CORPORATE GOVERNANCE

Concept and Objectives Corporate Governance may be defined as a set of

systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders. It is the system by which companies are directed and controlled. It is about promoting corporate fairness, transparency and accountability. In other words, 'good corporate governance' is simply 'good business'.

It ensures: Adequate disclosures and effective decision making to

achieve corporate objectives; Transparency in business transactions; Statutory and legal compliances; Protection of shareholder interests; Commitment to values and ethical conduct of business.

Definition

Corporate governance is "the system by which companies are directed and controlled“

- (Cadbury Committee, 1992).

“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

Constituents of Corporate Gov The Board of Directors

Pivotal role Accountable to stakeholders Directs management

The Shareholders & Stakeholders To participate in appointment of directors. To hold the BoD accountable for governance through

proper disclosures.

The Management To act on the direction of the BoD. To provide requisite information to the BoD for decision

making. To implement and monitor control systems.

Underlying principles of corporate governance

Rights and equitable treatment of shareholders

Interests of other stakeholders Integrity and ethical behavior Disclosure and transparency

GOOD CORPORATE GOVERNANCE

A good corporate governance recognizes the diverse interests of shareholders, lenders, employees, government, etc. The new concept of governance to bring about quality corporate governance is not only a necessity to serve the divergent corporate interests, but also is a key requirement in the best interests of the corporate themselves and the economy.

The Main Constituents of Good Corporate Governance are:

Role and powers of Board Legislation Code of Conduct Board Independence Board Skills Business and Community Obligations Financial and Operational Reporting Monitoring the Board Performance Audit Committee Risk Management

Organizational FrameworkThe organizational framework for

corporate governance initiatives in India consists of

the Ministry of Corporate Affairs (MCA) and

the Securities and Exchange Board of India (SEBI)

The first formal regulatory framework for listed companies specifically for corporate governance was established by the SEBI in February 2000, following the recommendations of Kumarmangalam Birla Committee Report. It was enshrined as Clause 49 of the Listing Agreement.

Thereafter SEBI had set up another committee under the chairmanship of Mr. N. R. Narayana Murthy, to review Clause 49, and suggest measures to improve corporate governance standards. Some of the major recommendations of the committee primarily related to audit committees, audit reports, independent directors, related party transactions, risk management, directorships and director compensation, codes of conduct and financial disclosures.

Clause 49, when it was first added, was intended to introduce some basic corporate governance practices in Indian companies and brought in a number of key changes in governance and disclosures. It specified the minimum number of independent directors required on the board of a company.

In late 2002, SEBI constituted the Narayana Murthy Committee to assess the adequacy of current corporate governance practices and to suggest improvements. Based on the recommendations of this committee, SEBI issued a modified Clause 49 on 29 October 2004 (the ‘revised Clause 49’) which came into operation on 1 January 2006.

The revised Clause 49 has suitably pushed forward the original intent of protecting the interests of investors through enhanced governance practices and disclosures. Four main areas in clause 49 are:

The independence criteria for directors . The roles and responsibilities of the board have been enhanced. The quality and quantity of disclosures have improved. The roles and responsibilities of the audit committee in all

matters relating to internal controls and financial reporting have been consolidated, and the accountability of top management—specifically the CEO and CFO—has been enhanced.

The Ministry of Corporate Affairs had also appointed a Naresh Chandra Committee on Corporate Audit and Governance in 2002 in order to examine various corporate governance issues.

It made recommendations in two key aspects of corporate governance:

financial and non-financial disclosures and independent auditing.

Legal Framework

The important legislations for regulating the entire corporate structure and for dealing with various aspects of governance in companies are

Companies Act, 1956 and Companies Bill, 2004. These laws have been introduced and amended, from time to time, to bring more transparency and accountability in the provisions of corporate governance. That is, corporate laws have been simplified so that they are amenable to clear interpretation and provide a framework that would facilitate faster economic growth.

Secondly, Securities and Exchange Board of India Act, 1992 and Depositories Act, 1996 have been introduced by Securities and Exchange Board of India (SEBI), with a view to protect the interests of investors in the securities markets as well as to maintain the standards of corporate governance in the country.

IR Global Rankings

The best ranked companies for the 2011 edition of the IR Global Rankings are as follows:

Best Ranked Corporate Governance Practices in India: Infosys Technologies, Kotak Mahindra Bank, Persistent Systems, Hindustan Unilever, Nucleus Software Exports

 parameters were: The companies efforts to maintain shareholder value. The managements compliance with the norms of good

corporate governance. The companies efforts to promote employee

development. If the price charged by the company is affordable. Whether the company recognizes rights and fulfils

obligations towards other stakeholders. Whether the company is sensitive to environment and

doing enough to improve the quality of life of the society and satisfy public expectations of fairness and ethical conduct.

Corporate Governance Policies Infosys has been a pioneer in benchmarking its

corporate governance practices with the best in the world. Given below are the company's policies on corporate governance.

Board composition  Board meetings  Board committees  Code of ethics for principal executive & senior fin

ancial officers 

Management review and responsibility  Shareholders  Code of Conduct and Ethics  Whistleblower Policy 

CRISIL has been consistently assigning us the ‘CRISIL GVC Level 1’ rating over several years now. This Governance and Value Creation (GVC) rating indicates our capability to create wealth for all our stakeholders while adopting sound corporate governance practices.

A whistleblower (whistle-blower or whistle blower)[1] is a person who tells the public or someone in authority about alleged dishonest or illegal activities (misconduct) occurring in a government department, a public or private organization, or a company. The alleged misconduct may be classified in many ways; for example, a violation of a law, rule, regulation and/or a direct threat to public interest, such as fraud, health/safety violations, andcorruption. Whistleblowers may make their allegations internally (for example, to other people within the accused organization) or externally (to regulators, law enforcement agencies, to the media or to groups concerned with the issues).

The government of India has been considering adopting a whistleblower protection law for several years. In 2003, the Law Commission of India recommended the adoption of the Public Interest Disclosure (Protection of Informers) Act, 2002.[34]. In August 2010, the Public Interest Disclosure and Protection of Persons Making the Disclosures Bill, 2010 was introduced into the Parliament of India, Lok Sabha.[35]. It was approved by the cabinet in 2011.