CORPORATE GOVERNANCE

Module 1
Introduction
Corporate Governance refers to the way in which companies are governed and to what
purpose. It identifies who has power and accountability, and who makes decisions. It is, in
essence, a toolkit that enables management and the board to deal more effectively with the
challenges of running a company. Corporate governance ensures that businesses have
appropriate decision-making processes and controls in place so that the interests of all
stakeholders (shareholders, employees, suppliers, customers and the community) are
balanced.

Governance at a corporate level includes the processes through which a company’s objectives
are set and pursued in the context of the social, regulatory and market environment. It is
concerned with practices and procedures for trying to make sure that a company is run in such
a way that it achieves its objectives, while ensuring that stakeholders can have confidence that
their trust in that company is well founded.

As the home of good governance, the Institute believes that good governance is important as
it provides the infrastructure to improve the quality of the decisions made by those who
manage businesses. Good quality, ethical decision-making builds sustainable businesses and
enables them to create long-term value more effectively.

Meaning:

Corporate governance is the system of rules, practices and

processes by which a company is directed and controlled.

According to the Institute of Company Secretaries of India (ICSI), corporate

governance can be defined as the application of management practices that ensure
compliance with laws, ethical standards, and the responsible and effective
management and distribution of wealth. It encompasses the commitment to social
responsibility and the pursuit of sustainable development for the benefit of all
stakeholders involved. In essence, corporate governance seeks to establish a
framework that promotes transparency, accountability, and ethical conduct within an
organization to ensure the holistic well-being of its stakeholders.

Benefits of Corporate Governance

 Good corporate governance creates transparent rules and controls, guides leadership,
and aligns the interests of shareholders, directors, management, and employees.
 It helps build trust with investors, the community, and public officials.
 Corporate governance can give investors and stakeholders a clear idea of a
company's direction and business integrity.
 It promotes long-term financial viability, opportunity, and returns.

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 It can facilitate the raising of capital.

 Good corporate governance can translate to rising share prices.
 It can reduce the potential for financial loss, waste, risks, and corruption.
 It is a game plan for resilience and long-term success.

Significance of CG
 Changing Ownership Structure: The corporate landscape has witnessed a notable shift
in ownership structures, particularly in large private-sector corporations. The traditional
model of concentrated ownership by a few individuals or families has given way to a
more diverse ownership base. This evolution has been driven by factors, such as the threat
of hostile takeovers and the emergence of institutional investors. As a result, corporate
governance has gained heightened significance in ensuring accountability, transparency,
and protection of the rights of all shareholders. It plays a crucial role in preventing undue
influence, promoting fair decision-making, and safeguarding the interests of minority
shareholders.
 Social Responsibility: Corporate governance serves as a driving force in fostering social
responsibility among companies. Integrating ethical practices and considering the
interests of various stakeholders, including customers, lenders, suppliers, and the local
community, helps organizations contribute positively to society. Effective corporate
governance ensures that directors act in the best interests of the company while
considering the broader impact of their decisions. It provides a framework for responsible
management and distribution of resources, ultimately enhancing value for all
stakeholders and facilitating sustainable development.
 Scams: Instances of corporate fraud have eroded public confidence and underscored the
need for robust corporate governance practices. Scandals, such as the Harshad Mehta case
and CRB Capital fraud have inflicted substantial losses on small investors and highlighted
the importance of transparency, accountability, and risk management. By implementing
effective governance mechanisms, including independent audits, internal controls, and
board oversight, companies can detect and prevent fraudulent activities. Strong corporate
governance acts as a safeguard, protecting the interests of shareholders, upholding ethical
standards, and maintaining the trust of the investing public.
 Corporate Oligarchy: In India, the promotion of shareholder activism and democracy
remains an ongoing challenge. Corporate governance practices need to address the issue
of concentrated power and promote transparency, accountability, and shareholder
participation. Encouraging diverse representation on boards, allowing proxies to speak at
meetings, and fostering shareholder associations are vital steps toward countering
corporate oligarchy. Effective corporate governance ensures a level playing field,
promotes equitable decision-making, and helps establish a culture of inclusivity and
fairness within organizations.
 Globalization: The integration of Indian companies into global markets and the pursuit
of international listings have underscored the importance of robust corporate governance
practices. Strong governance frameworks are vital for establishing trust among global
investors, complying with international regulations, and fostering transparency and
accountability. By adhering to global governance standards, companies can enhance their
competitiveness, attract capital, and ensure the confidence of international stakeholders.
Effective corporate governance facilitates strategic decision-making, risk management,
and integrity in financial reporting, enabling companies to thrive in a globalized business
environment.

