Post on 04-Jun-2018
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Project report on
Corporate Governance rating of Reliance Industries Ltd.
(BECG)
Submitted By: Shalini Saigal (12BSPHH010938) Submitted to: Prof. Rajan Mani
Laishram Meiraba (12BSPHH010501)
Trishagini Sen (12BSPHH011136)
Divya Bharadwaj (12BSPHH010312)
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INDEX
Topic Pg. No.
1) Introduction: RIL 32) Corporate Governance 43) ICRA Rating Framework 54) Evaluation of RIL 65) Rating 186) Conclusion 217) References 22
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Introduction: RIL
Reliance Industries Limited (RIL)is anIndianconglomerateholding company headquartered inMumbai,
Maharashtra,India. The company operates in five major segments: exploration and production,refining and
marketing,petrochemicals,retail andtelecommunications.
RIL is the second-largest publicly traded company in India bymarket capitalisation and is the second largest
company in India by revenue after the state-runIndian Oil Corporation.The company is ranked #107 on
the Fortune Global 500 list of the world's biggest corporations, as of 2013. RIL contributes approximately 14%
ofIndia's total exports.
The number of shareholders in RIL are approx. 3 million. The promoter group, Ambani family, holds approx.
45.34% of the total shares whereas the remaining 54.66% shares are held by public shareholders, including FII and
bodies corporate.Life Insurance Corporation of India is the largest non-promoter investor in the company with
7.98% shareholding. In January 2012, the company announced a buyback program to buy a maximum of 120
million shares for 10440crore (US$1.7 billion). By the end of January 2013, the company bought back 46.2
million shares for 3366crore (US$540 million).
The company's equity shares are listed on theNational Stock Exchange of India Limited (NSE) and theBSE Limited.
TheGlobal Depository Receipts (GDRs) issued by the Company are listed onLuxembourg Stock Exchange It has
issued approx. 56 million GDRs wherein each GDR is equivalent to 2 equity shares of the company. Approx. 3.46%
of its total shares are listed on Luxembourg Stock Exchange Its debt securities are listed at the Wholesale Debt
Market (WDM) Segment of the National Stock Exchange of India Limited (NSE) Credit Ratings: It has received
domestic credit ratings of AAA from CRISIL (S&P subsidiary) and Fitch. Moodys and S&P have provided inves tment
grade ratings for international debt of the Company, as Baa2 positive outlook (local currency issuer rating) and
BBB+ outlook respectively.
RIL has received the following awards and recognitions:
International Refiner of the Year in 2013 at the HART Energys 27th World Refining & Fuel Conference. This isthe second time that RIL has received this Award for itsJamnagar Refinery,the first being in 2005.
According to survey conducted byBrand Finance in 2013, Reliance is the second most valuable brand in India. The Brand Trust Report,2013 has ranked 'Reliance' as the 7th most trusted brand in India. RIL was certified as 'Responsible Care Company' by theAmerican Chemistry Council in March, 2012. RIL was ranked at 25th position across the world, on the basis of sales, in the ICIS Top 100 Chemicals
Companies list in 2012.
RIL was awarded the National Golden Peacock Award 2011 for its contribution in the field of corporatesustainability
In 2009,Boston Consulting Group (BCG) named Reliance Industries as the world's fifth biggest 'sustainablevalue creator' in a list of 25 top companies globally in terms of investor returns over a decade.
The company was selected as one of the world's 100 best managed companies for the year 2000byIndustryWeek magazine.
From 1994 to 1997, the company won National Energy Conservation Award in the petrochemical sector.
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Corporate Governance
Corporate governancerefers to the system by which corporations are directed and controlled. The governance
structure specifies the distribution of rights and responsibilities among different participants in the corporation
(such as the board of directors, managers, shareholders, creditors, auditors, regulators, and otherstakeholders)
and specifies the rules and procedures for making decisions in corporate affairs. Governance provides the
structure through which corporations set and pursue their objectives, while reflecting the context of the social,
regulatory and market environment. Governance is a mechanism for monitoring the actions, policies and decisions
of corporations. Governance involves the alignment of interests among the stakeholders.
In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders,
tradecreditors, suppliers, customers and communities affected by the corporation's activities. Internal
stakeholders are theboard of directors,executives,and other employees.
Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of
interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes,
customs, policies, laws, and institutions which have an impact on the way a company is controlled. An important
theme of governance is the nature and extent of corporateaccountability.
