argest vo untary corporate citizenship initiative. 3ata Stee is a founder member of the G oba Compact. It has a so been conferred the prestigious G oba Compact Business Coa ition Award for Business E7ce ence in the Community in recognition of its pioneering wor1 in the fie d of HILGAI<S awareness. 3he city of Iamshedpur is one among si7 in the wor d to be chosen to participate in the DA G oba Compact Cities /i ot /rogramme. 3ata ,otors was conferred with the prestigious $CII2I3C Sustainabi ity Award )++Q for Significant Achievement on the Iourney towards Sustainab e <eve opment$. 3he award is based on assessment of 3ata ,otors$ corporate governance practices and economic# environmenta and socia performance T the 3rip e Bottom ine concept as per guide ines of the G oba 'eporting Initiative >G'I?. Corporate ,ocial .esponsi+ility : 3ata be ieve that CS' is not an e7terna ized activity nor is it mere phi anthropy. It is an interna process critica to the success of the corporation. Iamshed Irani# <irector# 3ata Sons (td# says# 03he 3ata credo is that $give bac1 to the peop e what you have earned from them$. So from the very inception# Iamshet%i 3ata and his fami y have been fo owing this princip e.0 ,oreover he says that for any business to sustain in the ong run they have to oo1 beyond business. Ages ago when Corporate Socia community. Iamshet%i 3ata# the founder of the 3ata Group and his son# Sir <orab 3ata were intrinsica y of the be ief that business enterprises are created to serve peop e and share their wea th as e9uitab y as possib e. 3his basic princip e he d them to ine to share the human touch every moment everyday with every business decision and every person. 3he business being and the human being were basica y integrated into one. &or instance# 8* business practices on we fare of the emp oyee initiated by 3atas between 8"+) and 8"EK actua y became aw after Indian independence. Cn the other 'esponsibi ity was either the government# or charitab e organizations headache# the 3atas aggressive y wor1ed for the up iftment of the

hand# the wea th generated by 3ata enterprises even today are he d by 3ata trust and not by individua s or owners of the business. I'<# who too1 the eadership and ed the group through its most important *+ years e7tended this aspect to assist communities at arge. 5hat was new about these initiatives was that I'< be ieved that engineers# accountants# ega professiona s and a other s1i ed peop e in 3ata companies wou d be of immense use to oca authorities and institutions that were created to serve peop e so that manageria e7pertise and techno ogy wou d be accessib e to the poorer and unprivi eged. 3hese initiatives which started with 3ata Stee and ater with a various names inc uding CS'. ma%or 3ata companies by created the foundations of 3ata$s approach towards society that we now ca

CS' is institutiona ized at the company eve in

a uniform way. In the ear y 8""+s as soon as reforms were setting motion in the country# ,r. 'atan 3ata evo ved and estab ished 3ata Counci for Community Initiatives# in ear y 8""Q. 3his 3CCI is comprised of ,<sGCECs of a 3ata Companies who use the 3ata ogo and the 3ata brand# who meet every year and provide direction to the 3ata Group CS'. Every company has a CS' head# Corporate Head 2 Socia 'esponsibi ity who is in eve to and co2ordinates with heads of community# environment# safety and biodiversity departments. 3here is a cross2functiona team on CS'# comprising of heads of H'# Communications# &inance# and a other operations. 3he CEC reviews periodica y the CS' progress. 3he 3CCI conducts annua wor1shops for 3ata &aci ity 3est to evo ve a Company CS' theme every year which is imp emented uniform y within the companies which is brought out in the form of Annua 'eport. 3he H' function ensures that the right peop e are positioned trained and performance is appraised officia y for CS' de iverab es B i1e any other function. 3ata Group has over )+#+++ registered vo unteers in ma%or companies# who c oc1 on an average year y )++#+++ vo unteering hours that rea y ref ects the high degree of institutiona ization. Here it is important to 9uote I'< =3he wea th gathered by Iamshet%i 3ata and his sons in ha f a century of industria pioneering formed but a minute fraction of the amount by which they enriched the nation. 3he who e of that wea th is he d in trust for the peop e and used e7c usive y for their benefit. 3he cyc e is thus comp ete. 5hat came from the peop e has gone bac1 to the peop e many times over.4

