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A REPORT ON GMI RATING FOR RELIANCE
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INDUSTRIES LIMITED
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SUBMITTED TO:
PROF. RAJAN MANI
SUBMITTED BY:
C. SWATI 09BSHYD1045

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SUNIL .B. JAIN
L. MEGHANEELA
09BSHYD1089
09BSHYD1059
MOHINDER SAWHNEY 08BSHDY0439

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B. BALAKISHORE 09BSHYD1098

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 Introduction

About Reliance Group

The Reliance Group, founded by Dhirubhai H. Ambani (1932-2002), is India's largest private
sector enterprise, with businesses in the energy and materials value chain. Group's annual
revenues are in excess of US$ 44 billion. The flagship company, Reliance Industries Limited, is
a Fortune Global 500 company and is the largest private sector company in India.

Backward vertical integration has been the cornerstone of the evolution and growth of Reliance.
Starting with textiles in the late seventies, Reliance pursued a strategy of backward vertical
integration - in polyester, fibre intermediates, plastics, petrochemicals, petroleum refining and oil
and gas exploration and production - to be fully integrated along the materials and energy value
chain.

The Group's activities span exploration and production of oil and gas, petroleum refining and
marketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals), textiles, retail
and special economic zones.

Reliance enjoys global leadership in its businesses, being the largest polyester yarn and fibre
producer in the world and among the top five to ten producers in the world in major
petrochemical products. Reliance Industries shares are listed in both BSE and NSE.

Major Group Companies are Reliance Industries Limited (including main subsidiary Reliance
Retail Limited) and Reliance Industrial Infrastructure Limited
About GMI

Governance Metrics International (GMI) is an independent ratings agency formed in April 2000
which has designed a rating system that creates a metric to compare companies’ corporate
governance characteristics. It provides institutional investors an objective way of assessing
corporate governance risk as well as governance leaders in their portfolios. GMI starts the rating
process by developing a governance profile incorporating hundreds of variables per company
plus analysts’ insights.

GMI Rating Criteria

Each GMI rating report includes a summary of the company's overall governance profile and
comment on each of the six research categories employed by GMI:

 Board Accountability
 Financial Disclosure and Internal Controls
 Shareholder Rights
 Executive Compensation
 Market for Control
 Corporate Behavior

In addition to an overall GMI rating, each of the six research categories receives a separate
rating. These are meant to identify whether a company is particularly strong or weak. As an
additional tool, GMI provides a "red flag" service to alert about a governance issue that has the
potential to affect shareholder value.

Each report includes a rating history for both the company and its industry in order to see how
each company's governance practices change over time in relation to its peers. GMI rating
reports also include statistics for the board of directors, including the average age, tenure and
number of other public company board seats held by directors. Each of the three key board
committees - audit, compensation and nomination/governance - are profiled as is each member
of the board. Each director profile includes a classification as either independent or non-
independent according to GMI guidelines and an explanation when directors are classified as
non-independent.

Red Flags

GMI issues red flags whenever there is a significant governance issue or other issue of concern
that might potentially affect shareholder value. While flags may be attached to one or more
research categories, companies with three or more flags are rare. Red flags are assigned when
GMI publishes its scheduled quarterly rating releases, and in between the scheduled releases, on
an as needed basis.

About each parameter

1. Board Accountability:

The Board of Directors is the apex body constituted by the shareholders for overseeing the
overall functioning of the Company. The Board provides and evaluates the strategic direction of
the Company, management policies and their effectiveness and ensures that the long-term
interests of the shareholders are being served.

2. Financial Disclosure and Internal Controls:

Have a disclosure of definition of independent directors, financial experts and selection criteria
for board members including independent directors.

Move of the management aims at ensuring increased level of transparency for stake holders

- Corporate governance and stake holders’ interface committee.

- Employee stock compensation committee.
- The health, safety and environment committee

Compliance certificate by the SEBI on matter related to capital market.

3. Shareholder Rights:

The Board recognizes the importance of two-way communication with shareholders and of
giving a balanced report of results and progress and responds to questions and issues raised in a
timely and consistent manner. Half yearly financial reports sent the members at their address
registered.