A related but separate thread of discussions focuses on the impact of a corporate governance system oneconomic
efficiency, with a strong emphasis on shareholders' welfare. In large firms where there is a separation of
ownership and management and no controlling shareholder, theprincipalagent issue arises between upper-
management (the "agent") which may have very different interests, and by definition considerably more
information, than shareholders (the "principals"). The danger arises that rather than overseeing management on
behalf of shareholders, the board of directors may become insulated from shareholders and beholden to
management. This aspect is particularly present in contemporary public debates and developments in regulatory
policy.
Economic analysis has resulted in a literature on the subject. One source defines corporate governance as "the set
of conditions that shapes theex post bargaining over thequasi-rents generated by a firm." The firm itself is
modeled as a governance structure acting through the mechanisms of contract. Here corporate governance may
include its relation tocorporate finance.
http://en.wikipedia.org/wiki/Stakeholder_(corporate)http://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Executive_(management)http://en.wikipedia.org/wiki/Accountabilityhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Principal%E2%80%93agent_problemhttp://en.wikipedia.org/wiki/Principal%E2%80%93agent_problemhttp://en.wikipedia.org/wiki/Principal%E2%80%93agent_problemhttp://en.wikipedia.org/wiki/Ex_posthttp://en.wikipedia.org/wiki/Quasi-renthttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Quasi-renthttp://en.wikipedia.org/wiki/Ex_posthttp://en.wikipedia.org/wiki/Principal%E2%80%93agent_problemhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Accountabilityhttp://en.wikipedia.org/wiki/Executive_(management)http://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Stakeholder_(corporate)8/13/2019 BECG Project Group No. 11
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ICRA rating framework
ICRA Limited(ICRA) is an Indian independent and professional investment information andcredit rating
agency.It was established in 1991, and was originally named Investment Information and Credit Rating
Agency of India Limited(IICRA India). It is second largest Indian rating comapany in term of customer
base. It was a joint-venture betweenMoody's and various Indian commercial banks and financial
services companies. The company changed its name to ICRA Limited, and went public on 13 April 1997,
with a listing on theBombay Stock Exchange and theNational Stock Exchange.
ICRAs framework is designed to analyse the following key variables while arriving at the CGR for a
corporate entity:
Ownership Structure Governance Structure and Management Processes Board Structure and Processes Stakeholder Relationship Transparency and Disclosures Financial Discipline Ethical Practices
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Evaluation of RIL
1) Ownership Structure Extent to which dominant shareholders are easily identifiable: The majority of shares held
by the top management are as follows:
Name of Shareholders No. of shares held
Mukesh Ambani 36,15,846
Nikhil R. Meswani 2,78,374
Hital R. Meswani 2,11,886
P.M.S. Prasad 36,666
Pawan Kumar Kapil 10,276
Ramniklal Ambani 1,72,632
Mansing L. Bhakta 3,20,000
Yogendra P. Trivedi 27,984
Dharam Vir Kapur 13,544
Mahesh Prasad Modi 2,924
Ashok Mishra 2,300
Extent of cross-holdings that may compromise minority interest Extent of shareholding by promoter group: The promoter group consists of Mukesh Ambani.
He is the Chairman and Managing Director of the company. The shares held by him as on
March, 31, 2013 are 36,15,846.
Extent of institutional shareholding & Pattern of retail shareholding: The corporate website(www.ril.com)has information about institutional and retail shareholder. Shareholders who
need information about their shareholding can contact the Company directly or can contact
through any of the Investor service centers of the Companys Registrars and Transfer Agents
(which are spread over 80 cities in India).
2) Governance Structure and Management ProcessesRIL maintains the highest standards of Corporate Governance. It also keeps in mind the
international codes of Corporate Governance and practices which are adopted by the well
known global companies. Some of the best global governance norms put into practice include
the following:
A Lead Independent Director is designated who has a defined role. The Shareholders/Investors Grievance Committee of the Company reviews all securities related
filings with Stock Exchanges and SEBI.
There is an independent Board Committee which deals with matters related to corporategovernance, stakeholders interface and nomination of the Board members.
The Internal audit of the Company is done by independent auditors.
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There is also a secretarial audit; it is conducted by an independent company secretary. Thequarterly audit reports are presented before the Board and the annual audit report is presented
before the Board is included in the Annual Report
3) Board Structure and ProcessesThe key functions of Board of any organization may be summed up as follows:
i Approving, monitoring and reviewing the strategy proposed by the executive management.ii Evaluating the performance of the top management.iii Ensuring compliance with legal and statutory requirements (that is, the control function of the
Board).
iv Balancing the rights and concerns of shareholders and other stakeholders.ICRAs CGR process evaluates the Board Structure and Processes in relation to the following:
Structural Aspectso Size of the Board: The board consists of 13 directors. Their designation is shown in the table
below.