3ata CS' is consonant with business processing. CS' is a recent y deve oped idea# whi e it was part of the business process for 3ata for over a century. &irst y# 3he ownership process in the 3ata Group as mentioned ear ier ensures that the wea th created is 1ept in a 3rust and does not be ong to individua s. 3hus# there is arge distance and prevention of misuse of the wea th that great y contributes to the credibi ity with which CS' initiatives are run even today. Second y# the 3ata governance process in every shape >dimension? of business is driven by the highest standard of business ethics and persona conduct. Board business a ways encourages consensus# unanimity and inc usion that 1eep 3ata governance practices c ear y apart. 3o 9uote IA 3ata of its e7istence.4 3hird y# the 3ata Group has in recent years created the 3BE, which integrates va ue driven eadership with business strategy# customers and peop e focus# Human 'esources <eve opment# technica and operationa processes and a forms of Short term and ong term resu ts. &o owing cou d be considered as g oba benchmar1s for CS':2

=In a free enterprise# the

community is not %ust another sta1eho der in business# but is in fact the very purpose

Genera E ectrics B vo unteering &ord ,otors for their integrated core competencies for the communities ,icrosoft for their sca e of CS' and g oba approach# which comes out of phi anthropy Citigroup B se f2he p groups and macro credit. ICICI B sustainab e ive ihood# micro credit 3LS group 2 se f2he p group H<&C# SBI for microfiance assume $Human

Indian e7amp es are :B

As far as the future of CS' is concerned# business wi

<eve opment$ as a core strategic agenda and wi ta1e on cha enges to innovate ways to first address the prob ems of !2Q bi ion peop e sustainabi ity and economic ive ihood then he p them to earn sustainab e income from which to generate purchasing power for future business to sustain itse f. 3his is in tota contradiction to the previous idea of business that assumed purchasing power with peop e and so organizations bui d capacity on y to innovate# produce and mar1et products and services.

.atan Tata2s vie4s : 'atan 3ata has successfu y carried forward the egacy of his forefathers in maintaining higher degree of transparency# accountabi ity and corporate socia responsibi ity and thus corporate governance in the 3ata companies. Going through severa interviews of 'atan 3ata# it cou d be understood# that he a so ays ot of emphasis on customers# and considers them as very important sta1eho ders. He be ieves in treating customers as 1ing. 3o 9uote 'atan 3ata# =I thin1 that# broad y# we were perceived as being fair and %ust to our customers# with our products being bac1ed by a concern for 9ua ity. times.4 In an interview with *hris!a%elle 9oronha, .hen as1ed whether the companies can be ro e mode s# he was of the opinion that a company can be a ro e mode in terms of its systems# the CEC is the driving force for the system. He a so ac1now edges the ro e of Iac1 5e ch# the CEC of Genera E ectrics who drove and transformed it to ma1e it a ro e mode for tremendous growth. As regards to the 3ata Group# 'atan 3ata be ieves that 3ata Stee has many of the attributes of the mode company# though not a of them. 3ata ,otors too# has some. He is of the opinion that it:s very difficu t to ma1e a %udgment about each company un ess you are in it. Tata !%siness #$cellence Model 5T!#M6 : It is a 3ota Pua ity ,anagement ,ode # based on the ,a co m Ba drige Aationa Pua ity Award# DSA. 3he mode wor1s under the aegis of 3ata Pua ity ,anagement Services >3P,S?. 3P,S acts as a faci itator for many 3ata companies to e7ce in business performance. It wor1s on two too s i.e. 3BE, and 3ata Code of Conduct. It further ed to the institution of the I'< Pua ity La ue Awards in the year 8""*# in order to create awareness of the importance of 9ua ity and the need for tota customer satisfaction. A 3ata Group companies are encouraged to vo unteer for eva uation for the award. &or 3CS# India:s argest software company# 9ua ity is not the mere absence of defects# but the comp ete satisfaction for a its sta1eho ders. =5hi e other mode s are about management of 9ua ity# 3BE, is about the 9ua ity of management. addresses a practices re ated to It eadership# strategy# customers# 1now edge 5e have been credited with being ahead of the

management# human resources# core processes and resu ts#4 says Bhushan <ewan# Lice /resident# Business E7ce ence. 3atas be ieve that innovation can come from anybody right from the top management to the emp oyee at the shop2f oor. 3ata 5ire starts innovation at

