CASE STUDIES ON CORPORARTE GOVERNANCE DISCLOSURE PRACTICES In this chapter, an attempt has been made to conduct the case studies of a few selected companies who bagged the ICSI National Award for Excellence in Corporate Governance. The ICSI has introduced this award in the year 2001 and all those companies whose shares were listed in Group A of BSE or S&P CNX Nifty as on 31st March 2001 were considered for participation in this award. The main objective of introducing this award is to promote transparency and fairness among the functioning of board and senior managerial personnel as well as to ensure that the corporate governance norms are being followed both in letter and with spirit. The companies have been selected for this award on the basis of certain governance parameters such as board independence and governance, board system and procedures, transparency and fairness in disclosure, corporate social responsibility, shareholders and stakeholders value enhancement, etc. The following table presents the list of companies who were the winners of this award from the year 2001 to 2007. Table: 5.1 List of Award Winning Companies Year(s) Name of the Companies 2001 Infosys Technologies Ltd. 2002 Dr. Reddy s Laboratories Ltd. and TISCO Ltd 2003 Reliance Industries Ltd 2004 Hero Honda Ltd, Wipro Ltd. and Tamil Nadu Newsprint and Papers Ltd. 2005 Infosys Technologies Ltd 2006 * -- 2007 TCS and Kansai Nerolac Paints Ltd. * In the year 2006, name of the award winning company has not been displayed on the website of ICSI. However, only the list of nominee companies in that particular year has been displayed on the website.
The table 5.1 shows the list of award winning companies from the year 2001 to 2007 except for the year 2006. However, for the present study, only those award winning companies have been selected which belong to the sample of this study. Hence, TCS and Kanasi Nerolac Paints have been ignored for case study purpose. The names of the companies selected for the case studies are (i) Infosys Technologies Ltd. (ii) Dr. Reddy s Laboratories Ltd. (iii) Tata Iron and Steel Company Ltd. (iv) Reliance Industries Ltd. (v) Hero Honda Ltd. (vi) Wipro and (vii) Tamil Nadu Newsprint and Papers Ltd. In addition to these companies, an attempt has also been made to conduct the case study on Satyam Computer Services Ltd. The case studies have been conducted regarding the corporate governance disclosure of the companies for the period of eight years i.e. from 2000-01 to 2007-08 except for Satyam Computer Services Ltd. The annual reports of Satyam Computer Services Ltd were available from the years 2000-01 to 2006-07. 5.1 Case Study of Satyam Computer Services Ltd. As claimed by Satyam Computers Services Ltd. in its annual reports its corporate governance policy was based on core values such as Asssociate Delight, Investors Delight, Customer Delight and Pursuit of Excellence. The recently occurred scam of Satyam Computer Services Ltd. in the year 2009 has shaken the faith of investors in this company. This scam has revealed certain alarming truths about the financial position of the company. Satyam s chairman Ramalinga Raju along with his brother Rama Raju (Managing Director of Satyam) have been concealing the information for the last so many years. Ramalinga Raju who was also a promoter director, had been associated with this company for the last 20 years. On January 2009, Satyam s chairman admitted the fraud of Rs. 7800 crore. The chairman of the company in his letter to chairman of SEBI and stock exchange authorities has mentioned that he tried to cover this gap of Rs. 7800 crore by acquisition of Maytas. By acquiring the Maytas, he wanted to fill the gap of fictitious assets appearing in Satyam s balance sheet with the real ones of Maytas. The real picture of Satyam came into light as on December 16, 2008 when board rejected the decision to acquire two Maytas firms for Rs. 7920 crore. The stakeholders strongly 121
opposed the acquisition of the firms. Meantime, in the month of December 2008, four independent directors also resigned from the company s board. Their resignations showed agitation regarding the chairman s decision of acquiring Maytas. In the company s balance sheet, there existed the inflated cash and bank balances of Rs. 5040 crore. The accrued interest figures stood at Rs. 376 crore. The debtors of the company had also been overstated by Rs. 490 crore while the actual reflected in the books were Rs 2,651 crore. In Sept. 2008, the quarterly results of the company also reflected the revenue of Rs. 2700 crore as against the actual one of Rs. 2112 crore. The company s audited financial statements also depicted the operating profit margin of Rs. 649 crore as against the actual one of Rs. 61 crore. The chairman of the company also disclosed about the pledging of all the shares of his family members for Rs. 1230 crore just to keep the company on a running track. One of the interesting points in this matter is about the role of the statutory auditors. The big question arises here about the fairness of the financial statements. The auditors of the company named as PriceWaterhouse Coopers Ltd audited the financial statements of the company for the year 2007-08 and revealed nothing about the manipulation of accounts by the company s top officials. All this have created the doubts in the minds of investors regarding the credibility of the financial statements. The auditor s role is to act on behalf of the shareholders and to verify what is being presented by the management in the form of financial statements. The Satyam s scam has even made the role of statutory auditor in the company a questionable one. A detailed analysis of corporate governance disclosure practices of the company as per clause 49 of the listing agreement from the year 2000-01 to 2006-07 has been given as follows: I Co's Philosophy on Corporate Governance As per company's claim, its philosophy on corporate governance was based on the certain core values such as 'Belief in People', 'Entrepreneurship, Customer 122