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Dimensions of corporate governance:

Though there are different yardsticks to ensure ethical corporate governance the
dimensions can be summarised chiefly into harmonious integration of the below stated
four process.

 Accountability & Responsibility: Accountability is an obligation of individual

towards his actions, administrators must take responsibility not only of their jobs
but the benefits of government programmes reaching people and in case of any
failure must be held accountable. E.g. RTI act.
 Openness & Transparency: In the era of e-governance the administrators must
ensure the maxim of “Minimum government and maximum governance” so that the
public is aware of all the benefits of the programs, financial status of them and those
in position of implementation must ensure last mile delivery of them the recent
examples of PFMS (public finance management system), PM Jan dhan yojana are
steps in that direction.
 Effective resource allocation: It is a necessary step as decentralisation leads to
transfer of power to the lowest tier which will ensure passage of benefits as well as
responsibility to the Government closest to the beneficiaries The 73rd and 74th
amendment gave power to the panchayats and municipalities and is a chief feature
of a true democracy. E.g. E-auctioning, as it is happening in 5g spectrum allocation.
 Corruption free public service: This is the most crucial aspect of ensuring benefits
to the citizenry and the personal traits of the staff at all echelons like honesty and
integrity is brought to the forefront which will create a more egalitarian society. e.g.
E-governance pragathi portal.
 Economic prudence: No wasteful expenditure and also no waste of resources.

Issues in CG
Selection procedure and term of Board:
The selection procedure adopted in Indian corporations is the biggest challenge for good
corporate governance. Law requires a healthy mix of executive and non-executive directors,
independent directors, and woman directors. Most companies in India tend to only comply
on paper; board appointments are still by way of word of mouth or fellow board member
recommendations. It is common for friends and family of promoters and management to be
appointed as board members.

Life-term board members can pose many problems to business say fixed beliefs, power
gaining etc. so no business prefers to appoint board members for life-term. And if the board
is very short then they will not take long term decisions with full of their efficiency because
in long run they will be changed or relieved from their duties. So the term of board must be
fixed with due attention. Typically in a board of directors, directors sit for a brief term say 2
to 5 years and it is good practice to switch some of directors at a fixed time interval instead

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of changing whole board at a single time.

Performance Evaluation of Directors:

SEBI, India's capital markets regulator, has released a 'Guidance Note on Board Evaluation'
in January 2017. Which cover all major aspects of Board Evaluation including the Subject &
Process of Evaluation, Feedback to the persons being evaluated, Action Plan based on the
results of the evaluation process, Disclosure to stakeholders, Frequency & Responsibility of
Board Evaluation. But for achieving the desired objectives from performance evaluation,
they need to make the evaluation result public and these disclosures may put the corporate in
big trouble.

Missing Independence of Directors:

Independent directors' appointment was supposed to be the biggest corporate governance
reform by kumar mangalam committee on corporate governance in 1999. However in reality
independent directors have hardly been able to make the desired impact. Till now the
appointment of directors in most of companies is made at the discretion of promoters, so it is
still questionable. For providing the true success it is necessary to limit the promoter's
powers in matters relating to independent directors.

