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The Best Corporate Governed Company
Submitted on: 3/1/2009
Submitted to: Prof. Anita Chouhan
METs Institute of Management
“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
Madhur Agarwal (002) Kashyap Damniwala (000) Rima (036) Gupta (000) Mubin Panjwani (071) Sneha Saraf (091) Vedant Thakur (114) Maulik Parikh
SR. NO 1. 2. 3.
PARTICULARS Introduction About Infosys About Narayan Murthy Corporate Governance for Infosys
PG NO. 5–6 7–8 9 – 10
Corporate Governance Philosophy Code of Conduct
11 – 16
5. 6. 7. 8.
The High Priest Of Corporate Governance Codes for Corporate Governance Awards Won Structural Risk Ownership Structure & influence (a.) (b.) Transparency of Ownership Ownership Concentration & Influence
17 18 – 20 21 – 27 28 - 40
Shareholder Right & Stakeholder Relation (a.) (b.) (c.) Shareholder Meeting & Voting Process Ownership Rights Stakeholder Relation
Transparency, Disclosure & Audit (a.) (b.) (c.) Content of Public Disclosure Timing & access Audit Process
Accounting Risk MTM Corporate Governance – The Infosys Way Infosys – A Benchmark For Corporate Governance Bibliography 43 44 – 49 50 51 41 – 42 ccc4ccc .) (c. Nature of Transaction with Related Party Materiality Disclosure 10. 13.) (b.) BOD Structure & independence Role & Effectiveness of BOD BOD & Senior Management Compensation Committees Transaction Risk Related Party 9. 11.) (d. 12. BOD Structure & Effectiveness (a.
the corporate world. In the aftermath. and shareholders. Asia. Three years later. and policy makers everywhere began to recognize the importance of corporate governance. the Board of Directors acted as the shareholders' agent and management was responsible for daily operations. management. In today's scenario. the Board and the Management play the role of trustees. their relationship with employees should be characterized by fairness. and Brazil in 1998. two events significantly contributed to making corporate governance nearly a household term. The relationship of the Board and the Management with stockholders should be characterized by candor. when the activities of the corporate sector influenced entire economies and the global financial system. economists. The first was the wave of financial crises in Russia.MMMMMINTRODUCTIONMM MM In the last decade. shareholders were presumed to have the most incentive to maximize company value. According to that perspective. As the sole residual claimants on company assets.S. had highlighted the macroeconomic consequences of weak corporate governance systems. and their relationships with others in the corporate structure. the corporate scandals in the U. Effective corporate governance requires a clear understanding of the respective roles of the Board and the senior management. their relationship with the communities in which they operate should be characterized by good ccc5ccc . The traditional analysis of corporate governance focused on the allocation of power and duty among the Board of Directors.
” Kumar Mangalam Committee Report on Corporate Governance. two committees Confederation of Indian Industries (CII) and the Kumar Mangalam Birla Committee were set up to recommend good governance norms. 1999. 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. corporate governance did not have much significance in India. These committees came out with several recommendations.citizenship. In 1999. and their relationship with the government should be characterized by a commitment to compliance. at the same time. ccc6ccc . Till late 1990s. protecting the interests of other stakeholders. “The fundamental objective of corporate governance is the enhancement of long-term shareholder value while.
ccc7ccc . 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.Our industry has set many records for growth.
systems integration. custom software development. Poland. maintenance. product engineering. Australia. the UK. Infosys defines. independent testing and validation services. the Czech Republic. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250. Infosys has a global footprint with over 50 offices and development centers in India. Infosys pioneered the Global Delivery Model (GDM). application services. IT infrastructure services and business process outsourcing. reengineering. it is a global leader in the "next generation" of IT and consulting with revenues of over US$ 4 billion. which emerged as a disruptive force in the industry leading to the rise of offshore outsourcing. ccc8ccc . Infosys has over 103. with the least amount of acceptable risk. Over 97% of our revenues come from existing customers. The GDM is based on the principle of taking work to the location where the best talent is available. Today. Infosys also provides a complete range of services by leveraging our domain and business expertise and strategic alliances with leading technology providers. Infosys takes pride in building strategic long-term client relationships. designs and delivers technologyenabled business solutions that help Global 2000 companies win in a Flat World. Infosys' service offerings span business and technology consulting. Canada and Japan.000 employees. China. where it makes the best economic sense.MMMMMABOUT INFOSYSMMVM Infosys Technologies Ltd.
and courtesy towards our clients.Vision "To be a globally respected corporation that provides best-of-breed business solutions." Values We believe that the softest pillow is a clear conscience. and thereby earn trust and respect • • ccc9ccc . honesty. sincere and open in all our transactions Fairness: To be objective and transactionoriented. The values that drive us underscore our commitment to: • • Customer Delight: To surpass expectations consistently customer 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." Mission "To achieve our objectives in an environment of fairness. delivered by best-in-class people. leveraging technology. employees. vendors and society at large.
our teams.• Pursuit of Excellence: To strive relentlessly. constantly improve ourselves. our services and products to become the best ccc10ccc .
ccc11ccc . A bright student. soft-spoken man was selected one of the 50 most powerful people in Asia for 2000. Karnataka. In a poll conducted by Asiaweek. 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. While working in France in the 1970s." It was this belief in the distribution of wealth that made Infosys one of the first Indian companies to offer employees stock-option plans. Kanpur. India. he says: "I'm a capitalist in mind. Today. a socialist at heart. Murthy's father was a schoolteacher in Kolar district. India. however.MMMMNARAYAN MURTHYMMVM SIMPLE. his wife Sudha-then an engineer with Tatas-had saved Rs 10.000. This was Murthy's first big break. Chairman of Infosys. The Infosys legend began in 1981 when Narayana Murthy dreamt of forming his own company. Infosys is the first Indian company to be listed on the US NASDAQ. There was a minor hitch was that he didn’t have any seed money. 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. like many Indian women who save secretly without their husband's knowledge. the quiet. Luckily. Murthy was strongly influenced by socialism. Today. along with six friends. Murthy went on to acquire a degree in Electrical Engineering from Mysore University and later studied Computer Science at the IIT. And 50 per cent of the respondents in an online poll conducted by The Economic Timesvoted him the best CEO of India. Infosys now has 400 employees who are dollar millionaires. The decade until 1991 was a tough period when the couple lived in a one-room house. The bubble was pricked. SELFLESS. when he was arrested in Bulgaria on espionage charges. Born in 1946.