Orientation and the Pursuit of Excellence. It has been observed that the company has been disclosing its corporate governance philosophy from the year 2000-01 to 2006-07. II Board of Directors The annual reports for the period of seven years i.e. from 2000-01 to 2006-07 state that the composition of the board is governed by the Co's Act 1956 as well as by the clause 49 of the listing agreement of the Indian Stock Exchanges. Six directors served on the board in the year 2000-01 while in the year 2006-07, the size of the board has increased to 10 directors. It has been observed through out the period of 7 years that Mr. B. Ramalinga Raju who was a promoter and executive director, had been acting as chairman of the board. Mr. V.P. Rama Rao, Dr. Mrs. Manglam Srinivas, Krishna G. Palepu, Vinod K. Dham and M. Rammohan were serving as non executive independent directors on the board. The company has conducted the board meetings as per the requirements of clause 49 of the listing agreement for the period of seven years under study Table: 5.1.1 No. of Board Meetings Held by Satyam Computer Services Ltd. Year(s) No. of Meetings 2000-01 8 2001-02 6 2002-03 4 2003-04 4 2004-05 5 2005-06 5 2006-07 4 123
The table 5.1.1 reveals that in the year 2000-01, 8 board meetings were held. It has been further observed that the gap between the two board meetings was less than 120 days as required by clause. The company has disclosed the attendance record of each director at the board meetings for the entire period of study. It has been further observed from the analysis that in the year 2000-01, the company has not disclosed the attendance record of the directors at AGM. The following table reveals the attendance record of the directors at the Annual General Meetings: Table: 5.1.2 Attendance Record of Directors at AGMs of Satyam Computer Services Ltd. Year(s) No. of Directors Present 2000-01 0 2001-02 4 2002-03 4 2003-04 6 2004-05 6 2005-06 5 2006-07 5 It has been observed from the table 5.1.2 that the attendance record of directors has not been given in the annual report for the year 2000-01. In the year 2005-06, all the directors were present at annual general meeting. The company has not disclosed anything regarding the information to be placed before the board at board meetings and brief resumes of directors to be appointed or re-appointed in the corporate governance section of the annual report for the period of seven years. However, the company has been disclosing the information regarding the committee s position held on other co's board for the entire period of study. 124
III Audit Committee The company has disclosed the brief terms of reference of the audit committee for the entire period of analysis. A total no. of 3 members serve on the committee s board from the year 2000-01 to 2006-07 and the chairman of the committee is also an independent director. Except for the year 2000-01, the chairman of the committee was also present at AGMs for all the years to answer the shareholders queries. The company has not disclosed anything regarding the financial literacy of the members of audit committee and name of the secretary of the committee. Moreover, it has been further observed that except for the year 2000-01, the head of finance, statutory auditors and chief internal auditors were present as invitees in the audit committee meetings for the entire period of study. The following table reveals the no. of meetings held for the period of seven years: Table: 5.1.3 No. of Audit Committee Meetings Held by Satyam Computer Services Ltd. Year(s) No. of Meetings 2000-01 4 2001-02 5 2002-03 6 2003-04 5 2004-05 5 2005-06 5 2006-07 8 The above table reveals that maximum no. of meetings were held during the year 2006-07 and minimum during 2000-01. However, it shows that company has been complying with the requirements of conducting minimum no. of 3 audit committee meetings during the entire period of study. 125
IV Remuneration of Directors The company has been disclosing the details of remuneration package of all the directors serving on the board for the period of seven years i.e. from 2000-01 to 2006-07. It has been observed that Ramalinga Raju (Chairman) was drawing the salary of Rs. 18,00,000 and the total remuneration package of chairman inclusive of commission, provident fund, superannuation fund and others was Rs. 53,57589 during the year 2006-07. However, the company has not disclosed anything regarding the performance linked incentives, performance evaluation criteria, service contracts of directors, notice period given to directors and severance fee for the directors. For the years 2005-06 and 2006-07, the company has disclosed the details of compensation paid to non-executive directors. V Investors Grievance Committee The company has formed the Investors Grievance Committee and non executive director has been acting as a chairman of the committee. The name and designation of the compliance officer has also been disclosed for the entire period of study. Except for the year 2000-01, the company has disclosed the no. of shareholders complaints received as well as resolved during all the years. It has been mentioned that there is no pending share transfers for all the years under study. VI General Body Meetings The company has disclosed properly the time and locations where the last three annual general meetings were held for the period of seven years i.e. from 2000-01 to 2006-07. VI Disclosures It has been disclosed by the company that there are not any type of materially significant related party transactions entered into by the company with its relatives or members. Moreover, no penalties have been imposed by SEBI or any statutory authority for any non-compliance. For the year 2005-06, it has become mandatory for the company to disclose the accounting treatment, risk management, proceeds from public issues, right issues, preferential issues and code of conduct for directors and senior management personnel. It has been observed from the analysis of the years 2005-06 and 2006-07 that 126
