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Satyam Vada
Forever speak the truth and follow the
Dharmam Chara
- Taittariya

Governance Concept in Ramayana

To provide the maximum happiness for the

maximum number of people for the maximum
period, based on the principles of Dharma
righteousness and moral values.
- Ayodhya Kand

Corporate Governance
A corporation or
company is an
authorised by law to
conduct business.

Governance implies a
degree of control to
be executed by
representatives for
corporate growth and
protection of

Corporate Governance
What is Governance?

Corporate Governance is the application of best management

practices, Compliance of law in true letter and spirit and
adherence to ethical standards for effective management and
distribution of wealth and discharge of social responsibility for
sustainable development of all stakeholders.
-The Institute of Company Secretaries of India

Corporate governance includes company

accountability to shareholders & other
stakeholders such as employees, suppliers,
customers & local community.

Driving Forces of CG in India

1) Unethical Business Practices
Security Scams ---Harshad Mehtha Security Scam
Equity allotments at discount rates to the controlling groups
Disappearance of Companies (1993-94) - around 4,000
companies with 25,000 crores without starting business
2) Impact of Globalization
Integration with Foreign Market
Foreign Investors expectations
New Business Opportunities --- IT & ITES, BPO etc.,
New Capital formation FII, FDI
3) Impact of Privatisation
New structure of ownership
Multinational Companies

Principles of C. G.

Brief history of corporate governance

in India
Unlike South-East and East Asia, the corporate
governance initiative in India was not triggered by any
serious nationwide financial, banking and economic
The initiative in India was initially driven by an industry
association, the Confederation of Indian Industry
The final draft of this code was widely circulated in
In April 1998, the code was released. It was called
Desirable Corporate Governance: A Code.
Between 1998 and 2000, over 25 leading companies
voluntarily followed the code: Bajaj Auto, Hindalco,
Infosys, Dr. Reddys Laboratories, Nicholas Piramal,
Bharat Forge, BSES, HDFC, ICICI and many others

Brief history of corporate governance

in India
Following CIIs initiative, the Securities and Exchange Board of
India (SEBI) set up a committee under Kumar Mangalam Birla to
design a mandatory-cum-recommendatory code for listed
The Birla Committee Report was approved by SEBI in December
Became mandatory for listed companies through the listing
agreement, and implemented according to a rollout plan:

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

more or net worth of Rs.250 million or more.
2002-03: All companies with paid-up capital of Rs.30 million or
Following CII and SEBI, the Department of Company Affairs (DCA)
modified the Companies Act, 1956 to incorporate specific corporate
governance provisions regarding independent directors and audit

Mandated CG guidelines and

Board of Directors: frequency of meetings and composition
Board must meet at least four times a year, with a
maximum time gap of four months between two
successive meetings.
If the chairman of the Company is a non-executive then
one-third of the board should consist of independent
directors, and 50% otherwise.
Independent defined as those directors who, apart
from receiving directors remuneration do not have any
other monetary relationship or transactions with the
company, its promoters, management or subsidiaries,
which in the view of the board may affect independence
of judgment.

Mandated CG guidelines and

Board of Directors: frequency of meetings and composition
The frequency of board meetings and board committee
meetings, with their dates, must be fully disclosed to
shareholders in the annual report of the company.
The attendance record of all directors in board meetings
and board committee meetings must be fully disclosed to
shareholders in the annual report of the company.
Full and detailed remuneration of each director (salary,
sitting fees, commissions, stock options and perquisites)
must be fully disclosed to shareholders in the annual report
of the company.
Loans given to executive directors are capped (no loans
permitted to non-executives), and must be fully disclosed to
shareholders in the annual report of the company.

Mandated CG guidelines and

Board of Directors: information that must be supplied
Annual, quarter, half year operating plans, budgets and
Quarterly results of company and its business segments.
Minutes of the audit committee and other board
Recruitment and remuneration of senior officers.
Materially important legal notices and claims, as well as
any accidents, hazards, pollution issues and labor
Any actual or expected default in financial obligations.
Details of joint ventures and collaborations.
Transactions involving payment towards goodwill, brand
equity and intellectual property.
Any materially significant sale of business and investments.
Risks and risk management.