And the man is principled to a fault. ccc12ccc . from where he boards a company bus to work! Incidentally. Simplicity. 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. Murthy's unprecedented wealth has catapulted him into the public glare.Heading a company with the largest market capitalization didn't changed Murthy's life-style much. 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. humility and maintaining a low profile are the hallmarks of this super-rich Bangalorean. Sudha Murthy is Chief of the Infosys Foundation. which channels Rs 50 million into charity every year. The Infosys founder member says that unless a person makes a difference to the society and earn their trust. 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.
HGDSDSD IMPORTANCE OF CORPORATEDDSD SDSDGOVERNANCE FOR INFOSYSDSDD “Sound corporate governance is critical to enhance and retain investor trust. and the community. 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.customers.” Corporate governance is about maximizing shareholder value legally.” said Kris Gopalakrishnan. investors. vendor-partners. the governments of the countries in which it operates. ccc13ccc . corporate governance is a reflection of their culture. Infosys believe that sound corporate governance is critical to enhance and retain investor trust. President and Board Member. with a culture of innovation should lead by practice of these values. employees. Thus. transparent. our relationship with stakeholders and our commitment to values. while ensuring fairness to every stakeholder . policies. ethically and on a sustainable basis.
Infosys have complied with the recommendations of the Narayana Murthy Committee on Corporate Governance constituted by the Securities and Exchange Board of India (SEBI). 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. Mr Gopalakrishnan also described the high level of transparency that characterizes the company’s investor relations. The Infosys philosophy is that an active. Infosys continues to be a pioneer in benchmarking corporate governance policies with the best in the world. A majority of board members (eight out of fifteen) are independent. The audit committee consists solely of independent directors.Accordingly. CRISIL has assigned CRISIL GVC Level 1 rating. CEO. ccc14ccc . through its rural reach and teacher training programme. for example. Their disclosures always seek to attain the best practices in international corporate governance. ICRA has rated our corporate governance practices at CGR 1. Infosys have undergone the corporate governance audit by ICRA and CRISIL. Infosys also endeavors to enhance long-term shareholder value and respect minority rights in all business decisions. well-informed and independent board is necessary to ensure the highest standards of corporate governance. COO and CFO. Their efforts are widely recognized by investors in India and abroad. and demonstrated how seriously Infosys takes its social responsibilities. and there is clear demarcation of the responsibilities and authority of the chairman.
Pratibha Devisingh Patil. It includes the ability to function profitably while obeying laws. in a truthful manner. rules and regulations. disclose • Make a clear distinction between personal conveniences and corporate resources • Communicate externally. 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. February 12. 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 ccc15ccc ." Smt. Hon."Corporate governance is about working ethically and finding a balance between economic and social goals. President of India.
The essence of this code is based on the Infosys Core Values of C-LIFE – Customer Delight. governments. Fairness and Pursuit of Excellence. This Code of Business Conduct and Ethics helps ensure compliance with legal requirements and our standards of business conduct. Today every action of the company and its employees is the focus of public attention and we need to reinforce our tradition of values. even as we become a global company and work in multi-cultural environs. We have set new levels in transparency and integrity. 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. uphold these standards in day-to-day activities. To this end. our challenge is to continue doing this. investors. regulators and society. All Company employees and trainees are expected to read and understand this Code of Business Conduct and Ethics. enforce and adhere to this Code. Today. We ask you to read. we have adopted this code of business conduct and ethics to guide our transactions with our colleagues. understand. and ensure that all agents and ccc16ccc . Integrity and Transparency. customers. Leadership by Example. communities. comply with all applicable policies and procedures.NjjnjnCODE OF CONDUCTnjjnjn Infosys has always followed the highest standards of corporate governance. Our challenge is to continue maintaining this high standard. and also ensure that others who work for you do the same.
You must cooperate in any internal or external investigations of possible violations. understand and adhere to these standards. As an employee. Applicable Laws C. Many of these practices reflect legal or regulatory requirements. General Standards of Conduct A1. Safety in Workplace A4. retribution or retaliation against any person who has in good faith reported a violation or a suspected violation of law. 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. Violations of these laws and regulations can create significant liability for you. Reprisal. is prohibited. and other employees. or against any person who is assisting in any investigation or process with respect to such a violation. your responsibility is to respect and adhere to these practices.contractors are aware of. this Code of Business Conduct or other Company policies. Conflicts of Interest ccc17ccc . threats. Ethical business conduct is critical to our business. Drug and Alcohol Abuse A3. Expense Claims B. Part of your job and ethical responsibility is to help enforce this Code of Business Conduct and Ethics. its directors. You should be alert to possible violations and report possible violations to the Human Resources Department or the Legal Department. YOUR RESPONSIBILITIES TO THE COMPANY AND ITS STOCKHOLDERS A. Workplace free of Harassment A2. officers. the Company. Dress Code and other personal standards A5.
Selecting Suppliers F. Government Relations G. Protecting the Company's Confidential Information F. K. Records on Legal Hold. Corporate Opportunities D1.D. Obligations Under Securities Laws-"Insider" Trading G. Maintaining and Managing Records J. Customer Relationships B. Prohibition Against Short Selling of Company Stock H. Handling the Confidential Information of Others E. RESPONSIBILITIES TO OUR CUSTOMERS AND OUR SUPPLIERS A. Publications of Others D. Solicitation and Literature Distribution of E. Lobbying H. Foreign Corrupt Practices Act. Use of Company's Assets I. Free and Fair Competition DISCIPLINARY ACTIONS ccc18ccc . Government Contracts I. Payments or Gifts from Others C. Payment Practices L.
