INFOSYS

The Best Corporate Governed Company

Submitted on:
3/1/2009

Submitted to:
Prof. Anita Chouhan

METs Institute of Management

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“We've always striven hard for respectability, transparency and to
create an ethical organisation. There are certain expectations that we
haven't fulfilled. But we're also a very young organisation and in areas
like track record of management, we may be low because we're yet to
show longevity.”

- Narayana NR Murthy, Chairman and

CEO, Infosys Technologies Limited (Infosys),
2001

MCOMPILED BY:M
Madhur Agarwal Maulik Parikh
(002) (000)

Kashyap Mubin Panjwani (071)

Damniwala (000)
Sneha Saraf (091)
Rima Gupta
Vedant Thakur (114)
(036)

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 MMMMINDEXMMMM

SR. NO PARTICULARS PG NO.

1. Introduction 5–6

2. About Infosys 7–8

3. About Narayan Murthy 9 – 10

Corporate Governance for Infosys

4.  Corporate Governance Philosophy 11 – 16

 Code of Conduct

5. The High Priest Of Corporate Governance 17

6. Codes for Corporate Governance 18 – 20

7. Awards Won 21 – 27

8. Structural Risk 28 - 40

 Ownership Structure & influence

(a.) Transparency of Ownership

(b.) Ownership Concentration & Influence

 Shareholder Right & Stakeholder Relation

(a.) Shareholder Meeting & Voting

Process

(b.) Ownership Rights

(c.) Stakeholder Relation

 Transparency, Disclosure & Audit

(a.) Content of Public Disclosure

(b.) Timing & access

(c.) Audit Process

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  BOD Structure & Effectiveness

(a.) BOD Structure & independence

(b.) Role & Effectiveness of BOD

(c.) BOD & Senior Management

Compensation

(d.) Committees

Transaction Risk

 Related Party

9.  Nature of Transaction with Related Party 41 – 42

 Materiality

 Disclosure

Accounting Risk
10. 43
 MTM

11. Corporate Governance – The Infosys Way 44 – 49

Infosys – A Benchmark For Corporate

12. 50
Governance

13. Bibliography 51

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MMMMMINTRODUCTIONMM
MM

In the last decade, two events significantly

contributed to making corporate governance
nearly a household term. The first was the wave of
financial crises in Russia, Asia, and Brazil in 1998,
when the activities of the corporate sector
influenced entire economies and the global
financial system. Three years later, the corporate
scandals in the U.S. had highlighted the
macroeconomic consequences of weak corporate
governance systems. In the aftermath,
economists, the corporate world, and policy
makers everywhere began to recognize the
importance of corporate governance.

The traditional analysis of corporate governance

focused on the allocation of power and duty
among the Board of Directors, management, and
shareholders. As the sole residual claimants on
company assets, shareholders were presumed to
have the most incentive to maximize company
value. According to that perspective, the Board of
Directors acted as the shareholders' agent and
management was responsible for daily operations.
In today's scenario, the Board and the
Management play the role of trustees.

Effective corporate governance requires a clear

understanding of the respective roles of the Board
and the senior management, and their
relationships with others in the corporate
structure. The relationship of the Board and the
Management with stockholders should be
characterized by candor; their relationship with
employees should be characterized by fairness;
their relationship with the communities in which
they operate should be characterized by good

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citizenship; and their relationship with the
government should be characterized by a
commitment to compliance.

Till late 1990s, corporate governance did not have

much significance in India. In 1999, two
committees Confederation of Indian Industries (CII)
and the Kumar Mangalam Birla Committee were
set up to recommend good governance norms.
These committees came out with several
recommendations, which were made mandatory
for the companies to adhere to by 2001. Infosys
was one of the first companies in India which had
complied with the recommendations made by the
committees.

“The fundamental objective of corporate

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

-
Kumar Mangalam Committee Report on Corporate
Governance, 1999.

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Our industry has set many records for growth,
quality and corporate governance in the country
and the world and needs to continue on a pristine
pure path as we climb bigger mountains in the
journey towards full globalization of services!
Hence there is the need for more and more
companies to adopt the Infosys way of working.

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 MMMMMABOUT
INFOSYSMMVM

Infosys Technologies Ltd. (NASDAQ: INFY) was

started in 1981 by seven people with US$ 250.
Today, it is a global leader in the "next generation"
of IT and consulting with revenues of over US$ 4
billion.

Infosys defines, designs and delivers technology-

enabled business solutions that help Global 2000
companies win in a Flat World. Infosys also
provides a complete range of services by
leveraging our domain and business expertise
and strategic alliances with leading technology
providers.

Infosys' service offerings span business and

technology consulting, application services,
systems integration, product engineering, custom
software development, maintenance, re-
engineering, independent testing and validation
services, IT infrastructure services and business
process outsourcing.

Infosys pioneered the Global Delivery

Model (GDM), which emerged as a disruptive force
in the industry leading to the rise of offshore
outsourcing. The GDM is based on the principle of
taking work to the location where the best talent is
available, where it makes the best economic
sense, with the least amount of acceptable risk.

Infosys has a global footprint with over 50 offices

and development centers in India, China, Australia,
the Czech Republic, Poland, the UK, Canada and
Japan. Infosys has over 103,000 employees.

Infosys takes pride in building strategic long-term

client relationships. Over 97% of our revenues
come from existing customers.

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Vision

"To be a globally respected corporation that

provides best-of-breed business solutions,
leveraging technology, delivered by best-in-class
people."

Mission
"To achieve our objectives in an environment of
fairness, honesty, and courtesy towards our
clients, employees, vendors and society at large."

Values
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

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• Pursuit of Excellence: To strive relentlessly,
constantly improve ourselves, our teams,
our services and products to become the
best

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 MMMMNARAYAN
MURTHYMMVM

SIMPLE, SELFLESS, SUPER RICH

An Indian IT chief who's really made it big without dropping his ethical
precepts by the wayside is Nagawara Ramarao Narayana Murthy,
Chairman of Infosys. Born in 1946, Murthy's father was a schoolteacher
in Kolar district, Karnataka, India. A bright student, Murthy went on to
acquire a degree in Electrical Engineering from Mysore University and
later studied Computer Science at the IIT, Kanpur, India.

The Infosys legend began in 1981 when Narayana Murthy dreamt of

forming his own company, along with six friends. There was a minor
hitch was that he didn’t have any seed money. Luckily, like many
Indian women who save secretly without their husband's knowledge,
his wife Sudha-then an engineer with Tatas-had saved Rs 10,000. This
was Murthy's first big break.

The decade until 1991 was a tough period when the couple lived in a
one-room house. The second break came in 1991 when Indian doors to
liberalization were flung open… Murthy grabbed the opportunity with
both hands and has never looked back ever since. Today, Infosys is the
first Indian company to be listed on the US NASDAQ.