grass root by encouraging a

emp oyees to contribute to deve oping innovative

practices and techni9ues and the best ideas get imp emented. Internationa customers not on y oo1 for 9ua ity but a so a bas1et of services from supp iers. 3ata 5ire has upgraded its processes to cater to the supp y chain and inventory contro sensitivities of the customers. 3ata group 1eeps the customers and shareho ders in vanguard and 9ua ity is given at most importance. &our companies are a ready c ose to the first mi estone >Q++ points? on the 3BE, sca e B 3itan Industries# the &erro a oys and minera s division >&A6,<? of 3ata Stee # 3ata 5ire and 3ata Chemica s. 7.D 80 (4ard : 3he I'< PL Award is the pinnac e of an in2house process that recognizes and rewards business e7ce ence among 3ata Group companies . Given every year on the birth anniversary of I'< i.e. )"th Iu y. 3he award is mode ed on the ,a co m Ba drige Aationa Pua ity Award and it has a so attributes from other 9ua ity awards. 3he purpose of giving the award is to incu cate the cu ture of high 9ua ity and customer satisfaction in a areas operations of the group companies and achieve e7ce ence. A 3ata Group companies are encouraged to vo unteer for eva uation for the Award. 3he app ications received are eva uated by a $core group$ based on a point system across various parameters such as eadership# p anning# strategy# human resources management and process management. 3he short ist of companies prepared by this core group is then eva uated by an $ape7 group$ headed by the chairman of 3ata Sons. 3his year# out of the )" companies that participated# 3itan 5atch <ivision# was the recipient of the I'< PL Award. Golden &eacoc9 (4ards : 3he Go den /eacoc1 G oba Award for Corporate Governance was instituted by the 5or d Counci for Corporate Governance in Ianuary )++8 to foster competitiveness among businesses to improve the 9ua ity of Corporate Governance. 3he criteria inc ude overview of governance structure >po icies and organization# management systems# etc.?# eadership# committees and their 9uorum >Audit committee# governance committee# etc.?# ro e# term and iabi ity of directors# remuneration of non e7ecutive directors. 3ata Stee won the Go den /eacoc1 Award for Corporate Governance in the year )++)# for the outstanding achievement for e7ce ence in Corporate Governance and Corporate Socia 'esponsibi ity in the private sector category.

3CS was presented with the Go den /eacoc1 Aationa 3raining Award >)+++? in recognition of being the biggest state2of2the2art training centre in Asia at 3hiruvananthapuram. 3he award is instituted by the Institute of <irectors to Award for encourage training eading to improved business performance. 3ata /ower:s Io%obera division was presented the Go den /eacoc1 Environment E7ce ence for the year )++* at a ceremony of the 5or d Congress on Environment ,anagement >5CE,?# in recognition of the Io%obera division:s unstinting pursuit of environmenta e7ce ence. 8!++8 and CHSAS 8;++8 standards. .evie4 of (nn%al .eports: Ernst 6 -oung in co aboration with the Confederation of Indian Industry has pub ished a handboo1 on Corporate Governance# to guide companies and their directors regarding C ause !"# and overa imp ementation of corporate governance in the companies. Corporate Governance Best /ractices inc ude the fo owing :2 8. Structure 6 Composition of Board and Audit Committee 2 Board to have ade9uate number of Independent <irectors# at east one2third# induction of reputed professiona s such as accountants and awyers as independent directors# a non2e7ecutive Board members to rotate through the Audit Committee# etc. ). Audit Committee 'o es 6 'esponsibi ities 2 Audit Committee to ho d one2on2one sessions with the e7terna auditors and interna auditors at east once a year# Audit Committee to monitor and guard against the ris1 of fraud and to a so review a cases of interna and e7terna fraud re ated to the company# etc. E. Interna Audit B Interna audit to report direct y to the Audit Committee. Annua performance review of Interna Audit to be conducted by Audit Committee# c ear mission# ro e and scope for the Interna Audit to be defined# etc. !. 'is1 ,anagement B Board of <irectors to be given ade9uate e7posure to G training on the company$s business mode and ris1 profi e# primary ownership for ris1s and time iness for mitigation to be defined c ear y# etc 3he p ant is a so certified to ISC