the company has been disclosing just the code of conduct for its directors and senior management personnel. VII Means of Communication The company has been disclosing the information regarding the publication of quarterly results along with the names of newspapers and website details where the results are published or displayed. It has been observed that co s financial results are published in prominent business newspapers namely Business Standard and Economic Times. The company also makes the regular presentations to institutional investors and analysts, and management discussion and analysis report has been given as part of the director s report for the period of seven years under study. VIII General Shareholders Information It has been observed from the analysis that proper disclosure has been made under this section for a few items namely date, time and venue of AGM, financial calendar, date of book closure, dividend payment date, listing details, stock code, market price data, performance in comparison to broad based indices such as BSE sensex, CRISIL index, etc., share transfer system, distribution of shareholdings, dematerialization of shares and liquidity and address for a correspondence. However, the company has not disclosed anything regarding the 'Shareholding Pattern' for the entire period of study. IX CEO and CFO Certification on Financial Statements From the year 2005-06 onwards, it has become mandatory for the companies to disclose CEO and CFO certification on financial statements in the corporate governance section of the annual report. But the company has not been complying with this provision for the years 2005-06 and 2006-07. X Compliance with Corporate Governance Code The company has been complying with this provision for the entire period of study. The certificate of auditor regarding the compliance with corporate governance 127
code has been given in the corporate governance section of the annual report for the period of seven years under study. B. Non Mandatory Requirements XI Remuneration Committee The company has formed the remuneration committee for the entire period of study. The brief description of terms of reference along with the composition and names of members have been disclosed in the corporate governance section of the annual report for the entire period of study i.e. from the year 2000-01 to 2006-07. Independent director has been acting as a chairman of the committee and he was also present at AGM to answer shareholders queries. The following table reveals the total no. of meetings held from the year 2000-01 to 2006-07. Table: 5.1.4 No. of Remuneration Committee Meetings Held by Satyam Computer Services Ltd. Year(s) No. of Meetings 2000-01 9 2001-02 8 2002-03 5 2003-04 4 2004-05 4 2005-06 3 2006-07 3 Source: Compiled from Corporate Governance Section of the Annual Report The table 5.1.4 shows that maximum no. of meetings were held during the year 2000-01 and minimum during the years 2005-06 and 2006-07. It has also been observed that all the members of the committee were present at meetings except for the 2004-05 where one member was absent from the meeting. 128
XII Shareholders Rights Under this section, it has been observed that the company has not posted half yearly reports to the shareholders for the entire period of study. The reports are displayed on website of the company Moreover, it has been disclosed that the company has not passed any special resolution through postal ballot and there is no such special resolution proposed to be passed through postal ballot for the entire period of seven years under study. From the year 2005-06 onwards, the revised clause 49 listed few items under nonmandatory category to be disclosed by the company It has been observed from the analysis that the company has not been providing training to its board members and nothing has been disclosed regarding the mechanism for evaluating the performance of non-executive directors and audit qualification, if any. But the company has adopted the policy of whistle blower and the same has been disclosed in the corporate governance section of the annual reports for the years 2005-06 and 2006-07. So, in addition to the corporate governance disclosure as per clause 49 of the listing agreement, the company has been disclosing the details of unclaimed dividend transferred to Investor s Education and Protection Fund, information on Electronic Clearing Service (ECS) mandate and information on submission of data to SEBI's EDIFAR system in the corporate governance section of the annual reports for the years 2005-06 and 2006-07. Moreover, it can be concluded that the company has not been following requirements of clause 49 in a true sense. The certain items of clause 49 of the listing agreement i.e. information to be placed before the board at the time of board meetings, resumes of the directors to be appointed or re-appointed, shareholding pattern of the company, service contracts of director, information on notice period of directors, training to board members, mechanisms for evaluating the performance of non-executive directors have not been disclosed by the company at all. 5.2 Case Study of Tamil Nadu Newsprint & Papers Ltd (TNPL) Tamil Nadu Newsprint and Papers Ltd. is a Government of India undertaking. This company is recognized as one of the leading companies in the paper industry due to increase in its scale of operations and technology upgradation, developed human resources, strong financial structure and customer approach. This company has won ICSI Award for Excellence in Corporate Governance in the category of public sector 129
undertaking in the year 2004. The analysis of corporate governance disclosure practices for the period of eight years i.e. from 2000-01 to 2007-08 has been given as under: A.) I Mandatory Requirements Co's Philosophy on Corporate Governance As stated in its annual report, the corporate governance philosophy is based on the highest levels of transparency, integrity and equity in all of its operations and having good relations with all of its stakeholders including shareholders, employees, Govt. and lenders. It has been observed that company has been disclosing its philosophy on corporate governance for the entire period of study. II Board of Directors Duality existed on co's board till the year 2005-06 and afterwards in the year 2007-08 non- executive director was appointed as a chairman of the company and executive director has been acting as managing director. The chairman of the company has been appointed by Govt. of Tamilnadu. The following table shows the board size and no. of independent directors serving on the board: Year(s) Table: 5.2.1 Board Size and No. of Independent Directors of Tamil Nadu Newsprint & Papers Ltd. Total No. of Directors No. of Independent Directors 2000-01 9 2 2001-02 12 6 2002-03 12 6 2003-04 11 6 2004-05 9 5 2005-06 9 5 2006-07 11 6 2007-08 10 5 130