While working in France in the 1970s, Murthy was strongly influenced

by socialism. The bubble was pricked, however, when he was arrested
in Bulgaria on espionage charges. Today, he says: "I'm a capitalist in
mind, a socialist at heart." It was this belief in the distribution of wealth
that made Infosys one of the first Indian companies to offer employees
stock-option plans. Infosys now has 400 employees who are dollar
millionaires.

In a poll conducted by Asiaweek, the quiet, soft-spoken man was

selected one of the 50 most powerful people in Asia for 2000. And 50
per cent of the respondents in an online poll conducted by The
Economic Timesvoted him the best CEO of India.

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Heading a company with the largest market capitalization didn't
changed Murthy's life-style much. The man still doesn't know how to
drive a car! On Saturdays-his driver's weekly off-the Infosys chief is
driven to the bus stop by his wife, from where he boards a company
bus to work! Incidentally, Sudha Murthy is Chief of the Infosys
Foundation,
which channels Rs 50 million into charity every year.

Simplicity, humility and maintaining a low profile are the hallmarks of

this super-rich Bangalorean. And the man is principled to a fault.
Murthy's unprecedented wealth has catapulted him into the public
glare.

And finally the philanthropist Murthy with some of

the founder members of infosys have contributed
more then a billion rupees for the upgradation of
the IIT centers. The Infosys founder member says
that unless a person makes a difference to the
society and earn their trust, he can never become
long-term players. Therefore, in everything that
humans do they should ask themselves whether
we they are adding value to the society regardless
of which part of the globe they are in.

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 IMPORTANCE OF
HGDSDSD

CORPORATEDDSD
SDSDGOVERNANCE FOR

INFOSYSDSDD

“Sound corporate governance is critical to

enhance and retain investor trust,” said Kris
Gopalakrishnan, President and Board Member,
Infosys Technologies. He explained how the
company aims to satisfy the spirit – not just the
letter – of the law, believing that a company that is
“globally respected, transparent, with a culture of
innovation should lead by practice of these
values.”

Corporate governance is about maximizing

shareholder value legally, ethically and on a
sustainable basis, while ensuring fairness to every
stakeholder - customers, employees, investors,
vendor-partners, the governments of the countries
in which it operates, and the community. Thus,
corporate governance is a reflection of their
culture, policies, our relationship with stakeholders
and our commitment to values.

Infosys believe that sound corporate governance is

critical to enhance and retain investor trust.

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Accordingly, it always seeks to ensure that Infosys
attains its performance rules with integrity.

The Board exercises its fiduciary responsibilities in

the widest sense of the term. Their disclosures
always seek to attain the best practices in
international corporate governance. Infosys also
endeavors to enhance long-term shareholder value
and respect minority rights in all business
decisions.

Infosys continues to be a pioneer in benchmarking

corporate governance policies with the best in the
world. Their efforts are widely recognized by
investors in India and abroad. Infosys have
undergone the corporate governance audit by
ICRA and CRISIL. ICRA has rated our corporate
governance practices at CGR 1. CRISIL has
assigned CRISIL GVC Level 1 rating.

Infosys have complied with the recommendations

of the Narayana Murthy Committee on Corporate
Governance constituted by the Securities and
Exchange Board of India (SEBI). The Infosys
philosophy is that an active, well-informed and
independent board is necessary to ensure the
highest standards of corporate governance. A
majority of board members (eight out of fifteen)
are independent, and there is clear demarcation of
the responsibilities and authority of the chairman,
CEO, COO and CFO. The audit committee consists
solely of independent directors. Mr Gopalakrishnan
also described the high level of transparency that
characterizes the company’s investor relations,
and demonstrated how seriously Infosys takes its
social responsibilities, through its rural reach and
teacher training programme, for example.

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"Corporate governance is about working ethically
and finding a balance between economic and
social goals. It includes the ability to function
profitably while obeying laws, rules and
regulations."

Smt. Pratibha Devisingh Patil, Hon. President of

India, February 12, 2008
njjnjnCORPORATE
GOVERNANCE
PHILOSOPHYnjjnjn

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
• 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

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 NjjnjnCODE OF
CONDUCTnjjnjn
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 behavior 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, and ensure that all agents and

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contractors are aware of, understand and adhere
to these standards.

Each year as part of your annual review you will be

asked to sign an acknowledgment indicating your
continued understanding of the Code of Business
Conduct and Ethics. Ethical business conduct is
critical to our business. As an employee, your
responsibility is to respect and adhere to these
practices. Many of these practices reflect legal or
regulatory requirements. Violations of these laws
and regulations can create significant liability for
you, the Company, its directors, officers, and other
employees.

Part of your job and ethical responsibility is to help

enforce this Code of Business Conduct and Ethics.
You should be alert to possible violations and
report possible violations to the Human Resources
Department or the Legal Department. You must
cooperate in any internal or external investigations
of possible violations. Reprisal, threats, retribution
or retaliation against any person who has in good
faith reported a violation or a suspected violation
of law, this Code of Business Conduct or other
Company policies, or against any person who is
assisting in any investigation or process with
respect to such a violation, is prohibited.

 YOUR RESPONSIBILITIES TO THE COMPANY

AND ITS STOCKHOLDERS
A. General Standards of Conduct
A1. Workplace free of Harassment
A2. Drug and Alcohol Abuse
A3. Safety in Workplace
A4. Dress Code and other personal
standards
A5. Expense Claims

B. Applicable Laws
C. Conflicts of Interest

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D. Corporate Opportunities
D1. Solicitation and Distribution of
Literature

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
J. Records on Legal Hold.
K. Payment Practices
L. Foreign Corrupt Practices Act.

 RESPONSIBILITIES TO OUR CUSTOMERS

AND OUR 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

DISCIPLINARY ACTIONS

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 ddddd THE HIGH PRIEST OF
CORPORATEddd
dddddGOVERNANCEddddd

By the late 1990s, Infosys Technologies Limited

(Infosys) had clearly emerged one of the best
managed companies in India. Its corporate
governance practices seemed to be better than
those of many other companies in India. Because
of its good governance practices, Infosys was the
recipient of many awards.

In 2001, Infosys was rated India’s most respected

company by Business World. Infosys was also
ranked second in corporate governance among
495 emerging companies in a survey conducted
by Credit Lyonnais Securities Asia (CLSA)
Emerging Markets. It was voted India’s best
managed company five years in a row (1996-
2000) by the Asiamoney poll. In 2000, Infosys had
been awarded the “National Award for Excellence
in Corporate Governance” by the Government of
India. In 1999, Infosys had been selected as one of
Asia’s leading companies in the Far Eastern
Economic Review’s REVIEW 2000 Survey and
voted India’s most admired company by The
Economic Times.