Infosys was the recipient of many awards. based on the recommendations of a committee constituted by the Confederation of Indian Industries (CII). Infosys Technologies Limited (Infosys) had clearly emerged one of the best managed companies in India.ddddd THE HIGH PRIEST OF CORPORATEddd dddddGOVERNANCEddddd By the late 1990s. Infosys was also ranked second in corporate governance among 495 emerging companies in a survey conducted by Credit Lyonnais Securities Asia (CLSA) Emerging Markets. In 2000. It was one of the first companies in India to publish a compliance report on corporate governance. Its corporate governance practices seemed to be better than those of many other companies in India. 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. Because of its good governance practices. Infosys maintained a high degree of transparency while disclosing information to stakeholders. It had been providing ccc19ccc . In 1999. In 2001. It was voted India’s best managed company five years in a row (19962000) by the Asiamoney poll. 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 been awarded the “National Award for Excellence in Corporate Governance” by the Government of India. Infosys was rated India’s most respected company by Business World.
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.consolidated financial statements under US GAAP to its global investors and financial statements under Indian GAAP to Indian shareholders. It was one of the few companies in India to provide segmentwise breakup of revenues. ccc20ccc .
3 and 4 which deal with the auditor-company relationship. Infosys comply with these recommendations. ccc21ccc . In fact. 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 spontaneity with which the U. Naresh Chandra Committee The Government of India. In 1999. The trigger was instances of scams in the U. The Naresh Chandra Committee report contains five chapters. remuneration and training are relevant to us. 2002. The report was submitted by the committee in November 1999 and accepted by SEBI in December 1999. Chapters 2. auditing the auditors’ and independent directors’ role. Chapter 1 is an introductory section and Chapter 5 relates to regulatory changes. and certain instances in India involving auditors.fdfdf CODE OF CORPORATE GOVERNANCEfdfdf In the late 1990s. prompted the Indian regulators and authorities to come out with almost similar recommendations.S. by an order dated August 21. 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. constituted a high-level committee under the chairmanship of Naresh Chandra to examine the auditor-company relationship and to regulate the role of auditors.S. the Confederation of Indian Industries (CII) published a code of corporate governance.
Shareholder Information. Narayana Murthy. ccc22ccc . the stock exchanges had modified the listing requirements by incorporating in the listing agreement a new Clause 49. under the chairmanship of Kumar Mangalam Birla. in order to enhance the transparency and integrity of the market. so that proper disclosure for corporate governance is made by companies in the following areas: Board of directors. and Corporate governance report in the annual report. member of the SEBI Board. In accordance with the guidelines provided by SEBI.Kumar Mangalam Birla Committee SEBI appointed the Committee on Corporate Governance on May 7. Board procedure. constituted the Committee on Corporate Governance under the chairmanship of N. 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. The SEBI Board considered and adopted the recommendations of the committee in its meeting held on January 25. Revised Clause agreement 49 of the listing SEBI. 1999. the market regulator. with a view to improve corporate governance standards in India. 2000. This move of SEBI signifies the regulator’s anxiety to ensure that the governance practices are corrected and improved upon expeditiously. to promote and raise the standards of corporate governance. R. Audit committee. Remuneration committee. Management discussion and analysis. Infosys comply with these recommendations.
The non-mandatory recommendations pertain to moving to a regime providing for unqualified corporate financial statements. excluding the director being evaluated. requiring corporate executive boards to assess and disclose business risks in the annual reports of companies. the position of nominee directors.The committee came out with two sets of recommendations: the mandatory recommendations and the non-mandatory recommendations. Clause 49 as revised was made effective from January 1. and improved disclosures relating to compensation to non-executive directors and shareholders’ approval of the same. Infosys fully comply with the revised Clause 49 of the Listing Agreement. 2006. SEBI has incorporated the recommendations made by the Narayana Murthy Committee on Corporate Governance in Clause 49. improving the quality of financial disclosures. The mandatory recommendations focus on strengthening the responsibilities of audit committees. including those pertaining to related party transactions and proceeds from initial public offerings. calling upon the Board to adopt a formal code of conduct. ccc23ccc . training of Board members and evaluation of non-executive directors’ performance by a peer group comprising the entire Board of Directors.
The following are among the recognitions received over the past year: An independent analyst has cited Infosys as a leader in SAP implementation services. industry bodies. media and other influencers. 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." 2008 • The Asset magazine acclaims Infosys' Corporate Governance Infosys ranked No.MMMMAWARDS WONMMMM Infosys has consistently been honored by customers. a globally respected company ccc24ccc . noting that "Infosys' SAP practice is aligned along verticals to ensure that clients get the benefit of its deep vertical process expertise.
T. 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.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. 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 ccc25ccc .
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 Ethical Company and Best IT Company by Businessworld A Financial Times-PwC survey listed Infosys among 50 companies that demonstrate the most integrity • • • • • • 2002 ccc26ccc .• Infosys is ranked as one of the World’s Most Respected Companies in the Financial TimesPwC 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. Most Dynamic Company.
London Ranked No. Department of Company Affairs. 1 in CG Watch 2002. Government of India Golden Peacock Award for Excellence in Corporate Governance in the Global Category by the World Council for Corporate Governance. 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. Justice and Company Affairs.• • • 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. Infosys was also ranked number one on 13 of the 18 parameters judged by the survey • ccc27ccc . 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.
1997. 2000 as the best among the entries received from NonFinancial Private Sector Companies for the Best Presented Accounts Competition 1999-2000.• 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. Bombay Stock Exchange • • • 1999 ccc28ccc . private sector companies. 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. among the entries received from non-financial. Infosys received the Silver Shield from the Institute of Chartered Accountants of India for the Best Presented Accounts.N. 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. 1998 and 1999) by the Asiamoney poll For the fifth year in succession. 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. Shri P.