It has been observed from the table 5.2.1 that size of the board varies from 9 to 12 directors for the period of eight years. For the year 2000-01, two directors are independent out of total no. of 9 directors. In this year, the requirement of having atleast 50% of independent directors in case the chairman is executive director has not been met. For rest of the years, the company has been complying with this provision of clause 49 of the listing agreement. The company has been holding more than 4 board meetings in each year. Table 5.2.2 shows the no. of board meetings held during the period of eight years. Table 5.2.2 No. of Board Meetings Held by Tamil Nadu Newsprint & Papers Ltd. Year(s) No. of Meetings 2000-01 8 2001-02 8 2002-03 7 2003-04 7 2004-05 8 2005-06 8 2006-07 7 2007-08 7 The table 5.2.2 reveals that the company has been holding the board meetings in excess of minimum requirement of 4 meetings in each year. The time gap between two meetings has not been observed to be more than 120 days. The annual reports of the company have disclosed the attendance record of the directors at AGM. 131
The table 5.2.3 reveals the attendance record of directors at AGMs Table 5.2.3 Attendance Record of Directors at AGMs of Tamil Nadu Newsprint & Papers Ltd. Year(s) No. of Directors Present 2000-01 7 2001-02 6 2002-03 6 2003-04 8 2004-05 6 2005-06 8 2006-07 10 2007-08 9 It has been observed from the table 5.2.3 that more than 50% of the directors were present at annual general meetings for all the eight years. The company has disclosed properly the information to be placed before the board at board meeting in the corporate governance section of the reports for the entire period of study. Except for the year 2000-01, it has been disclosed in the reports of all the years that directors are not holding the chairmanship of more than 5 committees or acting as members of more than 10 committees in all the companies. The brief resumes of the directors to be appointed or re-appointed have not been disclosed in the corporate governance section of the annual report. The same item has been disclosed in the notice of the annual general meeting. III Audit Committee The company has disclosed in detail the terms of reference of audit committee in all the years except for 2000-01. It has been mentioned that the company has constituted the audit committee even before the introduction of corporate governance code by SEBI. 132
The table 5.2.4 reveals the size of audit committee. Table : 5.2.4 Audit Committee Size of Tamil Nadu Newsprint & Papers Ltd. Year(s) No. of Members 2000-01 3 2001-02 3 2002-03 4 2003-04 4 2004-05 3 2005-06 4 2006-07 5 2007-08 5 It has been observed from the table 5.2.4 that size of the audit committee varies from 3 to 5 members. The company has been complying with the provision of clause 49 by appointing atleast 3 non-executive directors on the audit committee board. Independent director has been acting as chairman of the audit committee for the entire period of study. The chairman of the committee was present at AGMs to answer shareholders queries for all the years except for the years 2002-03 and 2003-04. For the three years i.e. 2005-06, 2006-07 and 2007-08, the head of finance, statutory auditors and chief internal auditors were present as invitees at audit committee meetings. The following table reveals the no. of meetings held by audit committee: Table: 5.2.5 No. of Audit Committee Meetings Held by Tamil Nadu Newsprint & Papers Ltd. Year(s) No. of Meetings 2000-01 4 2001-02 5 2002-03 6 2003-04 5 2004-05 7 2005-06 7 2006-07 6 2007-08 6 133
It has been observed from table 5.2.5 that the company has been holding audit committee meetings in excess of minimum no. of 3 meetings as required by clause 49 of the listing agreement. Maximum no. of meetings were held in the years 2004-05 and 2005-06. In the year 2000-01, the attendance record of directors at audit committee meetings has not been disclosed. Nothing has been disclosed regarding the financial literacy of the audit committee members and name of the secretary of the committee for the entire period of study. IV Remuneration of Directors The detailed remuneration package of all the directors have been disclosed for the entire period of study except for the year 2000-01. Nothing has been disclosed regarding the notice period, performance linked incentives, service contracts and severance fee of the directors. However, for the years 2005-06, 2006-07 and 2007-08, details of nonexecutive directors compensation have been disclosed in the corporate governance section of the annual report. V Investors Grievance Committee This committee has been formed to redress the investors grievances on timely basis. This committee has been set up by the company in the year 2001-02. It has been observed that non-executive director has been heading the committee but the name and designation of the compliance officer has not been disclosed at all. The company has given the details of investors grievances received and redressed from the years 2001-02 to 2007-08. It has been further disclosed that there is no pending share transfers during the entire period under study. VI General Body Meetings The company has disclosed property the place and time where last three AGMs were held for the entire period of study. 134