Infosys had also provided all the information

required by the Cadbury committee Infosys had
benchmarked its corporate governance practices
against those of the best managed companies in
the world. It was one of the first companies in
India to publish a compliance report on corporate
governance, based on the recommendations of a
committee constituted by the Confederation of
Indian Industries (CII). Infosys maintained a high
degree of transparency while disclosing
information to stakeholders. It had been providing

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consolidated financial statements under US GAAP
to its global investors and financial statements
under Indian GAAP to Indian shareholders. Infosys
provided details on high and low monthly
averages of share prices in all the stock
exchanges on which the company’s shares were
listed. It was one of the few companies in India to
provide segmentwise breakup of revenues.

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 fdfdf CODE OF CORPORATE
GOVERNANCEfdfdf

In the late 1990s, the Confederation of Indian

Industries (CII) published a code of corporate
governance. In 1999, the Securities and Exchange
Board of India (SEBI) appointed a committee
under the Chairmanship of Kumar Mangalam Birla
to recommend a code of corporate governance.
The report was submitted by the committee in
November 1999 and accepted by SEBI in
December 1999.

Naresh Chandra Committee

The Government of India, by an order dated
August 21, 2002, constituted a high-level
committee under the chairmanship of Naresh
Chandra to examine the auditor-company
relationship and to regulate the role of auditors.
The trigger was instances of scams in the U.S. and
certain instances in India involving auditors. In
fact, the spontaneity with which the U.S.
responded to the high-profile corporate scams by
enacting the Sarbanes-Oxley Act in a very short
time and taking strong measures to deter
recurrences of such scams, prompted the Indian
regulators and authorities to come out with almost
similar recommendations. The Naresh Chandra
Committee report contains five chapters. Chapters
2, 3 and 4 which deal with the auditor-company
relationship, auditing the auditors’ and
independent directors’ role, remuneration and
training are relevant to us. Chapter 1 is an
introductory section and Chapter 5 relates to
regulatory changes. Infosys comply with these
recommendations.

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Kumar Mangalam Birla Committee
SEBI appointed the Committee on Corporate
Governance on May 7, 1999, under the
chairmanship of Kumar Mangalam Birla, member
of the SEBI Board, to promote and raise the
standards of corporate governance. The SEBI
Board considered and adopted the
recommendations of the committee in its meeting
held on January 25, 2000. In accordance with the
guidelines provided by SEBI, the market regulator,
the stock exchanges had modified the listing
requirements by incorporating in the listing
agreement a new Clause 49, so that proper
disclosure for corporate governance is made by
companies in the following areas: Board of
directors, Audit committee, Remuneration
committee, Board procedure, Management
discussion and analysis, Shareholder Information,
and Corporate governance report in the annual
report. Infosys comply with these
recommendations.

Revised Clause 49 of the listing

agreement
SEBI, with a view to improve corporate
governance standards in India, constituted the
Committee on Corporate Governance under the
chairmanship of N. R. Narayana Murthy. This move
of SEBI signifies the regulator’s anxiety to ensure
that the governance practices are corrected and
improved upon expeditiously. The terms of
reference for the committee were to review the
performance of corporate governance and to
determine the role of companies in responding to
rumors and other price-sensitive information
circulating in the market, in order to enhance the
transparency and integrity of the market.

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The committee came out with two sets of
recommendations: the mandatory
recommendations and the non-mandatory
recommendations. The mandatory
recommendations focus on strengthening the
responsibilities of audit committees, improving the
quality of financial disclosures, including those
pertaining to related party transactions and
proceeds from initial public offerings, requiring
corporate executive boards to assess and disclose
business risks in the annual reports of companies,
calling upon the Board to adopt a formal code of
conduct, the position of nominee directors, and
improved disclosures relating to compensation to
non-executive directors and shareholders’
approval of the same.

The non-mandatory recommendations pertain to

moving to a regime providing for unqualified
corporate financial statements, training of Board
members and evaluation of non-executive
directors’ performance by a peer group
comprising the entire Board of Directors,
excluding the director being evaluated. SEBI has
incorporated the recommendations made by the
Narayana Murthy Committee on Corporate
Governance in Clause 49. Clause 49 as revised
was made effective from January 1, 2006. Infosys
fully comply with the revised Clause 49 of the
Listing Agreement.

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 MMMMAWARDS
WONMMMM

Infosys has consistently been honored by

customers, industry bodies, media and other
influencers. The following are among the
recognitions received over the past year:

An independent analyst has cited Infosys as a

leader in SAP implementation services, noting that
"Infosys' SAP practice is aligned along verticals to
ensure that clients get the benefit of its deep
vertical process expertise."

2008
• The Asset magazine acclaims Infosys' Corporate
Governance

• Infosys ranked No. 14 among the most

respected companies in the world by
Reputation Institute's Global Pulse 2008

• Infosys wins award for best investor relations

by an APAC company in the US market at IR
Magazine US Awards 2008

• Best Investor Relations Website and Company

with Best Corporate Governance Practices in
Investor Relations (IR) Global Rankings 2008 in
APAC categories

2007
• The Reputation Institute: Infosys, a globally
respected company

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2006

• Infosys is most admired company for the 6th

consecutive survey by Asia Wall Street Journal

• Infosys is the ‘Best company to Work For In

India 2006’ says the BT-Mercer-TNS survey
published in ‘Business Today’

• Infosys is ranked the “Businessworld Most

Respected Company” in a survey. The special
issue featured rankings of top companies from
all sectors

2005
• First position in SAFA (South Asian Federation of
Accountants) Best Presented Accounts Award
2004 in the Communication and Information
Technology Sector based on the evaluation of
the Annual Report of the company

• Infosys named “India’s Best Managed

Company” based on a study conducted by
Business Today and A.T. Kearney

• Infosys tops the regional rankings for best

Corporate Governance in Asiamoney’s
Corporate Governance Poll

• Best Annual report award from the Institute of

Chartered Accountants of India for tenth
successive year

2004

• SAFA (South Asian Federation of Accountants)

Best Presented Accounts Award 2003 in the
Communication and Information Technology
Sector based on the evaluation of the Annual
Report of the company

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• Infosys is ranked as one of the World’s Most
Respected Companies in the Financial Times-
PwC annual survey

• Infosys Sweeps Businessworld Most Respected

Companies Awards

• Rated as India’s most respected company

by FT-PwC survey

• Best Annual report award of the Institute of

Chartered Accountants of India for ninth
successive year

2003
• Ranked as the No.1 Employer in the IT sector
by Dataquest for the second time in a row

• Ranked the Best Employer in India by Business

Today-Hewitt in their annual survey

• Awarded the Global Corporate Achievement

Award 2002 for Asia Pacific Region
by Economist Intelligence Unit [EUI]

• Ranked as the Best Managed Company In India

by Asiamoney

• Rated the Most Respected Company in India

by Businessworld

• Rated the Most Globally Competitive Company,

Most Dynamic Company, Most Ethical Company
and Best IT Company by Businessworld

• A Financial Times-PwC survey listed Infosys

among 50 companies that demonstrate the
most integrity

2002

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• First rank in the Business World's survey of
"India's Most Respected Company."