Director Name of Director
Promoter Director Mukesh D. Ambani (Chairman and
Managing Director)
Executive Director Nikhil R. Meswani
Hital R. Meswani
P.M.S. Prasad
Pawan Kumar Kapil
Non-executive non-independent director Ramniklal H. Ambani
Independent Director Mansingh L. Bhakta
Yogendra P. Trivedi
Dr. Dharam Vir Kapur
Mahesh P. Modi
Prof. Ashok Misra
Prof. Dipak C. Jain
Dr. Raghunath A. Mashelkar
o Proportion of Independent Directors: Out of 13 directors, 7 are independent directors.This contributes to 54% of the entire board.
o Other Directorships held by the Independent Director(s): Mansingh L. Bhakta: Lead Independent Director of the Company. Apart from RIL he is
also the Director of Micro Inks Limited, the Indian Merchants Chamber, Mumbai, JCB
India Limited and Jyoti CNC Automation Limited, member of the Audit Committees of
Micro Inks Limited and JCB India Limited.
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Yogendra P. Trivedi: He is also the Chairman of the Audit Committee, the Shareholders/Investors Grievance Committee, the Remuneration Committee, the Corporate
Governance and Stakeholders Interface Committee and the Employees Stock
Compensation Committee of the Company. Director of The Supreme Industries Limited,
Zodiac Clothing Company Limited, The Seksaria Biswan Sugar Factory Limited, New
Consolidated Construction Company Limited, Emami Limited and Metro Exporters
Private Limited.
Dr. Dharam Vir Kapur: . He is a member of the Corporate Governance and StakeholdersInterface Committee, the Remuneration Committee and the Health, Safety and
Environment Committee of the Company. Director on the Boards of Honda Siel Power
Products Limited, Zenith Birla (India) Limited, DLF Limited and other private limited
companies. Earlier he was a Director on the Boards of Tata Chemicals Limited, Larsen &
Toubro Limited and Ashok Leyland Limited.
Mahesh P. Modi: He is a member of the Audit Committee, the Employees StockCompensation Committee and the Corporate Governance and Stakeholders Interface
Committee of the Company. He is a Director on the Board of FACOR Power Limited.
Prof. Ashok Misra: He is an Independent Director on the Board of Jubilant IndustriesLimited and also a member of its Audit Committee and Compensation Committee.
Prof. Dipak C. Jain: He is a member of the Employees Stock Compensation Committeeof the Company, Director of Reliance Retail Limited and also a member of its Audit
Committee. Director of Hindustan Media Ventures Limited and HT Global Education,
Director of John Deere & Company, United States of America, Global Logistic Properties,
Singapore and Northern Trust Bank, United States of America.
Dr. Raghunath A. Mashelkar: He is a member of the Audit Committee and theRemuneration Committee of the Company. Director of Tata Motors Limited, Hindustan
Unilever Limited, Thermax Limited, KPIT Cummins Infosystems Limited, IKP Knowledge
Park, Piramal Enterprises Limited (formerly Piramal Healthcare Limited) and several
private limited companies, Director of Reliance Gene Medix Plc. (company incorporated
outside India.
The mix of skill sets which the Independent Directors bring to the Board ICRA Rating Feature Rating
Methodology of Corporate Governance.
Effectiveness of the Board: Following aspects are taken into consideration for evaluating theeffectiveness of the board.
o Frequency of Board meetings: Minimum of 5 Board meetings are held every year.Additional Board meetings are also convened. This is done by giving appropriate
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notice in order to address the specific needs of the Company. When there is a case
of business exigencies or urgency of matters, resolutions are passed by circulation.
o Attendance track record of Directors:Name of Director Attendance at meetings during
2012-2013No. of other
directorship(s)No. of Membership(s)
/
Chairmanship(s) of
Board
Committees in other
Companies2
Board Meetings Last AGM
Mukesh D. Ambani 5 Yes 2 1 (as chairman)
Nikhil R. Meswani 5 Yes 1 1 (as chairman)
Hital R. Meswani 5 Yes 2 2 (including 1 as
chairman)
P.M.S. Prasad 5 Yes 1 1
Pawan Kumar Kapil 4 Yes Nil NilRamniklal H. Ambani 5 No 2 1 (as chairman)
Mansingh L. Bhakta 5 Yes 3 2
Yogendra P. Trivedi 5 Yes 6 2
Dr. Dharam Vir
Kapur
5 Yes 5 6 (including 4 as
chairman)
Mahesh P. Modi 4 Yes 1 Nil
Prof. Ashok Misra 5 Yes 1 1
Prof. Dipak C. Jain 4 No 2 1
Dr. Raghunath A.