Removal of Independent Directors:

Under law, an independent director can be easily removed by promoters or majority
shareholders. When an independent director doesn't take the side with promoter's decisions,
they are removed from their position by promoters. So to save their post directors have to
work for the interest of promoters. To resolve this issue SEBl's International Advisory Board
had proposed an increase in transparency for the appointment and removal of directors.

Liability toward Stakeholders:

Indian company act 2013 mandates that directors owe duties not only towards the company
and shareholders but also towards the other stakeholders and for the protection of the
environment. But generally, board tries to limit and escape from these kinds of
accountability good idea to require the entire board to be present at general meetings to give
stakeholders an opportunity to pose questions to the board.

Founder/Promoter's extensive Role:

In India, instead of separate entity of businesses, promoters or founders continuously
influence the business decisions Family owned Indian companies suffer an inherent
inhibition to let go of control. They affect the decisions by influencing the board and
management. This is done because they had the significant portion of company's share. So to
remove this issue it will be good idea to amplify the shareholder base and reduce the
shareholding of founders.

Transparency and Data Protection:

Corporate governance is based on the principle of transparency but it cannot be defined what

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information is to be disclosed or not. In today's cut throat environment of competition it can

be very dangerous if wrong information be disclosed. In digitalization Privacy and data
protection is a central governance issue. For this the board must be capable of handling data
and to ensure the protection of such data from potential misuse. And by looking at the
importance of data and the potential cost if data be misused, we can say that organization
must invest a reasonable amount of resources to protect the data.

Business Structure and internal conflicts:

Business structures also put hindrance on the way to good governance as they require many
layers of management, executives and other officers. This makes it very difficult for the
company leaders to receive accurate, important data from the lower levels and to command
orders to lower level of the company as the data may be distorted at any point of chain.
Board of executives can make much good decisions and policies. But if the internal
relationship in the organization says between board and managers is not good then the
implementation of decisions and policies also get affected. Rebellious managers can
sabotage corporate decisions and policies at many levels of the business.

Environment of mistrust:
In recent years, many scams, frauds, misappropriation of public money, and corrupt
practices have taken place and because of the doubtful practices of key executives and board
members, confidence of investors and society has diminished. It is happening in the stock
market, banks, financial institutions, companies and government offices. This has made the
business environment distrustful

Reasons for failure of Corporate Governance:

 Ineffective governance mechanisms, for example, lack of board committees

 Non-independent board and audit committee members

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 Intentional misleading of the Board by management to protect themselves after evading and
bypassing internal controls
 Underqualified board members
 Ignorance by regulators, auditors, analysts of the financial results, and red flags.
 Management who exhibit ineptitude
 Dereliction of the procedures stipulated in internal regulations
 Insufficient attention paid to risk management
 Inconsistent distribution of duties and responsibilities
 The inefficiency of internal audit
 Influencing the external auditors to express an audit opinion inconsistent with reality.
 Poor ethical leadership
 lack of integrity
 fraud
 Corruption

What are the effects of corporate governance failure?

Loss of Shareholder Confidence and Trust

When a company deviates from its corporate governance strategy it sends a signal to its
shareholders that it cannot be trusted. This erodes any confidence that the shareholders had in
the business and leads them to feel cheated or misled. If shareholders believe bad business
decisions are in the company's immediate future, they may jump ship to avoid any potential
loss.

Difficulty Raising Capital

A lack of adherence to a company’s corporate governance strategies can also scare away
investors. For investors, one of the most important aspects when making an investment
decision is the level of implementation of corporate governance principles (public disclosure
of information, protection of shareholder rights, and equal treatment of shareholders) and
profitability, which ensures return on their investment.
No-Risk Management
Not conforming to its corporate governance strategies may lead to a lack of risk
management within a business. This increases the possibility of the company making bad
investments and decisions.

Increased Government Oversight

A company with a reputation for lack of adherence to corporate governance strategies may
incur increased government oversight from departments looking to verify that the company is
operating within the bounds of the law. This puts the business in the spotlight if anything was
to ever go wrong.