*. (ega comp iance B Company to draw up a comprehensive ist of a

aws

and regu ations which it has to comp y with in a geographies in which it operates# Board to review comp iance status for at east 1ey comp iances at east once a year# etc. Q. Code of Ethics G 5hist e B ower /o icy B Company to have a documented Code of Ethics which is a pub ic document and a emp oyees are made aware of this# Audit Committee to review a comp aints made via the 5hist e b ower Hot ines or emai I<s# etc. K. <isc osures B Company to have ade9uate processes to capture the information re9uired for various disc osures under the (isting Agreement# the Companies Act# and other industry specific or icensing2 re ated regu ations# etc ;. Interna Contro Eva uation B A accounting units and business process that can materia y impact financia reporting to be identified# owners of each contro to be identified# etc In the ight of the above mentioned points# five 3ata Companies were identified across sectors and their Annua 'eports for the year )++*2+Q were reviewed. 3he companies se ected were2 a. 3ata ,otors >Engineering Sector? b. 3ata 3ea >Consumer /roducts? c. 3ata Chemica s >Chemica s Sector? d. 3he Indian Hote s Company (imited >3a% Group? >Services Sector? e. 3ata Consu tancy Services (imited >Information Systems and Communications? It has been observed that a the 3ata Companies not on y try to adhere strict y to the statutory comp iances but at times tend to e7ce the minimum statutory re9uirements. /ursuant to SEBI C ause !">I?>C?>ii?# none of the <irectors on the Board of 3ata Chemica s (imited# 3CS# 3a% Group# 3ata ,otors is a member of more than 8+ committees and chairman of more than * committees across a companies in which he is a <irector. A the <irectors have made the re9uisite disc osures regarding committee positions he d by them in other companies. &ive out of the 88 <irectors of 3ata Chemica s (imited have attended a the ; Board meetings he d during the financia year )++*2+Q and other directors have

attended on an average Q meetings. 3en out of the e even <irectors attended the AG, he d on )8st Iu y )++*. <uring the year under review >)++*2+Q?# the Board of <irectors of 3he Indian Hote s Company (imited met seven times and the period between any two meetings did not e7ceed four months. At 3ata 3ea (imited# there was no such instance of non2comp iance by the company# pena ties# strictures imposed on the company by Stoc1 E7change or SEBI or any statutory authority# on any matter re ated to capita mar1ets during the ast three years. 3he Indian Hote s Company (imited# 3ata 3ea (imited# 3CS# 3ata ,otors have adopted the 5hist e B ower /o icy# pursuant to which emp oyees can raise their concerns re ating to fraud# ma practice or any other activity or event which is against the Company$s interest. Ao emp oyee has been denied access to the Audit Committee in this regard. Concl%sion : <r. I I Irani proud y c aims that none of the 3ata Board of <irectors wi ever be in the ist of rich peop e. 3hey have a trust that accumu ates the profits of the company# which are then disbursed for various socia causes. 05e generate wea th but persona y don$t get any of it. 3hese trusts accumu ate the funds and disburse according y#0 states <r. I I Irani. Indian ,erchants Chamber >I,C? honoured ,r. 'atan 3ata with the I,C <iamond Iubi ee Endowment 3rust:s 0Eminent Businessman of the -ear0 award for )+++2+8. 3he award was given to ,r. 3ata for his outstanding contribution to enhancing the image of the business community. Godre% and I.'.< 3ata. Accepting the award# ,r. 3ata said that the cha enge facing Indian industry was to become g oba y competitive. 0Indian industry must thin1 g oba in its sca e of operations. 3hey must oo1 for internationa ac9uisitions to ac9uire critica mass. And they need to as1 themse ves why they shou d not be hiring g oba y and not confine themse ves to hiring Indians on y#0 ,r 3ata said. 3atas have added one more feather to the cap with the bid for ac9uisition of CoursR Europe$s second argest stee producer with revenues in )++* of GB/ ".) bi ion and /revious awardees of I,C:s prestigious award# instituted in 8"Q"# inc ude 'ama1rishna Ba%a%# H.3. /are1h# S./.