The company has established policies and procedures for corporate communication and
disclosures. Printed copy of the chairman’s speech is distributed to all the shareholders at the
AGM it is also sent to all the shareholders who do not attend the AGM. The same is also placed
on the website of the company.

Notices for venue and date of AGM and EGM are sent to all the equity shareholders of the
company under company’s act 1956. The same is published at companies official site. Venue,
date and special resolutions passed in the last three years are published in the corporate
governance report.

4. Remuneration:

The remuneration policy of the Company is directed towards rewarding performance, based on
review of achievements on a periodic basis. The remuneration policy is in consonance with the
existing industry practice.

5. Corporate Behavior:

Create economic opportunities for millions through their business initiatives. Utilizes energy
resources in a responsible and efficient manner. Create and sustain diversity at the workplace.
Encourage employees to volunteer and spend time for community activities.

Encourage suppliers and contractors to conduct their operations in a socially and

environmentally responsible manner. Deal with all RIL stakeholders in an ethical manner.

Support the development of professional resources, through educational initiatives. Bring the
benefits of modern medical care to the needy, through health care initiatives. Leverage financial,
physical and organizational resources of Reliance for rescue and rehabilitation work during
natural and man-made disasters.
6. Market for control

RIL promoters, principal shareholders are able to influence major policy decisions, including
overall strategic and investment decisions, decisions on dividend payments, approval of annual
budgets, increase/ decrease in share capital, approving mergers and acquisitions, disposals of
assets and amending articles of association.

Evaluation and Justification of each parameter

1. Board Accountability:

1(a). All directors attended at least 75% of the board meetings and committee meetings in
the last fiscal year.

Our Rating: (Weightage=0.3, Rating=8) Overall Rating=0.3*8 = 2.4

Justification:

 Directors’ Attendance in Board Meetings: At RIL, nine Board meetings were held
during the year 2008-2009, as against the minimum requirement of four meetings.
The company has held at least one Board meeting in every three months, and the
maximum time gap between any such two meetings was not more than three months.
 The board of RIL met nine times in the year 2008-2009, out of which the full-board
met five times.
 The RIL’s statistics showing directors’ attendance in the board meetings during the
year 2008-2009, as well as, their attendance in the last annual general meeting
(AGM) are encouraging. Eight out of the 12 directors (including CMD) attended all
nine board meetings.
 However, all the directors attended the last AGM of RIL. This clearly goes to exhibit
“good accountability and commitment of the board members towards the stakeholders
of the company.”
 1(b). Discloses a code of ethics for senior executives or the employee code of ethics also
covers senior executives

Our Rating: (Weightage=0.5, Rating=8) Overall Rating=0.5*8 = 4

Justification:

 According to the annual report of RIL, we can say that employee code of ethics is also
applicable for senior executives and that there is not separate code of ethics for senior
executives.

1(c). Discloses corporate governance policies or guidelines

Our Rating: (Weightage=0.2, Rating=8) Overall Rating=0.2*8 = 1.6

Justification:

A good governance system demands that a company should disclose in its annual report, the
definition of independent director, financial expert, as also the selection criteria for board
members, followed by the corporate board. It is observed that RIL has followed this principle
and hence, the company has disclosed information in this regard in its “Report on Corporate
Governance”

Over all Rating for Board Accountability= 1(a)+1(b)+1(c)

= 2.4+4.0+1.6

=8
2. Financial Disclosure and Internal Controls:

2(a). Audit committee wholly composed of independent members.

Our Rating: (Weightage=0.5, Rating=7) Overall Rating=0.5*7 = 3.5

Justification:

The RIL board has constituted Audit committee, comprising three Independent, Non-Executive
Directors, namely, Shri Yogendra P. Trivedi, Chairman, Shri S. Venkitaramanan, Vice
Chairman, and Shri Mahesh P. Modi.