VII Disclosures It has been disclosed in the corporate governance section of the annual report that there is no materially significant related party transaction entered into by the company with its members or relatives. Moreover, no penalties have been imposed by SEBI or any other statutory authority for any non-compliance. For the years 2005-06, 2006-07 and 2007-08, the company has not disclosed anything regarding the accounting treatment and proceeds from public issues, right and preferential issues. However, the risk management disclosure has been made in the years 2006-07 and 2007-08. It has been further observed from the year 2005-06 onwards that the company has started disclosing the code of conduct for its directors and senior management personnel. VIII Means of Communication The quarterly results of the company have been published in the prominent business newspaper namely Financial Express and Economic Times or displayed on company's website. The company has also displayed on its website the official news releases and presentations made to the institutional investors for the entire period of study. It has been further disclosed in the corporate governance section of the annual report that management discussion and analysis report forms a part of the annual report. IX General Shareholders Information It has been observed from the analysis of this section that proper disclosure has been made for most of the items namely date, time and venue of AGM, financial calendar, date of book closure, dividend payment date, listing details, stock code, market price data, comparison of performance with broad based indices, registrar and share transfer agents, distribution of shareholding, plant locations, and address for correspondence. The proper disclosure has been made of shareholding pattern and dematerialization of shares and liquidity for the entire period of study except for the year 2000-01. The table 5.2.6 reveals the shareholding pattern of the company. 135
Table 5.2.6 Shareholding Pattern of Tamil Nadu Newsprint & Papers Ltd. Category 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Promoters 35.32 35.32 35.32 35.32 35.32 35.32 35.32 Indian Institutional Investors, Mutual Funds, UTI and Insurance Companies, etc 41.36 40.71 43.14 36.98 39.80 41.09 32.70 FIIs 0.24 0.34 2.74 4.25 4.16 3.36 13.04 NRIs/OCBs 0.22 0.26 0.34 0.65 0.81 0.45.43 Indian Public 11.74 11.82 8.88 13.09 14.42 12.38 12.26 Private Corporate Bodies 11.02 11.44 9.58 9.71 5.49 6.40 6.25 Total 100 100 100 100 100 100 100 In the case of TNPL, the share of promoter is being held by Governor of Tamilnadu. The share of foreign institutional investors has been increasing till 2004-05 but the shareholding of FIIs has decreased to 4.16% and 3.36% in the years 2005-06 and 2006-07 and further increased to 13.04% in the year 2007-08. The shareholding pattern of Indian public has been showing an increasing or decreasing trend over a period of time. The Indian institutional investors, mutual funds, etc., have been holding 41.36% of share in TNPL in the year 2001-02 but in the year 2007-08, 32.07% of shares are being held by them. X CEO and CFO Certification on Financial Statements From the year 2005-06 onwards, it became mandatory for the listed companies to disclose the report of CEO and CFO regarding certification on financial statements in the corporate governance section of the annual report. The company has been complying with this provision from the year 2005-06 onwards. 136
XI Compliance with Corporate Governance Code The company has been complying with this provision for the entire period of study. The certificate of auditor regarding the compliance with corporate governance code has been given in the corporate governance section of the annual report for the period of eight years under study. B XII Non-Mandatory Requirements Remuneration Committee The company has not formed the remuneration committee. XIII Shareholders Rights It has been disclosed in the annual reports that half yearly reports are not sent to the shareholders. Moreover, it has been mentioned in the annual reports from the year 2000-01 to 2006-07 that the company has neither passed any special resolution through postal ballot nor there is any such special resolution proposed to be passed through postal ballot in ensuing AGM. The company has passed special resolution though postal ballot just in the year 2007-08. It has been disclosed in the annual reports for the year 2005-06 and 2006-07 that the company has not been providing training to its board members and there is no any qualification of the accounts. Moreover, the company has not adopted the policy of whistle blower which is a non-mandatory requirement as per revised clause 49 of the listing agreement. Further the company has not disclosed the mechanism for evaluating the performance of non-executive directors. Till the year 2005-06, executive director was acting as a chairman of the board but in the year 2006-07, the Government has appointed non-executive director as a chairman of the board. It has been mentioned in the annual report for the year 2006-07, that the non-executive director does not maintain the office of chairman at company s expenses. In addition to the requirements of clause 49 of the listing agreement, it has been observed that company has been making the voluntary disclosure of certain items also. Information regarding the nomination facility, payment of dividend through ECS, details of unclaimed dividend, list of top ten shareholders of the company, and filing of quarterly financial results and shareholding pattern to SEBI Edifar system has been disclosed in the 137
corporate governance section of the annual reports for the years 2005-06, 2006-07 and 2007-08. It emerges from the above analysis that the company has been disclosing the maximum number of items of clause 49 of the listing agreement except for few items like information on brief resumes of directors to be appointed or reappointed, notice period and service contracts of directors, performance linked incentive and severance for the directors. Moreover, the company has also not followed the items of revised clause 49 of the listing agreement like mechanism for evaluating the performance of non-executive directors, whistle blower policy and training provided to its board members. 5.3 Case Study of Infosys Technologies Ltd. Infosys Technologies Ltd. is a renowned company for following the best governance practices. This company has won so many awards even at global level also for adopting the best code of corporate governance. The website of the company states "Corporate governance is about commitment to value and ethical conduct. It is a set of laws, regulations, processes and customs affecting the way a company is directed, administered, controlled or managed. This includes its corporate and other structures, cultures, policies and the manner in which it deals with the various stakeholders". The detailed analysis of corporate governance disclosure practices for the period of eight years i.e. from 2000-01 to 2007-08 has been given as follows: A) Mandatory Requirements I Corporate Governance Philosophy of the Company The company has given in detail the corporate governance philosophy for the period of eight years i.e. from 2000-01 to 2007-08. A brief note has been given with respect to Cadbury Code on corporate governance, Sarbanes Oxley Act, 2002 along with the provisions of Indian Clause 49 of the listing agreement. 138
