Strategic Financial Management

Assignment 1
Evaluation of the Bajaj Auto’s Corporate Governance

MADHUSUDHANAN R,
CB.BU.P2MBA20076,
MBA – FINANCE,
ASB.

Evaluation – Bajaj Auto Ltd Corporate governance practice

 A corporate can be considered as following good governance if they feature characteristics such
as participative, consensus oriented, accountable, transparent, responsive, effective and efficient,
equitable and inclusive. Bajaj Auto’s corporate governance policy is focused on the four concepts of
transparency, fairness, disclosure and accountability. There is wider scope for the company to
improve its corporate governance policies. The company has been following corporate governance
policies even before SEBI rules and the clause 49 of the listing agreement came into force. So, we
can assume that fifth feature “Responsive” is followed implicitly

Good corporate governance practice:

Fairness:
As per the rules the company’s board, it must have at least one half of its members to be non-
executive, independent directors. The board consists of 16 members of which 4 are executives, 3 are
non-executive and 9 are non-executive and independent.

Transparent:
Some of the boards of directors namely JN Godrej and Shekhar Bajaj were involved in related party
transactions. All the related party transactions are maintained by the register of contracts
maintained by the company under section 301 of the Companies Act, 1956.

Disclosure:
Bajaj Auto has a whistle blower policy to enable employees to report to the management their
concerns about unethical or violation of company’s code of conduct or ethics policy.

Accountable:
Bajaj Auto has set up a shareholders and investors grievance committee consisting of independent
directors to look into the shareholders and investors complaints on matters relating to transfer of
shares, non-receipt of annual report, non-receipt of dividend etc.

Corporate governance practice that are questionable and improved

Participative:
In the year 2009, the board met 6 times. During those meeting one of the independent directors
J N Godrej was absent for all the 6 meetings and added to him only 3 out of the 9 independent
directors attended all the 6 board meetings and they failed to follow the rule as an independent
director must attend the board meetings and ensure that the company is functioning in the proper
manner and it is following all the rules and upholding the interests of all the stakeholders.

Remuneration:
The board does not provide stock option plans for any of its directors. The directors were not
paid any performance linked incentive. The company also did not advance any loans to any of the
directors for 2009-10.

Inclusive:
Vertical challenge: The chairman of the board is also an executive and the board consists of
several members of the promoter family who own substantial part of the company.
Horizontal challenge: The promoter family and group own 49.69% of the company.

Justifications:
The company has not adopted the method of using postal ballot to adopt any resolution it seeks to
pass during its AGM. This must be looked into and should be made available to the shareholders
when passing important resolutions come to the force.

The promoter family members all occupy key positions in the company and on the board. This may
pose significant challenges for effective corporate governance as the owners and management are
the same. It may result in conflict-of-interest situations where the resulting action would benefit the
promoter family more than the company and other company stakeholders. There should be proper
dilution of power.