2(b). Chair of the audit committee is non-executive and has expertise in accounting or
financial management

Our Rating: (Weightage=0.2, Rating=9) Overall Rating=0.2*9=1.8

Justification:

Chair of the audit committee is non-executive and possess financial accounting expertises. The
composition of the committee meets the requirements of Companies Act, 1956 and Clause 49.
Five Committee meetings were held during the year, as against the minimum requirement of four
meetings.

2(c). The board has adopted a separate committee or subcommittee responsible for
oversight of risk management.

Our Rating: (Weightage=0.3, Rating=8) Overall Rating=0.3*8=2.4

Justification:

RIL has adopted a separate committee for risk management and has published a comprehensive
report on risk management in the annual report for stakeholders’ information and review.
Over all Rating for Financial Disclosure and Internal Controls= 2(a)+2(b)+2(c)
= 3.5+1.8+2.4
=7.7

3. Shareholder Rights:

3(a). All Information is passed to the share holders transparently

Our Rating: (Weightage=0.5, Rating=7) Overall Rating=0.5*7 = 3.5

Justification:

RIL provided general shareholder information and adopted various means of communication
(half-yearly reports, quarterly results, news releases, presentations, website, annual report, SEBI
EDIFAR, etc.) every year, as prescribed by the Listing Agreement, to be included in the Report
on Corporate Governance.

3(b). Shareowners can act in concert through written Communication.

Our Rating: (Weightage=0.3, Rating=7) Overall Rating=0.3*7 = 2.1

Justification:

The Board recognizes the importance of two-way communication with shareholders and of
giving a balanced report of results and progress and responds to questions and issues raised in a
timely and consistent manner. Reliance’s corporate website; www.ril.com has information for
institutional and retail shareholders alike. Shareholders seeking information may contact the
Company directly throughout the year. They also have an opportunity to ask questions in person
at the Annual General Meeting. Shareholders can contact RIL via dedicated shareholder contact
points as provided with this report or through any of Investor Service Centres of the Company’s
Registrars and Transfer Agents spread in more than 80 cities across India, details of which are
available on the Company’s website www.ril.com. RIL ensures that queries, complaints and
suggestions are responded in a timely and consistent manner.
 3(c). Voting rights different for domestic or non-resident investors

Our Rating: (Weightage=0.2, Rating=8) Overall Rating=0.2*8 = 1.6

Justification:

The non-resident Investors does not carry any voting rights but where as the domestic
investors carry voting rights.

Over all Rating for Shareholder Rights =3(a)+3(b)+3(c)

= 3.5+2.1+1.6
= 7.2

4. Remuneration:

4(a). Remuneration committee wholly composed of independent members?

Our Rating: (Weightage=0.3, Rating=7) Overall Rating=0.3*7 = 2.1

Justification:

In RIL, the remuneration committee wholly composed of four independent member under the
Chairmanship of Shri Mansingh L. Bhakra. The committee has been constituted to
recommend/review remuneration of the Managing Director and Whole-time Directors, based on
their performance and defined assessment criteria

4(b). The remuneration committee has discretion to alter the criteria and/or incentive
targets for management after being established or has power to grant incentives or
bonuses on a discretionary basis.

Our Rating: (Weightage=0.5, Rating=7) Overall Rating=0.5*7= 3.5

Justification:

The remuneration committee with the approval of the CMD and Board of directors has the rights
to alter the targets for management or power to grant incentives on a discretionary basis in RIL.

4(c). Discloses stock ownership guidelines for non-executive directors.

Our Rating: (Weightage=0.2, Rating=7) Overall Rating=0.2*7 = 1.4

Justification:

Disclosure of stock ownership guidelines, remuneration Policy and Remuneration of Directors:

“Directors should disclose the mechanism for setting directors’ remuneration, stock ownership
guidelines and its structure…Information regarding compensation packages should include
salary, bonuses, pensions, share payments and all other benefits (financial or otherwise), as well
as, reimbursed expenses.”

Over all Rating for Remuneration = 4(a)+4(b)+4(c)

= 2.1+3.5+1.4
= 7.0

5. Corporate Behavior:

5(a). Discloses its health, safety and environmental policies.