Mashelkar
4 Yes 5 3
o Quality of agenda papers and extent to which they are circulated in advance: Theagenda as well as the notes on agenda are circulated to the Directors, in advance.
o Quality of presentations made to the Boardo Boards role in approving strategy proposed by the executive management: The Board
critically evaluates strategic direction of the Company, management policies and their
effectiveness. The agenda for Board reviews include strategic review from each of the
Board committees, a detailed analysis and review of annual strategic and operating
plans and capital allocation and budgets. Additionally, the Board reviews related party
transactions, financial reports from the CFO and business reports from each of the
sector heads. Frequent and detailed interaction sets the agenda and provides the
strategic roadmap for the future growth of the Company.
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o Deliberations related to major investments, capital expenditure, and related partytransactions: Finance Committee: The terms of reference of the Finance Committee,
inter alia, include the following:
Review the Companys financial policies, risk 72 Fulfilling Indias Aspirations. WithInnovation and Enterprise risk assessment and minimization procedures, strategies and
capital structure, working capital and cash flow management and make such reports
and recommendations to the Board with respect thereto as it may deem advisable.
Review banking arrangements and cash management. Exercise all powers to borrow moneys (otherwise than by issue of debentures) within
the limits approved by the Board and taking necessary actions connected therewith
including refinancing for optimization of borrowing costs.
Giving of guarantees/issuing letters of comfort/providing securities within the limitsapproved by the Board.
Borrow monies by way of loan and/or issuing and allotting bonds/notes denominated inone or more foreign currencies in international markets, for the purpose of refinancing
the existing debt, capital expenditure, general corporate purposes including working
capital requirements and possible strategic investments within the limits approved by
the Board.
Provide corporate guarantee/performance guarantee by the Company within the limitsapproved by the Board.
Approve opening and operation of Investment Management Accounts with foreignbanks and appoint them as agents, establishment of representative/sales offices in or
outside India etc.
Carry out any other function as is mandated by the Board from time to time and/orenforced by any statutory notification, amendment or modification as may beapplicable.
Other transactions or financial issues that the Board may desire to have them reviewedby the Finance Committee.
Delegate authorities from time to time to the executives/authorised persons toimplement the decisions of the Committee.
Regularly review and make recommendations about changes to the charter of theCommittee.
o Boards role in determining executive compensation:Remuneration Committee: The Remuneration Committee has been constituted torecommend/review remuneration of the Managing Director and Whole-time Directors,
based on their performance and defined assessment criteria.
Remuneration policy: The Chairman and Managing Directors compensation has beenset at 15 crore as against 38.93 crore that he is eligible as per the shareholders
approval, reflecting his desire to continue to set a personal example for moderation in
managerial compensation levels. The performance criteria for the Executive Directors
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who are entitled for Performance Linked Incentive (PLI) is determined by the
Remuneration Committee. The tenure of office of the aforesaid Managing Director and
Whole-time Directors is for a period of 5 years from their respective dates of
appointments and can be terminated by either party by giving three months notice in
writing. There is no separate provision for payment of severance fees.
Each of the Non-Executive Directors will also be paid commission amounting to 50 lakhs
on an annual basis and the total commission payable to such directors shall not exceed
5 (five) crore per annum in the aggregate. During the year, the Company has paid ` 0.29
crore as professional fees to M/s. Kanga & Co., a firm in which Shri Mansingh L. Bhakta,
Director of the Company, is a partner.
Functioning of Board Committees: Among the Board Committees, the Audit Committeeis clearly the most important in terms of scope of activities. A properly functioning Audit
Committee has the potential to improve the quality of financial reporting, strengthen
the position of auditors, and ensure that effective internal audit and internal
control/risk management systems are in place. The key aspects relating to the
effectiveness of Audit
Committees as reviewed by ICRA are:
Composition of the Audit Committee: The composition of the Audit Committeemeets with the requirements of Section 292A of the Companies Act, 1956 and
Clause 49 of the Listing Agreement.