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Corporate Governance Initiatives in India

Corporate governance reforms in India involved a range of other initiatives including
improvement in functioning of capital markets, effective minority shareholder protection,
greater transparency & high standards of information disclosure, reforming board structures
and streamlining board processes.

The government of India initiated the reforms in the governance process via government
legislations and institutions in mid nineties. Several amendments were incorporated in the
Companies Act 1956 to suit the needs of good corporate governance practice and statutory
regulations were framed by the Securities and Exchange Board of India (SEBI). The
Companies Bill 1997, The Companies (Amendment) Act, 1999, The Companies
(Amendment) Act, 2000 and The Companies (Amendment) Act, 2001 were introduced with
appropriate changes to make the Act more suitable with the time. Industry chambers, business
associations and professional bodies also took voluntary initiatives to further the reform
process.

SEBI initiated a large proportion of reforms to ensure better governance and development of
efficient capital markets. Specific initiatives by SEBI included introduction norms for issuers,
automation of stock exchanges, entry point criteria for public offers, modernization of market
micro-structures and reformed regulations for mergers and takeovers. Numerous legislations
were enacted from year 1992 to 2000 in this connection. Implementation of the
recommendations of the K M Birla Committee report on corporate governance and SEBI
regulations such as Substantial Acquisition of Shares and Takeovers 1997, Takeover
Regulation 1997, Buy Back of Securities 1998, Employee Stock Option Scheme and
Employee Stock Purchase Scheme Guidelines 1999 have far reaching consequences on
corporate governance in India.

In late 1990s and early 2000 different governance codes were formulated by three distinct
entities – The Confederation of Indian Industry (CII), The Department of Company Affairs
(DCA) and The Securities and Exchange Board of India (SEBI). There was a broad
consistency and consensus among the three in their recommendations for better governance.
The CII published the document named “The Desirable Code of Corporate Governance” in
1998 which outlines several policies that can be adopted by Indian firms in line with
international corporate governance best practices.

The K M Birla Committee on Corporate Governance was set up by SEBI in May 1999 to
suggest measures to improve corporate governance in India and draft a code of best practices
with both mandatory and voluntary clauses.

The DCA of the Government of India brought several legislative amendments to The
Companies Act 1956. It also set up a study group in May 2000 with the objective of further
operationalizing the concept of corporate governance in India.

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SEBI formed another committee named N.R. Narayana Murthy Committee in 2002 that
consisted of experts from the chamber of commerce, stock exchanges, professionals and
investors association. The Naryana Murthy committee suggested mandatory clauses such as
reinforcing the responsibilities of audit committee, management of risks, raising standards of
financial disclosures, defining the status of nominee directors and disclosure of non-executive
directors’ remuneration to shareholders among other recommendations.

The Government of India through DCA set up two committees – Naresh Chandra Committee
and J J Irani Committee to strengthen corporate governance in India. The Naresh Chandra
Committee was set up in August 2002 with the aim of examining various issues related to
corporate governance.

The J. J. Irani Committee was formed in December 2004, by the Ministry of Corporate Affairs,
Government of India with the responsibility to make recommendations on protection of the
stakeholders and investors, reducing the size of Company Law and to deal with the parts
related to the amendment of the Companies Act, 1956. The committee was also expected to
examine the different perception on the concept paper received from the stakeholders.

In 2009, Ministry of Corporate Affairs (MCA) introduced Corporate Governance Voluntary

Guidelines to improve corporate governance practices in Indian listed companies. The
guidelines issued a series of recommendations based upon the mandatory and non-mandatory
provision of Clause 49 of the Listing Agreement.

