CORPORATE GOVERNANCE REVIEW OF PRACTICE

A study of corporate governance practices in leading corporates in India

December 2007

EXECUTIVE SUMMARY
The scope and significance of corporate governance in India increased sizeably in the recent period, particularly following the financial sector reforms. As Indian corporates are finding new space in domestic and global markets for business growth, their interaction with the financial markets and investing community too witnessed significant surge. In this process, corporate governance came as an effective instrument for companies to communicate with the various types of stakeholders in general and investors in particular. What began as an industry initiative of CII, corporate governance today became an essential part of the culture that defines better run companies and those held in esteem by the investors and stakeholders. As the rigour of the regulation intensified, governance standards began to be codified and formed an important part of the evaluation and assessment process. Clause 49 of the Listing Agreement of the Stock Exchanges is the key instrument that drives compliance of the corporate governance standards and practices by companies. Stock Exchanges and regulatory authorities which receive the compliance reports of the companies regularly assess the record of performance in this regard and take relevant actions. Securities and Exchange Board of India sending notices to 20 companies amongst which there are five public sector undertakings, is an instance of review processes following the receipt of information and filing of reports on

compliance of corporate governance norms. Such measures will make companies more alert in adhering to the stipulated norms and guidelines. Notwithstanding the ongoing review process of the regulatory authorities, a scope exists for reviews and studies by independent agencies, and this study is an instance of such nature. The review makes an attempt to capture the essence of the quality of corporate governance practice in Indian companies. Given the huge mass of companies that India has, it would be rather difficult to take a large sample, which is a time consuming exercise and that require considerable resources. Moreover, it would be useful to know how the leading companies have devised effective ways of improving governance standards that could serve as benchmarks for the others. The review thus examined the practice of corporate governance in 42 companies across 12 sectors that represent the vital sections of the Indian industry. The information is obtained through corporate governance reports, published in the annual reports of the companies, feedback obtained through a questionnaire, consultations with officials of corporates, stock exchanges and regulatory authorities as also independent professionals and analysts. The outcome of the study is quite encouraging. India has advanced significantly in adopting better governance standards and its standing in the world is quite high in regard to designing effective policies and procedures. Several companies go beyond the mandatory requirements in fulfilling the corporate governance objectives. Companies have developed philosophies governing the governance practices that were introduced in their respective companies and the outcome that is being expected from these initiatives. Some of the modern governance practices such as separation of the Chair and the CEO, constitution of boards, representation of independent directors, meetings of the board and audit committees, discussion on the corporate governance practices in the annual reports, disclosure through a wide range of media and company sources etc., have greatly enhanced the image of the quality of corporate governance in India. India currently is ranked third in Asia for the overall quality of corporate governance.

While great progress has been made in improving the governance standards, concerns about quality of enforcement, companies routinely fulfilling the requirements as a form of box ticking, deviating from the spirit of some of the important aspects of the compliance code etc., are a few of the issues that engage the attention of the policy makers and the regulatory agencies. Similarly, self evaluation processes for the board and audit committees are not yet formalized in many companies. Family ownership continues to dominate the corporate landscape thus providing a scope for inadequate disclosures in regard to subsidiary companies operations and related party transactions. As mentioned earlier, a beginning is made to review these practices which would be further supplemented by independent studies and analysis such as this report. The next round of reforms in the corporate governance would be in the realm of strengthening evaluation processes of the functioning of the board and its subcommittees, in particular the audit committee, as also greater discussion on the executive compensation policies, ombudsman for reviewing whistle blower policies etc., As Indian companies assume greater responsibilities in expanding business in domestic and global markets, compensation issues will become pertinent. Similarly, gender related issues of representation in the board too might assume importance. Only 8 percent women represent company board at present at the global level, with the scope for this ratio to grow being high in the Asia region. Some initial work in this regard may be evident in the medium term perspective of the governance reforms. The study is arranged in the following manner. Chapter I discusses the changes in the governance standards and key factors driving these changes, particularly the enormous growth of the financial markets and growing investor base from domestic and global financial markets. Chapter II presents a broad review of literature on the corporate governance and the emergence of issues central to good governance; Chapter II examines the scope of significance of important instruments of corporate governance; Chapter V discusses practice of corporates in India in regard to the compliance of corporate governance standards and norms. Since this chapter discusses the governance practices from the perspectives of the sectors, key corporate governance practice profiles of individual companies are given separately. Chapter VI looks at the issues and imperatives for better governance as an ongoing process.

In preparation of this study, some of the sources that were used extensively to present the analysis and perspectives include; Clause 49 Listing Agreement of the Stock Exchanges; Year Book 2007 of the International Corporate Governance Network, Blue Ribbon Committee on the Audit Committee (NYSE/NASDAQ) etc. Acknowledgements of the references used in this study are made wherever appropriate. For increasing the reference value of the study, annexures on a number of aspects of the governance are attached. These include; objectives of the corporate governance as evolved by different companies in their annual reports, a questionnaire for self evaluation of the audit committee performance; indexes being developed to promote good governance; codes of corporate governance in different countries; comparative practices in corporate governance between India, China, Brazil and Malaysia; overview of the functions of the audit committees in the sample companies selected; differences in the US and Indian corporate governance etc., This study could serve as a beginning to promote independent assessment of the governance practices in Indian companies. Scope exists for further studies by expanding the size of the sample as also coverage of issues. Greater involvement of the companies in these exercises will lead better outcome in the form of experiences that could be useful for sharing and learning. It is hoped that similar studies are undertaken on a continuous basis to keep up the assessment and evaluation of quality of governance and its standards of compliance.

CORPORATE GOVERNANCE REVIEW OF PRACTICE CONTENTS

Executive Summary 2 Chapter I Winds of Change 8 Governance standards surge on the back of financial sector development Chapter II Working of the Corporate Governance 20 Growing evidence of the positive effects of corporate governance Chapter III The Essence of Corporate Governance 34 Constituents of governance gain scope and significance Chapter IV India Rises 44 Corporate governance in India reaches global standards Chapter V Instruments of Importance Growing significance of Board and Its Committees 64

Chapter VI India Practice 78 Review of major governance practices in procedures amongst corporates in India Chapter VII Issues and Imperatives 99 Major issues and imperatives in corporate governance Corporate Governace Practice : Company Profiles Annexures 109 153

LISTS OF TABLES
1: Equity Prices 2004-06 14

2: Cumulative Net Foreign Institutional Investment: India 15 3: Share Turnover in Equities Markets: India 15 4 Recent Evolution of the Corporate Governance 36 5: A Decade of Developments in Corporate Governance 46 6: India ranks high among Asia governance league tables 47 7: India manages well despite constraints 47 8: Matching Rules and Regulations 48 9: Comparative Analysis of Clause 49 to SOX 62 10: Sample Companies 80 11: Summary of Corporate Governance Practice 82 12: A Snapshot of Corporate Governance 83 13: Average Number of Directors 84 14: Proportion of Non Executive and Independent Directors when the Chairman is Non Executive 87 15: Proportion of Non Executive and Independent Directors when the Chairman is Executive 89 16: Average number of meetings held 90 17: Shareholding Pattern 92 18: Sector wise Key Indicators of Corporate Governance Practice 93

BOX
1: Working of the Compensation Committee 108

LISTS OF GRAPHS
1: 2: 3: 4: 5: 6: 7: 8: 9: 10: 11: 12: 13: 14: 15: 16: 17: 18: 19: 20: Percentage of Companies with more than 33% Independent Directors Percentage of Companies disclosing director remuneration Percentage of companies separating the roles of CEO and Chair 10 Global IPO Activity Composition of Capital Flows ($bn) Net Equity and Debt Flows: 1990-2006 Stock Markets Indices: Emerging Markets Foreign Capital Raised by Developing Country Corporations, (left) and Foreign Companies Listed on Major Global Stock Exchanges (Right), 1998-2006 Percent of Directors who are women Distribution of Directors Comparative Analysis of Entire Sample Data Proportion of Directors in different categories Average No. of Directors Percentage Companies where the Chairman is Non Executive Composition of the Board when the Chairman is Non Executive 88 Percentage of Companies where the Chairman is Executive Composition of Board when the Chairman is Executive Average Meetings Shareholding Pattern Spaced Devoted to Corporate Governance in Annual Report 10 10 11 12 13 14 17 69 84 85 86 86 87 88 88 90 91 93

Chapter I
Governance standards surge on the back of financial sector development
For corporate governance, it is now perhaps the best of the times. Usually, it is believed that governance takes a back seat in times of growth. However, in the back of unprecedented economic growth and wealth creation brought by large surge in financial markets in a major part of the world, huge improvements in the quality of corporate governance and standards of compliance are evident across a wide spectrum of mature and emerging markets. In a recent assessment (September 2007)1 on the implementation standards of corporate governance on sample of about 1600 companies worldwide, Ethical Investment Research Services (EIRIS), a UK based leading global provider of independent research into the social, environmental and governance (ESG) performance of companies that tracks performance of about 3000 companies across the world, has brought out some interesting insights. These include;

WINDS OF CHANGE

62% of the companies studied have boards containing more than a third of independent directors.However the proportion of independent directors varies greatly between countries. Over 90% of companies in North America, UK, Switzerland, the Netherlands, Norway, Finland and Australia have more than a third of independent directors, compared with less than 10% in Germany, Austria and Japan

Disclosure of directors remuneration is consistently high, with 96% of all companies disclosing this information.

In half of the countries studied over 90% of companies separate the roles of chair and chief executive However rates of separation are lower in the US (30%), Japan (54%) and France (56%). These differences are driven by the fact that companies largely adhere to their relevant national Corporate Governance guidelines

The EIRIS Foundation is a UK based charity that supports ethical investment

 However corporate governance practices are converging. Governance codes are being revised to improve levels of transparency and independence, and the proportion of companies adopting western models of board structure is increasing.

Significant improvements were evident in respect of gender empowerment and representation in the boards as also corporate social responsibility and environment.

Increasingly, companies view equal opportunities less as a way to avoid criticism or lawsuits, but more as a means to build reputation and gain competitive advantage by accessing a broader skill set.

Around 90% of companies in North America (94%), Europe (88%) and Australia/New Zealand (87%) have basic or advanced equal opportunities policies. Conversely, just over 50% of Japanese and less than 25% of companies in Asia ex-Japan meet these standards. The pattern is slightly different for equal opportunities management systems. The criterion includes disclosure of staff demographics in relation to women and ethnic minorities as well as the presence of flexible working policies. Europe and Australia/New Zealand both perform well, with around 80% and 70% respectively demonstrating at least basic systems. Performance amongst Japanese companies is also strong at 60%, whereas it is weaker amongst US companies at 25%. In the US, companies are less inclined to disclose this information, possibly due to fear of litigation.

Worldwide, only 8.1% of board members are women. Representation of women on the board continues to be lowest in Japan at less than 1% and remains generally low in Mediterranean countries. These low levels are driven by a mixture of cultural factors including a history of fewer women in formal employment combined with weak legislative encouragement. The highest rate of 33% is seen in Norway where the government has enforced a quota for a minimum of 40% board members to be women by the end of 2007. The number of women on the board is set to increase Spain as

the Spanish government has recently established a quota similar to that imposed in Norway. Graph1: Percentage of Companies with more than 33% Independent Directors

Graph2: Percentage of Companies disclosing director remuneration

Graph3: Percentage of companies separating the roles of CEO and Chair

Source: Ethitical Investment Research Service, 2007.

Good corporate governance standards assume significance from the enormous growth of the capital markets in the recent period as also emerging trends in global

investing. An important aspect of the world economic growth is the growing influence of the emerging economies in contribution to the growth. At present, China and India are contributing to about 45 percent of the world economic growth which is likely to intensify further in the future. An important outcome of the rapid economic growth is the great surge in the financial market activity. Induced by liberalized global cross border financial flows, financial markets in a large number of countries witnessed exceptional growth in the recent period. A global IPO survey by Earnest and Young (E&Y)2 showed that In 2006, amount of new capital raised by global stock exchanges reached a record US$246 billion in 1729 deals. An interesting aspect of the global capital issuance is the strong share of the emerging markets. China alone raised about $57 billion with two of the largest ever share issues belonging to it; namely Industrial Commercial Bank of China and Bank of China which raised $22 bn and $11 bn respectively from the global financial markets in 2006. In 2006, India launched 78 Initial Public Offerings valued at $7.2 bn in 2007. The size of the one single issue of DLF, a real estate company was $2 bn. Emerging markets in the first five months of the year 2007 raised about $53.7 bn in global financial markets, which is considered highest ever raised in the first five months of a year Graph4: Global IPO Activity

Globalisation: Global IPO Trends Report 2007. Earnest & Young

10

It is not only issuance of fresh capital that got a big boost, but equally remarkable was the growth of secondary markets for securities leading to record levels of market capitalization. During the ten year period 1996-2006, market capitalization in the North America rose from $8.9 trillion to $23 trillion, in Europe/Middle East/Africa from $5.1trillion to $16.2 trillion and in the Asia Pacific $ 5 trillion to $11.8 trillion. Huge levels of capital flows to the equity markets in several emerging markets led to dramatic rise in securities prices. The flow of net foreign direct investment (FDI) into developing countries increased from $170bn in 1998 to $325 bn in 2006 and net portfolio equity flows increased from $6 to $94 bn during the same period. Net debt flows during this period are rather subdued with net debt flows from official creditors turning negative. Net portfolio equity flows to China between the year 2000 and 2006 rose from $6.9 bn to $32 bn and in India from $2.3 bn to $8.7 bn. In the first ten months of 2007 alone, foreign institutional investment flows into India peaked to about $18bn making it one of the most favored destination for global portfolio flows. Graph5: Composition of Capital Flows ($bn)

Graph6: Net Equity and Debt Flows: 1990-2006

11

Global capital flows speeded up on the back growing institutional investment. Institutional investors have been the major source of capital markets growth. During the period 1995 and 2005, the assets under management of the institutional investors doubled from $21trn to $53 trn. The shift of home bias of the institutional investors into emerging markets stepped up the resource flows to the developing countries. For instance in the United States, in 1994, pension funds invested 41 percent of their portfolio in domestic equity and 7 percent in international equities, where as by 2005 that share rose to 48 percent in domestic equities and 15 percent in international equities. The portfolio allocation to bond markets during the same period reduced from 42 percent to 32 percent. Emerging markets received sizeable portion of the investments. In the US the dedicated Emerging Market mutual funs rose from about $27 billion in 2000 to $ 230 billion in 2006. Table 1: Equity Prices 2004-06 Particulars Average rate of change All Developing Countries 33.3 United States 21.5 Euro Area 12.7 Russa 60 Peru 39.2 Brazil 54.6 Colombia 75.1 India 45 China 17 Argentina 48.5 Mexico 42.5 Indonesia 39.5

12

Nigeria

35

Source: Global Development Finance. World Bank

Graph 7: Stock Markets Indices: Emerging Markets

Table2: Cumulative Net Foreign Institutional Investment: India Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
#provisional Source: Securities and Exchange Board of India

Cumulative Net Investment in US$ million 4 1638 3167 5202 7634 9284 8898 11237 13396 15242 15804 25755 35927 45259 65000#

13

Table3: Share Turnover in Equities Markets: India Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Source: SEBI

National Stock Exchange 1805 67287 295403 370193 414474 839052 133510 513167 617989 1099534 1140072 1569558 1945285

Bombay Stock Exchange 45696 84536 67749 50064 124190 207113 310750 686428 1000032 307292 314073 503053 518715 816074 956185

Following the foreign institutional investors, an important and emerging segment of global investing will be the Soverign Wealth Funds3. According to a recent estimate of the International Monetary Fund, assets held by Sovereign Wealth Funds include $5.6 trillion in foreign exchange reserves and upto $3 trillion sovereign wealth arrangements. IMF projects that the Sovereign Wealth Funds may accumulate international assets in range of $800-900 bn a year leading to its total assets base in the range of $12 trillion by 2012. The value of global financial assets, according to a study4 (2007) by the Mckinsey Global Institute is about $140 trillion assets. United States, the United Kingdom, the eurozone and Japan account for the more than 80 percent of the total. Equities accounted for nearly half of the growth of the financial assets in 2005. Every aspect of finance is assuming huge size. According to Market Metrics, a business and market intelligence network, in 2006, global mergers and acquisitions activity reached an all time high of $3.7 trillion, global direct real estate investments $600 bn, market value of global non-public 150 companies $7 trillion etc.,

3 4

Regional Economic Outlook, October 2007, International Monetary Fund Mapping the Global Capital Market, January 2007, McKinsey Global Institute.

14

Corporates from developing economies are making aggressive forays into business expansion and global reach and in this process are accessing global financial markets in a big way. World Banks Global Development Finance enumerates some significant facets of the globalization of the developing countries corporations. A few of these include; Developing countries companies in 2006, raised $156 bn through international offerings of corporate debt and equity. $245 billion through syndicated loans and engaged in cross border mergers and acquisitions involving developing countries corporation bidding for foreign targets to the tune of $ 100 bn. In 1987 cross border M&A of developing countries corporations amounted to $400 million.
1 1

Regional Economic Outlook, October 2007, International Monetary Fund Mapping the Global Capital Market, January 2007, McKinsey Global Institute.

Amongst the Worlds top Fortune 500 companies, 40 are from the developing world and 394 developing country companies traded on the worlds major stock exchanges accounting for one third of the global overseas cross listings. Since 20025, 422 emerging market companies have tapped international bond markets at least once, 537 contracted bank loans and 360 raised capital on the one of the global major overseas stock exchanges. Private sector companies accounted for more than 60 percent of total bank borrowing and 75 percent of the new bond issuance during the period 2002-06. Graph8: Foreign Capital Raised by Developing Country Corporations, (left) and Foreign Companies Listed on Major Global Stock Exchanges (Right), 1998-2006

Global Development Finance, 2007, The World Bank

15

In 2006, of the 1328 foreign companies listed in the major global stock exchanges, 394 (30%) were from the developing countries. This share was about 13.1% in 1998. 20 emerging countries, with Brazil, China, India, Mexico and Russia with strong representation, accounted for 95 percent of the total bond issuance, 85 percent of the total bank borrowing and 95 percent of the total equity offerings by developing countries. These 20 countries account for 67 percent of the developing worlds population and source of 78 percent of its Gross Domestic Product. These 20 countries have aggregate stock market capitalization of $5.3 trillion, which accounts for 88 percent of the total for the developing world. These countries together have about 12,557 public traded companies that represent 95 percent of all those based in developing countries.
1

Global Development Finance, 2007, The World Bank

In India too, the merger and acquisition activity increased substantially. Where as foreign acquisitions in India rose from $2.9 billion in 2005 to $28 billion in 2007, Indian acquisitions abroad rose from $1.5 billion to $18.1 billion during this period. In addition to technology companies such as Infosys, Wipro and TCS, major Indian corporates who conducted sizeable cross border mergers by acquiring foreign target companies included; Tata, Suzlon, Bharat Forge, Ranbaxy, Hindalco, United Breweries etc., In the first three quarters of the year 2007, Indian companies announced 150 foreign acquisitions with a total value of $18.1 billion, a four fold increase of the total value in 2005. A survey of 340 of the worlds largest manufacturers, by the paris based Capgemini Consulting revealed that India could challenge China as the leading manufacturing center of the world in the next three to five years. Simultaneous with growth and expansion challenges, concerns on stability and sustainability assume equal importance. A few major messages brought out in the Global Development Finance (2007) on the globalization of the developing countries corporations are pertinent in this regard. Global borrowing by developing country firms has surged in recent years The pace of corporate globalization in the developing world is likely to intensify in the medium term,

o o

16

Concerns are growing that corporate credit spreads may not fully reflect credit quality and that corporations may be underestimated global risk aversion Managing these risks requires a comprehensive reponse, from the level of the firm to the macro economic level Good policies reduce the cost of capital Greater coherence is needed in international standards for cross border listings and public offering of securities.

o o

A major challenge to manage the growth and sustain it in the long term is to evolve efficient processes of governance. It is important to continuously update governance standards as also enhance the skillssets, competence and capabilities of the instruments of governance to deal with the rapidly changing world of finance and infinite opportunities it offers and the challenges it poses. An aspect of promise is the prospects for better standards across the world with countries mutually learning from each other on the benchmarks and best practices. Having built up a strong base for the governance, the real test and challenge will be on enhancing its scope and significance so that it could continue to sub serve the growth objective in the long term.