Background, expertise, experience and independence of its members: All themembers of the Audit Committee possess sound financial, accounting
knowledge and experience. Audit Committees role in the appointment of statutory auditors, and its policy
on rotation of lead partners and on non-Audit services provided by the
auditors: The Audit Committee also recommends to the Board, the
appointment, reappointment and the replacement or removal of Statutory
Auditors including Cost Auditors and fixation of audit fees.
Internal Auditorsand Audit Committees are mutually supportive; it is essential for the Audit Committee
to consider the work of internal auditors so as to gain an understanding of the organisations risk
management processes and control systems, and of the areas that need strengthening. Thus, ICRAs
assessment covers, among others:
Strength and quality of the Internal Audit team: Following are the tasks that the InternalAudit Team at RIL is supposed to take.
To investigate any activity within its terms of reference. To seek information from any employee. To obtain outside legal or other professional advice. To secure attendance of outsiders with relevant expertise, if it considers necessary.
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Extent of Internal Audits interaction with the Audit Committee: The Audit Committeereviews the adequacy of internal audit function, if any, including the structure of the
internal audit department, staffing and seniority of the official heading the department,
reporting structure, coverage and frequency of internal audit.
Managements responsiveness to issues highlighted by Internal Audit: The managementworks in close coordination with the Audit committee.
4) Stakeholder RelationshipAn organizations shareholders are its owners, and their basic rights include: the right to have their
shares transferred and registered smoothly; the right to access timely information; the right to
participate in, and vote at, shareholders meetings; the right to elect members on the Board; and the
right to share the organizationsprofits through dividends. Shareholders also have a say on issues such
as amendments to the organizations Memorandum and Articles of Association, reduction or
augmentation of share capital, and sale/lease/disposal of any undertaking. Most importantly, allshareholders need to be treated equitably.
Also, an organization must have appropriate systems in place to enable its shareholders participate
effectively in shareholders meetings and cast their votes.
The emphasis of ICRAs analysis is on evaluating the extent to which a company goes beyond what is
mandatory under law to serve the rights and interests of its shareholders.
The issues analyzed include:
1.
Conduct of Annual/Extraordinary General Meetings (AGMs/EGMs) and the extent of disclosuresat such meetings
2. Procedures for transfer and registration of shares and payment of dividend: There has been noinstance of non-compliance by the Company on any matter related to capital markets during the
last three years and hence no penalties or strictures have been imposed on the Company by the
Stock Exchanges or SEBI or any other statutory authority recommends measures for overall
improvement in the quality of investor services. The Committee also monitors implementation
and compliance with the Companys Code of Conduct for Prohibition of Insider Trading in
pursuance of SEBI (Prohibition of Insider Trading) Regulations, 1992
3. Companys responsiveness to investor complaints: The investor complaints are processed in acentralized web based complaints redress system. The salient features of this system are:Centralized database of all complaints, online upload of Action Taken Reports (ATRs) by the
concerned companies and online viewing by investors of actions taken on the complaint and its
current status.
4. Timeliness of release of any market sensitive information: The CGSI (Corporate Governance andStakeholder Interface committee makes the information available to investor, institutions and
public at large.
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5. History of penalties levied by regulators for violations of statutory provisions: There has been noinstance of non-compliance by the Company on any matter related to capital markets during the
last three years and hence no penalties or strictures have been imposed on the Company by the
Stock Exchanges or SEBI or any other statutory authority.
6. CSR: Social welfare and community development is at the core of Reliances CSR philosophy andthis continues to be a top priority. Reliance embraces responsibility for impact of its operations
and actions on all stakeholders including society and community at large.
7. Environmental Impact: The Health, Safety and Environment Committee has been constituted,inter alia, to monitor and ensure maintaining the highest standards of environmental, health
and safety norms and compliance with applicable pollution and environmental laws at all works
/ factories / locations of the Company and to recommend measures, if any, for improvement in
this regard. The Committee reviews, inter alia, the Health, Safety and Environment Policy of the
Company, performance on health, safety and environment matters and the procedures and
controls being followed at various manufacturing facilities of the Company and compliance with
the relevant statutory provisions.
So the above mentioned points are completely followed by the reliance. Board recognizes the
importance of two-way communication with shareholders and giving a balanced report of results and
progress and responds to questions and issues raised in a timely and consistent manner. Reliance
ensures that complaints and suggestions of its shareholders are responded in a timely and consistent
manner. A Shareholders Reference is provided with this annual report which is quite comprehensive
and informative. The Stakeholders Interference committee allows the stakeholders to take important
decisions regarding the dissemination of information to the media, investors, nomination of directors,
etc.