II Board of Directors It has been observed from the year 2002-03 to 2007-08 that 15 directors serve on the company board and out of it, 8 directors are non-executive independent. The chairman of the company is a promoter executive director. Mr. Deepak M. Satwelkar has been appointed as a lead independent director who acts as a liaison between chairman and other independent directors of the company. The company has held the board meetings as per the requirements of clause 49 of the listing agreement. The table 5.3.1 reveals the no. of the board meetings held during the period of eight years i.e. from 2000-01 to 2007-08. Table: 5.3.1 No. of Board Meetings Held by Infosys Technologies Ltd. Year(s) No. of Meetings 2000-01 5 2001-02 5 2002-03 6 2003-04 6 2004-05 7 2005-06 5 2006-07 7 2007-08 5 The table 5.3.1 reveals that company has conducted more than 4 board meetings for the period of eight years and the maximum gap between the two board meetings was observed to be less than 120 days as required by law. The attendance record of the each director at the board meetings has also been disclosed for the period of eight years. The attendance record of the directors at AGM has been disclosed for the entire period of study. The table 5.3.2 reveals the attendance record of directors at AGM 139
Table: 5.3.2 Attendance Record of Directors at AGMs of Infosys Technologies Ltd. Year(s) No. of Directors Present 2000-01 8 2001-02 15 2002-03 14 2003-04 13 2004-05 13 2005-06 15 2006-07 14 2007-08 15 Table 5.3.2 reveals that in the year 2000-01, 50% of the directors attended the annual general meeting but in the years 2005-06 and 2007-08, the attendance record of the directors at annual general meeting was 100%. Except for the year 2000-01, proper information has been placed before the board at the time of board meetings for all the years under study. Similarly, except for the year 2000-01, the company has disclosed that none of the directors holds chairmanship of more than 5 board committees or act as member of more than 10 committees across all the companies. Detailed information regarding the resumes of the directors to be appointed or re-appointed has not been disclosed in the corporate governance section of the annual report for the period of eight years. The company has just disclosed the names of the persons to be appointed or reappointed in the ensuing annual general meeting and it has been further mentioned that the detailed resumes of those directors have been given in notice of the AGM. III Audit Committee The company has formed the audit committee as per the requirements of clause 49 of the listing agreement. A brief description of terms of reference and detailed audit committee charter have been disclosed for the entire period of study. From the year 2001-02 to 2007-08, total no. of six members serve on the committee board. Independent director has been acting as a chairman of the committee and he was present at all the AGMs to answer shareholders queries. The company has not disclosed anything regarding the participation of head of finance, statutory auditors, chief internal auditors 140
and other invitees in the meetings for the entire period of study. The company has held more than 3 committee meetings during the period under study. The table 5.3.3 shows the no. of committee meetings held during all the years: Table: 5.3.3 No. of Audit Committee Meetings Held by Infosys Technologies Ltd. Year(s) No. of Meetings 2000-01 5 2001-02 4 2002-03 4 2003-04 4 2004-05 4 2005-06 4 2006-07 4 2007-08 4 The table 5.3.3 shows that from the year 2001-02 to 2007-08, the company has held 4 committee meetings and the meetings were attended by all the members of the committee. So far as financial literacy of members is concerned, the company has disclosed this information in the charter itself for the entire period of study. Nothing has been disclosed regarding the name of the secretary of the committee for the period of eight years i.e. 2000-01 to 2007-08. IV Remuneration of Directors Detailed information has been disclosed regarding the remuneration package of all the directors serving on the board for the period of eight years. The information in context with the notice period and performance linked incentive has also been disclosed in the corporate governance section of the annual reports. It has been mentioned that generally six months notice period is applicable on the executive directors before leaving the organization. The company has disclosed that there is no policy of paying severance fee to the directors. In the years 2005-06 and 2007-08, the company has also disclosed the details of compensation paid to the non-executive directors. 141
V Investors Grievance Committee This committee is generally formed to look for the shareholders grievances and further to redress those on timely basis. It has been observed that non-executive director has been heading this committee for the period of eight years i.e. from 2000-01 to 2007-08. The name and designation of the compliance officer has been disclosed just for the period of four years i.e. 2000-01, 2005-06, 2006-07 and 2007-08. The company has also disclosed the no. of shareholders complaints received for the entire period of study. It has been mentioned that there are no pending share transfers for the entire period of eight years under study. VI General Body Meetings The information regarding the locations and time where last three AGMs were held has been given in detail for the entire period of study. VII Disclosures It has been disclosed in the annual reports that the company has not entered into any transaction with related party which is of material in nature and may affects the operations of the concern. Moreover, it has been mentioned that that there is neither any non-compliance of any statutory provision nor any penalty imposed by SEBI on the company for the entire period of eight years. The company has not disclosed the accounting treatment for the period of three years i.e. 2005-06, 2006-07 and 2007-08. The company has formed risk management committee and the disclosure of the same has been made in the corporate governance section of the annual reports for the years 2005-06, 2006-07 and 2007-08. The disclosure of proceeds from public issues, right issues, preferential issues, etc. as per revised clause has not been made in the years 2005-06, 2006-07 and 2007-08, However, code of conduct for directors and senior management personnel has been given in the corporate governance section of the annual reports for the years 2005-06, 2006-07 and 2007-08. 142