New Delhi Won "Company of the Year" from The Economic Times Awards for Corporate Excellence • 1997 • Voted one of Asia's Companies by Asia Money Best Managed 1995-1996 • Voted as one of Asia's Companies by Asiamoney Best Managed ccc29ccc .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 Excellence".• Infosys was voted India's most admired company by The Economic Times Survey of India's Most Admired Companies Won the Best Managed Company (1999) by Asiamoney magazine award • • Received the ICAI Silver Shield for Best Presented Accounts for the fourth consecutive year National Award for Excellence in Corporate Governance . Economic Times. India Corporate • • Best Annual Report Award for 1997-98 from the Institute of Chartered Accountants of India.
1994-1995 • Won the Best Annual Report Award. New Delhi ccc30ccc . Institute of Chartered Accountants of India.
" besides our transparent approach to following such practices. high level of transparency. interactive decision-making process. We are the first company in India to be assigned the highest CGR by ICRA. ccc31ccc . The rating reflects our transparent shareholding pattern. and our track record in investor servicing. The rating is the highest on ICRA's Corporate Governance Rating (CGR) scale of CGR1 to CGR 6. This Governance and Value Creation (GVC) rating indicates our capability to create wealth for all our stakeholders while adopting sound corporate governance practices. sound Board practices. A notable feature of our corporate governance practices is the emphasis on "substance" over "form. ICRA ICRA assigned "CGR 1" rating to our corporate governance practices.scscasad CORPORATE GOVERNANCE RATINGSsasadcsc CRISIL CRISIL assigned us the "CRISIL GVC Level 1" rating. and disclosures encompassing all important aspects of our operations.
7% of Infosys’ shares. The company discloses shareholdings by type and percentage. Undue influence of ownership is controlled by an active and zealous audit ccc32ccc .Narayana Murthy and his family) holds 6. the company’s annual report also discloses a distribution of shareholdings by size. Infosys shares are widely held and its shareholding structure is transparent.cdcdcSTRUCTURAL RISKScdcdc OWNERSHIP INFLUENCE STRUCTURE AND EXTERNAL Transparency of Ownership Infosys is a widely held company with a transparent shareholding structure. and the size of these stakes is slowly decreasing. Shareholdings of directors are adequately disclosed. Ownership Concentration and Influence Influence of ownership is most strongly felt among the founder/managers of the company. for example) and a culture that restricts deals with executives outside the ordinary course of business. Substantial shareholders are disclosed down to the level of five percent. In addition to disclosing shareholdings by category. class and categories of shareholders. 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. though strict separation between management and ownership is maintained. The largest single shareholder (Mr. 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.
Key Infosys has wellestablished procedures for disseminating shareholder meeting information. Moreover. the company has seized the earliest opportunity to increase the limit on foreign ownership of its shares to 100 percent. For its part. additional information on nominated directors. Registered shareholders are sent copies of the notice of meeting along with detailed explanatory notes when there is special business. Also. The company’s website is accessible and informative. on everything from the company’s culture of transparency to its long-term strategy. showing increased openness to a bid (See Section 2. one of the few potential areas where influence might be negatively felt is in a change of control. Indeed. The company supplies comprehensive information to shareholders well in advance of company meetings. their stake.committee and by both the internal and external auditors. The extent to which this can be maintained will depend to some degree on the continuity of current management. a proxy form ccc33ccc . which now stands at 26. will decrease over time as other options are exercised Despite this. 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. there is positive influence from the founders collectively.3). SHAREHOLDER RIGHTS AND STAKEHOLDER RELATIONS Shareholder Meeting & Voting Procedures Infosys’s commitment to shareholder democracy is strong.62 percent. Standard and Poor’s assesses as positive the recent amendment to the company’s Articles that removed protection for Mr. as the founders may not receive stock options.Murthy’s position as CEO (managing director) providing he held at least five percent of the company’s equity.
an acquisition. Karvy consultants. The notice clearly spells out voting procedures at shareholders’ meetings and provides information regarding relevant documents that can be inspected by shareholders. Ownership Rights & Takeover Defenses Ownership rights are clearly stated and well protected. Infosys introduced a non-mandatory postal ballot system for every agenda item at its 2003 meeting. The company webcasts the meeting to enable shareholders across the world to view the proceedings. a representative (as opposed to a proxy. A proxy may not vote except on a poll. the appointment of new directors. There are no obstacles to a legitimate. As neither shareholders nor management insist that polls are called for every resolution. they were announced during the meeting to highlight the opinion of those shareholders who could not attend.000. Though not required by law. or a new issue of shares. Though these votes could not be used to calculate voting results.and an attendance slip. 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 does not permit electronic voting at shareholder meetings. 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. Voting at shareholder meetings is by show of hands. including where the company proposes a share buyback. in line with Indian law. Rights attached to Infosys shares are secure and fully transferable. who are reputable independent registrars and share ccc34ccc . value-enhancing bid for the company’s shares. Indian law permits voting by postal ballot under limited circumstances. a representative exercises the rights of a corporate member as if it were an individual) can vote by show of hands. However.50.
The company has removed from its Articles a provision that. The company’s ADR issue is administered by Deutsche Bank. no preference is given to any particular holding. and in the case of liquidation of the company. be refused by the company’s board if good reason is given. dividends. In line with the Indian Companies Act. receive dividend payments. could have thwarted an otherwise valueenhancing bid. article amendments. which it has followed. 1956. 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. if invoked. remuneration plans. including if the transferee is not a desirable person in the context of the overall interest of the company. Owners of ordinary shares have the right to vote. a company cannot refuse any share transfer on the pretext of a takeover threat or a possibility of change in management. All ordinary (common) shares are equal. Shareholders may also put forward shareholder proposals and convene extraordinary shareholder meetings according to reasonable and well-articulated procedures. Share transfers can. are given charge of shares of the company. Voting rights are laid out by the Companies Act of India. appointment of auditors. The company has a clearly stated dividend policy of distributing up to 20 percent of profit after tax. to receive proportional payment in turn. Any person whose shareholding exceeds five percent ccc35ccc . The company’s Memorandum and Articles of Association do not have any explicit anti-takeover provisions. however. Section 107 of the company’s charter stated that Mr.transfer agents in India. Shareholders vote on all major company decisions including the election and removal of directors. Infosys has been prompt in paying declared dividends. sharebuyback plans and major acquisitions and disposals via either ordinary or special resolutions as laid out by the Companies Act.