KUMAR MANGALAM BIRLA COMMITTEE(2000)

In early 1999, Securities and Exchange Board of India (SEBI) had set up a committee under
Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the standards of good
corporate governance. The report submitted by the committee is the first formal and
comprehensive attempt to evolve a ‘Code of Corporate Governance', in the context of
prevailing conditions of governance in Indian companies, as well as the state of capital
markets.
The Committee's terms of the reference were to:
1. suggest suitable amendments to the listing agreement executed by the stock exchanges with
the companies and any other measures to improve the standards of corporate governance in
the listed companies, in areas such as continuous disclosure of material information, both
financial and nonfinancial, manner and frequency of such disclosures, responsibilities of
independent and outside directors;
2. draft a code of corporate best practices; and
3. suggest safeguards to be instituted within the companies to deal with insider information
and insider trading

The primary objective of the committee was to view corporate governance from the
perspective of the investors and shareholders and to prepare a ‘Code' to suit the Indian
corporate environment. The committee had identified the Shareholders, the Board of Directors

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and the Management as the three key constituents of corporate governance and attempted to
identify in respect of each of these constituents, their roles and responsibilities as also their
rights in the context of good corporate governance.
Corporate governance has several claimants –shareholders and other stakeholders -which
include suppliers, customers, creditors, and the bankers, the employees of the company, the
government and the society at large. The Report had been prepared by the committee, keeping
in view primarily the interests of a particular class of stakeholders, namely, the shareholders,
who together with the investors form the principal constituency of SEBI while not ignoring
the needs of other stakeholders.

Mandatory and non-mandatory recommendations

The committee divided the recommendations into two categories, namely, mandatory and
non-mandatory. The recommendations which are absolutely essential for corporate
governance can be defined with precision and which can be enforced through the amendment
of the listing agreement could be classified as mandatory. Others, which are either desirable
or which may require change of laws, may, for the time being, be classified as non-mandatory.

A. Mandatory Recommendations:
1. Applies To Listed Companies With Paid Up Capital Of Rs. 3 Crore And Above
2. Composition Of Board Of Directors –Optimum Combination Of Executive & Non-
Executive Directors
3. Audit Committee –With 3 Independent Directors With One Having Financial And
Accounting Knowledge.
4. Remuneration Committee
5. Board Procedures –At least 4 Meetings of the Board in a Year with Maximum Gap of
4 Months between 2 Meetings. To Review Operational Plans, Capital Budgets,
Quarterly Results, Minutes Of Committee's Meeting. Director Shall Not Be A Member
Of More Than 10 Committee And Shall Not Act As Chairman Of More Than 5
Committees Across All Companies
6. Management Discussion And Analysis Report Covering Industry Structure,
Opportunities, Threats, Risks, Outlook, Internal Control System7.Information Sharing
With Shareholders

B. Non-Mandatory Recommendations:
1. Role Of Chairman
2. Remuneration Committee Of Board
3. Shareholders' Right For Receiving Half Yearly Financial Performance Postal Ballot
Covering Critical Matters Like Alteration In Memorandum Etc
4. Sale Of Whole Or Substantial Part Of The Undertaking
5. Corporate Restructuring
6. Further Issue Of Capital
7. Venturing Into New Businesses

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Consequences of bad governance:

1) Loss of shareholder trust & confidence

Corporate governance establishes a company’s strategy and its objectives. Therefore, every
time a company deviates from its strategy, it can weaken stakeholders' trust and the confidence
they placed in that company, as it indirectly sends them a message that the company cannot be
trusted. As a result, stakeholders can feel misled and cheated, leaving them looking for a way
to exit the company.

Oftentimes, this can have further consequences, with investors and shareholders beginning to
sell company stocks if they feel that poor business decisions are in a company's immediate
future, in order to avoid any potential loss. This can start a domino effect of devastating
consequences for the company, resulting in its stock prices falling and its overall value slowly
diminishing.

2) Difficulty raising capital

As mentioned above, a company’s falling stock values can create a domino effect with further
consequences threatening the business’s future, one of which can be difficulty in raising the
company’s capital. This can partly be a result of negative perception the company created
following its lack of adherence to its own corporate government strategy and controls.