• Corporate Citizenship Award by The Economics

Times of India

• The Institute of Company Secretaries of India

National Award for Excellence in Corporate
Governance by the Ministry of Law, Justice and
Company Affairs, Department of Company
Affairs, Government of India

• Golden Peacock Award for Excellence in

Corporate Governance in the Global Category
by the World Council for Corporate Governance,
London

• Ranked No. 1 in CG Watch 2002, a corporate

governance survey of emerging market
companies by CLSA Emerging Markets

• The Institute of Chartered Accountants of India

award for best presented annual report in 2001
for the seventh successive year

• Asiamoney award for best investor relations in

India for 2001, best managed company in India
for 2001 and best managed company of the
decade in India 1991-2001

2001
• Infosys has been ranked #2 in corporate
governance in a survey of 495 emerging
market companies by CLSA Emerging markets

• Infosys was ranked Number One among the

most respected companies in India by the
Business World-IMRB Survey. Infosys was
also ranked number one on 13 of the 18
parameters judged by the survey

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• Infosys has been ranked #2 in corporate
governance in a survey of 495 emerging
market companies by CLSA Emerging markets

• The Institute of Chartered Accountants of India

has adjudged the "Annual Report and Accounts"
of Infosys for the year ended March 31, 2000 as
the best among the entries received from Non-
Financial Private Sector Companies for the Best
Presented Accounts Competition 1999-2000.
This is the sixth consecutive year that Infosys
has won the Silver Shield
\

2000
• Voted India's Best Managed Company four
years in a row (1996, 1997, 1998 and 1999) by
the Asiamoney poll

• For the fifth year in succession, Infosys received

the Silver Shield from the Institute of Chartered
Accountants of India for the Best Presented
Accounts, among the entries received from
non-financial, private sector companies, for the
year 1998-99

• Infosys was awarded the "National Award for

Excellence in Corporate Governance" by a
panel of judges chaired by Former Chief Justice
of India, Shri P.N. Bhagwati. This award is
conferred by the Government of India and
sponsored by Unit Trust Of India

• Won the Corporate Award for excellence in

Corporate Governance, Bombay Stock
Exchange

1999

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• Infosys was voted India's most admired
company by The Economic Times Survey of
India's Most Admired Companies

• Won the Best Managed Company award

(1999) by Asiamoney magazine

• Received the ICAI Silver Shield for Best

Presented Accounts for the fourth consecutive
year

• National Award for Excellence in Corporate

Governance - Sponsored by the Unit Trust of
India

1998
• Won the award for the Best Published Corporate
Accounts in the non-financial sector for 1996-97
awarded by the South Asian Federation of
Accountants

• Ranked first in the "Award for Corporate

Excellence", Economic Times, India

• Best Annual Report Award for 1997-98 from the

Institute of Chartered Accountants of India, New
Delhi

• Won "Company of the Year" from The Economic

Times Awards for Corporate Excellence

1997
• Voted one of Asia's Best Managed
Companies by Asia Money

1995-1996

• Voted as one of Asia's Best Managed

Companies by Asiamoney

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1994-1995
• Won the Best Annual Report Award, Institute of
Chartered Accountants of India, New Delhi

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 CORPORATE
scscasad

GOVERNANCE
RATINGSsasadcsc

CRISIL
CRISIL assigned us the "CRISIL GVC Level 1"
rating. This Governance and Value Creation (GVC)
rating indicates our capability to create wealth for
all our stakeholders while adopting sound
corporate governance practices.

ICRA
ICRA assigned "CGR 1" rating to our corporate
governance practices. The rating is the highest on
ICRA's Corporate Governance Rating (CGR) scale
of CGR1 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, and 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 following such practices.

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 cdcdcSTRUCTURAL
RISKScdcdc

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

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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 long-term 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.

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

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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 Defenses

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

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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, sharebuyback 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 value-
enhancing bid. Section 107 of the company’s
charter stated that Mr. Murthy would not be
required to stand for reelection 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

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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 management-sponsored
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 (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.

 Stakeholder Relations
Relations with stakeholders appear to be
moderately strong. Reporting on stakeholder
issues at Infosys is adequate. The company
contributes to TheInfosys 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.

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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 non-financials as if it were a US-
incorporated, SEC-registered company.

Infosys’ high disclosure standards are already

widely recognized. The company quite early in its
development adopted a policy of enhanced
disclosure to give it a competitive advantage in
developing trust and attracting investors,
counterparties and importantly, in its industry,
employees. For Western companies however,
devoting the amount of time and money to
disclosure that Infosys does would likely be
unsustainable or of questionable use of
shareholders’ funds. To the suggestion that there

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could be too much disclosure, or a point of
diminishing returns, management strongly
disagreed. As long as disclosure continues to be a
competitive advantage for Infosys, we see no
reason to differ. It does seem, however, to be of
most use to an emerging market company with a
US-centered client base. Infosys’ annual report and
20-F filing to the American SEC are very
comprehensive: disclosure includes an exhaustive
corporate governance review, financial reports in
four languages and reconciliation to eight
accounting standards and much else besides.
Content is both deep and broad, allowing
shareholders to gain a thorough understanding of
the company’s and the industry’s financial health,
business strategy and corporate governance
practices. Infosys discloses the aggregate
remuneration paid to each full and part time
directors. The company provides details about
related party transactions undertaken during the
year (for example, accounts held in financial
institutions where Infosys directors also serve).
The company’s website is presented in five
languages (those of its major clients and investors)
and provides information about the various
measures undertaken in areas of community
service, research, knowledge management and
includes an interactive and comprehensive
investor relations section. In addition to US and
Indian GAAP accounts, which are audited, the
annual report also contains summary financial
statements prepared in substantial compliance
with the GAAP requirements of Australia, Canada,
France, Germany, Japan and the United Kingdom,
each in their original language, and reports on its
compliance with the respective corporate
governance standards of these markets again, in
the original language. This level of disclosure
shows sensitivity to other countries’ standards for
corporate governance, and not just those Infosys
has adopted or those adopted in the US. As well,