17

Chapter II

WORKING OF THE CORPORATE GOVERNANCE

Growing evidence of the positive effect of corporate governance

Early discussion on the governance rose from an analysis by Berle and Means6 (1932) following the Great Crash in the US in 1929, which traced the problem of governance due to the separation of ownership and control. The authors recommended stake holder value over the share holder value as essential for good governance, a premise on which formal securities regulation began in the US with the setting up of the Securities and Exchange Commission (1933). This debate led the governance being associated with the agency problem {Coase, 1937)7, (Jensen and Meckling8, 1976), (Fama and Jensen9,1983) in which the essence is the separation of ownership and control. Agency problem refers to the difficulties financiers have in assuring that their funds are not expropriated or wasted on unattractive projects {Shliefer and Vishny10,1997)) Early work in the corporate law development in the 18th and 19th centuries in Britain, Continental Europe and Russia has focused more on addressing the problem of managerial theft rather than that of shirking or even empire building. Shleifer and Vishny cite studies on vast mangerialist literature that explains how mangers use their effective control rights to pursue projects that benefit them rather than investors which are described as private benefits of control {Grossman and Hart11,1982)} Managers can expropriate shareholders by entrenching themselves and staying in the job even if they are no longer competent or qualified to run the firm. Poor managers who resist being replaced might be the costliest manifestation of the agency problem (Jensen and Ruback12, 1983) Agency theory considered the firm as a nexus of contracts; associating the firm and the entire group of resource contributors (the team of productive inputs) and analyzing the relationship between the principle (shareholders) and the agent (mangers), the conceptual framework which is found

6 7

Berle A.A. and Means G.C.., The Modern Corporation and the Private Property, New York: MacMillan, 1932 Coase, Ronald (1937), The Nature of the Firm, Economica, 4, 386-405 8 Jensen, Micheal and William Meckling (1976), Theory of the Firm, Managerial Behaviour, Agency Costs, and Ownership Structure, Journal of Financial Economics, 3, 305-60 9 Fama, Eugene and Micheal Jensen (1983b), Separation of Ownership and Control, Journal of Law and Economcs, XXVI, 301-25 10 Shleifer, A.,and R.Vishny, 1997, A Survey of Corporate Governance, Journal of Finance, 52, 737-775 11 Grossman, Sanford., and Oliver D. Hart, 1982, Corporate Financial Structure and Managerial Incentives, in John J. McCall, ed.: The Economics of Information and Uncertainty (University of Chicago Press, Chicago, IL 12 Jensen, Michael and Richard Ruback,1983; The Market for Corporate Control: The Scientific Evidence, Journal of Financial Economics, 11, 5-50

18

relevant even today. This perspective has lead to a wide range of studies relating to the board of directors, share holders meetings, remuneration system for managers, the legal and accounting regulations and takeover etc., With the enormous growth of financial markets, the interest on corporate governance flows beyond the finance and extends to law, economic, politics, sociology and management science. Historical developments that impact the overall scope of the corporate governance in different countries is discussed by Randall K. Morck, Lloyd Steir13 (2005) who observed that financial disasters tainted French confidence in financial securities early on, and set corporate governance in that country on a different parity from that of Britain, where a similar trauma was overcome and forgotten. Similarly historical trends such as imperial monopoly in China that was evident in the late 19th century, large scale trading networks belonging to particular communities and ethnic groups and sectarian groups in India, family and bank controlled pyramidal groups in Germany, Zeibatsu and Keiratsu in Japan and Chaebols in Korea etc., have influenced the process of growth of corporate governance in the respective countries. Certain features that are common to all countries that contributed to the varying types and pace of the corporate governance norms include; Accidents of history, ideas, families,business groups, trust, law, origins, evolution, transplants, large outside shareholders, financial development, politics and entrenchment, etc. Ownership is a key driver that determines the quality of governance. The first of the studies on the ownership of the global companies by Rafeal La Porta14 shows higher incidence of family ownership in global corporations that runs contrary to the earlier observation of widely held corporations analysed by Berley and Means. The study presents data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify the ultimate controlling shareholders of these firms. The study found that except in economies with very good shareholder protection, relatively few of these firms are widely held. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely held corporations is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in

13 Morck, Randall K, Steier, Llyod, 2005, the Global History of Corporate Governance, an Introduction, NBER Working Paper No 11062, January 2005. 14 La Porta, Rafael, Florencia Lopez-de-Silanes, Andrei Shleifer and Robert Vishny, 1999, Corporate Ownership Around the World, Journal of Finance (54(2), 445-70

19

management ownership issues; particularly the predominance of family owned companies remains an important issue in several emerging economies and forms an important aspect of the corporate governance reforms. Franklin Yale and Dougles Gale15 (2002) discuss the term corporate governance that is used in two distinct ways. In Anglo-Saxon countries like the US and UK good corporate governance involves firms pursuing the interests of shareholders. In other countries like Japan, Germany and France it involves pursuing the interests of all stakeholders including employees and customers as well as shareholders. Anglo-Saxon capitalism has been widely analyzed but stakeholder capitalism has not. The authors argue that stakeholder capitalism can often be superior when markets are not perfect and complete. Paolo Fulghieri and Matti Suominen16 (2005) find that the quality of the corporate governance system may have a significant impact on the economys level of competition and its degree of industry concentration. Poor corporate governance and low investor protection may in fact lead to high industry concentration. Craig Doidge, G. Andrew Karolyi, and Ren M. Stulz17 (2006) showed that the incentives to adopt better governance mechanisms at the firm level increase with a countrys financial and economic development. Further, these incentives increase or decrease with a countrys investor protection depending on whether firm-level governance mechanisms and country-level investor protection are substitutes or complements. The study observes that when economic and financial development is poor, the incentives to improve firmlevel governance are low because outside finance is expensive and the adoption of better governance mechanisms is expensive. A cross country study by Vidhi Chhaochharia and Luc Laeven18 (2007) shows that governance provisions adopted by firms beyond those imposed by regulations and common practices among firms in the country have a strong, positive effect on firm valuation. The study showed that, despite the costs associated with improving corporate governance at the firm level, many firms choose to adopt governance provisions beyond what

Allen, Franklin, Gale, Douglas, 2002, A Comparative Theory of Corporate Governance, Financial Institutions Center, Wharton University, 2002 16 Fulghieri, Paolo, Suominen, Matti, 2005, Does Bad Corporate Governance Lead to Too Little Competition?, Finance Working Paper No. 74/2005, March 2005, European Corporate Governance Institute. 17 Dodge, Craig, Karolyi, George Andrew, Stulz, Rene M, 2004, Finance Working Paper Ho. 50/2004, European Corporate Governance Institute, Charles A. Dice Center Working Paper No.2004-16 and Fisher College of Business Working Paper No.200603-008 18 Chhaochharia, Vidhi, Laeven, Luc, 2007, The Invisible Hand in Corporate Governance, Finance Working Paper No. 165/2007, April 2007

15

20

considered the norm in the country, and these improvements in corporate governance have a positive effect on firm valuation. An Empirical analysis by Leora F. Klapper and Inessa Love19 (2002) of the World Bank showed that better corporate governance is highly correlated with better operating performance and market valuation. They provide the evidence that firm level corporate governance provisions matter more in countries with weak legal environments. The results suggest that firms can partially compensate for ineffective laws and enforcement by establishing good corporate governance and providing credible and investor protection. Good corporate governance commands high premium20. A CLSA April 2003 study showed that over the past five years, high CG stocks (ranked in the 1st quartile) outperformed the Sensex by 169%. The out-performance was at over 40% even if one excluded the software stocks. A study by Wolfganag Dorbetz, University of Basel showed that an investment strategy that bought high-CGR firms and shorted low CGR firms would have earned excess returns of 12% compared to the DAX 100 during 1998-2000. A Lipper-GMI Mutual Fund Report showed that Mutual funds that invest in companies with higher CG ratings have been rewarded with superior returns According to a Harvard Law School study21, the disregard for shareholder rights caused lower firm valuations to the extent of 7 percent per annum and large negative abnormal returns during the 1990-2003 period; A Deutsche Bank research showed that European companies with improving governing standards outperformed a portfolio of deterioriating companies by 4.4 per annum. A joint study of the European Corporate Governance Institute and London Business School showed that the governance focused Hermes UK Focus Fund outperformed its benchmark by an average 4.8% each year from 1999 through 2004. The CLSA/ACGA Governance Score for 27 countries confirms that firms with better governance outperform significantly even in bull markets when governance usually has a lower priority with investors. All these show positive effects of the good governance A 2002 McKinsey Survey revealed that investors then were willing to pay a premium of 23% for well governed companies in India which in the recent time came down to 5 to 10 percent due to overall improvement in the governance standards.

19

Klapper, Leora F, Love, Inessa, 2002, Corporate Governance, Investor Protection and Performance in Emerging Markets, Policy Research Working Paper 2818, Development Research Group, The World Bank. 20 Corporate Governance Ratings and Audit, a presentation by ICRA, October, 2004 21 Bebchuk, Lucian, Cohen Alma, Ferrell, Alma, 2005, What Matters in Corporate Governance, Discussion Paper No. 491., revised 03/2005, Hardvard Law School, Cambridge, MA

21

Christian Leuz, Karl V. Lins, Francis E. Warnock22 (2006), in their study using a set of foreign holdings by U.S. investors as a proxy for foreign investment that analysed a sample of 4,411 firms from 29 emerging market and developed economies found that, foreigners invest significantly less in firms that are poorly governed, i.e., firms that have ownership structures that are more conducive to outside investor expropriation Interestingly, this finding is not simply a matter of a countrys economic development but appears to be directly related to a countrys information rules and legal institutions. The authors argue that information problems faced by foreign investors play an important role in this result. Supporting this explanation, they argue that foreign investment is lower in firms that appear to engage in more earnings management. An event study by Bernard Black & Vikramaditya Khanna23 (2007) showed that good corporate governance benefits faster growing firms (esp. mid sized ones) than others and cross-listed firms get the benefit more than others. Alexander Dyck, Adair Morse, Luigi Zingales24(2007)examine how external control mechanisms are most effective in detecting corporate fraud. The authors study in depth all reported cases of corporate fraud in companies with more than 750 million dollars in assets between 1996 and 2004 and find that fraud detection does not rely on one single mechanism, but on a wide range of, often improbable, actors. Only 6% of the frauds are revealed by the SEC and 14% by the auditors. More important monitors are media (14%), industry regulators (16%), and employees (19%). Before SOX, only 35% of the cases were discovered by actors with an explicit mandate. After SOX, the performance of mandated actors improved, but still account for only slightly more than 50% of the cases. Gillan and Starks25 (1998) define corporate governance as the system of laws, rules, and factors that control operations at a company. The paper mentions governance consisting of two aspects: Internal governance with five major categories the board of directors, managerial incentives, capital structure, bylaw and charter provisions, internal control systems where as external governance consisting of law and regulation, capital markets; analysts, auditors, private sources of external oversight such as rating, media etc. Extensive research work on each of these aspects has been conducted in the recent times Extensive development work is being carried out in a large number of countries in making corporate governance comprehensive and effective. Major reforms in the corporate

22

Leuz, Christian, Lins, Karl V, Warnock, Francis E., 2006, Do Foreigners Invest Less in Poorly Governed Firms, Finance Working Paper No. 43/2004, Revised version: April 2006, European Corporate Governance Institute 23 Black, Bernand S, Khanna, Vikramaditya S., Can Corporate Governance Reforms Increase Firms Market Values? Event Study Evidence from India, Havard Law School 24 Dyck, Alexander, Morse, Adair, Zingales, Luigi, 2007, Who Blows the Whistle on Corporate Fraud, 25 Gillan, Stuart L, and Laura T. Starks, 1998, A Survey of Shareholder Activism, Motivation and Empricial Evidence, Contemporary Finance Digest, 2,3, 10-34

22

governance in selected countries as sourced from the Year Book 200726 of International Corporate Governance Network are reproduced below.

European Union27
The EUs approach to corporate governance matters is principle-based. It seeks to ensure the adoption of certain key specific standards throughout the EU, while leaving it to Member States and market participants to determine how to best apply these standards. The EU corporate governance framework, which consists of a mix of binding and nonbinding rules, has as its cornerstone the comply or explain principle. Every listed EU company is under an obligation to make an annual statement indicating which Code of corporate governance it applies and declaring whether it complies with all the provisions of that Code. If that company does not comply with some provision of the Code, it must state to what extent and give a justification. Alongside the corporate governance statement, the Commission has adopted two non-binding recommendations on the remuneration of directors and on the role of independent directors, which contain key substantive standards. With these measures, the Commission seeks to encourage national corporate governance codes to converge gradually. The European Corporate Governance Forum, set up by the Commission and composed of fifteen high level experts, seeks to reinforce this through exchanges of views on best practices to promote the convergence of national corporate governance practices within the European Union. UK28 In June 2007, the EU adopted the Shareholder Rights Directive to create consistent standards across Member States and simplify cross-border investment. It aims to reduce problems associated with cross-border investment which include: a lack of sufficient information on a timely basis; the inability to trade shares ahead of general meetings (share blocking); and inefficient voting procedures and constraints. National governments are required to implement the Directive within two years. Some of the key measures of the Directive are: Share-blocking is banned. Instead, companies are required to set a

26 27

Year Book 2007, International Corporate Governance Network The Regulatory Regime: Focus in Europe by Charlie Mccreevy, European Commissioner for the Internal Market and Services, ICGN Year Book 2007. 28 The UK at the Hear of European Developments, Kerrie Waring, Corporate Governance Manager, Institute of Chartered Accountants of England and Wales, ICGN Year Book 2007.

23

record date within a 30-day period before the election, giving the vote to whoever holds shares on that day. Notice of Annual General Meetings (AGM) must be at least 21 days in advance, or 14 days for special meetings. Shareholders must be able to ask questions related to AGM agenda items. Shareholders must have the opportunity to vote by post. Companies must disclose results on resolutions and this should be published on its website no more than 15 calendar days after the AGM. In April 2007 the Financial Reporting Council (FRC) issued a consultation on the Review of the Impact of the Combined Code. It will address the effectiveness of the comply or explain regime, the impact of the Combined Code on smaller companies, how it supports board performance and whether disclosures are considered useful and proportionate in terms of cost to companies

United States29
In the United States, investor protection being governed by the federal and state laws, in addition to the implementation of the Sarbanes-Oxley corporate governance norms, different states have brought in several laws. These include; Under Delaware law: (1) any stockholder can inspect and copy a corporations stock ledger, a list of stockholders, and certain books and records of the corporation; (2) any stockholder can sue for an appraisal by the chancery court of the fair value of the stockholders stock in connection with certain mergers; and (3) interested director transactions are subject to heightened approval requirements. Further, the US federal securities laws and the SECs rules also contain provisions aimed at protecting individual shareholders, such as: (1) requiring heightened disclosure for going private transactions; (2) requiring issuers to send proxy materials to all shareholders (not just certain shareholders); and (3) mandating significant disclosures for related-party transactions. Simultaneously rigorous work on further areas of reforms on the governance are being actively pursued and these include; improved quality in compensation disclosure; advisory votes on executive compensation; access to the management proxy for shareholder designated board candidates; reform of shareholder communications and proxy voting mechanics; promotion of global corporate governance standards and cross-border voting protections; transparency in stock lending, empty voting and the governance impact of hedging and derivative trading strategies; reduction of regulatory costs; use of technology in disclosure and communications; alleviation of short-term investment and business focus; maintaining financial market efficiency and competitiveness.
29

The Regulatory Year Book 2007.

Regime:

US

Perspective,

Roel

C.

Campos,

SEC

Commissioner,

ICGN

24

China30
The total market capitalisation at the end of March 2007 was RMB12.36 trillion, representing about 55% of the countrys GDP last year. From only about a dozen listed companies in 1990, there were 1459 listed companies by March of 2007. There are now 116 securities firms, with over 100,000 practitioners, and 82 million investor accounts. From 1991 to 2005, total funds raised by Chinese companies through public offerings reached RMB 1,159 billion. One of CSRCs major reforms is the requirement to have independent directors on the board to overcome the insider control problem in many of Chinas listed companies. The CSRC Guidelines on Independent Directors (August 2001) required that each listed company should have at least one third of the board made up of independent directors by June 2003. Independent directors are required to serve as chairs of audit, compensation, and nomination committees and major related-party transactions of the company have to be approved by independent directors. A recent survey showed that, as of December 2005, 4,640 independent directors had been appointed at shareholder meetings for the 1,381 listed companies in China. In most companies now at least one-third of the board are independent directors and it is evident that they are playing a more important role in corporate governance. A listed company is required to publish an audited annual report as well as a semi-annual report. From 2002, listed companies are also required to publish un-audited quarterly reports. The rules have recently been revised to simplify and streamline the format of these reports so that they would be more readable and easily understood by investors. To better protect the rights and interests of public investors, the CSRC issued The Provisions on Strengthening the Protection of Rights & Interests of Public Shareholders (December 2004). According to the Provisions, listed companies major business decisions, such as rights issues and issuing additional new shares, and equity-for-debt plans, should receive a majority of the votes from holders of tradable-shares present at the general shareholders meeting.

France31
A law passed in July 2005 set things on course by requiring shareholder approval of the pension schemes of executive directors as well as golden parachutes and retirement schemes of managing directors. Another positive step was made with the introduction of a legal requirement for the chairman of the board of directors/ supervisory board to explain the remuneration policy to shareholders, who generally do not find these explanations

30

Regulatory Issues in China: Progress and Challenges, Daochi Tong, Deputy Director General, Public Offering, China Securities Regulatory Commission, ICGN Year Book 2007. 31 Corporate Governance Progress in France, Josiane Fanguinoveny, Services Director, Governance for Owners, ICGN Year Book 2007.

25

satisfactory. 1) The compensation review must be exhaustive, 2) compensation must be seen by reference to the relevant business lines, 3) performance criteria must correspond to corporate targets and be simple to determine. Current trends in AGM voting indicate that shareholders are voting against the following: Authorities to issue shares without preferential subscription rights. Poison pills and other takeover defences. Allocation of free shares to employees and stock option plans. Amendments to the articles of association relating to the threshold disclosure requirements. Share buy backs.

Germany32
The survey shows that independent non-executive directors today comprise only 28% compared to the European average of 54%. Just 27% of the major companies have an independent chairman. The proportion of independent members of audit and remuneration committees in Germany is only 26% and 23% respectively. Only 7% of German supervisory boards are international board members compared to the UK with 31% and Switzerland with 45%. However, the 8th EU Directive (auditor directive) to be implemented by June 2008 could lead to a change of this proportion since it requires an independent chairman for the audit committee.

Russia33
A survey on the corporate governance in Russia by the Russia Institute of Directors brings out the following features. Major areas of where improvement was evident included; the practice of recording the property title; board authority to approve material transactions; regulation of using insider information; ways of disclosing information to shareholders before the general meeting; cross-ownership of shares; dividend payments on common and preferred stock; the adoption of a corporate governance code. In respect of governance and control, major improvements were evident in ; bringing external (independent) directors to the boardroom; the regularity of board meetings; the establishment of board committees; having a regulatory framework for the board and the executive body; the introduction of board members remuneration practices; putting in place the procedures for identifying possible conflicts of interests in the board and amongst top managers; the establishment of internal control functions. Improvements observed in the disclosure standards include; information about the companys strategy; information about the composition of the companys governance

32

The Progress of Corporate Governance in Germany-The Quality Question, Christian Stranger Member of the German Government Commission on Corporate Governance, ICGN Year Book 2007 33 Corporate Governance Practices in Russia : A Survey, Igor Belikov, CEO, Russian Institute of Directors, ICGN Year Book 2007.

26

and control bodies; disclosure about general practices of corporate governance. Weaknesses that persist include; deficiencies in the procurement of goods and services; the involvement of independent appraisers; the practice of hiring external auditors; the existence of an approved dividend policy; the absence of formal corporate documents that outline the principles used for the calculation of dividends and the minimal share of net profit; the formalistic nature of many board committees; insufficient attention to the professional development of board members; the absence of a clear and understandable procedure of executive and board evaluation; the loose link between executive remuneration and the companys performance; poorly developed succession practices and succession planning; low level of independence and efficiency in the work of the audit commissions. poor disclosure of beneficiary ownership; poor disclosure about individual remuneration of members of the governance and control bodies and the principles on which such remuneration is based, insufficient use of available disclosure channels such as the annual report and corporate website.

South Africa34
Some of the key reforms proposed in a recent Bill on the corporate governance include; (a) There should be a uniform accounting standard to ensure that any financial information published by a company is calculated in accordance with generally accepted accounting practice (GAAP), which has to be comparable with the international standards adopted by the International Accounting Standards Board. (b) A companies ombud is created which provides a forum for alternative dispute resolution on company issues. (c) The Bill introduces three categories of companies, with the one category, namely a public interest company, having greater responsibility to a wider public and more demanding disclosure and transparency provisions. (d) The Bill creates a capital maintenance regime based on solvency and liquidity requirements which is a shift from a regime based on par value. (e) The chapter on corporate governance provides for the codification of directors duties, provisions addressing conflicts of interest and an increase in directors liability. (f) The Bill sets out simplified and flexible processes for approval of transactions that will fundamentally alter the structure of a company. The provisions deal with the disposal of substantially all of a companys assets or an undertaking, a scheme of arrangement or a merger or amalgamation. Minority shareholders are also afforded better protection in line with modern international corporate law. g) Business rescue is being introduced in place of judicial management. Business rescue will be conducted by an independent supervisor

34

South Africas Ambitions: Achieving International Standards of Governance, Mervyn King, Chairman of the Global Reporting Initiative, and Chairman, King Committee on Corporate Governance in South Africa. ICGN Year Book 2007.

27

and subject to court intervention. The interests of shareholders, creditors and employees are recognised in the development and approval of a business rescue plan. Notably, the interests of workers are protected by recognising them as creditors of the company, with a voting interest to the extent of any unpaid remuneration. (h) The Bill tends to decriminalise non-compliance and uses a system of administrative enforcement

Middle East35
The first Code of corporate governance was launched in Oman as early as 2002. Egypt has published two corporate governance Codes, one for listed companies and one for State Owned Enterprises. Egypt has sought to strengthen its listing rules and is focusing on implementation by launching the Egyptian Institute of Directors and a series of training programs being conducted by the Egyptian Banking Institute for bank directors. Bahrain, Morocco, Qatar, and Tunisia have facilitated the review of their legal and regulatory framework and are in the process of preparing a corporate governance Code. Jordan is developing a model corporate governance Code for listed companies. Lebanon has conducted a bank corporate governance survey and conducted a legal review followed by the Central Bank issuing a corporate governance regulation. Additionally the Lebanese corporate governance Task Force has spearheaded the development of a Code of corporate governance for non-listed companies and is working with Lebanese companies for voluntary compliance. In the UAE, the Central Bank has drafted corporate governance guidelines for banks, and the UAEs Securities and Commodities Authority has issued a corporate governance Code, setting a national governance standard, for both the Dubai Financial Markets and the Abu Dhabi Securities Market. Similarly, Saudi Arabias Capital Market Authority launched corporate governance regulations for its listed companies, and the banking sector is seriously looking at improving corporate governance standards. The West Bank/Gaza is also in the process of developing a Code of Corporate Governance, after a series of corporate governance awareness programs organised by business associations and regulatory authorities. Corporate governance plays an important role in investment decisions. In Brazil, Sau Paulo Stock Exchange launched a new market segment in 2001, The Novo Mercado where companies listed in this exchange have to comply with international standards and not those applicable to the companies listed in the main board. Institutional investors invested

A Dynamic and Changing Environment: Middle East and North Africa, Nsser Saidi, Executive Director, Hawkamah Institute for Corporate Governance and Chief Economist, Dubai International Financial Center. ICGN Year Book 2007.

35

28

teams of people responsible for reviewing corporate governance practices in the companies in which they are investing. Morck and Steir (2007) sum up the essence of the evolution of the corporate governance in different countries Corporate governance deals with the mechanisms that ensure investors in corporations get a return on their investments (Shleifer and Vishny, 1997). Corporate governance varies widely across countries and across firms. Better governance enables firms to access capital markets on better terms, which is valuable for firms intending to raise funds. It is therefore expected that firms planning to access capital markets especially those with valuable growth opportunities that cannot be financed internally to adopt mechanisms that commit them to better governance. With the availability of data on corporate governance and disclosure practices of individual companies around the world, provided first by the Center for International Financial Analysis and Research (CIFAR) and, more recently, by Credit Lyonnais Securities Asia (CLSA), Standard and Poors (S&P), and Institutional Shareholder Services (ISS), several studies have investigated whether governance and transparency scores are related to firm characteristics. In general, they find that the quality of governance practices is positively related to growth opportunities, the need for external financing, and the protection of investor rights, and this rapidly developing body of literature began with the finding that the laws that protect investors differ significantly across countries, in part because of differences in legal origins (see La Porta, Lopez-de-Silanes, Shleifer and Vishny (1998). Recent literature finds that cross-country differences in laws and their enforcement affect ownership structure, dividend payout, availability and cost of external finance and market valuations.'is negatively related to the concentration of ownership. However, until now, the importance of other country characteristics, such as the financial and economic development of the country in which a company is domiciled, and how that importance is affected by financial globalization, has not been investigated. This is surprising since a number of studies show that other country characteristics besides measures of investor protection have a significant impact on country-level measures of governance.

The developments in corporate governance as described above show that; Corporate governance is catching up fast as a major instrument of corporate reform in several countries

29

Good governance emerged as a major incentive for corporate growth and in pursuing global business aspirations Good companies are going beyond the mandatory requirements in adopting best practices in governance Greater interaction and sharing of knowledge is gaining ground across countries in setting effective governance frameworks Disclosure and transparency are emerging as the key determinants of good governance As the financial markets grow and the developing countries corporations increasingly explore global financial markets for resources and business, harmonization of the corporate governance increases and intensified

The pace of developments in strengthening corporate governance in different countries provides an insight on the urgency with which strong governance norms are devised and implemented all over the world.