Our Rating: (Weightage=0.3, Rating=8 Overall Rating=0.3*8 = 2.4

Justification:

RIL’s Change Agents for Safety, Health & workplace Environment (CASHe) programme
– an initiative to promote healthy workplaces and reduce health and safety risks, has been
instrumental in creating a culture of implementing health, safety and environment
projects on a priority basis. This programme has also helped the Company to improve its
performance on the occupational health and safety front.
 5(b). Involved in Community Service

Our Rating: (Weightage=0.2, Rating=9) Overall Rating=0.2* 9= 1.8

Justification:

RIL has a long and strong tradition of supporting the larger communities that it connects
with – from education, health, drinking water, large-scale development of employable
skills, to assistance during natural calamities such as earthquakes and cyclones.

5(c). Discloses its workplace safety record in the annual report or in another form accessible
to shareholders. (Weightage=0.5, Rating=8) Overall Rating=0.5*8 = 4

Justification:

RIL in its annual report has disclosed workplace safety record which is accessible to
shareholders and other stakeholders of the company.

Over all Rating for Corporate Behavior = 5(a)+5(b)+5(c)

= 2.4+1.8+4.0
= 8.2

6. Market for control

6(a). Single shareholder controls or shareholder group acting together control over 50% of
the company's voting power ("Majority Owner")

Our Rating: (Weightage=0.5,Rating=6)Overall Rating=0.5*6= 3

Justification:

The company does not have a single shareholding group with voting power in excess of
50% (majority owner). GMI Ratings consider such a feature to be in favor of
stakeholders and keep the market for control intact. The company does not invloves in a
series of cross-holdings with other (related or unrelated) companies, which is again good
on part of keeping a strong market for control.
 6(b). The majority shareholder has a unilateral right to amend the by-laws/articles of
association without shareholders approval.

Our Rating: (Weightage=0.3,Rating=6)Overall Rating=0.2*8 = 1.8

Justification:

Company’s promoters, principal shareholders are able to influence major policy

decisions, including overall strategic and investment decisions, decisions on dividend
payments, approval of annual budgets, increase/ decrease in share capital, approving
mergers and acquisitions, disposals of assets and amending articles of association. Thus,
company has no unilateral right to amend the by-laws/AOA/constitution without approval
of shareholders, which is positive for any company to have strong market for control.

6(c). Directors can be removed without cause

Our Rating: (Weightage=0.2,Rating=6)Overall Rating=0.2*6 = 1.2

Justification:

Company does not disclose any information regarding a stagered (“classified”) board and
no Director can be removed without a cause.

Over all Rating for Market for control = 6(a)+6(b)+6(c)

= 1.2+1.8+3.0

= 6.0
OVERALL RATING OF RIL:

As per GMI Ratings, 1 being the lowest and 10 being the highest, the companies are rated on the
scale of 1 to 10. We have used following parameters to rate RIL.
A GMI rating of 9.0 or higher is considered to be well above-average. A rating of 7.5 to 8.5 is
considered to be above-average, 6.0 to 7.0 is considered average, 3.5 to 5.5 is considered to be
below-average, and 3.0 or less is considered well below-average by GMI.

Parameters Ratings
1. Board of Accountability 8

2. Financial Disclosure and Internal Controls 7.7

3. Shareholder Rights 7.2
4. Remuneration 7.0
5. Corporate Behavior 8.2
6. Market for control 6.0
Total (Divided by 6) 7.35

The over all Rating of RIL on the basis of the above 6 parameters is 7.35

Base for the Justifications:

The choosing and justifications of the Sub-parameters for the calculations of 6 parameters are
verified and justified majorly from RIL’s Annual report 2009-10
References

 http://www.ril.com/
 http://www.ccsenet.org/journal/index.php/ijbm/article/view/5694/4620
 www.gmiratings.com/Images/SampleReport.pdf
 Annual report of RIL 2009-2010
 http://en.wikipedia.org/wiki/Reliance_Industries
 http://www.ril.com/downloads/pdf/MOA.pdf
 http://www.ril.com/downloads/pdf/corp_gov_report2008_09.pdf