It’s important to note that, for investors, the correct implementation of corporate governance
principles, such as the public disclosure of information like the protection of shareholder rights,
and a company’s profitability, are some of the most significant things they look for before
making an investment. This is because such factors ensure return on their investment.

Subsequently, future investors may become fearful of investing in the company, as low stock
values and lack of adequate corporate governance often signifies a greater possibility of risk,
and ultimately loss.

3) No risk management

By not adhering to its corporate government policy, a business can end up with a lack of risk
management. Eventually, this may result in greater probability of the company making poor
decisions and investments, along with putting at risk its ability to repay its own creditors.
Examples of poor risk management, include:

 Poor governance and insufficiency in the Organisation’s ‘Tone’.

 Reckless risk taking.
 Non-existent, inefficient or ineffective risk assessment.
 Non-integration of risk management with strategy leading to unrealistic strategic
objectives.

In the long run, this can cause a ripple effect of credit defaults which may paralyse the
corporation itself, along with damaging other businesses, in different industries, with
investments tied to the floundering company.

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4) Increased government oversight

Any company that holds a reputation of not complying with its corporate government policies
runs the risk of increased government oversight, in an effort to verify whether the company’s
operations are maintained within the bounds of the law. Usually government oversight will
involve regular reviews of the business’s practices, including:

 Employee pay and relations

 The impact of the business’s practices on the environment,
 The legality of all investments made by the company, and
 The honest reporting of all company profits, debts and losses.

If a company is found to be in violation of any of the above mentioned government regulations,

then it will have to face fines, and in some instances, criminal penalties, particularly the
company’s board and executives. Along with that, the company has now been placed in the
spotlight if anything was to ever go wrong again as a result of this.

Requirement to strengthen Corporate Governance:

1. Balance board composition
If all board members have the same level of experience, with similar skill sets, you will not
find the diversity of opinion that is required to rigorously challenge the company’s strategy
and ensure it is watertight. Greater diversity on boards introduces new ways of thinking and
creative methods of solving problems, which prevent directors from resting on their laurels.
Board diversity is all about filling gaps in boardroom expertise to provide a broader range of
viewpoints and a fresh perspective using strategic succession planning.
Dowshan Humzah, director and chair of UK Advisory Board of Board Apprentice Global
says:
“The Financial Reporting Council recognises that diverse board composition in respect of
protected characteristics (such as gender and race) is not on its own a guarantee.
“Diversity, inclusion and impact are just as much about difference as what I have termed
POETS (Perspective, Outlook, Experience, Thought, Sector & Social background), which, of
course, correlates closely to those with different protected and social characteristics. As a
result, we need boards to be more uncomfortable being comfortable – and comfortable with
the uncomfortable. More creative, non-linear and even oblique thinking is required to better
balance our boards and serve their end-users, citizens or beneficiaries.”
2. Evaluate the board regularly
A diverse board that works well on paper is one thing, but how they actually perform in real
life is another thing altogether. This is why regular evaluations are important. They help you
track progress over a period of time and understand where your own strengths lie as well as
giving you a good understanding of the areas that need improvement. One way to achieve this
is with Boardclic’s board evaluation tool that provides you with a benchmark against your