5) Transparency and DisclosuresListed companies have to meet several statutory requirements on disclosures, financial results, and
information that must be part of their published accounts. However, with the depth of the capital
markets increasing and institutional activity in the markets picking up, organizations are making
voluntary disclosures that go beyond the minimum disclosure requirements. Shareholders and potential
investors require access to regular, reliable and comparable information in sufficient detail to assess the
quality of the management, the organizationsgrowth prospects, and the associated risk factors. At the
same time, organizations are not expected to disclose information that may endanger their competitive
position. In ICRAs opinion, the information disclosed by organizations should be material and must shedlight on their plans/expectations as well the foreseeable risks.
The key parameters used to assess a companys transparency and disclosure standards are:
1. Accounting quality, including compliance with accepted accounting standards andcomparison with industry best practices
2. Changes in accounting policies
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3. Notes to accounts of a materially significant nature4. Quality and level of detail in accounts, especially with respect to item likes Loans and
Advances,
5. Inter-Corporate Advances and Contingent Liabilities6. Disclosures on transactions with subsidiaries, associates and other related parties7. Additional information to shareholders8. Quality of disclosures in Management Discussion and Analysis (MDA)9. While assessing the MDA and Directors report, ICRA evaluates the extent to which
information is available on areas2 like:
10.Competitive position of the companys product portfolio and trends in the same11.Key drivers of the companys operating performance, including sustainability of margins12.The rate and success of product innovations13.Risk factors that could have a bearing on the prospects of each business line14.The trends in share price movements around major corporate announcements are also
looked at to evaluate whether price sensitive information is disseminated in a timely
manner to all stakeholders.
As per the criteria mentioned for transparency and disclosure, Reliance fulfils all of them.
Corporate Governance is a set of systems and practices to ensure that the affairs of the
Company are being managed in a way which ensures accountability, transparency, and fairness
in all its transactions in the widest sense and meet its stakeholders aspirations and societal
expectations. e. At Reliance, we adhere to ethical standards to ensure integrity, transparency,
independence and accountability in dealings with all stakeholders.
Oversight of the Companys financial reporting process and the disclosure of its financial
information to ensure that the financial statements are correct, sufficient and credible.
Disclosure of related party transactions. None of the transactions with any of the related parties
were in conflict with the interest of the Company. Attention of members is drawn to the
disclosure of transactions with the related parties set out in Note No. 30 of the Standalone
Financial Statements, forming part of the Annual Report. The Companys major related party
transactions are generally with its subsidiaries and associates. The related party transactions are
entered into based on considerations of various business exigencies such as synergy in
operations, sectoral specialization and the Companys long-term strategy for sectoral
investments, optimization of market share. All disclosures and communications to BSE & NSE
are filed electronically through the CFDS portal and hard copies of the said disclosures and
correspondence are also filed with the Stock Exchanges.
6) Financial DisciplineThe ultimate objective of Corporate Governance is to create and maximize shareholder value. While the
actual shareholder value generated by a company may be dependent on a number of factors that are
beyond the control of its management, ICRA believes that maintenance of a certain level of discipline in
the conduct of business operations also has an important role to play. ICRAs analysis therefore focuses
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on factors that are within the companys control, and which, in ICRAs opinion, impact the sha reholder
value that a company is able to generate in the long run. Such factors include:
1. Business segments in which the company operates: The company operates in fivebusiness segments-exploration and production, refining and marketing, petrochemical,
retail andtelecommunications.2. Rationale for presence in multiple businesses, if any3. Return on capital employed in each business compared with the industry average: The
details about ROCE are shown in the diagram below.
4. History of equity dilution: The Companys Equity Shares are among the most liquid andactively traded shares on the Indian Stock Exchanges. RIL shares consistently rank
among the top few frequently traded shares, both in terms of the number of shares
traded, as well as value. The highest trading activity is witnessed on the BSE and NSE.
5. Extent of reliance on debt funding: RIL believes in debt funding. It has funded fromdifferent banks.
6. Dividend policy: In terms of distributing wealth to the shareholders, apart from having atrack record of uninterrupted dividend payout, RIL have also delivered a consistent
unmatched shareholder returns since listing. What epitomizes the impact of all that the
company does is the fact that their shareholder base has grown from 52,000 after the
IPO to a consolidated present base of around 3.2 million.