crude stee production# by 3ata Stee in Cctober )++Q. 3ata is preaching the need to $internationa ize$ in giant strides# not in to1en# incrementa steps. In support of the transparency and accountabi ity practiced by 3atas# San%ay .ambete# <irector# Aationa Institute for Ban1ing Education and 'esearch# remar1s that =If we see the composition of the Board of <irectors# we wi where it is more of re atives of the promoters on the Board.4 2 3o 9uote 'atan 3ata on Corporate Governance# =3he ro e of the board shou d be that of governance to ensure that corporate direction and management are e7ecuted in the best interest of the shareho ders# to ensure that shareho der va ue is not eroded and that the corporation fu y recognized and bears its socia responsibi ity. 3o be effective# the board needs to focus on: Strategic direction and imp ementation ,onitoring financia performance CEC deve opment Eva uation and succession ,onitoring ega and ethica performance4 (ong before Corporate Governance became a buzzword in industry circ es# 3ata Stee was fo owing the etter and spirit of the ru es that define ethica business behaviour. Dnion ,inistry of &inance awarded the company the Aationa Award for E7ce ence in Corporate Governance in )+++. Corporate governance is now the focus area of a business entities. 3atas are a sta wart and the e7emp ary performance of 3ata Group in the fie d of corporate governance# with strong code of ethics and e7ce ence in performance is worth being appreciated. It is right y said about 3atas $Good governance has ta1en root in and spread to a branches of the 3ata Group and there is nothing amorphous about that.$ 3atas have a ready set high standards for corporate governance which sha revered# appreciated and fo owed by the generations to come. (c9no4ledgments: 8. /rof. Ani Chauba # <irector# <r. L A Bede1ar Institute of ,anagement Studies be find more professiona s and interna managers on the Board of 3atas than in other companies

). <r. Guruprasad ,urthy# <irector# 'esearch 5ing# <r. L A Bede1ar Institute of ,anagement Studies E. ,r. Anant Aad1arni# Genera ,anager 2 Group CS'# 3ata Group !. ,r. /rashant .ar1are# Lice /resident and Company Secretary 3ata Services (imited *. ,r. Lirendra S Gupte# Chief23rade Services# 3ata Internationa (imited Q. ,r. 'a%esh Srinivas# 3ata 3ea (imited K. ,r. San%ay .ambete# <irector# Aationa Institute for Ban1ing Education and 'esearch ;. Sandeep Bhavsar# (ibrarian# <r. L A Bede1ar Institute of ,anagement Studies !i+liography: 8. Satheesh .umar 3.A.# $Indian &ami y2managed Companies: 3he Corporate Governance Conundrum$# 3he IC&AI Iourna of Corporate Governance# Lo .L Ao.)# Apri )++Q ). ,aheshwari# Suni .umar# 6 Ganesh# ,./.# $Ethics in Crganizations: 3he Case of 3ata Stee $# Li1a pa B 3he Iourna for <ecision ,a1ers# II,A# Lo ume E8 Ao.)# Apri 2Iune )++Q E. Cadbury# Adrian# $Corporate Governance And Chairmanship2A persona view$# C7ford Dniversity /ress# )++) !. Aew9uist# Scott# 6 'usse # ,a7# $Corporate Governance B /utting Investors &irst$# Iaico /ub ishing House# ,umbai#)++! *. Shan1ar# Amita# $Corporate Governance : 'o e of Corporate Boards Against 3he Bac1drop of (isting Standards$# 5e ing1ar 'esearch Iourna # September )++Q Q. $Corporate Governance$# Specia &eature# ,BA 'eview# Apri )++! K. .umar# /oonam# $Corporate Governance B Issues of Concern for Indian Companies$# Arbiter# &ebruary )++E ;. Seth# Suhe # $Iamshedpur is 5here India is Shinning$# Service for Communicators# Lo .)*# Ao."# September )++Q

". ,ehta# ..(.# $Integrating Corporate Socia Issue B !# September )++!

'esponsibi ity with Human

E7ce ence 3ata$s ,anagement Ethos$# 5e ing1ar 'esearch Iourna # Lo .II# 8+. ,u1er%ea# <. A.# $'atan 3ata$s G oba Puest$# Businesswor d# "th Cctober )++Q 88. $Corporate Governance Handboo1$# Ernst 6 -oung 6 CII 8). Annua 'eports )++*2+Q of various 3ata Companies We+liography: 8. $CEC< /rincip es of Coproate Governance$ )++!# retrieved on Kth September )++Q# from www.oecd.org ). www.corpgov.net E. $&orerunners in corporate socia responsibi ity$ 3he Indian E7press T ,arch 8Q# )++* !. $A rich rubic of ethics$ retrieved on Erd Cctober )++Q# from www.tata.com *. $3ata 3ea receives Go den /eacoc1 Award$ retrieved on 8+ th Cctober )++Q# from www.tata.com Q. $3ata /ower:s Io%obera p ant bags Go den /eacoc1 Award for Environment E7ce ence$ retrieved on 8+th Cctoher )++Q# from www.tata.com K. $3CS bags the Go den /eacoc1 3raining award$ retrieved on 8+th Cctober )++Q# from www.go denpeacoc1awards.com