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this is disclosure that is tightly tailored to the
needs and expectation of Infosys’ investors and
clients, based on their country of origin. Infosys
has adopted a number of disclosure standards that
are not required of it or it has adopted disclosure
standards before they were required. For example,
in the process of obtaining its Level III ADR listing
on Nasdaq, Infosys undertook to comply with all
the regulations that would be applicable to a US-
incorporated company (except for parts of Rule
16(a) of the Securities Exchange Act 1934, which
deal with reporting of insiders’ and directors’
trades, and for which compliance would open the
company to liability claims – Infosys’ D&O liability
insurance does not cover trades in non-US
registered securities). The company follows
several other rules related to information access
that are not required of it. Infosys’ complied with
the certification procedures under the Sarbanes-
Oxley Act in advance of its deadline, and is also on
track for substantially early compliance with
Section 404 reporting on internal control
procedures under the Act. In addition to the
Annual Report, Infosys also publishes quarterly
reports that are distributed to all its shareholders.
The quarterly reports include financials in
accordance with Indian GAAP (audited) and US
GAAP (unaudited). Furthermore, quarterly reports
include a shareholder-information section, which
gives detailed information about the exchanges
Infosys shares are traded on, shareholder
complaints and other SEC filings like the 6-K.
Although Infosys has decided not to charge option
expenses against its earnings under US or Indian
GAAP – preferring to wait until more consensus is
reached on the issue – in terms of Standard &
Poor’s corporate governance criteria, this is
assessed negatively. While it is true that there is
no clear and accepted guidance from regulators on
the issue, it seems unusual for Infosys to stay on

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the sidelines of a disclosure issue given the
company’s leadership in other areas of disclosure.

 Timing and Access to Public Disclosure

Timing and access to disclosure at Infosys is very
strong. The company has followed some practices
before it was required to and goes to some trouble
to promote fair disclosure in the face of restrictive
local regulations.

Infosys’ standards of providing timely information

to shareholders are very strong and in a number of
cases exceed local and US requirements. The
company provides audited quarterly results to its
shareholders within two weeks from the close of
each quarter and announces when it will do so at
the beginning of each year (Infosys announced its
results for the quarter ended 31 December, 2003,
for example, on 9 January, 2004). Moreover, the
company publishes its 20F (10K equivalent) and
6K (10Q equivalent) filings within 60 days, even
though, until last year, SEC rules allowed more
generous deadlines (From 2004, the SEC will
require filing within 60 and 35 days,
respectively).The company offers a fax-on-demand

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service immediately after announcement of
quarterly financial results whereby those
interested can obtain financial performance
details. Moreover, within an hour of each quarterly
announcement, the company uploads its financial
statements onto its website. After the
announcement, the company makes itself
available for television interviews that are of
interest to local shareholders. Infosys also hosts
two earnings calls with analysts each quarter, the
first within four to five hours of announcement of
the financial results, which is broadcast live on its
website. Infosys meets all its statutory reporting
deadlines. Its website is easy to find through
search engines and it is clear that the company
uses it to communicate all important information
to shareholders and other stakeholders. Detailed
presentations made to media, analysts,
institutional investors are displayed on the
corporate website. Media releases are also posted
on the website and the entire site is regularly
updated. Infosys has made all its SEC filings in
electronic form, and began doing so before SEC
regulations required it of foreign issuers. Finally, it
is positive that the company has decided to follow
regulation Fair Disclosure (FD), the SEC’s rule
governing selective disclosure, as if it were
required to even though, as a foreign private
issuer, the rule does not apply to Infosys. Though
Regulation FD remains controversial (some have
argued that it has had the effect of encouraging
companies to disclose less), this has clearly not
been the case at Infosys.

 Audit Process
Infosys’ Indian GAAP accounts are audited by
Bharat S Raut and Company (a KPMG affiliate),
while the US GAAP accounts are audited by KPMG.

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An external firm of chartered accountants carries
out the internal audit. Oversight over the audit
process, including that of an independent, board-
level audit committee, is strong.

Infosys’ auditors are appointed by shareholders on

an annual basis, upon the recommendation of the
audit committee and the board of directors as a
whole. The audit committee, whose role has been
clearly identified as one of monitoring audit
independence, is composed entirely of
independent outside directors, with one exception.
Standard & Poor’s saw clear evidence, in
interviews with committee members and in the
minutes of the committee, of procedures and
practices that aim to maintain a high quality audit.
Several of those who have worked with it have
commented to Standard & Poor’s that the present
committee is among the most active and engaged
in India. KPMG, the outside auditors, are reputable
and well known, and the lead partner on the
engagement is a US partner recently relocated to
India and fluent in both GAAP standards and the
latest in Sarbanes-Oxley related audit
independence requirements. Neither internal nor
statutory auditors provide consulting or other
services to Infosys, except for some minor services
provided by KPMG with respect to legal formalities
(visa requirements) in countries where Infosys is in
the process of setting up offices. There is limited,

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specific disclosure about the nature of these
services in public reports. The external auditors
finalize their audit plan each year in consultation
with the audit committee. Quarterly reports are
presented to the management for their comments
and responses.

BOARD STRUCTURE & EFFECTIVENESS

 Board Composition
At the core of their corporate governance practice
is the Board, which oversees how the management
serves and protects the long-term interests of all
stakeholders. 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, consists of independent members.

Further, Infosys has audit, compensation, investor

grievance, nominations and risk management
committees, which comprise of independent
directors. As a part of their commitment to follow
global best practices, Infosys 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. Infosys also
adheres to the UN Global Compact Program.

At the core of Infosys corporate governance

practice is the Board, which oversees how the
management serves and protects the long-term
interests of all its stakeholders.
Infosys believe that an active, well-informed and
independent Board is necessary to ensure the
highest standards of corporate governance
Let us evaluate the Board Structure &
Effectiveness

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 Board Structure & Independence
1. Independence of the board
It can be gauged from the fact that the Board
consists of 15 members, 6 of whom are executive
or full-time directors, one is non-executive and 8
are independent directors. According to Clause 49
of the Listing Agreement with Indian stock
exchanges, an independent director means a
person other than 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.
Infosys adopted a much stricter definition of
independence than required by the NASDAQ listing
rules and the Sarbanes-Oxley Act, U.S. For its part,
Infosys, which has adopted a stricter definition of
independence than has heretofore been required
of it as a Nasdaq listed company, discloses that all
eight of its non-executives are independent in all
material respects.

The composition of Infosys Board, and the number

of outside directorships held by each of the
directors is given in the table.

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The director selection process includes explicit
consideration of independence. The process
includes evaluation of monetary, financial and or

commercial relationships with the company that

might lead to conflict of interests. Qualifications
and experience are also considered. They will not
be relatives of an executive director or of an
independent director. They are generally not
expected to serve in any executive or independent
position in any Company that is in direct
competition with Infosys.