30

Chapter III

Constituents of governance gain scope and significance

Corporate governance has been defined by scholars and market practioners as per the perspective with which they were analyzing the subject. The practioners point of view that was powerfully conveyed was that of N.R. Narayana Murthy, Chairman, Committee on Corporate Governance, Securities and Exchange Board of India, 2003 and he himself a highly successful and globally acclaimed entrepreneur who built Infosys on the premise and foundations of a strong corporate governance The term corporate governance, is susceptible both to broad and narrow definitions. In fact, many of the codes do not even attempt to articulate what is encompassed by the term. The important point is that corporate governance is a concept, rather than an individual instrument. It includes debate on the appropriate management and control structures of a company. Further, it includes the rules relating to the power relations between owners, the Board of Directors, management and, last but not least, the stakeholders such as employees, suppliers, customers and the public at large:. From a policy perspective and who chaired the first ever influential and widely discussed report on the subject, Adrian Cadbury, the author of the Cadbury Report, said In its broadest sense, corporate governance is concerned with holding the balance between the economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interest of the individuals, of corporations and of society. The incentives to corporations and those who own and manage them to adopt internationally accepted governance standards is that these standards will assist them to achieve their aims and to attract investment. The incentive for their adoption by states is that these standards will strengthen their economies and encourage business probity. From a regulatory point of view Arthur Levitt, former chairman of the Securities and Exchange Commission, United States emphasized the importance of the corporate governance as If a country does not have a reputation for strong corporate governance

THE ESSENSE OF CORPORATE GOVERNANCE

31

practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for a lax accounting and reporting standards, capital will flow elsewhere. All enterprises in that country- regardless of how steadfast a particular companys practices may be-suffer the consequences. Markets exist by the grace of investors. And it is todays more empowered investors that will determine which companies and markets will stand the test of time and endure the weight of greater competition. It serves us well to remember that no market has a divine right to investors capital. Organization of Economic Cooperation and Development (OECD) which spearheaded the design and development of corporate governance principles and guidelines defined it as Corporate governance involves a set of relationships between a companys management, its board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined An institutional point of view presented by Ira Millstein, who worked on drafting the OECD corporate governance guidelines as also the co-chairman of the NYSE-NASDAQ constituted Blue Ribbon Committee36 (1998) that looked into important aspects of the audit committees, defined Corporate governance refers to that blend of law, regulation and appropriate voluntary private sector practices which enables the corporation to attract financial and human capital, perform efficiently and thereby perpetuate itself by generating long term economic value for its stakeholders, while respecting the interests of stakeholders and society as a whole. From an academic perspective based on extensive surveys and studies on the subject, Shleifer and Vishny (1997) define corporate governance as the ways in which suppliers of finance to corporations assure themselves of getting a return on their investments; Zingales (1998) views governance systems as the complex set of constraints that shape the ex post bargaining over the quasi-rents generated by the firm; Gillan and Stakes (1998) define corporate governance as the system of laws, rules, and factors that control operations at a company. To sum up, the important message of the need for good corporate governance is well articulated by M. Damodaran, Chairman, Securities and Exchange Board, who spearheaded
36

Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of the Corporate Audit Committees. NYSE and NASDAQ, 1998.

32

introduction of most significant reforms in the Indian stock markets, including the October 2007 guidelines on the Participatory Notes (PNs) observed There are those who will tell you that business and ethics cannot stand together. In the short run, it might appear that company pay a price for adhering to values while their competitors get ahead in a shorter time frame, but in the long run people would learn to distinguish, stakeholders learn to ask the right questions and distinguish between the grain and chaff. Those that dont subscribe to values will fall by the way side; those that subscribe to values will last the course and will set benchmarks. The roots of the recent developments in the corporate governance could traced to Treadway Commission (1985), United States which found that inadequate internal controls lead to financial failures, which later led to the Commission defining three objectives of the internal controls which are; (a) effectinvess and efficiency of operations (b) reliability of financial reporting and (c) compliance with laws and regulations and (d) safeguarding of assets. The evolution of the corporate governance guidelines is given in the chart below.
Table 4 Recent Evolution of the Corporate Governance Cadbury Report, United Kingdom 1995 The objective of the Cadbury committee was to investigate how large public companies should adopt corporate governance guidelines with a focus on the procedures of financial report production and the role of the accounting profession. Issues included the role of the board of directors, standard s of financial reporting, accountability of the auditors and directors pay. The report dealt with the remuneration of executives and non-executives board members and recommended the setting up of a remuneration committee in each public company to determine remuneration packages for the board members. It also provided suggestions on the disclosure of remuneration and the setting up of remuneration policy and service contracts and compensation.

Greenbury Report, United Kingdom, 1995

33

Hampel Report, United Kingdom, 1998 CII Voluntary Code of Corporate overnance,1998 Kumara Mangalam Birla Committee, India, 1999

Four major issues were discussed with practical guidelines offered; (a) the role of directors (b) directors compensation (c) the role of shareholders (d) accountability and audit. The first of the voluntarily evolved codes in India. The mandatory recommendations of the Kumar Mangalam committee include the constitution of Audit Committee and Remuneration Committee in all listed companies, appointment of one or more independent directors in them, recognition of the leadership role of the Chairman of a company, enforcement of Accounting Standards, the obligation to make more disclosures in annual financial reports, effective use of the power and influence of institutional shareholders, and so on. The Committee also recommended a few provisions, which are non- mandatory. A major initiative of corporate compliance, the SarbanesOxley Act of 2002, is also known as the Public Company Accounting Reform and Investor Protection Act of 2002 is a US federal law that has main features such as ; establishment of the Public Company Accounting Oversight Board (PCAOB), auditors independence, corporate responsibility, enhanced financial disclosures, analyst conflict of interest, commission resources and authority, corporate and criminal fraud accountability, while collar crime penalty enhancement, corporate tax returns and corporate fraud accountability. On non-executive directors. On Audit Committees. The key mandatory recommendations focus on strengthening the responsibilities of audit committees; improving the quality of financial disclosures, including those related to related party transactions and proceeds from initial public offerings; requiring corporate executive boards to assess and disclose business risks in the annual reports of companies; introducing responsibilities on boards to adopt formal codes of conduct; the position of nominee directors; and stock holder approval and improved disclosures relating to compensation paid to non-executive directors. Non-mandatory recommendations include moving to a regime where corporate financial statements are not qualified; instituting a system of training of board members; and the evaluation of performance of board members. The auditor-company relationship, Auditing the auditors Independent directors: Role, remuneration and training. The OECD Principles cover five aspects of governance (a) the rights of shareholders (b) the equitable treatment of shareholders (c) the role of stakeholders (d) disclosure and transparency (e) the responsibilities of the board.

Sabanes-Oxley Act, 2002

Higgs Report, 2003 Smith Report, 2003 Narayana Murthy Committee, 2002

Naresh Chandra Committee,2003 OECD Principles,2004

34

Clause 49 of the Listing Agreement, 2005

A major compliance directive that came into force from the quarter ended June 2005, it has major aspects of compliance by listed companies that include; definition of independent directors; Non-Executive Directors compensation and disclosures, other provisions as to Board and Committees, Code of Conduct, Composition of Audit Committee, Meeting of Audit Committee, Subsidiary Companies, Disclosures pertaining to (a) basis of related transactions (b) accounting treatment (c) risk management (d) proceeds from public/rights/preferential issues (e) remuneration of directors and management discussion and analysis, CEO/CFO Certification, report on corporate governance, auditors certificate on compliance etc.,

Mature governance is caused by protection of property rights, enforcement of contractual rights, protection against fraud and unfair practices,, centralized banking laws, bankruptcy laws, strong and independent judiciary The quality of corporate governance of a company is a key determinant of its market performance. Institutional investors have a great hold on the market performance as also they contribute significantly in inducing companies to adopt best practices. It is in this regard, the guidelines evolved by CalPERS37, the leading institutional investor in the world are summarized below.

Core Principles on Corporate Governance

Corporate governance practices should focus board attention on optimizing the companys operating performance and returns to shareowners. Directors should be accountable to shareowners, and management accountable to directors. To ensure this accountability, directors must be accessible to shareowner inquiry concerning their key decisions affecting the companys strategic direction. Information about companies must be readily transparent to permit accurate market comparisons; this includes disclosure and transparency of objective globally accepted minimum accounting standard. All investors must be treated equitably and upon the principle of one-share/onevote.

37

CalPERS, Core Principles of Accountable Governance.

35

Proxy materials should be written in a manner designed to provide shareowners with the information necessary to make informed voting decisions. Similarly, proxy materials should be distributed in a manner designed to encourage shareowner participation. All shareowner votes, whether cast in person or by proxy, should be formally counted with vote outcomes formally announced.

Each capital market in which shares are issued and traded should adopt its own Code of Best Practices; and, where such a code is adopted, companies should disclose to their shareowners whether they are in compliance.

Corporate directors and management should have a long-term strategic vision that, at its core, emphasizes sustained shareowner value. In turn, despite differing investment strategies and tactics, shareowners should encourage corporate management to resist short-term behavior by supporting and rewarding long-term superior returns.

Board Independce and Leadership

At a minimum, a majority of the board consists of directors who are independent. Boards should strive to obtain board composition made up of a substantial majority of independent directors.

Independent directors meet periodically (at least once a year) alone in an executive session, without the CEO. The independent board chair or lead (or presiding) independent director should preside over this meeting.

Each company should disclose in its annual proxy statement the definition of independence adopted or relied upon by its board.

With each director nomination recommendation, the board should consider the issue of continuing director tenure and take steps as may be appropriate to ensure that the board maintains openness to new ideas and a willingness to critically reexamine the status quo.

Independent Board The board should be chaired by an independent director. The CEO and chair roles should only be combined in very limited circumstances; in these situations, the board should provide a written statement in the proxy materials discussing why the

36

combined role is in the best interest of shareowners, and it should name a lead independent director to fulfill duties . When selecting a new chief executive officer, boards should re-examine the traditional combination of the chief executive and chair positions. Generally, a company's retiring CEO should not continue to serve as a director on the board and at the very least be prohibited from sitting on any of the board committees. Corporate insiders are not considered independent and should therefore not constitute any more than one board seat. Certain board committees consist entirely of independent directors. These include the committees who perform the audit, director nomination, CEO evaluation, and executive compensation functions. The full board is responsible for the oversight function on behalf of shareowners. Should the board decide to have other committees (e.g. executive committee) in addition to those required by law, the duties and membership of such committees should be fully disclosed. Board Evaluation The board has adopted and disclosed a written statement of its own governance principles, and regularly re-evaluates them. The board has adopted and disclosed an annual board, committee, and individual director evaluation process. With each director nomination recommendation, the board considers the mix of director characteristics, experiences, diverse perspectives and skills that is most appropriate for the company. The board should address historically underrepresented groups on the board, including women and minorities. Companies should submit executive compensation policies to shareowners for nonbinding approval. Executive contracts should be fully disclosed, with adequate information to judge the "drivers" of incentive components of compensation packages.

37

Director compensation should be a combination of cash and stock in the company.

Audit Integrity
The selection of the independent external auditor should be ratified by shareowners annually. The board, through its independent Audit Committee, should ensure that excessive non-audit fees are prohibited. To limit the risk of possible conflicts of interest and independence of the auditor, non-audit services and fees paid to auditors for nonaudit services should both be approved in advance by the Audit Committee and disclosed in the proxy statement on an annual basis.

Shareholder Rights
A majority of proxies cast should be able to amend the company's bylaws by shareowner proposal. A majority of shareowners should be able to call special meetings or act by written consent. In an uncontested director election, a majority of proxies cast should be required to elect a director. In a contested election, a plurality of proxies cast should be required to elect a director. A majority of proxies cast should be able to remove a director with or without cause. Unless the incumbent director has earlier resigned, the term of the incumbent director should not exceed 90 days after the date on which the voting results are determined. Shareowners should have the right to sponsor resolutions. A shareowner resolution that is approved by a majority of proxies cast should be implemented by the board. Every company should prohibit greenmail. No board should enact nor amend a poison pill except with shareowner approval. Every director should be elected annually.

38

Proxies should be kept confidential from the company, except at the express request of shareowners.

Broker non-votes should be counted for quorum purposes only. Shareowners should have effective access to the director nomination process. Shareowners should have the right to cumulate votes.

39

Chapter IV
Corporate governance in India reaches global standards

INDIA RISES

An assessment by the Institute of International Finance38 (Corporate Governance in India, An Investor Perspective, February 2006) brings out the following features of governance practice in India. Corporate governance-related requirements in India are largely based on the recommendations of the Cadbury and Higgs Reports and the Sarbanes-Oxley Act. SEBI has been proactive in keeping Indias corporate governance rules and regulations in line with best practices in the world. The state of corporate governance in India has improved over the last four years particularly among large cap Indian companies. In many large Indian companies, globalization- and not regulatory requirementshas served as the impetus for adoption of corporate governance best practices. High market premiums that the stock of these (good corporate governance) companies command has reinforced the belief among Indian investors and, more importantly, other Indian companies that better corporate governance contributes to a high stock price and provides access to cheaper capital. Improvements in corporate governance in Indian companies seem largely to be voluntary and driven by globalization Companies that wish to access markets for capital or that wish to become leading global suppliers to corporations in developed markets are becoming increasingly transparent and more willing to adopt higher corporate governance standards.

38

Institute of International Finance, Inc, Corporate Governance in India, An Investor Perspective, IIF Equity Advisory Group, Task Force Report, February 2006

40

These governance changes are having a trickle-down effect on smaller Indian companies. Stock exchanges are viewed as being at the front line of the surveillance function for compliance with all listing requirements, including those that pertain to corporate governance. Corporate governance practice and procedures underwent dramatic changes during the period 1997-2007. Major economic and financial developments that have during period such as Asian financial crisis (1997-98), burst of the dotcom bubble (2000), major corporate failures (Enron, WorldCom), large scale mis-statement of financial information (Parmalat, Ahold, Alstom), surge in non-performing loans in several countries etc., have reinforced the need to tighten governance standards and brought into focus the scope and need for a wide of range of reforms in this regard. These initiatives have begun to pay off as could be evident from the vast improvement in the governance form and practice Asia as evident from several studies focused on assessment of the quality of the governance. From the year 2003 onwards CLSA and Asia Corporate Governance Network39 together collaborated in bringing performance scores of countries in the Asian region in regard to corporate governance. The first of the report, CG Watch 2003, had an interesting title, Faking It : Board Games in Asia perhaps most appropriate at that time in the background of global meltdown of stock markets brought about by severe inadequacies and abuses in corporate conduct and disclosure standards. The 2004 report had a more promising title Spreading the Word. Changing Rules in Asia reflecting changing landscape of the corporate governance brought out in the backdrop of Sarbanes-Oxley and a host of regulatory reforms that came into being a number of countries. The CG Watch 2005 had the title Holy Grail : Quality at Reasonable Price(QARP) showing growing commitment towards, better corporate governance. The 2007 report had a much more encouraging theme On a Wing and a Prayer: Greening of the Governance that brought out the significant changes in the corporate governance practice in the Asia region. The 2007 survey assessed the quality of corporate governance in 11 Asian markets that included Japan for the first time, and provided aggregate data from 582 companies in the region.

Table5: A Decade of Developments in Corporate Governance

39

Allen, Jamie, 2007,.The Benefits of Corporate Governance to Emerging Economies, Asian Corporate Governance Network.

41

Country/ Market Was there an official code of best practice? Yes (but very short -

1997 Did the idea of the Independ ent director exist? Yes Yes Yes Did the idea of the audit ctee exist? Yes Yes Yes Date of main code (s)

2007 Are independent directors required? Yes Yes Yes Yes Optional Yes Yes Yes Yes Yes (certain firms) Yes Are audit committ ees required Yes Yes Yes Yes Optional Yes Yes Yes Yes Yes (certain firms) Yes

China Hong Kong India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand

2002/2005 1993/2004 1999/2005 / 2007 2001/2006 (2003)/ 2004 1999/2003 2001 2002 2001/2005 2002 1999/2006

Source: ACGA research.

Corporate governance score of all countries in Asia have improved sizeably. India now ranks third after Singapore and Hong Kong in regard to performance in corporate governance. The slight decline in the 2007 score is not due to lowering of standards but due to inclusion of a larger number of parameters for evaluation, that was common to all the countries. The 2007 study has also included Japan in among the countries assessed. The CG Watch 2007 has this to say on the quality of governance standards in India A large population (hence low GNI per-capita); economic reform started much later than China (1991) vs 1978); yet corporate governance reform started early by regional standards (1998) and the country has some pockets of world-class corporate governance.

42

Table6: India ranks high among Asia governance league tables

Country40 Singapore Hong Kong India Malaysia Taiwan Korea Thailand Philippines China Indonesia 2000 75 71 56 32 57 52 28 29 36 29 2001 74 68 54 37 53 38 37 33 34 32 2002 74 72 59 47 58 47 38 36 39 29 200341 77 73 66 55 58 55 46 37 43 32 200442 75 67 62 60 55 58 53 50 48 40 200543 70 69 61 56 52 50 50 48 44 37 2007 65 67 56 49 54 49 47 41 45 37

Source: CG Watch, a joint report by CLSA Asia- Pacific Markets and ACGA.

The credibility of India, in regard to corporate governance, comes into review, in the light of vast improvements made in the back ground of lower per capita gross national income as also the absence of a full fledged independent agency for fighting corruption, which indicates that most of the initiatives were proactive in nature and the processes evolved and practice standards are mostly voluntary in nature.

Table7: India manages well despite constraints

Country / Market Hong Kong Singapore India Taiwan Japan Korea Malaysia Thailand China Philippines Indonesia CG macro quality v/s national income CG Watch GNI per capita ($ 2007 score :2006) 67% 28, 460 65% 29, 320 56% 820 54% NA 51% 38, 410 49% 17, 690 49% 5, 490 47% 2, 990 45% 2.010 41% 1, 420 37% 1, 420 CG macro quality v/s corruption Is there an independent agency fighting corruption Yes (for a long time) Yes (for a long time) Marginally Somewhat Largely Marginally Marginally No Marginally Somewhat (but recently) Yes (but recently)

Source: Asian Corporate Governance Association.

40
41

Ranked in descending order according to 2005 score First year in which ACGA collaborated with CLSA 42 Introduced more rigorous scoring methodology in 2004 43 Enhanced methodology further in 2005

43

India now fulfills all the standards regard best practices in corporate governance and compares quite favorably with all the major countries in the Asia region. Much of the progress has happened in the last decade that enabled India to make a big leap in the league tables of best practices.
Table8: Matching Rules and Regulations Question Is quarterly reporting mandatory Are Auidt committees mandatory? Must ownership stakes above 5% be disclosed? Detailed disclosure of material transactions? Is the national code of CG based largely on International standards? Is there n national policy to converge with IAS/IFRS? China Yes Yes Yes HK No Yes Yes India Yes Yes Yes Indo nesia Yes Yes Some SKorea Mala ysia Yes Yes Some Yes Yes Yes Phil Yes Yes Yes Sing Yes Yes Yes Tai Yes No Som e Thai Yes Yes Yes
Sourc e: CLSA / ACGA CG Watc h 2005: The Holy Grail .

Some

Yes

Yes

Some

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Some

Yes

Yes

Yes

Yes

Yes

Yes

The ext ensi ve

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

wor k carr ied

by the policy and regulation in developing an effective framework induced companies to improve the quality of their governance and enabled them to adopt best practices which provided an opportunity to scale higher in quality and performance. India is recognized as a market having best corporate governance standards, though issues of quality of enforcement, review and effectiveness continue to be raised. A broad outline of the framework for the corporate governance network in India that formed a recent assessment of the Institutional Institute of Finance is reproduced below. The assessment provides the current status of the regulatory framework from the point of view a global markets perspective.
Legal Framework

44

Indias legal framework for corporate governance is found in the Companies Act of 1956, most recently amended in 2002, and in Clause 49 of SEBIs requirements for listed companies. Minority Shareholder Protection The legal structure for corporate governance in India provides for strong minority shareholder protection compared with other emerging markets. The Companies Act and SEBIs listing requirements together account for most of the key minority shareholder protections. Voting Rights

According to Indian rules and regulations, all shareholders have the right to participate and vote at general meetings. The Companies Act encourages proxy voting by granting all shareholders the legal right to appoint a proxy. Until recently, laws in India promoted the one share, one vote principle. But a rule enacted in 2001 by the Ministry of Company Affairs, now permits Indian companies to issue shares with multiple voting rights or dividends as long as such shares do not exceed 25 percent of share capital and shareholders approve the issuance. Provisions for cumulative voting, particularly in the election of directors, would be a means to foster stronger minority shareholder protection. But Indian law does not have specific provisions for cumulative voting.

45

Firm Capital Structure that firm their spinownership a merger, rights, under

Laws in India regarding a firms capital structure recommend require shareholder approval or board approval to change capital structure through takeovers, mergers, division or offs, IPOs capital and increases, dilution of voting To and significant share buybacks. approve

SEBIs regulations a shareholder vote of 75 percent is required. Indias Companies Act requires that new capital issues first be offered to existing shareholders in proportion to their shares of paid-up capital. only by a special resolution can this requirement be waived. This is minority shareholder protection mechanism. Shareholder Meetings/Other Rights intended as a

The Companies Act requires that an Annual General Meeting (AGM) be held every year, and that a notice convening the meeting be sent to all shareholders at least 21 days in advance of the meeting. In addition to the AGM, the Companies Act allows for shareholders controlling 10 percent of voting rights or paid-up capital to call a special or Extraordinary General Meeting (EGM). Indias legal provisions for quorum at the AGM may not sufficiently protect minority shareholders. The Companies Act only stipulates that 5 people must be present at the AGM to reach quorum. To help expedite minority shareholders grievances, SEBIs Clause 49 stipulates that there must be a board-level shareholder grievance committee to address such disputes, and that a non-executive director must chair this committee. The introduction of grievance committees is one mechanism whereby shareholders can obtain redress outside of Indias inefficient and corrupt court system.

46

Structure and Responsibilities of the Board of Directors Indias laws and regulations address all issues pertaining to boards of directors. Scope for improvement lies in requiring the creation of a board level nomination committee that would be responsible for identifying and recommending new directors. directors. Board Structure This would help curb the appointment of friends of founder/promoters or controlling shareholders as non- executive/independent

SEBIs Clause 49 includes a definition of board independence that says at least one-third of the board be non-executive and a majority of these be independent. Clause 49 goes further to require that in cases where the chairman of the board is an executive, 50 percent of the board be comprised of independent directors. Despite the requirement for board independence, the availability of trained independent directors in India is limited. Qualified directors are often willing to join only prestigious companies but shy away from joining the boards of smaller companies that could benefit the most from the guidance of independent directors. Recognizing the need for qualified independent directors, efforts are being made by organizations such as the Confederation of Indian Industries, the Federation of Indian Chambers of Commerce and Industry, and stock exchanges to train directors. Board meetings

SEBIs Clause 49 states that the board should meet at least four times a year. The Companies Act requires that 33 percent of board members or two members, whichever is greater, be present. There is no provision that specifies whether non-executive or independent members need be present. Nomination and election of directors

47

The Companies Act mandates that the directors of the Board be approved and appointed by the company in the Annual General Meeting. In India, founder/promoters or controlling shareholders generally appoint directors. There is limited scope for minority shareholders to recommend director nominees. Moreover, Indian rules and regulations have no provisions mandating the creation of a board-level nomination committee. Board committees

In India, every board is required to have a shareholder grievance committee, as discussed above, and an audit committee. Creation of a separate remuneration committee is a non-mandatory requirement in Clause 49 of the SEBI Code. In practice, however, boards of some large companies have an audit, remuneration and nomination committee. Disclosure

SEBIs Insider Trading Regulations, 2002, require every company to appoint a compliance officer who is responsible for setting policies, procedures, and monitoring adherence to the rules for the preservation of price sensitive information to prevent insider trading. SEBI has established an insider trading committee to monitor this activity. The Task Force learned that insider trading is common in India, but difficult to detect. There is no good legal definition of insider trading, which hampers surveillance efforts. Clause 49 also requires that listed companies begin disclosing their corporate governance practices in the Annual Report to shareholders. Moreover, companies are required to provide on their website information such as quarterly results and presentations made to analysts. Companies that do not have their own website have to send this information to the stock exchange on which they are listed so that the stock exchange can put it on its website. All fees and compensation paid to non-executive directors

48

are fixed by the board of directors and require prior approval of shareholders in the Annual General Meeting. Other responsibilities

Clause 49 requires listed companies to inform board members about risk assessments and risk minimization procedures in the company. The audit committee is also responsible for reviewing all related-party transactions and internal audit functions of the company. There are no such provisions in the Indian governance framework that require companies to have an investor relations program and to provide a policy statement concerning environmental issues and social responsibility. However, in practice, some large Indian companies have social responsibility initiatives. 3. Accounting/Auditing At present, under the non-mandatory requirement of Clause 49, Indian companies are encouraged to send half-yearly financial reports. Listed companies are required to provide quarterly compliance reports to regulatory authorities but the information provided in the half-yearly report and quarterly reports are not subject to full audit review. Standards

The Institute of Chartered Accountants of India (ICAI) is an independent body regulating the accounting and auditing profession in India. Over the past two years the ICAI has revised a majority of Indias Accounting Standards to comply with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). The Companies Act requires shareholders to appoint an independent auditor at each Annual General Meeting. It also requires that the independent auditor be certified by the ICAI. Comprehensive audits are conducted annually in India. Audit Committee

49

Revisions to Clause 49 incorporate several practices required by the SarbanesOxley Act in the United States. Audit committees of listed Indian companies are now required to have a minimum of three directors as members, with at least two-thirds of the members being independent. In addition, at least one member of the audit committee should have accounting or related financial management expertise. Clause 49 also requires audit committees to review the adequacy of internal control systems. Clause 49 does not prohibit the contemporaneous provision of audit and nonaudit services from the same entity. It does, however, require the audit committee to fix audit fees and approve payments to auditors for other services provided. Transparency of ownership and control The Indian corporate governance requires senior management to disclose potential conflicts of interest only to the Board. Given that most large Indian companies are family-controlled conglomerates, related-party transactions and related lending are a concern. Disclosure to shareholders in the Annual Report is needed. Clause 49 requires listed companies to disclose materially significant related-party transactions in the Report on Corporate Governance in the Annual Report to shareholders; however, it does not define the term materially significant. However, there is scope for improvement by making disclosure of related-party transactions mandatory to shareholders.