Infosys can only with great difficulty refuse any take-over attempt by any person either by law or by provisions in its charter. or other stakeholders.should inform the company and the Securities and Exchange Board of India (SEBI. There do not appear to be any problematic relationships between the company and its employees. Stakeholder Relations Relations with stakeholders appear to be moderately strong. ccc36ccc . Hence. The company contributes to TheInfosys Foundation. Infosys has been proactive in this sense and shareholders approved a management-sponsored resolution at its shareholder meeting in June. to increase the maximum limit on foreign holdings in the company from 49 to 100 percent. 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. Infosys proposed this change within months of India’s amendment of the Foreign Exchange Management Act (FEMA). 2002. the capital market regulator) in writing and must make an open offer to remaining shareholders if shareholding exceeds 20 percent. its suppliers. which is involved in various charitable works and the Foundation reports on its activities annually. including one by a foreign company. Reporting on stakeholder issues at Infosys is adequate. a change that would allow a legitimate takeover to succeed.
employees. To the suggestion that there ccc37ccc . maintains a comprehensive website and presents its financial statements according to multiple accounting standards. The company produces a very strong annual report. devoting the amount of time and money to disclosure that Infosys does would likely be unsustainable or of questionable use of shareholders’ funds. For Western companies however. 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. Infosys has undertaken to disclose its financials and non-financials as if it were a USincorporated.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. Infosys’ high disclosure standards are already widely recognized. SEC-registered company. counterparties and importantly. in its industry.
Germany. which are audited. the annual report also contains summary financial statements prepared in substantial compliance with the GAAP requirements of Australia. Infosys discloses the aggregate remuneration paid to each full and part time directors. each in their original language. In addition to US and Indian GAAP accounts. or a point of diminishing returns. in the original language. business strategy and corporate governance practices. to be of most use to an emerging market company with a US-centered client base. allowing shareholders to gain a thorough understanding of the company’s and the industry’s financial health. we see no reason to differ. As well. knowledge management and includes an interactive and comprehensive investor relations section. Content is both deep and broad. and not just those Infosys has adopted or those adopted in the US. Canada. however. France. and reports on its compliance with the respective corporate governance standards of these markets again. research. It does seem. 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. The company provides details about related party transactions undertaken during the year (for example. ccc38ccc . Japan and the United Kingdom. accounts held in financial institutions where Infosys directors also serve). Infosys’ annual report and 20-F filing to the American SEC are very comprehensive: disclosure includes an exhaustive corporate governance review. This level of disclosure shows sensitivity to other countries’ standards for corporate governance. management strongly disagreed. financial reports in four languages and reconciliation to eight accounting standards and much else besides.could be too much disclosure. As long as disclosure continues to be a competitive advantage for Infosys.
The company follows several other rules related to information access that are not required of it. and is also on track for substantially early compliance with Section 404 reporting on internal control procedures under the Act. 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. While it is true that there is no clear and accepted guidance from regulators on the issue.this is disclosure that is tightly tailored to the needs and expectation of Infosys’ investors and clients. which gives detailed information about the exchanges Infosys shares are traded on. in the process of obtaining its Level III ADR listing on Nasdaq. In addition to the Annual Report. Infosys’ complied with the certification procedures under the SarbanesOxley Act in advance of its deadline. shareholder complaints and other SEC filings like the 6-K. based on their country of origin. Infosys undertook to comply with all the regulations that would be applicable to a USincorporated company (except for parts of Rule 16(a) of the Securities Exchange Act 1934. Infosys has adopted a number of disclosure standards that are not required of it or it has adopted disclosure standards before they were required. Furthermore. For example. The quarterly reports include financials in accordance with Indian GAAP (audited) and US GAAP (unaudited). it seems unusual for Infosys to stay on ccc39ccc . quarterly reports include a shareholder-information section. Infosys also publishes quarterly reports that are distributed to all its shareholders. this is assessed negatively. 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). which deal with reporting of insiders’ and directors’ trades.
the SEC will require filing within 60 and 35 days. 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. 2004). 2003. Timing and Access to Public Disclosure Timing and access to disclosure at Infosys is very strong. for example. respectively). 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. Moreover. the company publishes its 20F (10K equivalent) and 6K (10Q equivalent) filings within 60 days. until last year. on 9 January. even though.The company offers a fax-on-demand ccc40ccc . SEC rules allowed more generous deadlines (From 2004.the sidelines of a disclosure issue given the company’s leadership in other areas of disclosure. Infosys’ standards of providing timely information to shareholders are very strong and in a number of cases exceed local and US requirements.
the SEC’s rule governing selective disclosure. 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. within an hour of each quarterly announcement.service immediately after announcement of quarterly financial results whereby those interested can obtain financial performance details. the company uploads its financial statements onto its website. the company makes itself available for television interviews that are of interest to local shareholders. Media releases are also posted on the website and the entire site is regularly updated. the rule does not apply to Infosys. Infosys has made all its SEC filings in electronic form. as a foreign private issuer. as if it were required to even though. Detailed presentations made to media. 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. Finally. Infosys meets all its statutory reporting deadlines. it is positive that the company has decided to follow regulation Fair Disclosure (FD). this has clearly not been the case at Infosys. After the announcement. ccc41ccc . analysts. institutional investors are displayed on the corporate website. Infosys also hosts two earnings calls with analysts each quarter. Moreover. and began doing so before SEC regulations required it of foreign issuers. Though Regulation FD remains controversial (some have argued that it has had the effect of encouraging companies to disclose less). the first within four to five hours of announcement of the financial results. which is broadcast live on its website.