Directors represent a diversity of backgrounds and

skills. Board members are expected to possess the
expertise, skills and experience required to
manage and guide a high-growth, high-tech
software Company, deriving revenue primarily
from G-7 countries. Expertise in strategy,

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technology, finance, quality and human resources
is essential.

2. Separation of Chairman & CEO positions

The CEO and Chairman positions are separate to
avoid conflict of interest and there is an identified
lead director. The board has decided to appoint a
lead independent director to whom other non-
executives may approach with concerns and avoid
insiders from dominating the agenda. Earlier when
the Chairman was Executive appointing a lead
director made more sense.
Deepak M. Satwalekar is the lead independent
director. He represents and acts as spokesperson
for the independent directors as a group, and is
responsible for the following activities:
o Presiding over all executive sessions of
the Board’s independent directors
o Working closely with the Chairman,
Co-Chairman and the CEO to finalize
the information flow, meeting agendas
and meeting schedules
o Liaising between the Chairman, Co-
Chairman, CEO and the independent
directors on the Board, and
o Along with the Chairman and Co-
Chairman, taking a lead role in the
Board evaluation process.

 Role & Effectiveness of the Board

Infosys board shows the results of a transition
from an insular board dominated by its Indian-
based founders and other insiders to an outward-
looking body with a majority of outsiders from a
variety of backgrounds and geographies. Infosys
added its first outside directors in 1997 and many
of its current non-executives have served on the
board for less than three years.

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The board members are expected to rigorously
prepare for, attend and participate in all board and
committee meetings. Each board member was
expected to ensure that other existing and
planned future commitments did not interfere with
the member`s responsibility as director of Infosys.

For non executive directors to play material role in

corporate decision making and to maximize long
term shareholder value, they should be active
participants on the board and not passive advisors.

1. Discussion with independent directors’

The Board’s policy is to regularly have separate
meetings with independent directors to update
them on all business-related issues and new
initiatives. In such meetings, the executive
directors and other members of the senior
management make presentations on relevant
issues.
In addition, our independent directors meet
periodically in an executive session, i.e. without
the Chairperson, any of the executive directors or
the Management.

2. Evaluation of Performance
Directors evaluate their own performance on a
regular basis, though we note that there is no
evaluation of the board as a whole. While
individual evaluations might be divisive on other
boards, there is no evidence of this here. The
board has in place a formal training program that
allows new directors without industry experience
to familiarize themselves with the company’s
departments, products and strategies, and which
appears to be effective and well-received. There
are procedures in place that allow directors to
seek outside advice if needed. The performance of
independent directors is reviewed by the full Board
on an annual basis

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 3. Meetings
Corporate Governance effectiveness requires
participation of the Board members in the
meetings conducted during the year. Dates for
Board meetings in the ensuing year are decided in
advance and published as part of the Annual
Report. Most Board meetings are held at Infosys
registered office at Electronics City, Bangalore,
India.

The Chairman of the Board and the Company

Secretary draft the agenda for each meeting,
along with explanatory notes in consultation with
the lead independent director, and distribute these
in advance to the directors. Every Board member
is free to suggest items for inclusion in the
agenda.

The Board meets at least once a quarter to review

the quarterly results and other items on the
agenda, and also on the occasion of the annual
shareholders’ meeting so that makes it 5 meetings
per year. Additional meetings are held, when
necessary.

At Infosys, Independent directors are expected to

attend at least four Board meetings in a year.
However, the Board being represented by
independent directors from various parts of the
world, it may not be possible for each one of them
to be physically present at all the meetings and so
Infosys effectively uses video / teleconferencing
facilities to enable their participation.

Committees of the Board usually meet the day

before the formal Board meeting, or when
required, for transacting business.

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The

Board’s policy is to regularly have separate

meetings with independent directors to update
them on all business-related issues and new
initiatives. In such meetings, the executive
directors and other members of the senior
management make presentations on relevant
issues.

4. Retirement Policy
Under this policy, the maximum age of retirement
for executive directors is 60 years, which is the
age of superannuation for our employees.
Their continuation as members of the Board upon
superannuation / retirement is determined by the
nominations committee. The age limit for serving
on the Board is 65 years.

Impose a retirement age to maintain a mix of skill,

energy, enthusiasm and commitment.
Ensure that management reports regularly to the
board on succession planning

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Infosys Succession Planning

The nominations committee constantly works with

the Board to evolve succession planning for the
positions of the Chairman, CEO, COO and CFO and
also develops plans for interim succession for any
of them, in case of an unexpected occurrence. The
Board, if required, may review the succession plan
more frequently.

 Director & Senior Executive Compensation

The approach Infosys has taken to executive pay is

rooted in the modest and egalitarian ‘middle class
Indian’ values espoused by its founders. While the
original seven partners have become wealthy via
their equity stakes (In 2004 their collective 26.62
percent stake in the company has a market value
of approximately USD 3.2 billion and stake has
further reduced to 16.5%), they have insisted on
modest annual salaries for themselves in line with
Indian, not Western standards, and have never
received stock option awards (founders have
voluntarily declined option grants since before a
1998 regulation prohibiting company founders
from receiving stock options was approved).

Moreover, the CEO and Chairman have both made

public statements that the highest paid individual
at Infosys should not earn more than a small
multiple of the salary of the lowest paid
professional at the company – at the moment,
according to the chairman, somewhere between
10 and 15 times. Indeed, no India-based executive
director earns more than USD 42,000, even though
several US and European-based executives earn
up to USD 243,000.

Executives also receive annual, performance-

linked bonuses. This approach to pay is reflected

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throughout the organization; salaries at all levels
are in line or slightly lower than Infosys’ peers
within India, yet the company’s collegial working
environment and aggressive culture continues to
attract large numbers of applicants.

This modesty has not, however, dampened the

company’s enthusiasm for stock options as a way
to provide significant wealth for its employees.
Options remain an important motivator and a way
to create real wealth among its employees.

Compensation policies at Infosys are also

underpinned by an independent compensation
committee, which plays a key role in setting
compensation policy, administers both stock
option plans, and which has clearly limited the
influence executives have over their own pay.
Infosys has even contradicted the cynic’s dictum
that a CEO should never put an academic on his
compensation committee (and, until recently,
Infosys had two). Infosys also distinguishes itself
from its US and other competitors by putting all
executive director contracts, including salary and
bonuses, to shareholders at AGMs, as Indian
company law requires. There are no loans
outstanding to executive directors.

Compensation for non-executive directors is

decided by the board’s compensation committee
and recommends to the Board. The compensation
payable to independent directors is limited to a
fixed amount per year as determined and
approved by the Board, the sum of which is within
the limit of 1% of Infosys net profits for the year. In
fiscal 2007-08,it paid remuneration by way of
commission to non-executive directors, at a sum
not exceeding 0.5% per annum of its net
profits.The components are fixed amount and
variable amount based on the attendance of the
board and committee meetings.