Mandated CG guidelines and

Audit Committee: It is mandatory.
Must have minimum of three members, all non-executive
directors, the majority of whom are independent.
Chairman must be an independent director, and must be
present at the annual shareholders meeting to answer audit
or finance related questions.
At least one member must be an expert in finance/
Must have at least three meetings per year, including one
before finalisation of annual accounts.
Must have the powers to seek any financial, legal or
operational information from the management; obtain
outside legal or professional advice.

Mandated CG guidelines and

Audit Committee functions
Oversight of the companys financial reporting process to
ensure that the financial statement is correct, sufficient and
Appointment / removal of external auditor and fixing of
audit fees
Reviewing with management the annual financial
statements before submission to the board, focusing on:
Changes in accounting policies and practices
Major accounting entries
Significant adjustments arising out of audit
Compliance with accounting standards, with stock
exchange and legal requirements
Any related party transactions

Mandated CG guidelines and

Adequacy of internal audit and internal
control systems, through discussion with
internal and statutory auditors as well as
Reviewing financial and legal risks and
companys risk management policies.
Examining reasons behind any materially
significant default to creditors, bondholders, suppliers and shareholders.

Mandated CG guidelines and disclosures

Disclosures to shareholders in addition to balance sheet, P&L
and cash flow statement
Board composition (executive, non-exec, independent).
Qualifications and experience of directors.
Number of outside directorships held by each director (capped at
director not being a member of more than 10 board-level
committees, and Chairman of not more than 5).
Attendance record of directors.
Remuneration of directors.
Relationship (familial or pecuniary) with other directors.
Warning against insider trading, with procedures to prevent such
Details of grievances of shareholders, and how quickly these were
Date, time and venue of annual general meeting of shareholders.

Mandated CG guidelines and

In case of the appointment of a new director or re-appointment of a director the
shareholders must be provided with the following information:
(a) A brief resume of the director;
(b) Nature of his expertise in specific functional areas;
(c) Names of companies in which the person also holds the directorship and the
membership of Committees of the Board
The company shall obtain a certificate from either the auditors or practicing
company secretaries regarding compliance of conditions of corporate
governance as stipulated in this clause and annex the certificate with the
directors report, which is sent annually to all the shareholders of the company.
The same certificate shall also be sent to the Stock Exchanges along with the
annual report filed by the company.

Mandated CG guidelines and

CEO/CFO certification
The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies
Act, 1956 and the CFO i.e. the whole-time Finance Director or any other person
heading the finance function discharging that function shall certify to the Board that:
(a) They have reviewed financial statements and the cash flow statement for the year
and that to the best of their knowledge and belief :
(i) these statements do not contain any materially untrue statement or omit any material
fact or contain statements that might be misleading;
(ii) these statements together present a true and fair view of the companys affairs and
are in compliance with existing accounting standards, applicable laws and
(b) They accept responsibility for establishing and maintaining internal controls and that
they have evaluated the effectiveness of the internal control systems of the company
and they have disclosed to the auditors and the Audit Committee, deficiencies in the
design or operation of internal controls, if any, of which they are aware and the steps
they have taken or propose to take to rectify these deficiencies.
(c) They have indicated to the auditors and the Audit committee about significant
changes in internal control during the year;

Infosys Technologies: The Best among

Indian Corporates

As per the Credit Lyonnais Securities Analysis (CLSA), the

corporate governance ratings of the Software firms are higher than
those of other Indian firms.

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

company offering information technology consulting & software

The software offered include application development,

Commerce & Internet Consulting, Software Maintenance.

Respected across the country, with very strong systems, high

ethical values & a nurturing working atmosphere.

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



Voted as the Best Managed Company in Asia.

Biggest exporters of Software.

First to follow the US Generally Accepted

Accounting Principles before going for Nasdaq
listing in 1991.

Championed Corporate Governance in India.

Narayana Murthys Global Strategy


Global Delivery Model


Moving up the Value Chain


PSPD Model

Producing where it is most cost

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

Getting involved in a
software development project at the earliest stage of its life

Predictability of Revenues, Sustainability of

Revenues, Profitability, De-risking.

ICSI National Award for Excellence in

Corporate Governance

Best Governed Companies

Concluding Observations

Code of CG should be redesigned to reflect international best


Stringent enforcement of Law

More effective coordination and cooperation between SEBI, DCA

CG mechanism should be flexible and suitable

Overall ethical values in all segments should be promoted for

effective accounting, auditing, disclosure and transparent system.