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own performance and that of your competitors. This way you’ll know what ‘good corporate
governance’ means for your company and your industry.
Evaluations are mandatory in some jurisdictions, but they are also important, no matter what
the legislation mandates. They are critical to building sound corporate governance and
stakeholder value.
Open communication and transparency in the evaluation process breeds confidence and trust
within the company and helps you in your efforts to grow that diverse board of directors.
Evaluations should not be a tick-the-box exercise; they should feature candid, in-depth
conversations that give you real data to work with to instil a culture of continuous
improvement.
3. Ensure director independence
Independence is desirable on a board that wants to break away from safe, conservative
thinking. Forward-looking boards need directors that are not afraid to think outside of the box,
rather than simply continue down the same road the company has always taken. It helps create
innovation and avoid stagnation.
In addition, independent directors are more likely to provide insights that benefit the
shareholders, given their different perspective on matters.
4. Ensure auditor independence
Undue influence over the work of audit committees and independent auditors is a concern in
terms of corporate governance. Investors need to know that they can trust the financial
reporting that an issuer makes, so independence is key to show that the reports are accurate
and tell the true tale of the company.
5. Be transparent
The previous point feeds into this one. Transparency is essential for good corporate
governance. The openness and willingness to share accurate, clear and easy-to-understand
information with stakeholders, including shareholders, breeds trust and solidifies a business’s
reputation.
This means that organisations have to accurately report the bad news as well as the good.
Trying to avoid negative publicity only to be found out later is more damaging for a business
and its reputation. Full disclosure breeds integrity.
Create a plan of what you will share with shareholders and how often so that they can see that
your intention is to be as transparent as possible.
6. Define shareholder rights
Shareholders should know their rights when they invest in your business and you should
ensure that the rights you provide are backed up by your Articles of Association, constitution
and company bylaws.
Decide whether all shareholders have the same voting rights or whether different classes of
holdings have preference.

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Can they approve certain transactions?

Can the board act without their approval?
Do you have policies for extraordinary transactions?
These are all issues you need to resolve before formalising shareholder rights and ensuring
you regularly review your policies.
7. Aim for long-term value creation
Although short-term wins look good and create opportunities for publicity, long-term value
creation should be the aim for a company with solid governance. A business that is committed
to sustainable growth is likely to be much less volatile than a company with its eye only on
the short term.
8. Manage risk proactively
Identifying risks is important, but taking a proactive approach to mitigate that risk before you
face it is the goal. Rather than attempting to weather the storm, it is better for the organisation
to avoid the storm completely.
A solid risk management process, an internal control framework and an up-to-date disaster
recovery plan are all key to achieving this aim.
9. Follow sustainability best practices
Sustainability and strategic management are increasingly intertwined in the corporate world,
as investors make their preferences heard. Major events such as Covid-19 and the climate
crisis have thrown into sharp relief the need for a sustainable outlook from issuers. Consumers
have also started to prefer shopping with businesses that boast sustainable practices.
In addition, there is increasing regulatory pressure for reporting of environmental, social and
corporate governance metrics, so issuers are advised to get ahead of the game and be prepared
for the upcoming ESG compliance legislation.
10. Document policies and procedures
There should be easy to access documentation of your policies and procedures relating to
shareholder rights, executive compensation, board meeting operation, the election of new
directors and more. This ensures transparency and consistency within the organisation.

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Case Study:
Infosys Technologies: The best among Indian Corporates
OVERVIEW
 Infosys Technologies is India’s most popular and best managed IT company.
 Founded by N.R. Narayana Murthy and six of his colleagues, with a partly sum of
Rs.10000/-as capital.
 It has today, a global presence of 32 sales offices in 16 countries, 33 global software
development centres and one business continuity centre.
 It established Infosys Foundation, a trust, with objective of supporting the
unprivileged in the society,

Vision:
“To be a globally respected corporation that provides best-of-breed business solutions,
leveraging technology, delivered by best in class people”
Mission:
“To achieve our objectives in an environment of fairness, honesty and courtesy towards our
clients, employees, vendors and society at large”.

C-Life Principles of core values

 Customer Delight
 Leadership by Example
 Integrity and Transparency
 Fairness
 Pursuit of Excellence

Infosys’s Key to Success

 Giving employees a world-class environment to work and learn.
 Giving employees a high quality of life and wealth creation opportunities.
 Looking at potential employees’ ability to learn and assimilate technical knowledge
and skills.
 Replacing obsolete technology regularly to remain at the cutting edge.
 Emphasizing constantly on quality by benchmarking against the best processes in the
world.
 Diversifying income sources to minimize risk of revenue.
 Complying with accounting standards of advanced countries and ensuring strictest
adherence to corporate governance.