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The

Board further decided that effective April 1, 2008,

independent directors based overseas and
traveling to India to attend Board meetings will be

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eligible to receive an additional US $5,000 per
meeting. The decision considers the fact that
these independent directors have to spend at least
two additional days in travel while attending board
meetings in India.

While these fees are among the highest in India,

they appear both necessary and adequate to
attract and retain directors that meet the
company’s global ambitions. The Board believes
that the above commission structure is
commensurate with global best practices in terms
of remunerating non-executive directors of a
company of similar size and adequately
compensates for the time and contribution made
by the non-executive directors.

Since 1999, non-executive directors were also

eligible for stock options.

 Structural features like Audit Committee,

Nomination committee, Compensation
Committee

1. Audit Committee

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A qualified and independent audit committee is set
by the board of the Infosys. This committee is
essential to enhance the credibility of the financial
disclosures of the company and promoting
transparency.

According to Clause 49 audit committee should

comprise of non-executive directors, with the
majority of them being independent but Infosys
audit committee comprises of only independent
directors. Infosys audit committee comprises six
independent directors. They are:
o Deepak M. Satwalekar, Chairperson
o Prof. Marti G. Subrahmanyam
o Dr. Omkar Goswami
o Rama Bijapurkar
o Sridar A. Iyengar
o David L. Boyles

Infosys audit committee adopted a charter which

meets the requirements of Clause 49 of the Listing
Agreement with Indian stock exchanges and SEC.

The primary objective of the audit committee (the

committee) of Infosys Technologies Limited (the
Company) is to monitor and provide effective
supervision of the Management’s financial
reporting process with a view to ensure accurate,
timely and proper disclosures, and transparency,
integrity and quality of financial reporting. The
committee oversees the work carried out in the
financial reporting process by the Management,
the internal auditors and the independent auditor,
and notes the processes and safeguards employed
by each.

Audit Committee attendance during fiscal 2008

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 2. Compensation Committee
Infosys has established Compensation Committee
as per the recommendation Kumar Mangalam
Committee recommendation on Corporate
Governance.
Its independence can be gauged from the fact that
it comprises of 4 independent directors. They are:
o Prof. Marti G. Subrahmanyam,
Chairperson
o Deepak M. Satwalekar
o Sridar A. Iyengar
o Prof. Jeffrey S. Lehman
The compensation committee annually reviews
and approve for the CEO, the executive directors
and senior management (a) the annual base
salary, (b) the annual incentive bonus, including
the specific goals and amount, (c) equity
compensation, (d) employment agreements,
severance arrangements, and change in control
agreements / provisions, and (e) any other
benefits, compensation or arrangements.

The committee, in consultation with the CEO also

reviews the performance of all the executive
directors each quarter, on the basis of detailed
performance parameters set for each of the
executive directors at the beginning of the year.

Effectiveness of the compensation committee can

be gauged from how many meetings have been
attended by independent directors

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 3. Nomination Committee
Infosys nominations committee comprises of five
independent directors. They are:
o Claude Smadja, Chairperson
o Deepak M. Satwalekar
o Dr. Omkar Goswami
o David L. Boyles
o Prof. Jeffrey S. Lehman

The purpose of nomination committee is to

oversee the Company’s nomination process
Identifying, screening and reviewing candidates for
executive director, non-executive director and
independent director positions, consistent with
qualifications and criteria approved by the Board
(including evaluation of incumbent directors for
potential re-nomination), and making
recommendations to the Board on candidates for:
(i) nomination for election or re-election by the
stockholders; and
(ii) any Board vacancies that are to be filled by the
Board.

4. Investor Grievance Committee

Infosys investor grievance committee comprises of
four independent directors. They are:
o Rama Bijapurkar, Chairperson
o Dr. Omkar Goswami
o Claude Smadja
o Prof. Jeffrey S. Lehman

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It is appointed to look into share transfer and
redressal of shareholder complaints.

The committee expresses satisfaction with the

Company’s performance in dealing with investor
grievances and its share transfer system in its
report for the fiscal 2007-08

Details of complaints resolved during the financial

year 2007-08 are as follows:

5. Risk Management Committee

Infosys risk management committee comprises of

four independent directors. They are:
o David L. Boyles, Chairperson
o Prof. Marti G. Subrahmanyam
o Claude Smadja
o Sridar A. Iyengar

The committee reviews the Company’s risk

management activities on a quarterly basis. These
includes review of findings of the Risk Survey for
identification of risks, account and project-level
risk assessment methodologies, approach & plan
for the Infosys Risk Dashboard and measures
instituted to mitigate risks from time to time.

The committee believes that the Infosys Risk

Framework along with risk assessment and
reporting methodologies are adequate to cover
material risks facing the Company, and will
strengthen the risk management practices across

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the Company. In conclusion, the committee is
sufficiently satisfied that it has complied with its
responsibilities as outlined in the risk management
committee charter.

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 cdcdcTRANSACTION
RISKScdcdc


RELATED PARTY TRANSACTIONS

Related party for a company will include directors,
management, subsidiary or relatives. Disclosure of
related party transactions is essential as Corporate
Governance Risk tends to be higher when the
transaction is with a related party. Related party
transactions can be in the form of sales, actual
loans or even bank guarantees provided. Ideally,
all such transactions need to happen at an “arm’s
length”, i.e., as it would in the case of two
independent parties. Yet in the absence of such
comprehensive rules and regulations in India, it is
common to come across incidences of abuse of
related party transactions, for example the
transferring of value from one company to another
or by inflating numbers. Related transactions with
non-subsidiaries are even more important as they
do not get suppressed in consolidated accounts.

With respect to related-party transactions, one

would be particularly concerned about those that
are material in nature and can make a significant
difference to a company’s assets, liabilities or
profits. Disclosure of related party transactions is
necessary but it is not sufficient proof of good
corporate governance. Infosys seems to make
adequate disclosure of materially significant
related party transactions

SUBSIDIARIES
Infosys discloses classifies its related party
transactions into Capital transactions, Loans and

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Revenue transactions. Infosys transactions with its
key management personnel i.e directors and
statutory officers relates to only remuneration paid
i.e.salary, contribution to provident fund,
commission and sitting fees. It does not include
any loan given to them.

Also Infosys discloses that there have been no

materially significant related party transactions,
monetary transactions or relationships between
the Company and directors, management,
subsidiary or relatives, except for those disclosed
in the financial statements for the year ended
March 31, 2008.