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. 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. is strong. There is limited. boardlevel audit committee. with one exception. Neither internal nor statutory auditors provide consulting or other services to Infosys. including that of an independent. in interviews with committee members and in the minutes of the committee. Infosys’ auditors are appointed by shareholders on an annual basis. of procedures and practices that aim to maintain a high quality audit. whose role has been clearly identified as one of monitoring audit independence. ccc42ccc . are reputable and well known. KPMG. the outside auditors. 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.An external firm of chartered accountants carries out the internal audit. The audit committee. is composed entirely of independent outside directors. Standard & Poor’s saw clear evidence. Oversight over the audit process. upon the recommendation of the audit committee and the board of directors as a whole.
nominations and risk management committees. Quarterly reports are presented to the management for their comments and responses. The majority of the Board. Infosys believes that an active. investor grievance. which comprise of independent directors. Infosys complies with the Euro shareholders Corporate Governance Guidelines 2000. As a part of their commitment to follow global best practices. BOARD STRUCTURE & EFFECTIVENESS Board Composition At the core of their corporate governance practice is the Board. Infosys also adheres to the UN Global Compact Program.specific disclosure about the nature of these services in public reports. which oversees how the management serves and protects the long-term interests of all its stakeholders.S. well-informed and independent Board is necessary to ensure the highest standards of corporate governance Let us evaluate the Board Structure & Effectiveness ccc43ccc . and the recommendations of the Conference Board Commission on Public Trusts and Private Enterprises in the U. The external auditors finalize their audit plan each year in consultation with the audit committee. which oversees how the management serves and protects the long-term interests of all stakeholders. eight out of 15. compensation. consists of independent members. Infosys has audit. wellinformed and independent Board is necessary to ensure the highest standards of corporate governance. Further. Infosys believe that an active. At the core of Infosys corporate governance practice is the Board.
Board Structure & Independence 1. would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Independence of the board It can be gauged from the fact that the Board consists of 15 members. one is non-executive and 8 are independent directors. discloses that all eight of its non-executives are independent in all material respects. ccc44ccc . in the opinion of our Board of Directors. For its part. 6 of whom are executive or full-time directors. and the number of outside directorships held by each of the directors is given in the table. The composition of Infosys Board. which has adopted a stricter definition of independence than has heretofore been required of it as a Nasdaq listed company. U. According to Clause 49 of the Listing Agreement with Indian stock exchanges.S. Infosys adopted a much stricter definition of independence than required by the NASDAQ listing rules and the Sarbanes-Oxley Act. Infosys. 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.
The process includes evaluation of monetary. ccc45ccc . They will not be relatives of an executive director or of an independent director. deriving revenue primarily from G-7 countries. They are generally not expected to serve in any executive or independent position in any Company that is in direct competition with Infosys. financial and or commercial relationships with the company that might lead to conflict of interests. Directors represent a diversity of backgrounds and skills.The director selection process includes explicit consideration of independence. Board members are expected to possess the expertise. Expertise in strategy. high-tech software Company. Qualifications and experience are also considered. skills and experience required to manage and guide a high-growth.
Co-Chairman and the CEO to finalize the information flow. 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. quality and human resources is essential. Role & Effectiveness of the Board Infosys board shows the results of a transition from an insular board dominated by its Indianbased founders and other insiders to an outwardlooking body with a majority of outsiders from a variety of backgrounds and geographies. CoChairman. 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. The board has decided to appoint a lead independent director to whom other nonexecutives may approach with concerns and avoid insiders from dominating the agenda. Earlier when the Chairman was Executive appointing a lead director made more sense.technology. Separation of Chairman & CEO positions The CEO and Chairman positions are separate to avoid conflict of interest and there is an identified lead director. ccc46ccc . meeting agendas and meeting schedules o Liaising between the Chairman. CEO and the independent directors on the Board. 2. taking a lead role in the Board evaluation process. and o Along with the Chairman and CoChairman. Satwalekar is the lead independent director. finance. Deepak M. He represents and acts as spokesperson for the independent directors as a group.
attend and participate in all board and committee meetings. The performance of independent directors is reviewed by the full Board on an annual basis ccc47ccc . products and strategies. i. they should be active participants on the board and not passive advisors. In addition.e. Evaluation of Performance Directors evaluate their own performance on a regular basis. the executive directors and other members of the senior management make presentations on relevant issues. In such meetings. there is no evidence of this here. and which appears to be effective and well-received. 1. For non executive directors to play material role in corporate decision making and to maximize long term shareholder value. without the Chairperson. There are procedures in place that allow directors to seek outside advice if needed. 2. 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.The board members are expected to rigorously prepare for. any of the executive directors or the Management. our independent directors meet periodically in an executive session. While individual evaluations might be divisive on other boards. The board has in place a formal training program that allows new directors without industry experience to familiarize themselves with the company’s departments. 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. though we note that there is no evaluation of the board as a whole.
ccc48ccc . Every Board member is free to suggest items for inclusion in the agenda. Dates for Board meetings in the ensuing year are decided in advance and published as part of the Annual Report. when necessary. and distribute these in advance to the directors. At Infosys. along with explanatory notes in consultation with the lead independent director. Independent directors are expected to attend at least four Board meetings in a year. Meetings Corporate Governance effectiveness requires participation of the Board members in the meetings conducted during the year. Additional meetings are held. Most Board meetings are held at Infosys registered office at Electronics City. The Chairman of the Board and the Company Secretary draft the agenda for each meeting. 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. The Board meets at least once a quarter to review the quarterly results and other items on the agenda. for transacting business. India. Committees of the Board usually meet the day before the formal Board meeting. Bangalore. the Board being represented by independent directors from various parts of the world. However.3. and also on the occasion of the annual shareholders’ meeting so that makes it 5 meetings per year. or when required.
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
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, performancelinked bonuses. This approach to pay is reflected
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.
The Board further decided that effective April 1. 2008. independent directors based overseas and traveling to India to attend Board meetings will be ccc52ccc .
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.000 per meeting. Compensation Committee 1. Since 1999. Nomination committee. 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. Structural features like Audit Committee. they appear both necessary and adequate to attract and retain directors that meet the company’s global ambitions. While these fees are among the highest in India. Audit Committee ccc53ccc . non-executive directors were also eligible for stock options.eligible to receive an additional US $5.