7. Number of subsidiaries/associates and rationale for the same
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8. Nature of transactions with subsidiaries: All subsidiary companies of the Company areBoard managed with their Boards having the rights and obligations to manage such
companies in the best interest of their stakeholders. The Company does not have any
material unlisted subsidiary and hence is not required to nominate an independent
director of the Company on the Board of any subsidiary
It must be emphasized that ICRA does not view a companys presence in multiple businesses or the
existence of subsidiaries/associates as a negative factor per se. ICRA only tries to evaluate the rationale
for the same and determine whether the parent holds its subsidiaries/associates at arms-length in its
transactions with them and whether the business decisions are based on commercial prudence. This
actually varies depending on the industry to which the company belongs. The items highlighted would
apply to a typical consumer products company. ICRA Rating Feature Rating Methodology of Corporate
Governance .
According to this criteria oversight of the Companys financial reporting process and the disclosure of its
financial information to ensure that the financial statements are correct, sufficient and credible.
Financial statements, in particular the investments made by the unlisted subsidiary companies, are
reviewed quarterly by the Audit Committee of the Company. Additionally, the Board reviews related
party transactions, financial reports from the CFO and business reports from each of the sector heads.
Frequent and detailed interaction sets the agenda and provides the strategic roadmap for the future
growth of the Company. At the heart of our processes is the wide use of technology that ensures
robustness and integrity of financial reporting, internal controls, allows optimal use and protection of
assets, facilitates accurate and timely compilation of financial statements and management reports and
ensure compliance with statutory laws, regulations and company policies.
7) Ethical PracticesCorporate Governance, ultimately, is about promoting corporate fairness and transparency. Therefore, a
cornerstone of Corporate Governance is a companys commitment to maintain the highest standards of
ethical practices in all its transactions. ICRAs analysis thus covers:
1. Comprehensiveness of code of ethics and integrity.2. Steps taken to effectively communicate the principles of corporate ethics3. Extent to which compliance with the codes and guidelines is monitored4. Extent to which feedback systems have been established to encourage whistle-blowing.
Reliance always strives to conduct its business and develop its relationships in a manner that is
dignified, distinctive and responsible. At Reliance, we adhere to ethical standards to ensure integrity,
transparency, independence and accountability in dealings with all stakeholders. In this direction, we
have adopted various codes and policies which act as enablers to carry out our duties in an ethical way
Some of these codes and policies are:
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1. Code for Board of Directors and Board Committees2. Code of Business Conduct and Ethics for Directors3. Management Personnel.4. Code of Conduct for Prohibition of Insider Trading.5. Code of Ethics and Business Policies.6. Policy document on Values and Commitments.7. Manual on Corporate Governance.8. Health, Safety and Environment (HSE) Policy.9. Code of Financial Reporting, Disclosure & Transparency.10. Business Responsibility Policy Manual
The Company promotes ethical behaviour in all its business activities and has put in place a mechanism
of reporting illegal or unethical behaviour. The Company has a whistle blower policy wherein the
employees are free to report violations of laws, rules, regulations or unethical conduct to their
immediate supervisor or such other person as may be notified by the management to the workgroups.
The confidentiality of those reporting violations is maintained and they are not subjected to anydiscriminatory practice.
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Rating
We follow the ICRA methodology for corporate Governance rating; however the weightage for the each
parameter in the methodology has not been disclosed by the ICRA. Based on the stakeholder point of
view, we provide weightage to each parameter. As per ICRA, the company governance rating are
provided as CGR1,CGR2,CGR3, CGR4, CGR5 and CGR6,where CGR1 is the highest rating and CGR6 is the
lowest. And, also we have allotted weightage for each rating as follows:
RATING WEIGHTAGE
CGR1 >85
CGR2 70-85
CGR3 55-70
CGR4 40-55
CGR5 25-40
CGR6
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(C) Board Structure and Process
i. Structural1. Size of the Board 2 22. Proportion of Independent Directors 4 23. Other Directorships held by the Independent
Director(s)
4 3
Structural score 10 7
ii. Effectiveness of the Board1. Frequency of Board meetings 1 0.752. Attendance track record of Directors 1 0.753. Quality of agenda papers and extent to which they are
circulated in advance
1 0.75
4. Quality of presentations made to the Board 1 15. Boards role in approving strategy proposed by the
executive management
2 2
6.