VIII Means of Communication The company has disclosed that quarterly results have been sent to the shareholders and the same have also been published in the newspapers or displayed on its website. The company furnishes its financial information in prominent business newspapers namely Economic Times, Business Standard, Financial Express and The Times of India. All the presentations made to institutional investors and analysts have been displayed on co s website. It has been disclosed that Management Discussion and Analysis Report forms a part of the annual report. The company has not disclosed anything regarding the display of official news releases for the entire period of study. IX General Shareholders Information It has been observed under this section that proper disclosure has been made for the period of eight years for all the items namely time, venue and date of ensuing Annual General Meeting, financial calendar, date of book closure, dividend payment date, listing details, stock code, market price data, performance of company in comparison to broad based indices such as BSE Sensex, CRISIL Index, etc., appointment of registrar or share transfer agent, share transfer system, distribution of shareholding, dematerialization of shares and liquidity, plant locations and address for correspondence. The proper disclosure has also been made for the shareholding pattern for the period of eight years. The table 5.3.4 reveals shareholding pattern of the company The promoters were holding 29% of shares in the year 2000-01 but their shareholding in the company has declined to 16.52% in the year 2007-08. The shareholding of FIIs was maximum in the year 2004-05 i.e. 42.87%. The general public was holding 24% shares of the company in the year 2000-01 but in the year 2007-08, their shareholding has declined to 17.52%. As compared to the year 2000-01, a decline has been observed in the shareholdings of Indian institutional invertors, mutual funds, UTI, etc., for the year 2007-08 i.e. from 11.90% to 7.62%. 143
Table: 5.3.4 Shareholding Pattern of Infosys Technologies Ltd. Category 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Promotes and their Families Indian Institutional Investors, Mutual Funds, UTI, etc. Private Corporate Bodies 29.15 28.72 28.42 26.50 21.76 19.50 16.54 16.52 11.90 9.42 9.26 6.77 4.75 6.44 6.27 7.62 1.50 2.42 2.30 2.32 1.93 1.41 2.35 2.86 FIIs 28.9 36.59 39.18 41.82 42.87 37.91 32.55 33.36 General Public 24.03 19 16.57 13.95 19 15.49 19.48 17.52 Equity Shares Underlying ADRs 4.52 3.85 4.27 8.64 9.69 5.3 3.21 2.95 Trusts - - - - - 13.95 19.6 19.17 Total 100 100 100 100 100 100 100 100 X CEO and CFO Certification on Financial Statements. The CEO and CFO statement regarding certification on financial statements has been disclosed in the corporate governance section of the annual reports for the year 2005-06, 2006-07 and 2007-08. XI Compliance with Corporate Governance Code There is proper compliance with this item for the entire period of study. The certificate of auditor regarding the compliance with corporate governance code has been given in the corporate governance section of the annual reports for the period of eight years under study. 144
B.) XII Non-Mandatory Requirements Remuneration Committee This committee is generally formed to frame up the remuneration policy for all the executive directors serving on the board. A brief description of terms of reference along with the composition and names of its members have been disclosed in the corporate governance section of the annual reports of the company for the entire period of study. Independent director has been acting as a chairman of the committee from the year 2000-01 to 2007-08 and he was also present at AGM to answer shareholders queries. XIII Shareholders Rights The company has been sending the half yearly annual reports to the shareholders for the entire period under study and the same have also been displayed on its website. None of the special resolutions were passed at annual general meetings for the period of eight years starting from 2000-01 to 2007-08. Moreover, there is no special resolution proposed to be passed through postal ballot in ensuing annual general meeting. It has been disclosed in the reports for the years 2004-05, 2005-06, 2006-07 and 2007-08 that training has been provided to the board members. The mechanism for evaluating the performance of non-executive directors has also been disclosed in the corporate governance section of the annual reports for the years 2004-05, 2005-06, 2006-07 and 2007-08. As per the revised clause 49 of the listing agreement, the company has adopted the whistle blower policy from the year 2004-05 onwards and the same fact has been disclosed in corporate governance section of the annual report also. Nothing has been disclosed by the company regarding its audit qualification, if any. It has been emerged from the above analysis that the company has adopted the corporate governance code designed by SEBI in a true sense to some extent. Except for a few items namely secretary of the audit committee, information regarding display of official news releases, plant locations, audit qualifications, if any, brief resumes of the directors to be appointed or re-appointed and participation of head of finance and statutory auditors in the audit committee meetings, 100% compliance has been observed for the other items of clause 49 of the listing agreement. In addition to the requirements 145