50

Regulatory Environment Although SEBI, the capital markets regulator, is an independent body, the weak enforcement mechanism in the country is a key concern for members of the India Task Force. Significant government action is needed to improve the enforcement and surveillance functions of regulators in India. CLAUSE 49
44

Implementation of corporate governance is mainly through the Clause 49 of the Listing Agreement that the companies make with the stock exchanges. Important provisions of the Clause 49 are briefly discussed below. Objectives of Corporate Governance Fairness to all Stakeholders Greater transparency through better disclosures Greater Accountability of Executive Management to stakeholders. Enforcement & Verifiability of various Acts, Regulations, Recommendations, etc. Creating value for the shareholders Protecting interests of other stakeholders.

Essentials of Good Governance Quality and clarity of norms Enforcement systems and structure processes Dialogue and discussion and awareness

Factors affecting governance Integrity of the Management Ability of the board

44

Source : Bombay Stock Exchange

51

Adequacy of the process Commitment level of individual board members. Quality of corporate reporting Participation of stakeholders in the management.

Applicability All listed companies including PSUs and excluding Mutual funds. All companies that are incorporated under other statutes, so far the recommendations do not violate their respective statutes and guidelines or directives issued by the relevant regulatory authorities Implementation Schedule By all entities seeking listing for the first time, at the time of listing. having a paid up share capital of Rs 3 crores and above or net worth of Rs 25 crores or more at any time in the history of the company Board of Diectors Fifty percent of the Board of Directors should be non-executive & at least 1/3rd should be independent, if the Chairman is Non-Executive. Else 50% should be independent No director should be a member in more than 10 committees or act as Chairman of more than 5 committees across all companies. Committees reckoned are Audit Committee and Shareholders/ Investors Grievances Committee Directors should be judicious mix of experts drawn from different field of specialization. Board should have adequate knowledge of the business of the enterprise.

Definition of Independent Director

52

The expression independent director shall mean non- executive director of the company who apart from receiving directors remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its senior management or its holding company, its subsidiaries and associated companies; is not related to promoters or management at the board level or at one level below the board; has not been an executive of the company in the immediately preceding three financial years; is not a partner or an executive of the statutory audit firm or the internal audit firm that is associated with the company, and has not been a partner or an executive of any such firm for the last three years. This will also apply to legal firm(s) and consulting firm(s) that have a material association with the entity. is not a supplier, service provider or customer of the company. This should include lessor-lessee type relationships also; and is not a substantial shareholder of the company, i.e. owning two percent or more of the block of voting shares. Institutional directors on the boards of companies shall be considered as independent directors whether the institution is an investing institution or a lending institution Compensation All compensation paid to non-executive directors shall be fixed by the Board of Directors and shall be approved by shareholders in general meeting Limits shall be set for the maximum number of stock options that can be granted in any financial year and in aggregate. The considerations as regards compensation paid to an independent director shall be the same as those applied to a nonexecutive director The company shall publish its compensation philosophy and statement of entitled compensation in respect of non-executive directors in its annual report. Alternatively, this may be put up on the companys website and reference drawn thereto in the annual report.

53

Company shall disclose on an annual basis, details of shares held by non-executive directors, including on an "if-converted" basis. Non-executive directors shall be required to disclose their stock holding (both own and held by / for other persons on a beneficial basis) in the listed company in which they are proposed to be appointed as directors, prior to their appointment. These details should accompany their notice of appointment

Responsibility of the Independent Director Independent Director shall however periodically review legal compliance reports prepared by the company steps taken by the company to cure any taint In the event of any proceedings against an independent director in connection with the affairs of the company, defence shall not be permitted on the ground that the independent director was unaware of this responsibility.

Code of Conduct
It shall be obligatory for the Board of a company to lay down the code of conduct for all Board members and senior management of a company. This code of conduct shall be posted on the website of the company. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. The annual report of the company shall contain a declaration to this effect signed by the CEO. Normally, the term Senior Management would comprise all members of

management one level below the executive directors

Term of Office of Non Executive Director

Person shall be eligible for the office of non-executive director so long as the term of office did not exceed nine years in three terms of three years each, running continuously (Non mandatory requirement).

54

Audit Committee:
Composition o o Minimum 3 members all non-executive with majority independent.

All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. The term "financially literate" means the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows

A member will be considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or background which results in the individuals financial sophistication, including being or having been a chief executive officer, chief financial officer, or other senior officer with financial oversight responsibilities.

CEO/CFO Certification
The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act, 1956 and the CFO i.e. the whole-time Finance Director or any other person heading the finance function shall certify to the Board that: They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief : these statements do not contain any materially untrue/ misleading statement or omit material fact; these statements present a true and fair view of the companys affairs and are in compliance with existing accounting standards, applicable laws and regulations. no transactions entered into by the company were fraudulent, illegal or violative of the companys code of conduct. Responsible for Establishing and maintaining internal controls Evaluating effectiveness of the internal control systems Disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls

55

Taking steps to rectify these deficiencies.

They have indicated to the auditors and the Audit Committee (I) significant changes in internal control/ accounting policies; (ii) disclosed changes in accounting policies in the notes to financial statements; and (iii) instances of significant fraud and the involvement if any, of the management or an employee having a control system. significant role in the internal the

Subsidiary Companies
Provisions relating to the composition of the Board of Directors of the holding company shall be applicable to the composition of the Board of Directors of subsidiary companies At least one independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of the subsidiary company The Audit Committee of the holding company shall review the financial statements, in particular the investments made by the subsidiary company The minutes of the Board meetings of the subsidiary company shall be placed for review at the Board meeting of the holding company

Related Party Transaction

A statement of all transactions with related parties including their basis shall be placed before the Audit Committee for formal approval/ratification. If any transaction is not on an arms length basis, management shall provide an explanation to the Audit Committee justifying the same

Risk Management
It shall put in place procedures to inform Board members about the risk assessment and minimization procedures These procedures shall be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework.

56

Management shall place a report certified by the compliance officer of the company, before the entire Board of Directors every quarter documenting the business risks faced by the company, measures to address and minimize such risks, and any limitations to the risk taking capacity of the corporation. This document shall be formally approved by the Board

Disclosures and Reports Non-Executive Directors pecuniary relationship or transactions with the company has to be disclosed in the Annual Report. Disclosures on the remuneration of the directors Management Discussion and Analysis report should form part of directors report or in addition thereto it should form part of the annual report to the shareholders.

Whistle Blower Policy

Internal Policy on access to Audit Committees Personnel who observe an unethical or improper practice (not necessarily a violation of law) shall be able to approach the audit committee without necessarily informing their supervisors This right of access be communicated to all employees through circulars

Submissions
Quarterly Compliance Report within 15 days from the end of the quarter. (Format revised) Annual Compliance by the separate section in the Annual report. Compliance Certificate from the auditors of the company.

These guidelines make Indian corporate governance norms on par with the global standards and in particular, the much discussed and debated aspects of the SarbanesOxley. A comparison of the guidelines of the Clause 49 and SOX, given below is self explanatory.

Table9: Comparative Analysis of Clause 49 to SOX

57

Topic Board

Audit Committee

Disclosures

Clause 49 (Listed companies) - Independence (gen.majority) -Internal Control system - Disclosure & Code of Conduct - Independence (2/3) & Financially Literate - Review audit & internal audit - Compensation - RPTs - Risk Management & Accounting Standards - Use of Proceeds - CEO & CFO Financials, Internal Control, Comply with Laws, Changes in Policy - Certificate on this. - Disclosure compliance or not with mandatory and non-mandatory reqts. Quarterly - Significant issues report to parent board. - Independent directors. - Training - Whistleblower policy - Evaluate non-executive board - Limits on independence De-Listing

US- SOX & Other Laws -Independence - Internal Control System - Disclosure & Code of Conduct - Independence & Financially Literate - Review audit & Internal audit - Compensation - RPTs -Risk Management, etcnot required, but generally provided. - Use of Proceeds - CEO & CFO Financials, internal controls, etc - Similar, but no requirement to disclose if meet nonmandatory reqts. Not required though often provided - Generally required to report important issues as per state corporate law. - Whistleblowers much more prevalent - Training not required, but often provide. - Performance evaluation - Greater discussion on compen. levels - Large criminal penalties (individuals & companies) - Large civil penalties (public & private).

Certifications

Compliance

CG Reports Subsidiary Non Mandatory

Penalties & Enforcements

From the above, it could be seen that; India has an effective framework for corporate governance The features of corporate governance are comparable to the best in the world. Significant improvements took place in the quality of corporate governance Regulation has shown keen interest in promoting better governance amongst companies

58

International investors recognize the reforms in corporate governance; though expect further reforms in enforcement Better governance helped Indian companies to explore global markets in a significant manner

59

Chapter V

The growing significance of Board and its Committees in designing and driving the CG agenda
The Board and its committees are the key instruments in driving the scope, significance, quality of the governance in the companies. A board is defined as a group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues. Such issues include the hiring/firing of executives, dividend policies, options policies and executive compensation. Every public company must have a Board of Directors. The Board of Directors should be a fair representation of both management and shareholder's interests, because too many insiders serving as directors will mean the board will make decisions more beneficial to management. On the other hand, possessing too many independent directors may mean management will be left out of the decision-making process and may cause good managers to leave in frustration. The board structure can be in the form of unitary board, dual board and mixed board. US has the unitary board structure so as India. Other countries where unitary board structures are prevalent included, Australia, Brazil, Canada, Egypt, India, Italy, Japan, Malaysia, Norway, Philippines, Singapore, South Africa, South Korea, Sweden, Thailand, Turkey,U.S., Ukraine, United Kingdom, Zimbabwe.Dual board structure where share holders elect a supervisory board that in turn appoints and supervises a management board, are more prevalent in European countries such as Germany, Austria, Belgium, China, Croatia, Czech Republic, Denmark, Estonia, Georgia, Germany, Holland, Indonesia, Latvia, Mauritius, Poland, Spain, Taiwan, where as mixed board structures are more evident in countries like Bulgaria, Finland, France, Switzerland. In the aftermath of several codes of corporate governance coming into force in several countries, the Board and its various committees, in particular the role and functions of the Audit Committee have been extensively implemented and analysed. This chapter discusses major aspects in regard the board in various aspects of composition, structure, independence, as also one of the most importance committees of the board, namely the Audit Committee.

INSTRUMENTS OF IMPORTANCE

60

Recent academic and analytical exercises on the various aspects of the board of directors, shows that (a) board size and independence have increased since SOX {(Chhaochharia and Grinstein45, (2005)} (b) Busy boards donot harm shareholder wealth (Ferris, Jagannathan and Pritchard46, (2003) (c) Boards ability to monitor is compromised at firms with several busy directors (Fich and Shivdasani47,2004) (d) cozy board relationships limit effective monitoring (Larcker, Richardson, Tuna and Seary48, 2005) (d) financial expertise on boards limits the likelihood of accounting restatements (Agrawal and Chadha49, 2005) (e) market attaches more credibility to earnings announcement when boards and audit committees are both independent and active (Booth, Deli,50 1999) (f) presence of commercial bankers on boards is associated with the size of loans, whereas on the presence of investment bankers is associated with more frequent outside financings and larger public debt issues (Guner, Melmendier and Tate51 (2005) (g) presence of financial experts does not necessarily improve shareholder value (h) Excess compensation paid to directors is associated with excess CEO compensation (Brick, Palmon and Wald52) (i) Excess compensation is associated with poor future performance (j) excess compensation for directors compromise their independence and leads to overpayment of CEOs (k) proportion of outside directors, the number of board meetings and the tenure of the board chair are associated with the incidence of fraud (Chen, Firth, Gao, and Rui53). The board structure indicates risk elements on the evident of the following trends. Chairman not independent upon appointment Less than half of the board are non-executives Board turnover has been greater than 25% over the previous year or more than three new people (excluding internal promotions) have joined the board in the same period
Chhaochharia, Vidhi, Yaniv Grinstein, 2005, Corporate Governance and Firm Value: The Impact of 2002 Governance Rules, Working Paper, Cornell University. 46 Ferris, Stephen P., Murali Jagannathan and A.C. Pritchard, 2003, Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments, Journal of Finance, 58, 3, 1087-1112. 47 Fich, Eliezer and Shivdasani Anil,, 2004, Are Busy Boards Effective Monitors? Finance Working Paper No. 55/2004, European Corporate Governance Institute 48 Larcker, David F., Scott A. Richardson, Andrew Seary and A. Irem Tuna, 2005, Back Door Links Between Executives and Executive Compensation, Working Paper, The University of Pennsylvania. 49 Agrawal, Anup and Chedda, Shaiba, 2005, Corporate Governance and Accounting Scandals, Journal of Law and Economics. 50 Booth, James, Deli, Daniel N, 1999, On Executives of Financial Institutions as Outside Directors, Journal of Corporate Finance 5, 227-250. 51 Guner, A. Burak, Ulrike Malmendier,m Geoffrey Tate, 2005, The Impact of Board with Financial Expertise on Corporate Policies, Working Paper, Stanford University. 52 Brick, Ivan E., Oded Palmon and John Wald, CEO Compensation, Director Compensation and Firm Performance, Evidence of Cronyism. 53 Chen, Firth, Gongmeng Gao and Rui, Ownership Structure, Corporate Governance and Fraud: Evidence from China.
45

61

Fewer than three executive directors No senior independent director on the board Chairman of the company is chair of the audit committee Executives on the audit committee. Remuneration risk indicators: Any Insight votes against or abstentions on the companys remuneration report in the past three years Any Insight votes against or abstentions on the companys share schemes in the past three years.

Board evaluation forms an important aspect of assessing the performance as also sharing important aspects that will lead to better functioning of the board. Board performance review is emerging as an important aspect of strengthening the board structure and performance. In a recent evaluation of the board performance, The Institute of Chartered Secretaries and Administrators (ICSA), London brought out some important observations. These observations published in the Year Book 2007 of the International Corporate Governance Network are reproduced below.
People factors are of far greater importance than process factors in getting an

effective board eg how do the directors work as a team; what are their interpersonal skills; is there a dominant or bullying chairman or CEO; how effective is the Senior Independent Director; is the chairman an effective leader; do all directors contribute; what is the level of commitment (preparedness, engagement, absenteeism); is the board objective in acting on behalf of the company; is it robust in taking and sticking to difficult decisions; are decisions reached by the whole board; do decisions take account of shareholders views; are there any unmanaged conflicts of interest; is the composition of the board being refreshed (succession planning)? Backing from the chairman for both the evaluation and the form of the evaluation is extremely important. If they are doing it for the sake of doing it for example because the UK Combined Code requires it the evaluation process becomes difficult. The chairman is likely to want to prove that he was right in thinking that it need not be done, so he may be tempted to try to rubbish the report. Although difficult to do under those circumstances, the recommendations (obviously if wellfounded) should still have an impact, but it is likely to take longer for the directors to find their own ways to implement them. Sometimes there can be a surface

62

(occasionally almost belligerent) complacency that the board is performing well so why bother with an evaluation? We encounter occasional complaints that doing all this box ticking does not help the bottom line but recent scandals have served only to heighten shareholder concern that the companies in which they invest are being run soundly. There are often problems getting the optimum level of interaction between nonexecutive and executive directors. Lack of contact between meetings and sometimes a lack of understanding of the role of nonexecutives (particularly in smaller companies) are both contributors to this. If good interaction is not achieved then the company fails to gain the most from all concerned. There can be a lack of interaction between the nonexecutive directors and the senior managers outside the board, which makes it difficult for the non-executives to get a real feel for the business. This can happen where there is a strong culture against allowing senior management or external advisers to attend board meetings to present items. It was some good succession planning, for example in one company less than nine months after the current chairman (a former NED) had been appointed, one board was looking ahead six years to finding a new chairman. It was found that some poor succession planning, in another a change of finance director and the lead audit partner at the same time. The volume of business now handled by the main committees, particularly the audit committee, has resulted in executive directors not involved in those committees feeling distanced from those matters. It is found some excellent use of the nomination committee ones remit was widened to embrace top management development. There are also examples of poor use of the nomination committee: a new executive director appointed from outside the company without reference to the committee; an executive director switched to an entirely different main board

63

portfolio without reference to the committee; the committee was just not meeting. In some companies the executive directors, other than the CEO, do not act as full directors but as department heads looking to the CEO to take the lead. Occasionally, where a small caucus of key directors gets on particularly well, the NEDs can feel like mushrooms (at least as regards light levels)! Many companies struggle, or have struggled, with getting the right level of information to the board. The optimum amount will vary from board to board depending on the type of business and the level of trust that has built up. Getting the optimum number of board meetings can be a problem balancing the needs of the business with the time available from the best directors, particularly when there are overseas directors. There are instances where presentations are made to a board and then no time is available for discussion. Directors have welcomed the opportunity to stand back and look at how they work. Another important aspect that is assuming importance in regard to the board structures in particular its composition is the representation of women. Gender equality in boards is assuming significance, though women representation in the boards remains at very low levels in many countries. Norway made a major breakthrough in this regard by introducing from January 2003, that enterprises that are subject to statutory audit to prepare an annual report are required to be specific in that report the state of the gender equality in that enterprise and what measures have been or planned to be implemented to promote gender equality. The percentage of women on the boards increased from 6 percent in 2004 to 25 percent by January 2007. and thirty eight percent of the 500 odd public limited companies in the private sector were able to fulfill the gender requirements in the board. Special databases have been created to find companies find competent women as board directors and several activities to promote women participation in the boards such as arranging training courses to develop women directors are being carried out. Stringent action is provided for companies not complying with women representation in the board. The Public Limited Companies Act, the Norwegian law provides for the liquidation and

64

dissolution of the company found failing to meet the statutory requirements regarding women representation in the board.
Graph9: Percent of Directors who are women

Source: EISIR

Significant developments are taking place in the realm of the audit committee. DeZoort, F Todd
54

(2002) observe that an effective audit committee has qualified members with the

authority and resources to protect stakeholder interests by ensuring reliable financial reporting, internal controls, and risk management through its diligent oversight efforts. Major aspects that determine the effectiveness of the board include; Composition expertise, independence, integrity, objectivity; Authority - responsibilities, influence (derived from full board of directors, federal law, and exchange listing requirements); Resources - adequate number of members; access to management, external auditors, and internal auditors ; Diligence - incentive, motivation, perseverance. Mark L. DeFond, Rebecca N. Hann, Xuesong Hu55( 2004) examine 3-day cumulative abnormal returns (CARs) around the announcement of 850 newly appointed outside board members assigned to audit committees during 1993-2002, a period prior to the implementation of the SarbanesOxley Act (SOX). Motivated by the SOX requirement that public companies disclose whether they have a financial expert on their audit committee, the authors tested whether the market reacts favorably to the appointment of directors with financial expertise to the audit committee. In addition, because it is controversial whether SOX should define financial experts narrowly to include primarily accounting financial experts
Dezoort, F Todd, Hermanson, Dana Ra, Archambeault, Deborah S.,Scott A, 2002, Audit Committee Effectiveness, Journal of Accounting Literature. 55 Defond, Mark L, Hann, Rebecca N, Hu Xuesong, 2004, Does the Market Value Financial Expertise on Audit Committees of Boards of Directors, Leventhal School of Accounting, University of South California, Los Angeles.
54

65

(as initially proposed), or more broadly to include non-accounting financial experts (as ultimately passed), the authors separately examined appointments of each type of expert. The study finds significantly positive CARs around the appointment of accounting financial experts to the audit committee, but not around the appointment of non-accounting financial experts or directors without financial expertise. In addition, CARs are only positive when the newly appointed outside directors are independent (as opposed to affiliated), and when the appointing firms have relatively strong corporate governance prior to appointing the new directors. Zulkarnain Muhamad Sori, Mohamad Ali Abdul Hamid, Siti Shaharatulfazzah Mohd Saad, Jonathan Gerard Evans56 (2007) investigated the perceptions of senior managers of Malaysian publicly listed companies on issues relating to audit committee authority and effectiveness. The perceptions were sought on seven issues, namely audit committee appoints the auditor, audit committee determines and reviews audit fees, audit committee determines and reviews the auditors scope and duties, and audit committees reports, meetings, charter and roles. The majority of respondents agreed that auditor would be more effective and independent if audit committee assumed the responsibility to appoint the auditor, determine and review the audit fees, and determine and review the external auditors scope and duties. It is also found that disclosure of audit committee report, quarterly meeting and disclosure charter in annual report would enhance the perceptions of users of financial statement concerning the effectiveness of the committee. A study by the JD Power57 on the effectives of the audit committees brought out the following aspects; More frequent meetings between the audit committee and the external auditor improve performance ratings by the audit chair. External auditors who meet with the audit chair seven or more times per year receive the highest ratings. Most audit committees meet five or more times annually with the external auditor. Compared to 2003, audit committees of both small and large companies are meeting more frequently. Excluding management from some meetings also increases ratings with the audit process. The majority of companies that meet four to six times annually frequently exclude management.

56

Sori, Mhumamad Zulkarnain, Hamid, Mohamad Ali Abdul, Saad, Stiti Sharatulfazzah Mohd, Evans, Jonathan Gerard (2007), Audit Committee Authority and Effectiveness: The Perceptions of Malaysian Senior Managers, Euro Journals Publishing Inc, 2007 57 J.D.Power and Associates, 2004.