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 cdcdcACCOUNTING
RISKScdcdc

MARK TO MARKET TRANSACTIONS

The mark-to-market on options / forward contracts
as of March 31, 2008 were Rs. 116 crore. Pursuant
to the Institute of Chartered Accountants of India
(ICAI) announcement “Accounting for Derivatives”
on the early adoption of Accounting Standard AS
30 “Financial Instruments: Recognition and
measurement”, we have early adopted the
standard for the year under review, to the extent
that the adoption does not conflict with the
existing mandatory accounting standards and
other authoritative pronouncements, companies
law and regulatory requirements. The details on
outstanding options / forward contracts are
provided in the notes to the financial statements.

Effective July 1, 2007, we revised the employee

death benefits provided under the gratuity plan,
and included all eligible employees under a
consolidated term insurance cover. Accordingly,
the obligations under the gratuity plan reduced by
Rs. 37 crore, which is being amortized on a
straight line basis to the profit and loss account
over 10 years, representing the average future
service period of employees. An amount of Rs. 4
crore was amortized during the year. The
unamortized balance as of March 31, 2008 was
Rs. 33 crore. Advances received from clients
denote monies received for the delivery of future
services. Unearned revenue consists primarily of
advance client billing on fixed-price, and fixed-
time frame contracts for which related costs were
not yet incurred. Unclaimed dividends represent
dividends paid, but not encashed by shareholders,

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and are represented by a bank balance of the
equivalent amount.

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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.

In 2001, the board had sixteen directors. There

were eight executive directors and eight non-
executive directors (Refer Table I). Infosys
believed that the one thing that could help them
to improve corporate governance was to bring
international professionals on corporate boards
(See Table I). The board members were expected
to possess the expertise, skills and experience
required to manage and guide a high growth, hi-
tech software company. Expertise in strategy,
technology, finance, and human resources was
essential. Generally, they were between 40 and
55 years of age and were not related to the other
board members. They did not serve in any
executive or non-executive position in any
company in direct competition with Infosys. The
board members were expected to rigorously

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prepare for, attend, and participate in all board
and relevant committee meetings. Each board
member was expected to ensure that other
existing and planned future commitments did not
interfere with the member’s responsibility as a
director of Infosys.

Normally, the board meetings were scheduled at

least a month in advance. Most of the meetings
were held at the company’s registered office at
Electronics City, Bangalore, India. 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. Normally, the board met
once a quarter to review the quarterly results and
other issues. The board also met on the occasion
of the annual shareholders’ meeting. If the need
arose, additional meetings were held. The non-
executive directors had to attend at least four
board meetings in a year. The board had access to
any information that it wanted about the
company.

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In 2001, the board had three committees - the
nominations committee, the compensation
committee and the audit committee. To ensure
independence of the board, the members of the
nominations committee, the compensation
committee and the audit committee were all

nonexecutive directors.

The nominations committee had four non-

executive directors who looked after the issue of
retirement of existing members and their re-
appointment, on the basis of their performance.
The nominations committee constantly evaluated
the contribution of the members of the board and
recommended to shareholders their re-
appointment. The executive directors were
appointed by the shareholders for a maximum

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period of five years, but were eligible for re-
appointment upon completion of their term. The
nominations committee adopted a retirement
policy for the members of the board under which
the maximum age of retirement of executive
directors, including the CEO, was 60 years, which
was the age of superannuation for the employees
of the company. Their continuation as members of
the board upon superannuation / retirement was
determined by the nominations committee.

The compensation committee, which had three

non-executive directors, looked after issues
relating to compensation and benefits for board
members. It determined and recommended to the
board, the compensation payable to the members
of the board. The compensation of the executive
directors consisted of a fixed component that was
paid monthly, and a variable component, which
was paid quarterly, based on performance. The
annual compensation of the executive directors
was approved by the compensation committee
within the parameters set by the shareholders at
the shareholders meetings. The shareholders
determined the compensation of the executive
directors for the entire period of their term.

The compensation of the non-executive directors

was approved at a meeting of the full board. The
components were a fixed amount, and a variable
amount based on their attendance of the board
and committee meetings. The total compensation
payable to all the non-executive directors
together was limited to a fixed sum per year
determined by the board. This sum was within the
limit of 0.5% of the net profits of the company for
the year calculated, as per the provisions of the
Companies Act and as approved by the
shareholders. The compensation payable to the
non-executive directors (and the method of
calculation) was disclosed in the financial
statements. Since 1999, the non-executive

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directors were eligible for stock options. Of the
compensation payable for the year 1999, 60% was
paid for being on the board and the balance 40%
was paid in proportion to the board/committee
meetings attended (Refer Table II for
compensation payable to non-executive directors
in 1999).

[Source: Annual Report, 1998-99]

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 was 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; to review the manner in which they
were performing their responsibilities; and to
discuss auditing, internal control and financial
reporting issues. The committee provided overall
direction on the risk management policies and
also indicated the areas that internal and
management audits should focus on. The
committee had full access to financial data. The
committee reviewed the annual and half yearly
financial statements before they were submitted

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to the board. The committee also monitored
proposed changes in the accounting policy,
reviewed the internal audit functions and
discussed the accounting implications of major
transactions.

As per the recommendations of the Kumar

Mangalam Committee, Infosys included a separate
section on corporate governance in its annual
report, which disclosed the remuneration paid to
directors in all forms, including salary, benefits,
bonuses, stock options. The annual report also
carried a compliance certificate from the auditors.

Infosys also laid emphasis on succession planning

and management development. The chairman
reviewed succession planning and management
development with the board from time to time.
The chairman and CEO also managed all
interaction with the investors, media, and the
government. Where necessary, he took advice
and help from the managing director, president,
and COO as well as the CFO. The managing
director and COO managed all interactions with
the clients, taking the advice and the help of the
CEO. Both the CEO and the COO handled
employee communication.

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VINFOSYS-A BENCHMARK
FOR CORPORATEV
VFVFVGOVERNANCEVFVFV

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 judgement on the efficacy of its
business plans. Every non-executive 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. Infosys’ founders had set very high
standards, in a country where malpractices by
founders were rampant. The founders only took
salaries and dividends and derived no other
financial benefits from the company.

Commenting on the strengths and weaknesses of

Infosys’ corporate governance, Nandan M
Nilekani, Managing Director, Chief Operating
Officer and President of Infosys, said, “The
strengths are that we have been very successful
in creating a value based system with a very
strong focus on ethics, and strong division
between personal and professional funds etc. That
has translated into brand equity, shareholder
value etc. Obviously, we can do things better. We
believe that we can never stand still. We will keep
looking at global best practices, what the world is
saying on this front. We keep trying to improve
the way we manage to be on par with it.”

It remained to be seen whether other Indian

companies could emulate Infosys form of
corporate governance.

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 MMMMMBIBLIOGRAPHYMM
MM

• http://video.google.com/videoplay?
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• http://www.infosys.com/investors/corporate-
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• http://www.infosys.com/investors/corporate-
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