of clause 49 of the listing agreement, the company has been disclosing voluntary information also such as corporate governance ratings by CRISIL, ICRA, etc., responsibilities of CEO and CFO, retirement policy of the directors, board membership criteria, succession planning, etc. Age of the directors serving on the board has been given in the report of 2007-08. Moreover, the reports of audit committee, nomination committee, investment committee, report on compliance with Naresh Chandra committee, Kumar Mangalam Birla committee, Euro shareholders corporate governance guidelines, risk management and investors grievance committee report, etc., have also been disclosed in the corporate governance section of the annual reports of the company under study. Infosys Technologies Ltd has been recognized as a good governed company and won many awards for showing excellence in governance matters. Till the year 2007-08, this company has won twice the ICSI 'Award for Excellence in Corporate Governance in the years 2000-01 and 2004-05 and declared as best governed company. 5.4 Case Study of Reliance Industries Ltd. As claimed by Reliance Industries Ltd., its corporate governance framework is based on the principles of integrity, fairness, equity to all the stakeholders, accountability of management and commitment to values. The company states that instead of complying with statutory requirements, the continuous efforts are made to improve the transparency, system of internal controls, to make full disclosures and promoting the ethical conduct by all the personnel in the organization. The co s policy on corporate governance is based on its values and commitment, code of ethics, business policy, prohibition of insider trading and ethics management program. The detailed analysis of corporate governance disclosure as per clause 49 of the listing agreement from the year 2000-01 to 2007-08 is given as below: I Company s Philosophy on Corporate Governance It is stated by the company that its philosophy on corporate governance is based on the highest levels of transparency, accountability and treatment of equality to all the stakeholders of the organization. It is committed to adopt the best governance practices 146
that create long term stakeholders value. The company has disclosed in detail its philosophy on corporate governance from the year 2000-01 to 2007-08. II Board of Directors At present Mr. Mukesh D. Ambani has been acting as chairman of the company. Duality exists on the company board as the position of chairman and managing director is being held by the same person. Mr. Mansingh L. Bhakta has been acting as lead independent director on the company board. The table 5.4.1 shows the total no. of directors serving on the board from the year 2000-01 to 2007-08 Table: 5.4.1 Board Size of Reliance Industries Ltd. Year (s) No. of Directors 2000-01 14 2001-02 13 2002-03 13 2003-04 12 2004-05 12 2005-06 12 2006-07 13 2007-08 13 The table 5.4.1 reveals that size of the board varies from 12 to 14 directors. In the year 2000-01, 14 directors were serving on the company s board while in the year 2007-08, the board size reduced to 13 directors. The clause 49 states that if chairman is an executive director then ½ of the board should be of independent directors. It has been observed from the analysis that the company has been complying with this provision for the entire period of study. As per clause 49 of the listing agreement, the minimum no. of 4 board meetings should be held in a year and the gap between the two meetings should not be more than 120 days. The table 5.4.2 reveals the no. of board meetings held from the year 2000-01 to 2007-08: 147
Table: 5.4.2 No. of Board Meetings Held by Reliance Industries Ltd. Year (s) No. of Meetings 2000-01 6 2001-02 5 2002-03 7 2003-04 5 2004-05 5 2005-06 11 2006-07 9 2007-08 7 The table 5.4.2 reveals that the company has been complying with the requirement of clause 49 of the listing agreement and 6 board meetings were held in the year 2000-01 and 7 in the year 2007-08. The attendance record of each director has also been disclosed along with the no. of board meetings. From the year 2004-05 onwards, the company has disclosed in detail the information to be placed before the board at board meetings. The table 5.4.3 reveals the attendance record of directors at the annual general meetings and it has been observed that in the years 2001-02 and 2003-04, the AGMs were attended by all the members of the board. For rest of the years, more than 50% of the directors were present at AGMs. It has also been disclosed that none of the directors holds chairmanship in more than 5 committees or act as member in more than 10 committees across all the companies in which he is a director. A detailed profile of each of the directors of the company has been given but nothing has been mentioned about the names of the directors to be appointed or re-appointed in the annual general meeting. 148
Table: 5.4.3 Attendance Record of Directors at AGMs of Reliance Industries Ltd. Year (s) No. of Directors Present 2000-01 8 2001-02 13 2002-03 12 2003-04 12 2004-05 11 2005-06 10 2006-07 12 2007-08 11 III Audit Committee A brief description of terms of reference of audit committee has been disclosed from the year 2000-01 to 2007-08. The clause 49 states that minimum 3 non-executive directors should be there on audit committee board and majority of them should be independent in nature. For the year 2005-06 onwards, it has become mandatory as per of revised clause 49 of the listing agreement that all the directors should be independent. It has been observed from the analysis that the company has been complying with the requirements of clause 49 of the listing agreement. Four directors were serving on audit committee board from the year 2000-01 to 2004-05, but afterwards, 3 directors were there from the year 2005-06 to 2007-08. Independent director has been acting as a chairman of the committee and he was also present at AGMs to answer the shareholders queries for throughout the period of study. Till the year 2004-05, it was mandatory as per clause 49 of the listing agreement that minimum 3 audit committee meetings should be held but in the revised clause 49 of the listing agreement, the minimum no. of meetings have increased to 4. Further, it has been mentioned in the clause that the gap between two 149