66

Audit committee chairs who spend between 16 and 20 hours annually attending audit committee meetings rate the audit experience higher than those spending fewer than 16 hours. Conversely, ratings begin to drop once the number of hours attending audit committee meetings exceeds 20.

The Blue Ribbon Committee constituted by the New York Stock Exchange and NASD which was headed by John Whitehead and Ira Millstein (1998) made following recommendations for the strengthening of the audit committees. Membership of the Audit Committee

Members of the audit committee shall be considered independent if they have no relationship to the corporation that may interfere with the exercise of their independence from management and the corporation. Examples of such relationships include: a director being employed by the corporation or any of its affiliates for the current year or any of the past five years; a director accepting any compensation from the corporation or any of its affiliates other than compensation for board service or benefits under a tax-qualified retirement plan; A director being a member of the immediate family of an individual who is, or has been in any of the past five years, employed by the corporation or any of its affiliates as an executive officer; A director being a partner in, or a controlling shareholder or an executive officer of, any for-profit business organization to which the corporation made, or from which the corporation received, payments that are or have been significant to the corporation or business organization in any of the past five years; A director being employed as an executive of another company where any of the corporations executives serves that companys compensation committee. A director who has one or more of these relationships may be appointed to the audit committee, if the board, under exceptional and limited circumstances, determines that membership on the committee by the individual is required by the best interests of the corporation and its shareholders, and the board discloses, in the next annual proxy statement subsequent to such determination, the nature of the relationship and the reasons for that determination.

Financial Literacy
A well-balanced and effective board should, as noted above, have directors with an array of talent, experience, and expertise which bear on different aspects of the companys activities; such diverse contributions are often made by different directors. Because of the

67

audit committees responsibility for overseeing the corporate accounting and financial controls and reporting, however, this committee clearly has a more recognizable need for members with accounting and/or related financial expertise -- where expertise signifies past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individuals financial sophistication, including being or having been a CEO or other senior officer with financial oversight responsibilities. While all members of the audit committee must have the ability to ask probing questions about the corporations financial risks and accounting, the Committee recognizes that a directors ability to ask and intelligently evaluate the answers to such questions may not require expertise but rather hinges on intelligence, diligence, a probing mind, and a certain basic financial literacy. Such literacy signifies the ability to read and understand fundamental financial statements, including a companys balance sheet, income statement, and cash flow statement. Directors who have limited familiarity with finance can achieve such literacy through company-sponsored training programs. Because of the audit committees responsibilities and the complex nature of the accounting and financial matters reviewed, the committee merits significant director resources, both in terms of the number of directors dedicated to the committee and the time each director devotes to committee matters.

Audit Committee Structure and Process

A key attribute of a good board is its own diligence in defining the boards role, responsibilities, structure, and processes. An effective board is self-aware and determines how best to carry out its important tasks. Likewise, a well-functioning audit committee will be concerned about and spend a significant amount of time defining the scope of its oversight responsibilities and how it discharges its duties. Just as good boards often adopt formal guidelines on how they should operate; a good audit committee should memorialize its understanding of its role, responsibilities, and processes in a charter. In focusing its activities on oversight of the entire reporting process, the committee will be more likely to recognize those duties better left to management, including the internal auditor, and the outside auditors. Further, the audit committee should disclose its self-determined role, structure, and practices. Such transparency is at the heart of good governance, serves to inform investors, and also acts as a disciplinary measure on the committee. It will encourage committees to think about their important role, to articulate a clear mission, and then to establish appropriate practices and follow them. Disclosure will guide the committee to responsible practices, as sunlight generally does. It is not the Committees intention or belief that such additional disclosure requirements would impose greater liability on the audit committee or full board under state law. Rather the current standards for liability under the business judgment rule -- in essence, gross negligence -- would

68

continue to apply. While such a safe harbor presumably exists in the context of a statelaw fiduciary duty claim, the Committee believes that the SEC should adopt a safe harbor under the federal securities laws similar to the one now applicable to the executive compensation committees report which appears in the proxy statement. Importantly, the Committee does not recommend mandating every detail to be included in the guidelines for every audit committee. There are too many variables amongst the multitude of different corporations comprising our economy. The Committee recommends that every audit committee consider the contents of the section of this Report entitled Guiding Principles for Audit Committee Best Practices, which is designed to guide the development of the substantive content of an audit committee charter. We also encourage audit committees to refer to the sample charters included in Appendix C and the publications included in the Bibliography to this Report as a starting point for best practices to be considered. Ultimately, the market will be the judge of whether each committees disclosed guidelines are adequate.

Audit Committee Relationships with Management, including the Internal Auditor, and with the Outside Auditors
Management including the internal auditor, the full board including the audit committee, and the outside auditors, all has a distinct role in corporate accounting and financial reporting. All of these actors must work together fluidly to effectuate an objective and responsible system. In this system, management is principally responsible for company accounting policies and the preparation of the financial statements. The outside auditor is responsible for auditing and attesting to the companys financial statements and evaluating the companys system of internal controls. The audit committee, as the delegate of the full board, is responsible for overseeing the entire process. In those companies with an internal audit function, the internal auditor also plays a significant role in working with management, the outside auditor, and the audit committee in ensuring the effectiveness of internal controls and in bringing any weaknesses to the attention of the appropriate parties. In light of these interrelated functions, it is important to delineate the nature of the relationships among these actors -- specifically the direction of certain reporting relationships and tiers of accountability among them. In particular, the relationship of the outside auditor with each of management and the audit committee must be clarified. As noted in the 1994 POB Report [i]n most companies today, management selects or recommends auditors and changes in auditors, negotiates fees, selects accounting principles, makes estimates, prepares the financial statements and monitors the audit. Consequently, the outside auditors typically develop over time close relationships with management. Indeed, by virtue of their responsibility for everyday operations, senior

69

managers need to interact closely with the outside auditors over issues arising in the financial reporting process. Additionally, the expanding role of outside auditors, particularly in providing non-audit services, has further entwined the relationship of management and the outside auditors. It is therefore imperative to the integrity and effectiveness of the audit committee oversight process that all parties recognize that the audit committee and full board, as the representatives of shareholders, are the ultimate entities to which the auditors are accountable. As such, the audit committee has the responsibility to review regularly the relationship between management and the outside and internal auditors. Since audit committees are members of the board of directors with enhanced responsibility for overseeing a companys financial reporting, they serve, as SEC Chairman Levitt has noted, as the primary link between a board and its outside auditors. To make this relationship effective, the committee and the outside auditors must develop a direct, strong and candid relationship. That is to say that the lines of communication and reporting should facilitate independence from management and encourage the outside auditors and the internal auditors to speak freely, regularly and on a confidential basis with the audit committee. Moreover, because the outside auditor is responsible for attesting to the fair presentation of the financial statements, its reputation for objectivity must not be compromised. In recognition of this, the Independence Standards Board (ISB) recently adopted a new Standard mandating that the outside auditor of a public company: (i) disclose in writing to the companys audit committee all relationships with the company that could affect the auditors independence; (ii) confirm its view that it is independent of the company; and (iii) discuss such matters with the audit committee. The Committee recognizes that this disclosure and discussion is a two-way street: to ensure a useful examination of the objectivity of the outside auditor, the audit committee must be an active participant in this process.

Practical Improvements to Audit Committee Oversight

To facilitate audit committee oversight of the financial reporting process and deepen the audit committees probing of the relevant issues, the Committee believes that both the outside auditor and the audit committee should have greater affirmative disclosure requirements to each other and, when appropriate, to the public.

Enhancing the Outside Auditors Communication with the Audit Committee

The audit committee is dependent on both management and the outside auditors for a full range of information -- based in both fact and judgments -- regarding the financial reporting process. Under the current auditing standards, the outside auditor is required to communicate certain information to the audit committee, including matters such as disagreements with management, consultations with other accountants, and difficulties encountered in performing the audit such as unreasonable delays by management or unavailability of client personnel. In addition, the auditor is required to report to the audit

70

committee reportable conditions, which are deficiencies that could adversely affect the companys ability to produce reliable financial statements. Further, the outside auditor may be required to report illegal acts detected during the audit to management and the audit committee. While all this information serves as a concrete basis upon which the audit committee evaluates a companys compliance with financial reporting requirements, it may too often be distilled into a standardized form letter. In addition, such information offers little guidance on the more subjective judgments that arise in the ordinary course of financial reporting. In preparing a companys financial statements, judgments are made concerning estimates, elective accounting principles and new significant transactions. The Committee believes that many concerns about the quality of financial reporting can be attributed to a failure to question such significant subjective judgments. These judgments can have a significant impact on how the financial statements are presented, and the Committee believes that the audit committee should be positioned to adequately assess their influence on the companys financial reports.

Instituting Audit Committee Disclosure

Disclosure and transparency form a cornerstone of corporate governance, enabling shareholders to make informed decisions about their investments and the performance of those parties managing company assets and representing their interests. Past groups that have studied ways to improve the financial reporting process have differed over the value of requiring audit committees to disclose specified information about their activities. In recommending implementation of a disclosure requirement, the Treadway Report noted that this action could reinforce the audit committees awareness and acceptance of their responsibilities. By comparison, the 1994 POB Report expressed concern that this additional disclosure could become lengthy `boilerplate that does not get to the heart of the underlying issue. Past experience supports both these views. After the SEC imposed disclosure requirements on those committees that establish executive compensation, for instance, there were numerous reports of increased director awareness of the important role compensation plays in providing the proper incentives for management performance. However, many of these well-meaning disclosure requirements over time have fallen prey to well-parsed language that is nearly identical from one filing to the next. Based on these and other examples and the feedback provided through its hearings and invitation to comment, the Committee supports a middle ground approach between the Treadway Reports recommendation for a full fledged report and the 1994 POB Reports rejection of imposing a meaningless disclosure requirement. General disclosure about the audit committees review of the entire audit process -- from managements and the internal auditors accounting practices to the outside auditors audit of the companys financial statements -- will highlight that the audit committee is in place to assure shareholders that procedures that promote accountability are integrated into the roles and practices of all the other relevant players. A formal disclosure by the audit committee as to its view of the

71

companys financial statements that is consistent with the boards existing duty to sign the Form 10-K, will serve to raise public awareness of the importance of the audit committees role as well as underscore its importance for audit committee members. The Committee appreciates the impracticability of having the audit committee do more than rely upon information it receives, questions, and assesses in making this disclosure.

Mandating Auditor Interim Financial Review

The Committee acknowledges the pressures on companies to meet or beat Wall Street earnings projections and the important role of interim reporting to a companys market performance. Currently, companies can have their outside auditors limit their review of such financial statements to the end of the year before the annual report is filed with the SEC. This practice has led to adjustments at year end for inaccuracies not detected during the preceding three quarters. The Committee believes that increased involvement by the outside auditors and the audit committee in the interim financial reporting process should result in more accurate interim reporting. Recognizing the importance of these reviews, each of the Big Five accounting firms recently required their clients to implement such procedures as a condition to their audit engagement. An increased level of monitoring of the interim reporting process can be achieved by requiring regular interim communications by the outside auditor with financial management and the audit committee. Of course, the outside auditors ability to fulfill such a requirement would be dependent on the cooperation and availability of financial management and the audit committee. The Committee fully expects that financial management and the audit committee would engender the appropriate diligence, initiative and commitment to participate in such communications.

Board and Audit Committee thus form the key instruments governing the quality of corporate governance. In this background, it is important that measures involved in these instruments are devised with greater care and focus so to enable these to make effective and meaningful contribution to the standards of governance. Though in principle these instruments are put in place for implementation and compliance, there is much to be done in regard to improving their overall quality and robustness. International evidence available on the subject should provide useful insights to corporates in evolving effective frameworks

72

Chapter VI
A review of governance practices and procedures In major corporates in India
India has been ranked high on several aspects of corporate governance such as shareholder rights, creditor rights, disclosure requirements, liability standards and quality of regulation; whereas it displays limitations on aspects such as enforcement, corruption, red tape, ease of doing business, hiring and firing staff, quality of credit information, contract enforcement. Indias position in regard to key indicators of standards in governance and securities law is given in annexure. The above trends could be better explained by Indian companies winning global accolades for the corporate governance on one hand and the securities market regulator show causing some companies, including the public sector, to tone up the governance parameters on the other. In September 2007. World Council for Corporate Governance, a UK based organisation, announced global awards in the emerging markets category for ONGC, NTPC, Jubilant Technologies and GTL. Several others awarded in the national category included; LIC India (Insurance); Punjab National Bank (Banking); Hindustan Construction Company (Construction); India Travel House (Hospitality); KPIT Ltd (IT); Power Finance Corporation (Power); Hindustan Petroleum Company Ltd (Petroleum); Hindustan Zinc, Ltd (Metal) and Shree Cement (Manufacturing). In a related development, Infosys Technologies, Kotak Mahindra Bank, Satyam Computer Services and Grasim Industries were figured in the IR Global Rankings: 2007 announced by the IR Global Rankings, a global investor relations web company. Around the same time, Securities and Exchange Board of India, has initiated proceedings against 20 companies for non compliance of corporate governance, among which five were reported to be the public sector undertakings. Practice of corporate governance has progressed in a big way in Indian companies. There are several companies which made proactive initiatives in introducing good governance norms and standards even before these became mandatory. For instance, in its corporate governance report, Wipro, mentions about some of the pioneering efforts made by it in setting good governance standards such as; instituting stock ownership in 1984, constitution of sub-committees of the Board of Directors for Audit, compensation and

INDIA PRACTICE

73

benefits in 1986 and preparation of consolidated financial statements in 1983 the first year in which it established a subsidiary company. Similarly, good governance in Tata Power is governed by Leadership with Trust a principle that has been in practice since long; where as Tata Motors began Tata Business Excellence Model and the Tata Code of Conduct. Ranbaxy voluntarily adopted several best practices in good governance in 1999 that included; majority independent directors in the composition of the board, constitution of board committees for oversight and guidance concerning key decisions and soundness of decision making processes connected with the functioning of the company, timely dissemination of information to shareholders and a code of conduct. Infosys not only complies with Indian governance standards but also Euro shareholders Corporate Governance Guidelines 2000 and the recommendations of the Conference Board Commission on Public Trusts and Private Enterprises in the United States. It also adheres to the UN Global Compact Programme. ACC has instituted a Chair for Business Ethics at the Management Center for Human Values at the Indian Institute of Management, Kolkata. The objectives of the corporate governance of the companies included in this paper are given along with the corporate governance practice profiles of the respective companies. The governance practices set out by the Reliance Energy beyond the regulatory requirements include; Values and Commitments, Code of Ethics, Business Policies, prohibition of insider trading, prevention of sexual harassment, whistle blower policy, environment policy, risk management, SA 8000 (standard for social accountability), six sigma, OHSAS 18001 (for establishment of occupational and safety management system) etc., Some of the innovations in the boardroom practices that were detailed in the corporate governance report included; Board charter, tenure of independent director, Interaction of non-executive, including independent directors with the chairman, lead independent directors, independent directors interaction with shareholders, meeting of independent directors without the management, independent director on the risk management committee, commitment of directors, evaluation of the board etc.,

For the purpose of this study, corporate governance standards as in prevalence and practice are assessed in respect of 42 companies across 12 sectors. Information for the study was collected through a wide range of means which included, analysis of the corporate governance reports of the respective companies, information collected through a separately designed questionnaire for the study, consultations with the senior officials of

74

the board secretariats of the respective companies, consultations with the officials of the stock exchanges and regulatory authorities etc. A total of 42 companies are analysed in regard to their corporate governance practices and these companies belong to the following sectors. Table 10: Sample Companies Sector Automobiles Cement Consumer Durables Diversified Energy Financial Services FMCG Information Technology Metals Petroleum and Mining Pharma Telecom Companies Tata Motor, Bajaj, Hero Honda (3) ACC, Ultratech, Gujarat Ambuja (4) Whirlpool, Videocon (2) ITC, L&T (2) NTPC, Reliance Energy, Tata Power (3) SBI, ICICI Bank, HDFC Bank (3) HLL, Nestle, Brittania (3) Infosys, Wipro, Satyam, Mphasis (4) SAIL, Hindalco, Essar, Tata Steel, Jindal Steel (5) HPCL, BPCL, ONGC, Indian Oil, RIL (5) Dr. Reddys. CIPLA, Merck, Ranbaxy, Glaxo (4) Bharti, MTNL, VSNL, Reliance Com (4)

The study has also carried out extensive research on the academic perspectives on the subject of corporate governance as also important literature emanating from global, regional and national institutions engaged in the subject. The 42 Companies included in the study are taken from 12 major sectors and these companies together account for over 80 percent of the stock market capitalization (October 2007). These companies represent 77 percent of the Sensex and 64 percent of the Nifty (50) constituents. A broad overview of the practice of corporate governance in these companies shows that, excepting maintaining the proportion of the independent directors, a problem that was found more pertinent amongst the public sector undertakings, companies by and large have adhered to the compliance standards as prescribed under the Clause 49 of the Stock Exchange Listing Agreements as also other related guidelines. Some companies even have

75

exceeded the mandatory norms by adopting best practices as prevalent in global corporates. The summary table given below shows the major aspects of the corporate governance in respect to the following aspects. 1. Average number of directors in the board 2. Percent of companies where the chairman is non executive 2a.Proportion of non executive directors 2b. Proportion of Independent directors 3. Percent of companies where the chairman is executive 3a. Proportion of non executive directors 3b. Proportion of Independent directors 4. Number of companies in which the chairman is Independent director 5. Number of Board Meetings held 6. Number of Audit Committee Meetings held 7. Number of Investor Grievances Meetings held 8. Share holding pattern 8a. Promoters 8b. FIIs 8c. Individuals 9. Space devoted to Corporate Governance Report. Aspects taken for assessment no 1 to 8 are self explanatory. For the purpose of this study a new parameter is taken for assessment that measures the amount of space devoted to discussion on corporate governance in the annual reports of the companies. This measure needs to be further examined and validated, but for the purpose of the study is taken to assess the extent of efforts made by the corporates in discussing various aspects of the policy and practice of corporate governance in their respective annual reports. This is computed on the basis of the number of pages devoted to the discussion on the corporate governance in the total number of pages of the annual report. Table 11: Summary of Corporate Governance Practice
Directors Total Companies Total Directors Total Number of Non Executive Director Total Number of Independent Directors 42 500 323 228

76

Proportion of Independent Directors to Total Directors Proportion if Non Executive Directors to Total Directors Chairman Total Number of Companies having Executive Chairman Total Number of Companies having Non Executive Chairman Total Number of Companies having Non-exe Independent Chairman Proportion of Companies having Executive Chairman Proportion of Companies having Non-Executive Chairman Proportion of companies having Non exe Independent Chairman Meetings Total Board Meetings held Total Audit Committee Meetings held Total Investor Committee Meetings held Average Boards Meetings held Average Audit Committee Meetings held Average Investor Grievances Committee Meetings held Companies where the Chairman is Non Executive Total number of directors Total Number of non executive directors Total number of Independent director Proportion of non executive directors Proportion of independent Directors Companies where the Chairman Executive Total number of directors Total Number of non executive directors Total number of Independent director Proportion of non executive directors Proportion of independent Directors Companies where the Chairman is Non Executive & Independent Total number of directors Total Number of non executive directors Total number of Independent director Proportion of non executive directors Proportion of independent Directors

45.6 64.6

20 19 3 47.62 45.23 7.14

326 262 206 7.76 6.24 4.9 210 146 93 69.53 44.28

255 162 119 63.52 46.66

35 25 16 71.42 45.71

A brief discussion on each of the aspects examined in respect to the practice of the corporate governance are discussed below.

77

Table 12: A Snapshot of Corporate Governance

Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report Metals 12.33 83 73 42 17 59 50 FMCG 9.7 66 74 43 33 83 50 Con Dur 9 50 50 33.3 50 67 33.3 Petro Mine 12.6 na na na 100 57 41 Banks 12.33 66.6 50 61.5 33.3 36.4 36.4 Energy 11 33.3 67 33.3 33.3 47.6 38.1 IT 11 50 74 48 50 76 71 Pharma 10.4 80 60 42 20 75 75 60 7.5 5.33 1 61.46 12.67 13.57 7.93 5.33 5 1.33 54.75 12.2 17.8 16 12 4.5 2 76.34 2.03 9.28 11.58 11.4 7.8 1.2 62.58 13.29 7.52 13.37 8.33 8.33 8.33 27.1 32.02 8.25 9.55 8.67 7 1.33 58.63 14.06 9.57 11.16 6.5 6 3 38.87 23.94 10.95 10.63 5.4 4.6 2 40.21 15.79 19.73 14.77 Cem ent 14 100 67 33.3 na na na na 7.33 6.33 8 39.14 21.93 19.91 16.71 7.67 5.33 4.66 59.28 13.76 1.99 11.26 Tel com 12 33.3 80 40 67 89 50 Diver sified 14.5 na na na 100 62 55 na 8 7.5 18 34.38 15.58 20.12 10.15 Auto 14.33 33 81 45 67 72 50 na 6.33 8 8 39.39 22.34 14.45 11.08

Sectors : Metals; Fast Moving Consumer Goods, Consumer Durables, Petroleum and Mining, Banks, Energy, Information Technology, Pharmaceuticals, Cement, Telecommunications, Diversified and Automobiles

1. Average number of directors in the Board The 42 companies have together 500 directors giving an average of 11.9 per company. Of the 500 directors, 64.6 percent are non executive directors and 45.6 percent are independent directors. The average number of directors range from 9 in the Consumer Durables to 14.5 in the Diversified industry sector.

78

Table 13: Average Number of Directors Sector Automobiles Cement Consumer Durables Diversified Energy Banks FMCG Information Technology Metals Petroleum and Mining Pharma Telecom Average Number of Directors 14.33 13 9 14.5 11 12.33 9.7 11 12.33 12.6 10.4 12

Graph 10: Distribution of Directors

Distribution of Directors
Proportion of Independent Direc tors to Total Direc tors Proportion if Non Ex ec tuive Direc tors to Total Direc tors

45.6

64.6

79

Graph 11: Comparative Analysis of Entire Sample Data

Comparitive Analysis of Entire Sample Data

80 60 40 20 0 Executive Chairman Proportion of Non-executive Directors Proportion of Independent Directors 47 45 46 64 Non executive Chairman 70 Independent Chairman 41

Graph 12: Proportion of Directors in different categories

7 6 5 4 3 2 1 0
Metals FMCG

Consume r Durables

Petroleu m&Mining 0 0 5

Banks

Energy

Automobi le 0 1 2

Telec om

Pharmac e utic als 3 1 1

IT

Cement

Diversifie d 0 0 2

Non Exec utive Independent Chairman Non Exec utive Chairman Exec utive Chairman

0 4 2

0 2 1

0 1 1

0 2 1

0 1 2

0 1 2

0 2 2

0 3 0

80

Graph 13: Average No. of Directors

Average No of Directors
16 12 8 4 0 Metals Cement Consumer Durables Petroleum & Mining Financial Services Pharmaceuticals Information Automobile Telecommunications Technology Diversified
Cement Diversified

FMCG

2. Percent of companies where the chairman is non executive 2a.Proportion of non executive directors 2b. Proportion of Independent directors Of the 42 companies, 19 have non executive chairman. In companies where the chairman is non executive, there are about 210 directors of which 69.53 are non executive directors and 44.28 percent as independent directors. Proportion of non executive directors and independent directors in companies where the chairman is non executive is given below.