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What are the factors that have contributed to Infosys remaining India’s most admired
company?
 It strives to be the best company both commercially and ethically not only in India
but also globally.
 They have developed a strong management system.
 Provides world-class working environment, quality service
 People-centric approach: to motivate employees
 Driven by values:
 ethical organization,
 Value system ensures fairness, honesty, transparency and courtesy
 Strong focus on corporate governance
 Ahead in corporate social responsibility

Awards and Achievements

 In 2000, National Award for Excellence in Corporate Governance by the
Government of India.
 In 2001, ranked no.1 by Business World-IMRB Survey, among reputed companies in
India.
 Voted as India’s best company for 6 years in a row, between 1996 to 2001, by Asia
Money Poll.
 Won Global Most-Admired Knowledge Enterprises(MAKE) Award for 2004.
 Won Most Respected Companies Award 2004.

One of the factors that have helped Infosys achieve an unparalleled success in its
business is that it has focused on people-centric business enterprise. Do you agree?
Substantiate your answer.
People-Centric company
 Infosys follows people-centric approach over the years.
 Employees strength has skyrocketed.
 They focus on skilled employees.
 They train their employees to get the best out of them.
 The quality of their employees distinguishes them from their competitors.
Benefits of people-centric approach
 Motivates employees
 Increases job satisfaction of employees
 Quality service

By Prof. Nensi Solanki

 CORPORATE GOVERNANCE

To what extent do you think the success of Infosys can be attributed to the unwavering
commitment to the ethical trilogy of business ethics, corporate governance and
corporate social responsibility?
 Business Ethics at Infosys
 Infosys has unveiled a Code of Ethics for its finance professionals
 and a whistle-blower’s policy to encourage and protect
 employees willing to share information on frauds, but who choose to be
remain anonymous.
 In terms of ethical behaviour, Infosys has an unwavering commitment to best
global practices and has been driven by its vision to become a global player.
It was one of the first Indian companies to adopt voluntarily the stringent US
GAAP.
 The culture of ethical behaviour in the organization emanates from the top
and percolates down to the managerial and employees level.

Corporate Governance at Infosys

 Infosys has become large public company that conforms to internationally benchmarked
standards of corporate governance.
 It has been rated highly in several corporate governance reports, including one by the
rating agency CLSA, which has given it a high CG Star grade.
 It has started implementing best international governance practices.
 To implement best corporate governance practices, ensure
 An independent and proactive board
 Independent committees to decide executive compensation and for nomination
and audit purpose
 An independent audit system.
 Infosys has put in place all these governance practices and has seen to their yielding
fruitful results for the overall welfare of the stakeholders.

Corporate Social Responsibility

 Infosys has used its wealth and standing to contribute to improvements in community.
 Infosys established the Infosys Foundation, a trust, to aid destitute and the disadvantaged
people.

Infosys Foundation
 Objective: to support unprivileged in society.
 Successful projects in following areas:
 Health Care: constructed many hospitals, donated costly equipment's

By Prof. Nensi Solanki

 CORPORATE GOVERNANCE

 Social Rehabilitation and Rural Upliftment: constructed orphanages, girls’

hostels.
 Learning and Education: the foundation has undertaken ‘A Library for Every
School’
 Arts and Culture: coordinated a project to donate cassettes and players
among rural schools.

Conclusion
 The founder and chief architect of Infosys, N.R.Narayana Murthy’s vision is to
harness technology and the free market to create jobs and to alleviate poverty.
 Infosys has created thousands of skilled, well paid jobs and furthered opportunity for
Indians to develop their expertise and skills.
 It is a company that the entire world looks up to, in terms of sticking to ones sound
ethical judgement and doing business the ‘Right Way’.
 It continues to set standards in everything it does.

By Prof. Nensi Solanki

 CORPORATE GOVERNANCE

By Prof. Nensi Solanki

 CORPORATE GOVERNANCE

By Prof. Nensi Solanki