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1. Corporate GovernanceGROUP - E

3. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources.

5. History of Corp Gov 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 collapse Also, unlike most OECD countries, the initiative in India was initially driven by an industry association, the Confederation of Indian Industry In December 1995, CII set up a task force to design a voluntary code of corporate governance The final draft of this code was widely circulated in 1997 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. Reddy’s Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others

6. History of Corp Gov in India Following CII’s 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 companies The Birla Committee Report was approved by SEBI in December 2000 Became mandatory for listed companies through the listing agreement, and implemented according to a rollout plan

7. History of Corp Gov in India 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 committees In 2001-02, certain accounting standards were modified to further improve financial disclosures. These were: Disclosure of related party transactions Disclosure of segment income: revenues, profits and capital employed Deferred tax liabilities or assets Consolidation of accounts Initiatives are being taken to (i) account for ESOPs, (ii) further increase disclosures, and (iii) put in place systems that can further strengthen auditors’ independence

8. Issues in Corporate Governance Asymmetry of power Asymmetry of information Interests of shareholders as residual owners Role of owner management Theory of separation of powers Division of corporate pie among stakeholders

9. Corporate Governance Mechanisms Internal Governance Mechanisms Board of director Managerial incentive compensation Ownership concentration External Governance Mechanisms Market for Corporate Control

10. Mechanism of control Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behavior, an independent third party (the external auditor) attests the accuracy of information provided by management to investors. An ideal control system should regulate both motivation and ability 1. Internal corporate governance control . 2. External corporate governance control .

11. Internal corporate governance control Organizationally based mechanism Monitoring by the board of directors. Internal control procedures and internal auditors. Balance of power. Remuneration

12. External corporate governance control It encompasses the control of external stake holders exercise over the organization. Competition Debt covenants Demand for assessment of performance (especially financial statements.) Government regulations Media pressure Take over

13. Regulation Rules versus principles Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behavior In practice rules can be more complex than principles. They may be ill-equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose - this is harder to achieve if one is bound by a broader principle. Principles on the other hand is a form of self regulation. It allows the sector to determine what standards are acceptable or unacceptable. It also pre-empts over zealous legislations that might not be practical.

15. Cont…. Action Beyond Obligation Enlightened boards regard their mission as helping management lead the company. They are more likely to be supportive of the senior management team. Enlightened directors recognize that it is not their role to be involved in the day-to-day operations of the corporation. They lead by example. Overall, what most distinguishes enlightened directors from traditional and standard directors is the passionate obligation they feel to engage in the day-to-day challenges and strategizing of the company. Enlightened boards can be found in very large, complex companies, as well as smaller companies

18. Parties to Corporate Governance Chief Executive officer Responsibilities. International Use. Structure. In the Media. CEO Search Firms.

19. Board of Directors Use of corporate property. Transaction with Company. Conflict of duties and interest. Proper purpose. Classification

20. Management Basic function of management. Formation of the business policy. How to implement policies and strategy. Where policies and strategies fit in the planning process. Areas and categories and implementation of management. Multi divisional management hierarchy.

21. Share holders The right to propose shareholder resolution. The right to share in distributions of the company's income. The right to purchase new shares issued by the company. The right to a company's assets during, a liquidation of the company.

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23. THE INFOSYS MODEL A formal code of business conduct and ethics. To be signed and adhered to by employees. Action against any employee for violation is taken seriously

24. THE INFOSYS MODEL -Contents General standards of conduct Management of conflicts of interest Protection of company’s confidential information Obligations under securities laws Use of assets An entire section on responsibilities to customers and stakeholders.

26. Achievements 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

27. Narayana Murthy’s Global Strategy Global Delivery Model – Producing where it is most cost effective to produce & selling where it is most profitable to sell. Moving up the Value Chain – Getting involved in a software development project at the earliest stage of its life cycle. PSPD Model – Predictability of Revenues, Sustainability of Revenues, Profitability, De-making and risk taking

28. ICSI National Award for Excellence in Corporate GovernanceBest Governed Companies

29. Current status on corporate governance Insistence on forms and structures Overarching regulations Regulatory overkill Lack of adequate number of strong, independent directors Large liabilities for companies and officers Has the pendulum swung too far? For the first time in the decade-long history of the Index of Economic Freedom, the U.S. is no longer among the top ten “most free” countries Wall Street Journal and the Heritage Foundation “Index of Economic Freedom”

30. Benefits of Good Corporate Governance Having better access to external finance. Lower costs of capital. Improved company performance. Higher firm valuation and share performance. Reduced risk of corporate crises and scandals

31. Factor influence the corporate governance 1. The ownership structure 2. The structure of company boards 3. The financial structure 4. The institutional environment problems of corporate governance Demand for information Monitoring costs Supply of accounting information

32. Problem of corporate governance We lay structures over the corporate business, and fail to organize the business Corporate Performance Management reports against overlaid structures Accounting accounts for only part of the business cycle and against the wrong entities We govern the corporation by rules and regulations, because we cannot manage the actual business

33. ETHICS-definitions The word ethics is derived from the Greek word ethos meaning character and latin word mores meaning customs To better understand ethics let us understand and contrast the definition of ethics and law Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society. Ethics defines what is good for the individual and for society and establishes the nature of duties that people owe to oneself and others in society

34. What are ethics The principle of conduct – professional ethics A system or philosophy of conduct A discipline dealing with what is good and bad- moral duty and obligation A set of moral principles or values

35. ETHICS AND CORPORATE GOVERNANCE Deals with determination what is ‘right'," fair, prior and just" in decisions and actions made that affect stake holders. It focuses on the business relationship with employees, customers, stockholders, creditors, suppliers and member of the society in which it operates. Corporate ethics , is a matter of leadership. Adhere to corporate credos-code of conduct. Development of IQ,EQ and SQ culture.

36. Purpose of ethics Ethics are the guiding principles. Where the proposed business activity/ operation of the company borders on the unknown, the company needs to apply the ethics principle to decide on the project. Ethics help make relationships mutually pleasant and productive- imbibes a sense of community among members- a sense of belongingness to society.

37. laws Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society.

38. Relation between ethics and law

39. Concluding remarks By and large, Indian listed companies have been legally mandated to follow fairly strict standards of corporate governance and disclosure Comparisons will show that the standards are far stronger than all Asian countries, and in general stronger than most OECD countries Indian corporate sector regulators and companies have been quick to incorporate some of the best international corporate governance and disclosure practices The need of the day is more training… of directors, audit committee members and senior executives of companies The challenge is to design and sustain a system that imbibes the spirit of corporate governance… and not merely the letter of the law

40. THANK YOU