Graph 14: Percentage Companies where the Chairman is Non Executive

% companies where the chairman is non executive
120 100 80

60 40 20 0 Consumer Durables Telecommunications Petroleum & Mining Financial Services Energy Pharmaceuticals Metals Automobile Information Technology FMCG

Energy

Sectors

Sectors

Graph 15: Composition of the Board when the Chairman is Non Executive

81

Composition of the board when the Chairman is Non executive

140 120 100 80 60 40 20 0 Consume Petroleu Metals FMCG r Durables Proportion of Independent Directors Proportion of Non Executive Directors 42 73 43 74 33.3 50 m& Mining 0 0 Financial Services 61.5 50 Energy Automob ile 45 81 Telecom municati ons 40 80 Pharmace uticals 42 60 Informati on Technolo 48 74 33.3 67 Cement Diversifie d 0 0

33.3 67

Sector

Table 14: Proportion of Non Executive and Independent Directors when the Chairman is Non Executive Percent of Proportion of Proportion of companies where executive Non the Executive Independent Directors

Chairman is non Directors Automobile Cement Consumer Durables Diversified Energy Banks FMCG Information Technology Metals Petroleum and Mining Pharma Telecom 33 100 50 33.3 67 66 50 83 80 33 81 67 50 67 50 74 74 73 60 80 45 33.3 33.3 33.3 61.5 43 48 42 42 40

Executive chairmen

Executive Chairmen

3. Percent of companies where the chairman is executive 3a. Proportion of non executive directors 3b. Proportion of Independent directors

82

There are 20 companies in which the chairman is executive. In companies where the Chairman is executive, there are 255 directors of which 63.42 percent are non executive and 46.7 percent are independent. The proportion of non executive directors and independent directors in companies where the Chairman is executive is given below. From the table below it could be observed that the proportion of independent directors when the chairman is executive is shot of the mandatory requirements in sectors like energy, financial services and petroleum in mining. In all these sectors, the company specific data indicates that public sector undertakings face constraints in filling up the positions of the non independent directors in the board since they are appointed by the Government. Graph 16: Percentage of Companies where the Chairman is Executive
% of companies where the chairman is executive
120 100 80

60 40 20 0 Consumer Durables Telecommunications Financial Services Cement Petroleum & Mining Pharmaceuticals Automobile Information Technology Diversified Energy Metals FMCG

Sectors

Graph 17: Composition of Board when the Chairman is Executive

Composition of Board when the Chairman is executive
160 140 120 100

80 60 40 20 0 Metals FMCG Consu Petrole Financi Teleco Pharma Inform Autom Cemen Diversif mer um & al Energy mmuni ceutica ation obile t ied Durabl Mining Service cations ls Techno 33.3 67 41 57 36.4 36.4 38.1 47.6 50 72 50 89 75 75 71 76 0 0 55 62

Proportion of Independent Directors Proportion of Non Executive Directors

50 59

50 83

Sectors

Table 15: Proportion of Non Executive and Independent Directors

83

Sector

When the Chairman is Executive Percent of Proportion of Proportion companies where executive Non the Executive Independent Directors

of

Chairman is non Directors Automobile Cement Consumer Durables Diversified Energy Banks FMCG Information Technology Metals Petroleum and Mining Pharma Telecom 50 100 67 33 33 50 17 100 20 67 67 72 Non executive 67 62 47.6 36.4 83 76 59 57 75 89 33.3$ 55 38.1Sa 36.4$b 50 71 50 41$c 75 50 50

$: Videocon Annual Report for the FY06, where in four independent directors are reported in a total of 12. $a. In respect of NTPC, four out of 13 directors are reported as independent. $b. In State Bank of India, 4 out of 11 directors are reported as independent. $c. Number of independent directors reported in the respective annual reports are; 3 out of 10 in respect of BPCL; 4 out of 14 in ONGC; 5 out of 14 in Indian Oil.

4. Number of companies in which the chairman is Independent director There are 3 companies all belonging to the Pharmaceuticals in which the chairman is non executive as also independent director. There are 35 directors in companies where the chairman is non executive and independent of which 71 percent of the directors are non executive and 46 percent are independent directors. 5. Number of Meetings held 5a. Meetings of the Board 5b. Meetings of the Audit Committee 5c. Meetings of the Investor Grievances Committee The sample of 42 companies held 326 meetings of the Board and 262 meetings of the Audit Committee. The average meetings of Board and the Audit Committee works out to 7.76 and 6.24 per company, which is higher than the stipulated number of meetings required to be held as per the Clause 49 Listing Agreement.

84

Graph 18: Average Meetings

Average Meetings Audit Committee Meetings Board Meetings

25 20

Average

15 10 5 0 Consumer Durables Telecommunications Pharmaceuticals Banks Information Petroleum & Mining Automobile Technology Diversified Cement Energy Metals FMCG

Sectors

Table16: Average number of meetings held Sector Average Number of Board Meetings held Average Number of Audit Committee Meetings Automobile Cement Consumer Durables Diversified Energy Banks FMCG Information Technology Metals Petroleum and Mining Pharma Telecom 6.33 7.33 12 8 8.67 8.33 5.33 6.5 7.5 11.4 5.4 7.67 8 6.33 4.5 7.5 7 8.33 5 6 5.33 7.8 4.6 12.33 Average Number of Investor Grievances Committee Meetings 8 8 2 18 1.33 8.33 1.33 3 2.33 1.2 2 4.66

6. Share holding pattern 8a. Promoters

85

8b. FIIs 8c. Individuals Indian companies are relatively closely held as could be evident from the high percent of promoter holdings in most of the sectors. Higher levels of promoter holdings is a feature widely prevalent in the Asian corporates as brought out by several studies in this regard. Graph 19: Shareholding Pattern

Shareholding Pattern
90 80 70

Percentage

60 50 40 30 20 10 0
Metals FMCG Consume Petroleu r Durables m&Minin g 13.29 62.58 Informati on Technolo 23.94 38.87 21.93 39.14 Cement

Financial Services 32.02 27.1

Energy

Automob ile 22.34 39.39

Telecom

Pharmac euticals 15.79 40.21

Diversifi ed 15.58 34.38

FII Holding (%) Promoter Group Holding (%)

12.67 61.46

12.2 54.75

0.01 76.34

14.06 58.63

13.76 59.28

Sectors

The sector wise share holding pattern is as below. Table 17: Shareholding Pattern Sector Promoters FIIs Individuals

86

Automobile Cement Consumer Durables Diversified Energy Financial Services FMCG Information Technology Metals Petroleum and Mining Pharma Telecom

39.39 39.14 76.34 34.38 58,63 27.1 54.75 38.87 61.46 62.58 40.21 59.28

22.34 21.93 2.03 15.58 14.06 32.02 12.2 23.94 12.67 13.29 15.79 13.76

14.45 19.91 9.28 20.12 9,57 8.25 17.8 10.95 13.57 7.52 19.73 1.99

7. Space devoted to Corporate Governance Report This measure is devised to assess the extent of discussion companies made in their respective annual reports in regard to the practice of the corporate governance. It is a tentative indicator that needs to be further examined and validated, but used in this study provisionally to study the scope and significance of corporate governance reporting in the annual reports of the companies. Cement, FMCG and Pharma devoted greater amount of space for corporate governance discussion as proportion of the total aspects included in the annual report.

Graph 20: Spaced Devoted to Corporate Governance in Annual Report

87

Space devoted to Corporate Governance in Annual Reports

18 16 14 12 10 8 6 4 2 0 Telecommunications Information Technology Automobile Consumer Durables Petroleum & Mining Pharmaceuticals Diversified Banks Energy Cement Metals FMCG

Sectors

Major aspects of the corporate governance practice pertaining to the sectors included in this study are given below. In view of the information was sought on the basis of the confidentiality, information regarding the corporate governance practice is placed for sectors. Profiles of corporate governance practices of individual countries is given in a separate section. Table18: Sector wise Key Indicators of Corporate Governance Practice

AUTOMOBILES
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report
#number of pages on CG practice to total number of pages in the Annual Report.

14.33 33 81 45 67 72 50 na 6.33 8 8 39.39 22.34 14.45 11.08#

CEMENT

88

Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report 14 100 67 33.3 na na na na 7.33 6.33 8 39.14 21.93 19.91 16.71

CONSUMER DURABLES
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report 9 50 50 33.3 50 67 33.3 12 4.5 2 76.34 2.03 9.28 11.58

DIVERSIFIED INDUSTRIES
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 14.5 na na na 100 62 55 na 8

89

No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report

7.5 18 34.38 15.58 20.12 10.15

ENERGY
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report 11 33.3 67 33.3 33.3 47.6 38.1 8.67 7 1.33 58.63 14.06 9.57 11.16

FINANCIAL SERVICES
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report 12.33 66.6 50 61.5 33.3 36.4 36.4 8.33 8.33 8.33 27.1 32.02 8.25 9.55

90

FMCG
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report 9.7 66 74 43 33 83 50 5.33 5 1.33 54.75 12.2 17.8 16

INFORMATION TECHNOLOGY
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report 11 50 74 48 50 76 71 6.5 6 3 38.87 23.94 10.95 10.63

91

METALS
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report 12.33 83 73 42 17 59 50 7.5 5.33 2.33 61.46 12.67 13.57 7.93

PHARMACEUTICALS
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report 10.4 80 60 42 20 75 75 60 5.4 4.6 2 40.21 15.79 19.73 14.77

92

PETROLEUM AND MINING

Petroleum and Mining 12.6 na na na 100 57 41 11.4 7.8 1.2 62.58 13.29 7.52 13.37

Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report

TELECOM
Particulars Average No of Directors %companies where the chairman is non executive Proportion of Non Executive Directors Proportion of Independent Directors % of companies where the chairman is executive proportion of non executive directors Proportion of Independent Directors Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 No of Audit Committee Meetings held Number of Investor Grievances Comm. Meetings Promoter Shareholding FII Share holding Individual share holding Space devoted to Corporate Governance Report Telecom 12 33.3 80 40 67 89 50 7.67 5.33 4.66 59.28 13.76 1.99 11.26

93

Chapter VII
Major issues in corporate governance and measures to improve standards and compliance

ISSUES AND IMPERATIVES

India is driving major reforms in improving the corporate governance. In certain aspects it matches even the mature economies in regard to design of effective policies aimed towards strengthening of governance and compliance standards. It might be useful recapitulate a few of the major trends emerging in the Indian corporate sector in regard to corporate governance as also important issues and imperatives. Separation of Chairman and CEO Separation of Chairman and CEO are increasingly recognized as a best practice that the companies should absorb. Several companies now have separate Chairman and the CEOs. In the sample of 42 companies that this study has analysed in regard to corporate governance practices, more than half of them have chairman separate from the chief executive officer and this trend is rising in several companies. An Independent Board Given the importance of independence of the board, the scope of non executive directors and independent directors assume great significance. This study revealed that about 65 percent of the directors are non executive and about 46 percent are independent directors. There are three companies in which the chairman is non executive as also independent. There is a growing trend of making the board structure more independent. Companies with foreign shareholding in the pharmaceutical industry have non executive and independent directors as chairmen. Lead Independent Directors Big corporations are now designating lead independent directors who will coordinate the work of the independent directors as also review the progress of the company and set its business agenda. The role of the Lead Independent Director in one of the top Indian companies is defined as below:

94

To preside over the meetings of Independent Directors To ensure that there is adequate and timely flow of information to Independent Directors To liaise between the Chairman and Managing Director, the Management and Independent Directors To preside over meetings of the Board and Shareholders when the Chairman and Managing Director is not present or where he is an interested party To perform such other duties as may be delegated to the Lead Independent Director by the Board/Independent Directors.

It can be seen that companies are beginning to give more weightage to the scope and functions of the independent directors and in this process identifying a Lead Independent Director, who could be a catalyst in deriving the best from this process. Some companies have more than one Lead Independent Directors with different directors looking at different aspects of the governance and growth of the companies. For instance, in one company, one Independent Director each is vested with the responsibilities of the driving agenda for the Board, improving board processes, corporate strategy, financial and internal controls, risk management and compliance and one independent director identified as the Chief Ombudsman for the Whistle Blower Policy of the company. Independent Directors Independent Directors are the major instrument of the corporate governance in the modern corporates. Many companies, excepting a few public sector have complied with the requirement in regard to proportion of the representation of the independent directors in the boards. Though big corporates find good quality independent directors with relative ease, the same is emerging as a major challenge for the mid and small cap companies who appear to be facing sizeable problem in finding right number of directors with right qualities and qualifications. At present, nominee directors are treated as independent directors, but SEBI is proposing not to consider nominee directors as independent directors, in which case, the challenge becomes much tougher for a host of companies. In view of the representation of independent directors becoming a prominent aspect of the corporate governance, it is important that companies take this aspect with greater focus and seriousness.

95

In March 2007, the Union Cabinet of the central government gave its approval to the guidelines on Corporate Governance for Central Public Sector Enterprises (CPSEs) as per which, the board of directors of a company shall have an optimum combination of executive and non executive directors with not less than 50 percent comprising non executive directors. On implementation, it would improve the compliance standards of the public sector enterprises. Board Committees Companies are taking keen interest in constituting various subcommittees of the board in addition to the strengthening of the board. In addition to the mandated ones such as the audit committee and investor grievances committee and remuneration committee etc., companies are found to set up a wide range of sub committees as per their specific requirements. Names of the few sub committees in the corporate analysed in the study include; project appraisal committee, ethics committee, human resources policy committee, investment committee, safety, health and environment committee, planning and projects committee, committee, directors contracts financial committee, management asset-liability projects evaluation committee, strategy special establishment committee, committee, management marketing committee,

committee, technology committee, rural sector business committee, risk management committee, committee for monitoring large value frauds, board management committee, credit approval committee, customer service committee, management controls committee, science committee, banking and organization committee, intellectual property rights committee,

Meetings Companies have shown good progress in respect of the number of meetings of the Board and the Audit Committee held in a year. The number of meetings held are normally higher than the mandatory requirement in most of the companies.

96

Periodic Evaluation of the Performance Good governance requires periodic evaluation of the performance of the Board and Audit Committees by an internal process or an external agency. Though big corporations take elaborate care and processes in identification and selection of the members of the board, not all companies have a well defined process of performance evaluation. Infosys has put in place, where in an annual performance evaluation exercise; each non executive board member has to make a presentation to the Board on the major contribution made by him leading to an assessment that will determine the further scope of the members participation in the board. Such structured processes are not evident in a large number of companies. Related Party Transactions OECD defines related party transactions as those that involve between a parent company and subsidiary, employees, an enterprise and its principal owners, management or members of their immediate families; and affiliates (OECD Principles, IAS 24(9); FASB Statement No.57). Related party transactions can take various forms including; transfer pricing, asset stripping, i9nter company loans and guarantees; sale of receivables to special purpose vehicle; leasing or licensing agreement between a parent and a subsidiary. In view of the extensive family holding of Indian companies, doubts exist on the accuracy and authenticity of the declarations and statements made to the board on the related party transactions. Officials of the board secretariats of several companies expressed the scope for further refinement and reforms in the information pertaining to related party transactions.

Annual Reports Annual Reports are important documents for assessing and analyzing the company performance in regard to corporate governance standards and compliance. There is vast improvement in the quality of content in the Annual Reports, but scope exists for presenting the data in a manner that is easy to locate and understand. Even in respect of the corporate governance reports, though the number of aspects on which information is

97

required to be given is uniform, companies present information in different formats making it rather cumbersome for the readers who look at the documents of a number of companies. Corporate Governance Reports Corporate Governance Reports are important part of the Annual Reports. Many companies in addition to giving the compliance on various parameters also some times discuss the philosophy and objectives of the corporate governance thus setting the background for the spirit and letter of governance that is reported. Corporate Social Responsibility It is also found that several leading Indian companies undertake corporate social responsibility, which they report in the annual reports in a separate section. It is interesting to note several companies taking interest in corporate social responsibility. Statement of the Policies Most of the disclosures that are found in the companies annual reports are mandatory in nature. Many companies tend to fulfill the regulatory or compliance norms rather than taking a proactive initiative in discussing and disclosing pertinent policies and procedures on a wide range of issues that the company deals with it. For the purpose of an illustration a global major corporate, in its corporate governance discussed and disclosed the following, which is not usually evident in Indian companies, unless those like Infosys or Wipro which have global investor base or operations. a. Board Reserves one full day per year to discuss strategic questions b. Average duration of the Board Meetings c. Average attendance at the Board Meeting d. Working of the Compensation Committee. e. Information Policy f. Specific guidelines/ policy in regard to 1. Dealing with the people, 2. Relationships with suppliers and customers, 3. Legal compliance, 4. Gender equality and empowerment, 5. Health and safety, 6. Environment and public good,

98

7. Conflict of interest 8. Protection of confidential information, 9. Use of company facilities, 10. Leading by example and 11. Buying and selling of company stock. Promoter Holding A recent report of the Moodys quoted in the media showed that 17 of the 30 companies in the Sensex are family controlled. The report observed that family controlled companies face corporate governance challenges in the future. Family controlled companies came up for criticism during the economic and financial crises in the South East Asia, wherein problems accentuated because of lesser disclosure standards prevalent in family owned firms. Directors Training Companies are found to disclose the importance of training for their directors and mention the same in the corporate governance reports. While some companies explain the specific nature of training that is usually imparted to the directors, some make a broad reference to it. There is however no mention of the specific time spent by the directors on training. Whistle Blower Policy Being a non mandatory disclosure, companies mention about the Whistle Blower policy in place, but no record of any specific activity or incidence in this regard. Some companies put an independent director to look into the implementation of the policy Shortcomings in Compliance Though the design of the corporate governance framework in India is considered matching that of the advanced countries, on aspects of enforcement and quality of supervision, scope exists for significant improvement. Some of the observations cited in a recent paper58 that surveyed the corporate governance in India include; though legal system provides one of the highest levels of investor protection in the world, the reality is very different with slow, over-burdened courts and widespread corruption; ownership is still concentrated and family business groups continue to be the dominant business model in

58

Chakrabarti, Rajesh, Megginson, William L, Yadav Pradeep K, Corporate Governance in India, forthcoming, Journal of Applied Corporate Finance.

99

India; there is evidence of pyramiding and tunneling among Indian business groups and signs of widespread earnings management in many firms , much of the countrys extensive SME sector is mired in relationship based informal control and governance mechanisms. Some of these short comings impact the disclosure standards as well. According to the information provided by the Ministry of Corporate Affairs, almost 30000 companies came under its scanner default in filing of annual returns for the year ended March 2006. As mentioned earlier in this report, Securities and Exchange Board of India has initiated adjudication proceedings against 20 companies for non compliance with the corporate governance of which five belong to the public sector. In a statement to the Parliament, Finance Ministry informed that 13 of the Group A companies of the Bombay Stock Exchange have not complied with the Clause 49 stipulations. Seven of the Nifty 50 companies were found short of fulfilling corporate governance norms. At the same time, it is important to note that things are improving at a good pace and governance environment could see significant improvements in the near future. It is also pertinent to note that India is not an exception to these shortcomings as these are quite general to Asia as also several other countries.

Emerging Challenges While corporates have been quite successful in placing effective processes that will ensure compliance with the listing norms, several challenges exist in the governance landscape. Though the Chairman and CEO are separated in several companies, quite often it is found that a family member who is a non executive director is chairman and another family member is the CEO. Such arrangements meet the compliance requirements in letter but not in spirit. Similarly, in some it was found that meetings of several committees are clubbed together to save on time. Though time is an important element that needs to conserved with great care, the focus of the discussion should not be lost in trying to save time, which might lead to a situation where committees are called in a routine manner to fulfil the regulatory requirement. Significant improvements are required in respect to the reporting of subsidiary company operations as also related party transactions, a general feeling that is commonly shared by most of the practicing community on the corporate governance. Evaluation of the performance of the Board and the sub committees in particular the Audit Committee needs to be further strengthened and streamlined. In view

100

of the sizeable representation of the public sector enterprises in the stock market capitalization, it becomes important to speed up the process of placing required number of independent directors in these companies. These companies being big in size and having significant growth, it is important that a short coming on the proportion of independent directors should not place them in a disadvantageous position in regard to compliance standards. Companies should endeavour to extend the range of disclosures beyond the mandatory norms to areas such as management processes, corporate social responsibility etc., The next round of reforms might focus on the compensation and remuneration committees since they will assume greater significance in the background of enormous growth of the companies and their operations extending beyond the national boundaries entailing greater challenges for management. Some companies feel that the next round of major discussion and disclosures will center around compensation disclosure analysis which discusses the parameters governing the compensation for the executive directors as also designing effective structure for executive compensation.

Looking Ahead Corporate governance both in respect of policy and practice made quantum leap in India. On the policy side, India has one of the best frameworks for corporate governance. On the practice side, there is great improvement in the standards of reporting, disclosure and compliance of companies. Given more than one hundred thousand companies registered, of which about 5000 are listed, monitoring corporate governance in Indian companies is an intensely challenging task. Notwithstanding the size of numbers, improvements are evident in various aspects of governance. This study which examined 42 companies on the governance aspects finds that companies have complied with most of the norms of the listing agreement and some have gone beyond in fulfilling a few more better standards. Indian economy is experiencing unprecedented growth and receiving intense interest of the international investing community. Indian companies can derive great benefits from this extremely conducive environment by strengthening the company performance as also its governance standards. International investing is increasingly governed by quality governance as evidenced from a number of studies and it becomes imperative for Indian

101

companies to sustain the pace of reforms in corporate governance. While Clause 49 deals with what is mandatory, good companies can go extra mile in devising effective ways of governance that could lead to efficient markets. Good governance is required for business growth, expansion and in pursuing global aspirations. It is also important to bring in qualitative improvement in the corporate environment in India that will induce other also to adopt best practices. Good corporate governance in big companies will be a guiding force for mid and small companies to devise effective governance frameworks that will result in further strengthening of the governance environment. The society at large as well as the stakeholders of the companies will the biggest beneficiaries of this outcome.