Deliberations related to major investments, capitalexpenditure, and related party transaction 2 1.5
7. Boards role in determining executive compensation 2 1Effectiveness of the Board Score 10 7.75
iii. Functioning of Board Committees1. Composition of the Audit Committee 3 22. Background, expertise, experience and independence
of its members
2 1.5
3. Audit Committee 5 4Functioning of Board Committees Score 10 7.5
Total Score(Board Structure and Process) 30 22.25
Board Structure and Process Score normalized to 15 30/2=15 11.125
(D) Stakeholder Relationship
1. Conduct of Annual/Extraordinary General Meetings(AGMs/EGMs) and the extent of disclosures at such
meetings
1 0.75
2. Procedures for transfer and registration of shares andpayment of dividend
1 0.75
3. Companys responsiveness to investor complaints 2 24. History of penalties levied by regulators for violations
of statutory provisions, if any
1 1
5. CSR 3 36. Environmental Impact 2 1.5
Total Score(Stakeholder Relationship) 10 9
Stakeholder Relationship Score normalized to 5 10/2=5 4.5
(E) Transparency and Disclosures
1. Accounting quality, including compliance with acceptedaccounting standards and comparison with industry
best practices
6 5
2. Changes in accounting policies 5 4
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3. Notes to accounts of a materially significant nature 3 34. Quality and level of detail in accounts, especially with
respect to item likes Loans and Advances, Inter-
Corporate Advances and Contingent Liabilities
3 3
5. Disclosures on transactions with subsidiaries,associates and other related parties
3 2
6. Additional information to shareholders 3 17. Quality of disclosures in Management Discussion and
Analysis (MDA)
7 6.5
Total Score(Transparency and Disclosures) 30 24.5
Transparency and Disclosures score normalized to 15 30/2=15 12.25
(F) Financial Discipline
1. Business segments in which the company operates 7 62. Rationale for presence in multiple businesses, if any 5 43. Return on capital employed in each business compared
with the industry average
8 7
4. History of equity dilution 4 25. Extent of reliance on debt funding 8 86. Dividend policy 4 27. Number of subsidiaries/associates and rationale for the
same
8 6
8. Nature of transactions with subsidiaries 6 3Total Score(Financial Discipline) 50 38
Financial Discipline Score normalized to 25 50/2=25 19
(G) Ethical Practices
1. Comprehensiveness of code of ethics and integrity 8 72. Steps taken to effectively communicate the principles
of corporate ethics
8 7
3. Extent to which compliance with the codes andguidelines is monitored
7 5
4. Extent to which feedback systems have beenestablished to encourage whistle-blowing
7 4
Total Score(Ethical Practices) 30 23
Ethical Practices score normalized to 15 30/2=15 11.5
(H) Aggregate score(A+B+C+D+E+F+G) 100 78.375
Rating Score of the company CGR2
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Conclusion
As comparing the given four rating agency for the project, out of the four, we found ICRA methodology
to be in line with the international rating agency viz. S&P rating and also the methodology is easy to
understand and implement it.
Based on the parameters of the ICRA, we tally the weightage for the RIL on the available public
information such as the Annual Reports, CSR reports and the corporate Governance Report.
Now a day, investors consider corporate governance while making investment decision. Keeping this
interest in mind, ICRA provides the services of cooperate governance rating to their client.
While doing this project we came to know the rating agency methodology and how the companies try to
improve their rating.
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References
http://www.icra.in/Files/Articles/2004-July-RM-Corporategovernance.pdf http://www.ril.com/downloads/pdf/corp_gov_report2012_13.pdf www.ril.com http://en.wikipedia.org/wiki/Corporate_governance http://en.wikipedia.org/wiki/Reliance_Industries
http://www.icra.in/Files/Articles/2004-July-RM-Corporategovernance.pdfhttp://www.icra.in/Files/Articles/2004-July-RM-Corporategovernance.pdfhttp://www.ril.com/downloads/pdf/corp_gov_report2012_13.pdfhttp://www.ril.com/downloads/pdf/corp_gov_report2012_13.pdfhttp://www.ril.com/http://www.ril.com/http://en.wikipedia.org/wiki/Corporate_governancehttp://en.wikipedia.org/wiki/Corporate_governancehttp://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Corporate_governancehttp://www.ril.com/http://www.ril.com/downloads/pdf/corp_gov_report2012_13.pdfhttp://www.icra.in/Files/Articles/2004-July-RM-Corporategovernance.pdf