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. Audit Committee attendance during fiscal 2008 ccc54ccc . They are: o Deepak M. According to Clause 49 audit committee should comprise of non-executive directors. Marti G. and transparency. the internal auditors and the independent auditor. This committee is essential to enhance the credibility of the financial disclosures of the company and promoting transparency. Satwalekar. and notes the processes and safeguards employed by each.A qualified and independent audit committee is set by the board of the Infosys. timely and proper disclosures. Infosys audit committee comprises six independent directors. Omkar Goswami o Rama Bijapurkar o Sridar A. integrity and quality of financial reporting. Chairperson o Prof. Iyengar o David L. Subrahmanyam o Dr. 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 committee oversees the work carried out in the financial reporting process by the Management. with the majority of them being independent but Infosys audit committee comprises of only independent directors.
Lehman The compensation committee annually reviews and approve for the CEO. (b) the annual incentive bonus. (c) equity compensation. the executive directors and senior management (a) the annual base salary. Effectiveness of the compensation committee can be gauged from how many meetings have been attended by independent directors ccc55ccc . Marti G. Jeffrey S. and (e) any other benefits. Chairperson o Deepak M. including the specific goals and amount. Subrahmanyam. Compensation Committee Infosys has established Compensation Committee as per the recommendation Kumar Mangalam Committee recommendation on Corporate Governance.2. The committee. compensation or arrangements. on the basis of detailed performance parameters set for each of the executive directors at the beginning of the year. (d) employment agreements. severance arrangements. in consultation with the CEO also reviews the performance of all the executive directors each quarter. and change in control agreements / provisions. They are: o Prof. Iyengar o Prof. Its independence can be gauged from the fact that it comprises of 4 independent directors. Satwalekar o Sridar A.
They are: o Rama Bijapurkar. 4. Boyles o Prof. Jeffrey S. consistent with qualifications and criteria approved by the Board (including evaluation of incumbent directors for potential re-nomination). non-executive director and independent director positions. Nomination Committee Infosys nominations committee comprises of five independent directors. and (ii) any Board vacancies that are to be filled by the Board. Omkar Goswami o Claude Smadja o Prof. Lehman ccc56ccc .3. Omkar Goswami o David L. Jeffrey S. Investor Grievance Committee Infosys investor grievance committee comprises of four independent directors. Chairperson o Deepak M. Lehman The purpose of nomination committee is to oversee the Company’s nomination process Identifying. Satwalekar o Dr. They are: o Claude Smadja. screening and reviewing candidates for executive director. Chairperson o Dr. and making recommendations to the Board on candidates for: (i) nomination for election or re-election by the stockholders.
The committee believes that the Infosys Risk Framework along with risk assessment and reporting methodologies are adequate to cover material risks facing the Company. account and project-level risk assessment methodologies. and will strengthen the risk management practices across ccc57ccc . approach & plan for the Infosys Risk Dashboard and measures instituted to mitigate risks from time to time. Chairperson o Prof. Boyles. 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.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. Marti G. They are: o David L.
In conclusion. ccc58ccc .the Company. the committee is sufficiently satisfied that it has complied with its responsibilities as outlined in the risk management committee charter.
Related party transactions can be in the form of sales. Disclosure of related party transactions is essential as Corporate Governance Risk tends to be higher when the transaction is with a related party. Disclosure of related party transactions is necessary but it is not sufficient proof of good corporate governance. actual loans or even bank guarantees provided. Ideally.. Related transactions with non-subsidiaries are even more important as they do not get suppressed in consolidated accounts.e. all such transactions need to happen at an “arm’s length”. as it would in the case of two independent parties. management. With respect to related-party transactions. Yet in the absence of such comprehensive rules and regulations in India. i. subsidiary or relatives. liabilities or profits.cdcdcTRANSACTION RISKScdcdc RELATED PARTY TRANSACTIONS Related party for a company will include directors. it is common to come across incidences of abuse of 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. Infosys seems to make adequate disclosure of materially significant related party transactions SUBSIDIARIES Infosys discloses classifies its related party transactions into Capital transactions. for example the transferring of value from one company to another or by inflating numbers. Loans and ccc59ccc .
2008. Also Infosys discloses that there have been no materially significant related party transactions. It does not include any loan given to them. Infosys transactions with its key management personnel i.e. subsidiary or relatives.e directors and statutory officers relates to only remuneration paid i. monetary transactions or relationships between the Company and directors. commission and sitting fees.salary.Revenue transactions. management. ccc60ccc . contribution to provident fund. except for those disclosed in the financial statements for the year ended March 31.
we revised the employee death benefits provided under the gratuity plan. 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”.cdcdcACCOUNTING RISKScdcdc MARK TO MARKET TRANSACTIONS The mark-to-market on options / forward contracts as of March 31. we have early adopted the standard for the year under review. but not encashed by shareholders. representing the average future service period of employees. and fixedtime frame contracts for which related costs were not yet incurred. companies law and regulatory requirements. Effective July 1. and included all eligible employees under a consolidated term insurance cover. Accordingly. to the extent that the adoption does not conflict with the existing mandatory accounting standards and other authoritative pronouncements. 37 crore. 116 crore. Unclaimed dividends represent dividends paid. 2007. 2008 were Rs. The unamortized balance as of March 31. 2008 was Rs. An amount of Rs. 4 crore was amortized during the year. Advances received from clients denote monies received for the delivery of future services. which is being amortized on a straight line basis to the profit and loss account over 10 years. the obligations under the gratuity plan reduced by Rs. ccc61ccc . The details on outstanding options / forward contracts are provided in the notes to the financial statements. 33 crore. Unearned revenue consists primarily of advance client billing on fixed-price.
and are represented by a bank balance of the equivalent amount. ccc62ccc .