Box1: Working of the Compensation Committee The company uses several benchmarks in determining the value and the design of the various elements. The major peer group considered for the purpose of competitive practice is made up of some 15 mainly European parented fast-moving consumer goods companies. The Companys base salaries as well as bonus and long term incentive targets generally today are at the median values of this comparator group; longer term the companies desires to be within the third quartile. Variations from this benchmark can exist as a result of special position requirements or particular experience or seniority of the incumbent. The benchmark for pension benefits is the group of the leading Swiss companies, both in the industrial and financial services sectors. Compensation benefits consist of; Base Salary: reviewed annually based upon the individual contribution and with the objective to keep it competitive against our chosen peer group Short-Term Bonus; annual bonus which is a percentage of a base salary. The objectives are set at the beginning of each year and they include collective as well as individual objectives. Collective objectives are the Nestle Groups operational objectives such as RIG, EBIT, Capex and others. Individual objectives are determined for each member of the Executive Board. In case all objectives are reached in full, the bonus payout will correspond with the targeted level. In case of overachievement f the objectives, the payout can reach a maximum of 150 percent of the target. There is no guaranteed minimum bonus payout. Longer Term Incentives. Each year, members of the Executive Board are eligible to receive Long-Term incentives in the form of stock options under the Management Stock Option Plan (MSOP) and restricted share units under the Restricted /stock Unit Plan (RSUP). A target value is set at the time of the grant and the respective number of options and restricted stock units is then allocated to each member of the Executive Board. Grants under both plans vest following a waiting period of three years after the grant. The exercise price for the stock options corresponds to the average price of the last ten trading days preceding the grant date. Upon vesting, the options have an exercise period of four years before they expire, and the restricted stock units are made available to participants in the form of Nestle S.A shares. Other Benefits Nestle limits other benefits to a minimum. Typical elements are a car allowance (there are no company cars provide to the members of the Executives Board) and a minimal contribution towards

102

the health insurance premiums, as offered to other employees. Those Executive Board members who have been transferred from other Nestle locations can receive benefits in line with the Nestle Corporate Expatriation Policy. There are no contractual provisions concerning severance payments for members of the Executive Board. Pension Benefits Executive Board members domiciled in Switzerland are affiliated to the Nestle Pension Plan in Switzerland as all other employees. The Plan is designed as a defined contribution plan with a retirement pension objective expressed as a percentage of the base salary. This means that the pensionable earnings include the base salary, but not the variable compensation. Any part of the base salary which exceeds the ceiling prescribed y the Swiss Pension Law is covered directly by the Company. Source: Nestle India

103

CORPORATE GOVERNACE PROFILES OF COMPANY PRACTICE

104

CORPORATE GOVERNANCE PRACTICE

Practice ACC Limited Cement House, 121, Maharshi Karve Road, Mumbai 400 020 Tel : +91 22 66654291/66654360 Fax: +91 22 66317458 Email:investorsupport@acccement.com Website: www.acclimited.com 4 Chairman N S Sekhsaria 5 Dy. Chairman Paul Hugentobler 6 Managing Director N L Narula 7 Company Secretary A Anjeneyan FINANCIALS (Rs. In Mn) (Audited 01 Jan 06 to 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1875 29552 64531 58035 59350 17547 Profit Net Profit Gross Profit Depreciation Profit EPs Before Tax After Tax 17027 -2543 14484 10608 12318 66 MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 202890 1315 680 16.4 SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 35.15 24.28 29.55 CG COMPLIANCE BOARD MEETINGS CG Report included in the Annual Yes No of Directors 15 Report of the Company Is the Chairman Non Executive Yes COMMITTEE MEETINGS Number of Non Executive Directors in 12 Board 6 meetings the Board Number of Non Executive Directors 5 Audit Committee 4 meetings who are Independent Term of the Chairman/CEO NA Investor Grievance Committee 5 meetings ACC is respected for its professional management BOARD SECRETARIAT and good business practices in the Indian corporate Does the company has a Chief Yes world. Integrity, emphasis on product quality and Compliance Officer transparency in its dealings with all stakeholders Is the Chief Compliance Officer Yes are its core values. ACC believes that good same as the Company Secretary governance generates goodwill among business partners, customers and investors, earns respect from society and brings about a consistent sustainable growth for the Company and generates competitive returns for the investors. Towards its objectives of achieving good corporate governance, it has endowed a Chair for Business Ethics at the Management Centre for Human Values, Indian Institute of Management, Kolkata. 1 2 3 Particulars Name of the Company Registered Address Contacts

105

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Ambuja Cements Ltd 106, Maker Chambers III, Nariman Point, Mumbai 400 021, India Tel: +91 022 6659 7300 Fax:+91 022 2284 6270 Email:investor@ambujamail.com Website:www.gujaratambuja.com Suresh Neotia

4 5 6 7

Chairman Chief Executive Officer Managing Director Anil Singhvi Company Secretary B L Taparia FINANCIALS (Rs. In Mn) (Audited 01 Jul 05 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income 63820 3034 31872 70105 62683 Gross Profit 21677 Depreciation -3261 Profit Before Tax 18416 Profit After Tax 15033 Net Profit 15033

Operating Profit 22468 EPs 10

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 154 100 SHARE HOLDING PATTERN (%) Promoters FIIs 31.19 34 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the COMMITTEE MEETINGS Company Is the Chairman Non Yes Board Executive Number of Non Executive 5 Audit Committee Directors in the Board Number of Non Executive 5 Investor Grievance Committee Directors who are Independent Term of the NA BOARD SECRETARIAT Chairman/CEO Does the company has a Chief The company believes in Compliance Officer transparency, empowerment, Is the Chief Compliance Officer same accountability, safety of people as the Company Secretary and environment, motivation, respect for law and fair business practices with all its stakeholders. These practices being followed since inception have helped the company in its sustained growth. MarketCap (Rs. In Mn) 219340

PE Ratio (%) 10.5 Individuals 11.52 15 9 meetings 7 meetings 17 meetings

Yes Yes

106

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Bajaj Auto Limited Mumbai Pune Road, Akurdi Pune 411 035 Tel: +91 020 27472851 Extn. (6063), 27406063/27401380 Fax: +91 020 27407380 Email:jsridhar@bajajauto.co.in/investors@bajajauto.co.in Website: www.bajajauto.com Rahul Bajaj

4 5 6 7

Chairman Chief Executive Officer Managing Director Rajiv Bajaj Company Secretary J Sridhar FINANCIALS (Rs. In Mn) (Audited 01 Apr 05 31 Mar 06) Equity Reserves Gross Sales Net Sales Total Income 1012 46696 87484 76679 81064 Gross Profit Depreciation

Operating Profit 17947

Profit Profit Net Profit EPs Before Tax After Tax 17944 -1910 16034 11243 11233 111 MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 253150 3172 2063 19.9 SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 29.79 19.42 23.18 CG COMPLIANCE BOARD CG Report included in the Yes 16 No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 11 Board 6 meetings Directors in the Board Number of Non Executive 4 meetings 8 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee 17 meetings Chairman/CEO BOARD SECRETARIAT The commitment of Bajaj Auto Limited (Bajaj Auto, BAL or the Does the company has a Chief Yes Company) to the highest standards Compliance Officer of good corporate governance Is the Chief Compliance Officer same Yes practices predates SEBI and clause as the Company Secretary 49 of the Listing Agreements. Transparency, fairness, disclosure and accountability are central to the working of the Company and its Board of Directors.

107

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Bharat Petroleum Corporation Limited Bharat Bhavan, 4 & 6,Currimbhoy Road Ballard Estate, Mumbai- 400 001 Tel.+91 22-22713001-04/ 22713435/3437 Fax +91 22 22642112/22161793/ 22713688 Email z-dsrc@bharatpetroleum.in, ssc@bharatpetroleum.in Website:www.bharatpetroleum.com Ashok Sinha, CMD

4 5 6 7

Chairman Chief Executive Officer Managing Director Ashok Sinha Company Secretary N Viswakumar FINANCIALS (Rs. In Mn) (Unaudited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 3615 109895 1088357 988711 982049 Gross Profit 44610 Depreciation -10988 Profit Before Tax 33622 Profit After Tax 23502 Net Profit 23502

Operating Profit 49781 EPs 59

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 448 287 SHARE HOLDING PATTERN (%) Promoters FIIs 54.93 13.12 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 5 Board Directors in the Board Number of Non Executive 3 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT Bharat Petroleum Corporation Does the company has a Chief Ltds corporate philosophy on Compliance Officer Corporate Governance has been to Is the Chief Compliance Officer same ensure fairness to the stakeholders as the Company Secretary through transparency, full disclosures, empowerment of employees and collective decision making. MarketCap (Rs. In Mn) 125390

PE Ratio (%) 4.3 Individuals 12.51 10

10 meetings 9 meetings One meeting Yes Yes

108

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Cipla Limited Shares Department, Cipla Ltd. Mumbai Central, Mumbai 400 008, India Tel +91 22 2308 2891/91 22 2302 5272/72/2309 5521 Fax +91 22 2307 0013/ 91 22 2300 8101 Email-cosecretary@cipla.com Website www.cipla.com Dr. Y K Hamied

4 5 6 7

Chairman Chief Executive Officer Managing Directors M K Hamied, Amar Lulla Company Secretary Mital Sanghvi FINANCIALS (Rs. In Mn) (Unaudited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1555 36671 35721 36613 9119 Profit Net Profit Gross Profit Depreciation Profit EPs Before Tax After Tax 9049 -1041 8008 6608 6608 9 MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio(%) 143260 275 160 22.8 SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 39.36 16.81 25.34 CG COMPLIANCE BOARD CG Report included in the Yes 9 No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 6 Board 4 meetings Directors in the Board Number of Non Executive 4 meetings 6 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee 4 meetings Chairman/CEO BOARD SECRETARIAT The Company is committed to good Does the company has a Chief Yes corporate governance. The Compliance Officer Company respects the rights of its Is the Chief Compliance Officer same Yes shareholders to secure information as the Company Secretary on the performance of the Company and it is its endeavor to maximize the long term value to the shareholders of the Company.

109

CORPORATE GOVERNANCE PRACTICE

Practice Dr Reddys Laboratories Ltd 7-1-27, Ameerpet, Hyderabad 500 016, Andhra Pradesh, India Tel +91 40 23731946/23734504 Fax +91 40 23731955/66511525 Email.viswanath@drreddys.com/shares@drreddys.com Website www.drreddys.com 4 Chairman Dr. K Anji Reddy 5 Chief Executive Officer G V Prasad, VP & CEO 6 Managing Director Satish Reddy, MD & COO 7 Company Secretary V Viswanath FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 64346 66418 17716 840 39133 65126 1 2 3 Gross Profit 16190 Depreciation -3791 Profit Before Tax 12399 Profit After Tax 9655 Net Profit 9655 EPs 61 PE Ratio (%) 12.2 Individuals 13.63 8 Particulars Name of the Company Registered Address Contacts

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 840 580 SHARE HOLDING PATTERN (%) Promoters FIIs 25.18 27.49 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 6 Board Directors in the Board Number of Non Executive 6 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT Dr.Reddys philosophy of corporate governance stems out from its Does the company has a Chief belief that timely disclosures, Compliance Officer transparent accounting policies, Is the Chief Compliance Officer same and a strong and independent as the Company Secretary Board go a long way in preserving shareholders trust while maximizing long-term corporate values. MarketCap (Rs. In Mn) 102830

4 meetings 4 meetings 3 meetings

Yes Yes

110

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Essar Steel Limited Essar House, 11 Keshavrao Khadye Marg, Mahalaxmi, Mumbai - 400 034, Maharashtra, India Tel.+91 022 66601100 Fax +91 022 66602748 Email.corporatecommunications@essar.com/chr@essar.com Website.www.essar.com Shashi Ruia

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary N. B. Vyas FINANCIALS (Rs. In Mn) (Unaudited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 11398 32677 90025 82156 81964 Gross Profit 13347 Depreciation -6311 Profit Before Tax 7037 Profit After Tax 4567 Net Profit 4339

Operating Profit 19571 EPs 4

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 71 41 SHARE HOLDING PATTERN (%) Promoters FIIs 87.08 2.03 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 10 Board Directors in the Board Number of Non Executive 5 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO Essar Steel Limited believes that BOARD SECRETARIAT good Corporate Governance is Does the company has a Chief essential to achieve long term Compliance Officer corporate goals and to enhance Is the Chief Compliance Officer same stakeholders value. The as the Company Secretary Companys philosophy on Corporate Governance envisages attainment of high level transparency, accountability and integrity in the functioning of the Company and the conduct of its business, its relationship with employees, stakeholders, creditors, customers and institutional and other lenders. The company places due emphasis on regulatory compliance. MarketCap (Rs. In Mn) 61690

PE Ratio (%) Individuals 6.72 12

5 meetings 6 meetings Yes Yes

111

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice GlaxoSmithKline Pharmaceuticals Limited Dr Annie Besant Road, Mumbai 400 030, India Tel.+91-022-2495 9595 Fax +91-022-2495 9494 Email.ajay.a.nadkarni@gsk.com Website.www.gsk-ndia.com D S Parekh

4 5 6 7

Chairman Chief Executive Officer Managing Director Dr. H B Joshipura Company Secretary A A Nadkarni FINANCIALS (Rs. In Mn) (Audited 01 Jan 06 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income 15529 16488 847 11100 16776 Gross Profit 5718 Depreciation -158 Profit Before Tax 5560 Profit After Tax 3617 Net Profit 5455

Operating Profit 5718 EPs 64

MarketCap (Rs. In Mn) 27630 Promoters 50.67 CG COMPLIANCE CG Report included in the Annual Report of the Company Is the Chairman Non Executive Number of Non Executive Directors in the Board Number of Non Executive Directors who are Independent Term of the Chairman/CEO

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 694 500 SHARE HOLDING PATTERN (%) FIIs 14.64 BOARD Yes No of Directors Independent 9 5 NA COMMITTEE MEETINGS Board Audit Committee Investor Grievance Committee BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

PE Ratio (%) 17.2 Individuals 18.28 12

5 meetings 7 meetings One meeting Yes Yes

The Companys philosophy of Corporate Governance is aimed at assisting the management of the Company in the efficient conduct of its business and in meeting its obligations to stakeholders, and is guided by a strong emphasis on transparency, accountability and integrity. For several years, the Company has adopted a codified Corporate Governance Charter, which is in line with the best practice, as well as meets all the relevant legal and regulatory requirements.

112

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice HDFC Bank Limited HDFC Bank House, Senapati Bapat Marg, Lower Parel, Mumbai 400 013 Tel: +91 22 56521000 Fax:+91 22 24960737 Email: investor.helpdesk@hdfcbank.com Website: www.hdfcbank.com Jagdish Capoor

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary

Equity 3194 Gross Profit -

Adiya Puri Sanjay Dongre Executive Vice President (Legal) & Company Secretary FINANCIALS (Rs. In Mn) (Unaudited 1 Apr 06 31 Mar 07) Reserves Int. Earned Total Income Operating Profit 61510 68872 84645 28113 Profit Before Tax 28113 Profit After Tax 11435 Net Profit 11435 EPs 37 PE Ratio (%) 41.1 Individuals 12.38 9

Depreciation -

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 1660 890 SHARE HOLDING PATTERN (%) Promoters FIIs 21.56 30.73 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 8 Board Directors in the Board Number of Non Executive 4 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO HDFC encompasses the simple BOARD SECRETARIAT tenets of integrity, transparency Does the company has a Chief and fairness in whatever it does. Compliance Officer Each relationship that HDFC has, Is the Chief Compliance Officer same be its borrowers, depositors, as the Company Secretary agents, shareholders or other stakeholders is highly valued by the organisation. Across the organisation, HDFC has always followed an open-door policy. This not only ensures transparency, but also enables rapport building and gives employees an opportunity to freely address issues of concern. MarketCap (Rs. In Mn) 546000

8 meetings 9 meetings 13 meetings Yes Yes

113

CORPORATE GOVERNANCE PRACTICE

Practice Hero Honda Motors Limited 34, Community Centre, Basant Lok, Vasant Vihar New Delhi 110057, India 3 Contacts Tel: +91 11 26142451, 26144121 Fax:+91 11 2615 3913 Email: ickamboj@herohonda.com Website:www.herohonda.com 4 Chairman Brijmohan Lall 5 Chief Executive Officer Pawan Munjal, MD & CEO 6 Managing Director Toshiaki Nakagawa, Jt. MD 7 Company Secretary llamC Kamboj General Manager Legal & Company Secretary FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 399 24301 115420 99000 100898 13629 1 2 Gross Profit 13859 Depreciation -1398 Profit Before Tax 12461 Profit After Tax 8579 Net Profit 8579 EPs 43 PE Ratio (%) 18.6 Individuals 8.69 16 Particulars Name of the Company Registered Address

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 809 565 SHARE HOLDING PATTERN (%) Promoters FIIs 54.95 27.76 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 12 Board Directors in the Board Number of Non Executive 8 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO Hero Hondas philosophy of BOARD SECRETARIAT corporate governance stems from its belief that the companys Does the company has a Chief business strategy and plans Compliance Officer should be consistent with the Is the Chief Compliance Officer same welfare of all its stakeholders, as the Company Secretary including shareholders. Corporate governance rests upon the four pillars of transparency, full disclosure, independent monitoring and fairness to all, especially to minority shareholders. MarketCap (Rs. In Mn) 148660

5 meetings 8 meetings 4 meetings

Yes Yes

114

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Hindalco Industries Limited Century Bhavan, 3rd floor, Dr A B Road, Worli Mumbai 400 030, India Tel. +91- 22-6662 6626 Fax +91- 22-2436 2516 / 2422 7586 Email.amalik@adityabirla.com Website.www.hindalco.com Kumar Mangalam Birla

4 5 6 7

Chairman Chief Executive Officer Managing Director D Bhattacharya Company Secretary Anil Malik FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 1043 123137 183130 186831 Gross Profit 41427 Depreciation -6381 Profit Before Tax 35046 Profit After Tax 25643 Net Profit 25643

Operating Profit 43851 EPs 26

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 208 125 SHARE HOLDING PATTERN (%) Promoters FIIs 27 18.55 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 9 Board Directors in the Board Number of Non Executive 6 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO The Aditya Birla Group is BOARD SECRETARIAT committed to the adoption of best governance practices and its Does the company has a Chief adherence in the true spirit, at all Compliance Officer times. The governance philosophy Is the Chief Compliance Officer same rests on the following five basic as the Company Secretary tenets; Board accountability to the Company and shareholders, strategic guidance and effective monitoring by the Board, protection of minority interests and rights, equitable treatment of all shareholders and superior transparency and timely disclosure. MarketCap (Rs. In Mn) 238550

PE Ratio (%) 9.3 Individuals 16.45 10

8 meetings 4 meetings One meeting

Yes Yes

115

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Hindustan Petroleum Corporation Ltd Petroleum House.17, Jamshedji Tata Road Mumbai - 400 020 Tel.+91 022 25963838/2286 3900/22026151 Fax +91 022 25946969/22872992 Email.corphgo@hpcl.co.in/helpdeskhqo@hpcl.co.in Website.www.hindustanpetroleum.com Arun Balakrishnan, CMD

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary N R Narayanan FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 3390 92278 1024900 946806 939695 Gross Profit 29433 Depreciation -7782 Profit Before Tax 21651 Profit After Tax 16740 Net Profit 16740

Operating Profit 34031 EPs 76

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 337 223 SHARE HOLDING PATTERN (%) Promoters FIIs 51.01 23.25 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 8 Board Directors in the Board Number of Non Executive 6 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT HPCL lays special emphasis on Does the company has a Chief conducting its affairs within the Compliance Officer framework policies, internal and Is the Chief Compliance Officer same external regulations and in a as the Company Secretary transparent manner. Being a Government Company its activities are subject to review by several external authorities like the Comptroller & Auditor General of India (CAG), the Central Vigilance Commission (CVC), parliamentary Committees etc. MarketCap (Rs. In Mn) 80560

PE Ratio (%) 3.9 Individuals NA 12

13 meetings 7 meetings 4 meetings Yes Yes

116

CORPORATE GOVERNANCE PRACTICE

Practice Hindustan Unilever Ltd Hindustan Unilever House,165/166, Backbay Reclamation, Mumbai 400020, Maharashtra, India 3 Contacts Tel.+91-022-39830000/39832567/2385 Fax +91-022-22871970 Email.ashok.gupta@unilver.com/hllshare.cmpt@unilever.com Website.www.hll.com 4 Chairman Harish Manwani 5 Chief Executive Officer Douglas Baillie CEO & MD 6 Managing Director S Ravidranath MD (Foods) 7 Company Secretary Ashok K Gupta FINANCIALS (Rs. In Mn) (Audited 01 Jan 06 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 2207 25021 121034 124579 20026 1 2 Gross Profit 19918 Depreciation -1302 Profit Before Tax 18617 Profit After Tax 15397 Net Profit 18554 EPs 8 PE Ratio (%) 25.3 Individuals 17.46 10 Particulars Name of the Company Registered Address

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 255 166 SHARE HOLDING PATTERN (%) Promoters FIIs 51.43 12.88 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 5 Board Directors in the Board Number of Non Executive 5 Audit Committee Directors who are Independent Term of the NA/5 Investor Grievance Committee Chairman/CEO At Hindustan Unilever Limited, BOARD SECRETARIAT good governance is an ongoing Does the company has a Chief process, thereby ensuring truth, Compliance Officer transparency, accountability and Is the Chief Compliance Officer same responsibility in all dealings with as the Company Secretary employees, shareholders, consumers and the community at large. At Hindustan Unilever, corporate governance in its widest sense, almost like a trusteeship; it is a philosophy to be professed, a value to be imbibed and an ideology to be ingrained in corporate culture. MarketCap (Rs. In Mn) 485140

7 meetings 6 meetings 2 meetings Yes Yes

117

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice ICICI Bank Ltd Race Course Circle, Alkapuri, Vadodara 390 007, Gujarat Tel +91 022-2653 24318/339923-27/+91 265 323418/339923-27 Fax +91 022 2653 239926/265 339926/2339926 Email jyotin.mehta@icicibank.com Website www.icicibank.com N Vaghul K V Kamath, CEO & MD

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary Jyotin Mehta, GM & Co. Secretary FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Int. Earned Total Income 8993 234139 250013 413638 Gross Profit Depreciation Profit Before Tax 56749 Profit After Tax 26334 Net Profit 26334

Operating Profit 56749 EPs 31

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 1265 751 SHARE HOLDING PATTERN (%) Promoters FIIs 45.49 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 5 Board Directors in the Board Number of Non Executive 12 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT ICICI Banks corporate governance Does the company has a Chief philosophy encompasses not only Compliance Officer regulatory and legal requirements, Is the Chief Compliance Officer same such as the terms of listing as the Company Secretary agreements with stock exchanges, but also several voluntary practices aimed at a high level of business ethics, effective supervision and enhancement of value for all stakeholders. MarketCap (Rs. In Mn) 1389010

PE Ratio (%) 39.5 Individuals 6.41 17

8 meetings 6 meetings 12 meetings Yes Yes

118

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Indian Oil Corporation Limited Registered Office, IndianOil Bhavan, G-9, Ali Yavar Jung Marg, Bandra East, Mumbai 400 051 Tel:+91 22 26427363 Fax:+91 22 26447528 Email:rajurange@indianoil.co.in/sethis@iocl.co.in Website:www.iocl.co.in Sarthak Behuria

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary Raju Ranganathan FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 11680 353519 1859676 2026927 Gross Profit 127033 Depreciation -29703 Profit Before Tax 97330 Profit After Tax 63006 Net Profit 81794

Operating Profit 144463 EPs 66

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 531 370 SHARE HOLDING PATTERN (%) Promoters FIIs 82 1.93 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 7 Board Directors in the Board Number of Non Executive 5 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO Indian Oil believes that good BOARD SECRETARIAT Corporate Governance practices Does the company has a Chief ensure efficient conduct of the Compliance Officer affairs of the Company and also Is the Chief Compliance Officer same help in maximizing value for all its as the Company Secretary stakeholders. The Company endeavors to uphold the principles and practices of Corporate Governance to ensure transparency, integrity and accountability in its functioning, which are vital to achieve its Vision of becoming a major diversified, transnational, integrated energy company. MarketCap (Rs. In Mn) 534360

PE Ratio (%) 7.4 Individuals 2.72 14

13 meetings 11 meetings 2 meetings Yes Yes

119

CORPORATE GOVERNANCE PRACTICE

Practice Infosys Technologies Ltd Plot No.44 97A, Electronics City, Hosur Road, Bangalore 560 100 Tel +91 080 28520261/41167750 Fax+91 080 28520362 Email Parvatheesam kanchinadham/Parvathesam_k@infosys.com Website www.infosys.com 4 Chairman N R Narayana Murthy, Chairman & Chief Mentor 5 Chief Executive Officer Nandan M Nilekani, CEO & MD 6 Managing Director S Gopalakrishnan, President, COO, Jt, MD and Head Customer Service Technology 7 Company Secretary Parvatheesam Kanchinadham, Company Secretary and Compliance Officer FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 2860 109690 138930 47630 142650 1 2 3 Gross Profit 47630 Depreciation -5140 Profit Before Tax 42490 Profit After Tax 38610 Net Profit 38670 EPs 69 Particulars Name of the Company Registered Address Contacts

