“Satyam Vada Dharmam Chara”

“Forever speak the truth and follow the dharma”

Prepared By:-
• Amit Koli 31
• Rindhu Kumari 32
• Noble Kurvilla 33
• Vijay Mane 34
• Sushant Mhamunkar 35
Governance Concept in ‘Ramayana’

To provide “the maximum happiness for the maximum

number of people for the maximum period, based on the
principles of Dharma – righteousness and moral values.”

- Ayodhya Kand
 An Indian Definition

• “…fundamental objective of corporate governance is

the ‘enhancement of the long-term shareholder value
while at the same time protecting the interests of
other stakeholders.”

– SEBI (Kumar Mangalam Birla) Report on

Corporate Governance, January, 2000
 Corporate Governance
What is Governance?

“Corporate Governance is the application of best management

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

-The Institute of Company Secretaries of India

Purpose of corporate governance is to have a demonstrable

IMPACT on a corporation’s FINANCIAL PERFORMANCE.
 What is Corporate Governance?

• The Manner in which a Corporation is Run

– Achieving its Objectives
– Transparency of its Operations
– Accountability & Reporting
– Good Corporate Citizenship

• The Processes & Operating Relationships that Best

Achieve Organizational Goals.
 Factors influencing corporate governance

1. The ownership structure

2. The structure of company boards

3. The financial structure

4. The institutional environment

 Mechanisms of corporate governance

(1) Companies Act

(2) Securities law

(3) Discipline of the capital market

(4) Nominees on company boards

Corporate Governance in India – A Background

• India was considered one of the poor countries at

independence.
• Its salient features were –
- clearly defined rules governing listing, trading
& settlements,
- well developed equity culture & banking system.
- more endowed than other colonies in terms of
corporate laws & financial system.
Contd…

• The beginning of corporate developments in India were

marked by the managing agency system that contributed to the
birth of dispersed equity ownership.

• The turn towards socialism in the decades after independence

marked by the 1951 Industries (Development and Regulation)
Act 1956.

• Growing malpractices such as corruption , nepotism &

inefficiency became hallmark of Indian Corporate sector.
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

– 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. It was called Desirable

Corporate Governance: A Code.

– Between 1998 and 2000, over 25 leading companies voluntarily

followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddy’s
Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI
and many others
Contd…

• Following CII’s initiative, the Securities and Exchange Board of India

(SEBI) set up a committee under Kumar Mangalam Birla to design a
mandatory-cum-recommendatory code for listed companies

• The Birla Committee Report was approved by SEBI in December 2000

• Became mandatory for listed companies through the listing

agreement, and implemented according to a rollout plan:

– 2000-01: All Group A companies of the BSE or those in the S&P

CNX Nifty index… 80% of market cap.

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

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

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

more
Contd…

• 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.

• In 2001-02, certain accounting standards were modified to further

improve financial disclosures. These were:

– Disclosure of related party transactions.

– Disclosure of segment income: revenues, profits and capital
employed.
– Deferred tax liabilities or assets.
– Consolidation of accounts.

• Initiatives are being taken to (i) account for ESOPs, (ii) further
increase disclosures, and (iii) put in place systems that can further
strengthen auditors’ independence.
 Recent Misconducts: The List Goes On…

• Computer Associates:
– Artificially inflated revenue and improperly rewarded top
executives.
• CMS Energy:
– Overstated revenues in 2000 and 2001 thru ‘round trip’ energy
trades?
• Dynegy:
– Transactions to cut taxes and artificially increase cash flow ?
• Kmart:
– Suspected improper accounting for vendor allowances
• Lucent Technologies:
– Adjusted fiscal 2000 revenues by $679 million.
• Several more names, respected world-over:
– AOL Time Warner, Bristol-Myers, Elan,Halliburton, ImClone
Systems, Microstrategy, Mirant, Network Associates, Reliant
Resources, Vivendi Universal, Xcel Energy, Xerox.
Corporate Mis-Governance
 Driving Forces of CG in India
1) Unethical Business Practices
– Security Scams ---Harshad Mehtha Security Scam
• Equity allotments at discount rates to the controlling groups
• Disappearance of Companies (1993-94) - around 4,000
• companies with 25,000 crores without starting business
– Misdeed of Companies
• Plantation, Sheep rearing, etc.

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

3) Impact of Privatisation
– New structure of ownership
– Multinational Companies
 An Enterprise’s Triple Effect on Society

Sustainable Development Equal Opportunities

Waste Control Education &

Culture

n t Soc
e
Emissions
n m ial Community
ir o Regeneration
nv Business
E Impact

Energy Use Human Rights

Economic
Product Employee
Life-cycle Volunteers
Product Wealth Productive Ethical
Value Generation Employment Trading
&
 Infosys Technologies: The Best among Indian
Corporates
• As per the Credit Lyonnais Securities Analysis (CLSA), the
corporate governance ratings of the Software firms are higher than
those of other Indian firms.

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

company offering information technology consulting & software
services.

• The software offered include application development, E-

Commerce & Internet Consulting, Software Maintenance.

• Respected across the country, with very strong systems, high

ethical values & a nurturing working atmosphere.

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

• At present having US 20.4 billion market capitalisation.

 Achievements

• Voted as the Best Managed Company in Asia.

• Biggest exporters of Software.

• First to follow the US Generally Accepted Accounting

Principles before going for Nasdaq listing in 1991.

• Championed Corporate Governance in India.

 Narayana Murthy’s Global Strategy

1) Global Delivery Model – Producing where it is most cost

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

2) Moving up the Value Chain – Getting involved in a

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

3) PSPD Model – Predictability of Revenues, Sustainability of

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

Best Governed Companies

 Concluding Observations

• Code of CG should be redesigned to reflect international best

practices

• Stringent enforcement of Law

• More effective coordination and cooperation between SEBI, DCA

• CG mechanism should be flexible and suitable

• Overall ethical values in all segments should be promoted for

effective

• accounting, auditing, disclosure and transparent system.

 WINNING GROWING
WINNING GROWING
EMPLOYEES INVESTORS
EMPLOYEES INVESTORS

HAPPY
DELIGHTED HAPPY
DELIGHTED SOCIETY
CUSTOMERS SOCIETY
CUSTOMERS

SATISFIED
TRUSTED SATISFIED
TRUSTED GOVERNMENT AND
SUPPLIERS GOVERNMENT AND
SUPPLIERS REGULATORS
REGULATORS