Expertise in strategy. The board members were expected to possess the expertise. They did not serve in any executive or non-executive position in any company in direct competition with Infosys. responsibilities and performance. brand equity. The board members were expected to rigorously ccc63ccc . The CEO was responsible for corporate strategy. Generally. employee empowerment and employee retention. productivity. external contacts. There were eight executive directors and eight nonexecutive directors (Refer Table I). The COO was responsible for all day-to-day operational issues and achievement of the annual targets in client satisfaction. 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). technology. and board matters. acquisitions. hitech software company. profits. In 2001. quality. The CEO. skills and experience required to manage and guide a high growth. COO. This section provides an overview of corporate governance practices followed by Infosys. they were between 40 and 55 years of age and were not related to the other board members. planning. finance. Infosys had an executive chairman and chief executive officer (CEO) and a managing director. sales. president and chief operating officer (COO). the board had sixteen directors.CORPORATE GOVERNANCE —THE INFOSYS WAY Infosys had accepted the recommendation of both the CII and the Kumar Mangalam Birla Committee. and human resources was essential. executive directors and the senior management made periodic presentations to the board on their targets.
Normally. ccc64ccc . and participate in all board and relevant committee meetings. the board met once a quarter to review the quarterly results and other issues. 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. the board meetings were scheduled at least a month in advance. If the need arose. The board had access to any information that it wanted about the company. Board members were free to suggest the inclusion of any item on the agenda. Bangalore. additional meetings were held. 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. India. Normally. Most of the meetings were held at the company’s registered office at Electronics City.prepare for. The nonexecutive directors had to attend at least four board meetings in a year. The board also met on the occasion of the annual shareholders’ meeting. attend.
the nominations committee. The nominations committee constantly evaluated the contribution of the members of the board and recommended to shareholders their reappointment. To ensure independence of the board. the board had three committees . The nominations committee had four nonexecutive directors who looked after the issue of retirement of existing members and their reappointment. the compensation committee and the audit committee. on the basis of their performance. the compensation committee and the audit committee were all nonexecutive directors.In 2001. the members of the nominations committee. The executive directors were appointed by the shareholders for a maximum ccc65ccc .
Their continuation as members of the board upon superannuation / retirement was determined by the nominations committee. The total compensation payable to all the non-executive directors together was limited to a fixed sum per year determined by the board. which had three non-executive directors. It determined and recommended to the board. The compensation of the executive directors consisted of a fixed component that was paid monthly. which was paid quarterly. which was the age of superannuation for the employees of the company. and a variable component. The annual compensation of the executive directors was approved by the compensation committee within the parameters set by the shareholders at the shareholders meetings. Since 1999. including the CEO.period of five years. the non-executive ccc66ccc . and a variable amount based on their attendance of the board and committee meetings. This sum was within the limit of 0. The components were a fixed amount. but were eligible for reappointment upon completion of their term. The compensation committee. based on performance. The shareholders determined the compensation of the executive directors for the entire period of their term.5% of the net profits of the company for the year calculated. the compensation payable to the members of the board. looked after issues relating to compensation and benefits for board members. The compensation payable to the non-executive directors (and the method of calculation) was disclosed in the financial statements. as per the provisions of the Companies Act and as approved by the shareholders. was 60 years. The nominations committee adopted a retirement policy for the members of the board under which the maximum age of retirement of executive directors. The compensation of the non-executive directors was approved at a meeting of the full board.
[Source: Annual Report. The committee provided overall direction on the risk management policies and also indicated the areas that internal and management audits should focus on. 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 committee had full access to financial data. internal control and financial reporting issues. ensuring financial and accounting controls and compliance with the financial policies of the company. Of the compensation payable for the year 1999. The audit committee was responsible for effective supervision of the financial reporting process. and to discuss auditing. The committee periodically interacted with the statutory auditors and the internal auditors to ascertain the quality of the company’s transactions. 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). to review the manner in which they were performing their responsibilities. The committee reviewed the annual and half yearly financial statements before they were submitted ccc67ccc .directors were eligible for stock options.
Infosys included a separate section on corporate governance in its annual report. which disclosed the remuneration paid to directors in all forms.to the board. The chairman and CEO also managed all interaction with the investors. reviewed the internal audit functions and discussed the accounting implications of major transactions. and COO as well as the CFO. stock options. benefits. The managing director and COO managed all interactions with the clients. including salary. media. The annual report also carried a compliance certificate from the auditors. The committee also monitored proposed changes in the accounting policy. Both the CEO and the COO handled employee communication. Infosys also laid emphasis on succession planning and management development. president. Where necessary. taking the advice and the help of the CEO. he took advice and help from the managing director. and the government. The chairman reviewed succession planning and management development with the board from time to time. ccc68ccc . bonuses. As per the recommendations of the Kumar Mangalam Committee.
Chief Operating Officer and President of Infosys. but also led or served on at least one of the three (Nomination. said.VINFOSYS-A BENCHMARK FOR CORPORATEV VFVFVGOVERNANCEVFVFV Some analysts felt that Infosys’ corporate governance practices offered many lessons to corporate India. Commenting on the strengths and weaknesses of Infosys’ corporate governance. The founders only took salaries and dividends and derived no other financial benefits from the company. Obviously. Every non-executive director not only played an active role in decision making. Compensation and Audit) committees. Infosys had shown that increasing shareholder wealth and safeguarding the interests of other stakeholders was not incompatible. shareholder value etc. Nandan M Nilekani. in a country where malpractices by founders were rampant. Infosys had given its non-executive directors the mandate to pass judgement on the efficacy of its business plans. ccc69ccc . we can do things better. That has translated into brand equity. “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.” It remained to be seen whether other Indian companies could emulate Infosys form of corporate governance. We believe that we can never stand still. Infosys’ founders had set very high standards. what the world is saying on this front. We keep trying to improve the way we manage to be on par with it. Managing Director. We will keep looking at global best practices.
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com/investors/corporategovernance/social-responsibility.com/investors/corporategovernance/CodeofConduct.pdf • • ccc71ccc .infosys.asp http://www.com/investors/corporategovernance/report.• http://www.infosys.asp http://www.infosys.
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