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 2439 1745 SHARE HOLDING PATTERN (%) Promoters FIIs 16.54 32.55 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 9 Board Directors in the Board Number of Non Executive 8 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO Our corporate governance BOARD SECRETARIAT philosophy is based on the Does the company has a Chief following principles: Satisfy the Compliance Officer spirit of the law and not just the Is the Chief Compliance Officer same letter of the law. Corporate as the Company Secretary governance standards should go beyond the law, Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose, Make a clear distinction between personal conveniences and corporate resources. MarketCap (Rs. In Mn) 1064230

PE Ratio (%) 24.7 Individuals 19.48 15

7 meetings 4 meetings 4 meetings Yes Yes

120

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice ITC Limited Virginia House, 37, Jawaharlal Nehru Road, Kolkatta 700 071, India Tel +91 033 22889371/22880034/6426 Fax +91 033 22882358 Email arun.bose@itc.in/isc@itc.in Website www.itcportal.com Yogesh Chander Deveshwar

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary Biswa Behari Chatterjee, Exe.VP & Co. Secretary FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 3762 101356 128737 132345 44471 Gross Profit 44428 Depreciation -3938 Profit Before Tax 40491 Profit After Tax 27743 Net Profit 27743 EPs 7 PE Ratio (%) 23.5 Individuals 15.85 12

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 195 140 SHARE HOLDING PATTERN (%) Promoters FIIs 37.05 12.9 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 9 Board Directors in the Board Number of Non Executive 7 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO Since large corporations employ a BOARD SECRETARIAT vast quantum of societal resources, Does the company has a Chief ITC believes that the governance Compliance Officer process should ensure that these Is the Chief Compliance Officer same resources are utilized in as the Company Secretary a manner that meets stakeholders aspirations and societal expectations. This belief is reflected in the Companys deep commitment to contribute to the triple bottom line, namely the development, nurture and regeneration of the nations economic, social and environmental capital. MarketCap (Rs. In Mn) 686540

5 meetings 9 meetings 33 meetings Yes Yes

121

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Larsen & Toubro Ltd L&T House, N. M. Marg, Ballard Estate, Mumbai 400 001, India. Tel.+91 022 67525856 Fax.+91 022 67525858 Email.ccd@lth.ltindia.com Website.www.larsentoubro.com A M Naik, CMD

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary N Hariharan FINANCIALS (Rs. In Mn) (Audited 1 Apr 05 31 Mar 06) Equity Reserves Gross Sales Net Sales Total Income 147631 151986 275 45833 149938 Gross Profit 14281 Depreciation -1145 Profit Before Tax 13137 Profit After Tax 9424 Net Profit 10121

Operating Profit 15032 EPs 76

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 4300 1260 SHARE HOLDING PATTERN (%) Promoters FIIs 31.71 18.26 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 9 Board Directors in the Board Number of Non Executive 9 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT The Company's philosophy on Does the company has a Chief Corporate Governance is built on a Compliance Officer rich legacy of fair and transparent Is the Chief Compliance Officer same governance and disclosure as the Company Secretary practices, many of which were in existence even before they were mandated by legislation. The Company's essential character revolves round values based on transparency, integrity, professionalism and accountability. MarketCap (Rs. In Mn) 1213730

PE Ratio (%) 68.6 Individuals 24.39 17

11 meetings 6 meetings 3 meetings Yes Yes

122

CORPORATE GOVERNANCE PRACTICE

Particulars Name of the Company Registered Address Contacts Practice Merck Limited Merck Ltd., Shivsagar Estate, Dr. Annie Besant Road, Worli 400 018 Tel +91 022 66609000/24954590 Fax +91 24950307/36046 Email Website www.merck.com/merck.co.in S N Talwar

1 2 3

4 5 6 7

Chairman Chief Executive Officer Managing Director Dr. M Dziki Company Secretary H U Shenoy FINANCIALS (Rs. In Mn) (Audited 01 Jan 06 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income 169 3762 3613 3607 3295 Gross Profit 1106 Depreciation -64 Profit Before Tax 1042 Profit After Tax 679 Net Profit 1334

Operating Profit 1106 EPs 79

MarketCap (Rs. In Mn) 6530 Promoters 51 CG COMPLIANCE CG Report included in the Annual Report of the Company Is the Chairman Non Executive Number of Non Executive Directors in the Board Number of Non Executive Directors who are Independent Term of the Chairman/CEO

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 500 372 SHARE HOLDING PATTERN (%) FIIs 1.5 BOARD Yes No of Directors Yes and Independent 5 3 NA COMMITTEE MEETINGS Board Audit Committee Investor Grievance Committee BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

PE Ratio (%) 10.4 Individuals 22.43 9

6 meetings 4 meetings One meeting Yes Yes

Merck is committed to the adoption of the best governance practices and their adherence in the true spirit, at all times. The Companys philosophy on Corporate Governance is to ensure that the systems and procedures which monitor compliance with laws, rules and regulations are in place in each area of its operations and the relevant information regarding the Company and its operations is disclosed, disseminated and easily available to all its stakeholders.

123

CORPORATE GOVERNANCE PRACTICE

Practice Mphasis Limited Bagmane Technology Park, Byrasandra, C V Raman Nagar, Bangalore 560 093 3 Contacts Tel +91 80 40040404/4042 6000 Fax +91 80 40049999/25346760 Email sudhir.goel@mphasis.com Website www.mphasis.com 4 Chairman Jaithirth Rao 5 Vice Chairman Jeroen Tas 6 Managing Director Deepak Jayant Patel 7 Company Secretary A Sivaram Nair FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 17471 1908 17606 1 2 Gross Profit 1983 Depreciation Profit Before Tax 1983 Profit After Tax 1801 Net Profit 1801 EPs 9 Particulars Name of the Company Registered Address

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 340 210 SHARE HOLDING PATTERN (%) Promoters FIIs 50.59 11.47 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 11 Board Directors in the Board Number of Non Executive 5 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT Mphasis Corporate Governance is Does the company has a Chief directed at the enhancement of Compliance Officer shareholder value, keeping in mind Is the Chief Compliance Officer same the interests of the other stake as the Company Secretary holders, viz., clients, employees, investors, regulatory bodies, etc. The functions of the Board of Directors of the Company are well defined. Mphasis is committed to good corporate governance and has bench marked itself against global best practices. MarketCap (Rs. In Mn) 61950

PE Ratio (%) 39.7 Individuals 8.34 12

10 meetings 6 meetings Yes Yes

124

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice National Thermal Power Corporation Ltd NTPC Bhawan, SCOPE Complex, 7-Institutional Area, Lodhi Road, New Delhi 110003 Tel +91 011 24360100/24360071 Fax +91 011 24361018/24360210 Email akrastogi@ntpc.co.in Website www.ntpc.co.in T Sankaralingam, CMD

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary A K Rastogi FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 82455 404670 338757 366518 Gross Profit 110612 Depreciation -20998 Profit Before Tax 89614 Profit After Tax 68983 Net Profit 68983

Operating Profit 129485 EPs 8

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 240 127 SHARE HOLDING PATTERN (%) Promoters FIIs 89.5 7.05 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 6 Board Directors in the Board Number of Non Executive 4 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT NTPC believes in the philosophy Does the company has a Chief that corporate governance is a key Compliance Officer element in improving efficiency Is the Chief Compliance Officer same and growth as well as enhancing as the Company Secretary investor confidence and accordingly the Corporate Governance philosophy has been scripted as As a good corporate citizen, the Company is committed to sound corporate practices based on conscience, openness, fairness, professionalism and accountability in building confidence of its various stakeholders in it thereby paving the way for its long term success. MarketCap (Rs. In Mn) 1923260

PE Ratio(%) 25 Individuals 7.05 13

14 meetings 5 meetings 2 meetings Yes Yes

125

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Nestle India Ltd Nestle India Ltd., M-54 Connaught Circus, New Delhi 110 001 Tel.+91 0124 238 93 00 Fax +91 0124 238 94 11 Email.investor@n.nestle.com Website.www.nestle.com/nestle.in Martial G Rolland, CMD

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary B. Murli FINANCIALS (Rs. In Mn) (01 Jan 05 31 Dec 05) Equity Reserves Gross Sales Net Sales Total Income 24769 25006 964 2577 26439 Gross Profit 5456 Depreciation -568 Profit Before Tax 4887 Profit After Tax 3069 Net Profit 3096

Operating Profit 5458 EPs 32

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 1395 876 SHARE HOLDING PATTERN (%) Promoters FIIs 61.85 9.07 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 5 Board Directors in the Board Number of Non Executive 3 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT Nestl India Limited, as a part of Does the company has a Chief Nestl Group, Switzerland has over Compliance Officer the years followed best practice of Is the Chief Compliance Officer same Corporate Governance by adhering as the Company Secretary to practices laid down by Nestl Group. The two most significant documents from Nestl Group, which define the standard of behavior of Nestl India, are Nestl Corporate Business Principles and The Nestl Management and Leadership Principles. MarketCap (Rs. In Mn) 131670

PE Ratio (%) 37.7 Individuals 17.29 6

5 meetings 5 meetings 4 meetings Yes Yes

126

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Oil & Natural Gas Corporation Ltd Jeevan Bharati Bldg., Tower II, 124 Indira Chowk, New Delhi 110 001 Tel .+91 11 23301000/10156/23721756 Fax +91 11 2331 6413 Email.Registration_itd@ongc.co.in Website.www.ongcindia.com R S Sharma,CMD

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary S C Setia FINANCIALS (Rs. In Mn) (Audited 1 Apr 05 31 Mar 06) Equity Reserves Gross Sales Net Sales Total Income 14259 519174 482009 502779 479229 Gross Profit 296539 Depreciation -84573 Profit Before Tax 211966 Profit After Tax 137902 Net Profit 144308

Operating Profit 297008 EPs 101

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 1253 750 SHARE HOLDING PATTERN (%) Promoters FIIs 74 8.67 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 6 Board Directors in the Board Number of Non Executive 4 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO The company views corporate BOARD SECRETARIAT governance in its widest sense Does the company has a Chief almost like a trusteeship, a Compliance Officer philosophy to be progressed, a Is the Chief Compliance Officer same value to be imbibed and an as the Company Secretary ideology to be ingrained into the corporate culture. It has been practicing corporate governance principles m The primary objective is to create and adhere to a corporate culture of conscience and consciousness, transparency and openness, fairness, accountability, propriety, equity, sustainable value creation, ethical practices, thereby creating an outperforming organization. MarketCap (Rs. In Mn) 2649240

PE Ratio (%) 16.4 Individuals 2 14

12 meetings 7 meetings 4 meetings Yes Yes

127

CORPORATE GOVERNANCE PRACTICE

Practice Ranbaxy Laboratories Limited Plot No. 90, Sector 32, Gurgaon - 122001 (Haryana), India Tel.+91 0124-4135000 Fax+91 0124-4106490 Email.secretarial@ranbaxy.com Website.www.ranbaxy.com 4 Chairman Tejindra Khanna 5 Chief Mentor & Exe VC Dr. Brian W Tempest 6 Managing Director Mahinder Mohan Singh, CEO & MD 7 Company Secretary S K Patawari FINANCIALS (Rs. In Mn) (Unaudited 01 Jan 06 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 39254 40050 6390 1863 39736 1 2 3 Gross Profit 5809 Depreciation -1118 Profit Before Tax 4692 Profit After Tax 4091 Net Profit 3865 EPs 10 PE Ratio (%) 22.1 Individuals 18.97 14 Particulars Name of the Company Registered Address Contacts

MarketCap (Rs. In Mn) 157790

Promoters 34.86 CG COMPLIANCE CG Report included in the Annual Report of the Company Is the Chairman Non Yes and Executive Independent Number of Non 11 Executive Directors in the Board Number of Non 8 Executive Directors who are Independent Term of the NA Chairman/CEO Ranbaxy has always believed in a "Sound" Code of Corporate Governance, as a tool for highest standards of management and business integrity and as a result started implementing a series of voluntary initiatives as early as 1999. Some of these measures included: - Composition of the Board of Directors (eg. Majority Independent Directors). Constitution of various Board Committees for oversight and guidance concerning key decisions and soundness of decision making processes connected with the functioning of the Company. - Timely dissemination of information to shareholders. - Code of Conduct.

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 459 306 SHARE HOLDING PATTERN (%) FIIs 18.49 BOARD Yes No of Directors COMMITTEE MEETINGS Board Audit Committee Investor Grievance Committee BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

8 meetings 4 meetings 10 meetings Yes Yes

128

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Reliance Energy Ltd Reliance Energy Centre, Santacruz (East), Mumbai 400 055 Tel. +91 22 3009 9999 Fax +91 22 3009 9763 Email.Investor_relations@ril.com/helpdesk@rel.co.in Website.www.rel.co.in Anil D Ambani

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary Ramesh Shenoy FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 77745 2286 8608 68316 Gross Profit 11630 Depreciation -3032 Profit Before Tax 8598 Profit After Tax 8360 Net Profit 8360

Operating Profit 14760 EPs 39

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 1959 448 SHARE HOLDING PATTERN (%) Promoters FIIs 53.38 16.16 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 4 Board Directors in the Board Number of Non Executive 4 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO In our commitment to practice BOARD SECRETARIAT sound governance principles, Does the company has a Chief Reliance Energy is guided by the Compliance Officer following core principles: Is the Chief Compliance Officer same 1. Transparency -To maintain the as the Company Secretary highest standards of transparency. 2. Disclosures -To ensure timely dissemination of all price sensitive information 3. Accountability -To demonstrate highest levels of personal responsibility 4. Compliances -To comply with all the laws and regulations 5. Ethical conduct - To conduct the affairs of the company in an ethical manner. 6. Stakeholders interests -To promote the interests of all stakeholders MarketCap (Rs. In Mn) 393490

PE Ratio (%) 43.2 Individuals 5.94 8

5 meetings 5 meetings 5 meetings Yes Yes

129

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Reliance Industries Limited 3rd Floor, Maker Chambers - IV, 222 Nariman Point, Mumbai 400 021 Tel.+91 22 2278 5000 Fax +91 22 22042268/2278 5111 Email.Investor_relations@ril.com Website.www.ril.com Mukesh D Ambani, CMD Vinod M Ambani FINANCIALS (Rs. In Mn) Gross Sales Net Sales 1204310 1137700 Profit Before Tax 146470 Profit After Tax 120750

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary Reserves Depreciation -48990

Equity 13940 Gross Profit 195460

Total Income 1144210 Net Profit 120750

Operating Profit 207780 EPs 83

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 2844 1181 SHARE HOLDING PATTERN (%) Promoters FIIs 50.98 19.49 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 10 Board Directors in the Board Number of Non Executive 8 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO In addition to complying with BOARD SECRETARIAT the statutory requirements, Does the company has a Chief effective governance systems and Compliance Officer practices inter alia towards Is the Chief Compliance Officer same transparency, disclosures, internal as the Company Secretary controls and promotion of ethics at work-place have been institutionalized. Reliance recognizes that good Corporate Governance is a continuing exercise and reiterates its commitment to pursue highest standards of Corporate Governance in the overall interest of all the stakeholders. MarketCap (Rs. In Mn) 4110410

PE Ratio (%) 30 Individuals 12.87 13

9 meetings 5 meetings 3 meetings Yes Yes

130

CORPORATE GOVERNANCE PRACTICE

Particulars Name of the Company Registered Address Contacts Practice Satyam Computer Services Limited Mayfair Centre, 1st Floor, 1-8, 303/36, S P Road, Secunderabad 500 003 Tel.+91 40 27813166/0058/3065 4343 /4211 Fax +91 40 30654343/ 27897769 Email.investorservices@satyam.com Website.www.satyam.com B Ramalinga Raju

1 2 3

4 5 6 7

Chairman Chief Executive Officer Managing Director B Rama Raju Company Secretary G Jayaraman, Sr. VP Corp.Gov & Co. Secry FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 1334 55658 64851 66684 Gross Profit 17051 Depreciation -1484 Profit Before Tax 15566 Profit After Tax 14046 Net Profit 14046

Operating Profit 17210 EPs 21

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 525 402 SHARE HOLDING PATTERN (%) Promoters FIIs 8.78 46.6 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 7 Board Directors in the Board Number of Non Executive 6 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT Corporate Governance assumes a Does the company has a Chief great deal of importance in the Compliance Officer business life of Satyam. The driving Is the Chief Compliance Officer same forces of Corporate Governance at as the Company Secretary Satyam are its core values Associate Delight, Investor Delight, Customer Delight and the Pursuit of Excellence. The Companys goal is to find creative and productive ways of delighting its stakeholders, i.e., Investors, Customers, Associates and Society, thereby fulfilling the role of a responsible corporate representative committed to best practices. MarketCap (Rs. In Mn) 322750

PE Ratio (%) 21.3 Individuals 8.43 10

4 meetings 8 meetings One meeting Yes Yes

131

CORPORATE GOVERNANCE PRACTICE

Practice State Bank of India State Bank Bhawan, 8th floor, Madame Cama Road, Mumbai-400 021 3 Contacts Tel +91 22 2202 2426 Fax +91 22 22047556 Email.agm.inv@sbi.co.in Website. www.statebankofindia.com 4 Chairman O P Bhatt 5 Chief Executive Officer T S Bhattarcharya, MD & GE (CB) 6 Managing Director S K Bhattacharya, MD & CC & RO 7 Company Secretary Mrinal Shankar, DGM(Accounts & Compliance Department FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 5263 416919 572378 683768 143923 1 2 Gross Profit Depreciation Profit Before Tax 143923 Profit After Tax 66198 Net Profit 66198 EPs 121 PE Ratio (%) 15.3 Individuals 5.96 11 Particulars Name of the Company Registered Address

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 2180 845 SHARE HOLDING PATTERN (%) Promoters FIIs 59.73 19.83 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 4 Board Directors in the Board Number of Non Executive 4 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO The objectives can be summarized BOARD SECRETARIAT as: To enhance shareholder Does the company has a Chief value. To protect the interests of Compliance Officer shareholders and other Is the Chief Compliance Officer same stakeholders including customers, as the Company Secretary employees and society at large. To ensure transparency and integrity in communication and to make available full, accurate and clear information to all concerned. To ensure accountability for performance and to achieve excellence at all levels. To provide corporate leadership of highest standard for others to emulate MarketCap (Rs. In Mn) 1114620

9 meetings 10 meetings 4 meetings Yes Yes

132

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Steel Authority of India Limited Ispat Bhawan, Lodi Road, New Delhi - 110 003 Tel.+91 11-24368104/211/25075459/24367481-86 Fax +91 11-243 67015 Email.sailco@vsnl.com/secy.sail@sailex.com Website.www.sail.co.in S K Roongta

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary Devinder Kumar, Secretary FINANCIALS (Rs. In Mn) (Unaudited 1 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 353429 361942 41304 133422 406292 Gross Profit 107402 Depreciation -12382 Profit Before Tax 95019 Profit After Tax 62616 Net Profit 62616

Operating Profit 110845 EPs 15

MarketCap (Rs. In Mn) 1142260 Promoters 85.82

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 279 79 SHARE HOLDING PATTERN (%) FIIs 6.15 BOARD No of Directors COMMITTEE MEETINGS Board Audit Committee Investor Grievance Committee BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

PE Ratio(%) 18 Individuals 2 22

CG COMPLIANCE CG Report included in the Yes Annual Report of the Company Is the Chairman separate Yes from CEO Is the Chairman Non No Executive Number of Non Executive 13 Directors in the Board Number of Non Executive 11 Directors who are Independent Term of the NA Chairman/CEO The Corporate Governance philosophy of SAIL is to ensure transparency, disclosures and reporting that complies fully with laws, regulations and guidelines, and to promote ethical conduct throughout the organization, with the primary objective of enhancing shareholders value, while being a responsible corporate citizen. The Company is committed to conforming to the highest standards of corporate governance in the country.

10 meetings 7 meetings -

Yes Yes

CORPORATE GOVERNANCE PRACTICE

133

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Sterlite Industries India Ltd SIPCOT Industrial Complex, Madurai By Pass Road, T V Puram P.O.,Tuticorin -628 002, Tami Nadu, India Tel. +91- 461-5512262/6612591 Fax.+91- 461-2340306/2240203 Email.siil.investors@vedanta.co.in Website.www.sterlite-industries.com Anil Agarwal (Non Executive Chairman) Navin Agarwal Kuldip Kumar Kaura Operating Profit 101406 EPs 79 PE Ratio (%) 14.6 Individuals 7.32 9

4 5 6 7

Chairman Executive Vice Chairman Chief Executive Officer Company Secretary FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 1117 261930 250685 243868 Gross Profit 97615 Depreciation -8039 Profit Before Tax 89576 Profit After Tax 65459 Net Profit 63887

MarketCap (Rs. In Mn) 678670 Promoters 79.25 CG COMPLIANCE CG Report included in the Annual Report of the Company Is the Chairman Non Executive Number of Non Executive Directors in the Board Number of Non Executive Directors who are Independent Term of the Chairman/CEO

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 1009 415 SHARE HOLDING PATTERN (%) FIIs 7.38 BOARD Yes No of Directors Yes 6 3 NA COMMITTEE MEETINGS Board Audit Committee Investor Grievance Committee BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

6 meetings 4 meetings 2 meetings Yes Yes

The company believes in conducting its affairs in a fair and transparent manner and in maintaining the highest ethical standards in its dealings with all its constituents. It is committed to following good corporate governance practices. The companys mission is to constantly review its systems and procedures to achieve the highest level of corporate governance in the overall interest of all the stakeholders.

134

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Tata Motors Limited Bombay House,24 Sir Homi Mody Street, Mumbai 400 001 Tel.+91 022-66658282 Fax +91 022 66657799 Email.inv-rel@tatamotors.com Website.www.tatamotors.com Ratan N Tata

4 5 6 7

Chairman Chief Executive Officer Managing Director Ravi Kant Company Secretary H K Sethna FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 324264 325796 3854 73103 369878 Gross Profit 37777 Depreciation -6881 Profit Before Tax 30896 Profit After Tax 22064 Net Profit 22049

Operating Profit 41835 EPs 56

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 975 616 SHARE HOLDING PATTERN (%) Promoters FIIs 33.43 19.84 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 9 Board Directors in the Board Number of Non Executive 5 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO As part of the Tata group, the BOARD SECRETARIAT Companys philosophy on Does the company has a Chief Corporate Governance is founded Compliance Officer upon a rich legacy of fair, ethical Is the Chief Compliance Officer same and transparent governance as the Company Secretary practices, many of which were in place even before they were mandated by adopting highest standards of professionalism, honesty, integrity and ethical behavior. Through the Governance mechanism in the Company, the Board along with its Committees endeavors to strike the right balance with its various stakeholders. MarketCap (Rs. In Mn) 310930

PE Ratio (%) 13.6 Individuals 11.5 11

8 meetings 12 meetings 3 meetings Yes Yes

135

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Tata Power Company Ltd Bombay House, 24, Homi Mody Street, Fort, Mumbai - 400 001, India Tel.+91 022 6665 8282 Fax.+91 022 6665 8801 Email.tatapower@tatapower.com Website.www.tatapower.com R N Tata

4 5 6 7

Chairman Chief Executive Officer Managing Director P R Menon Company Secretary B J Shroff FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 1979 52124 64773 67443 Gross Profit 10749 Depreciation -4148 Profit Before Tax 6601 Profit After Tax 7592 Net Profit 7592

Operating Profit 13582 EPs 37

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 1400 483 SHARE HOLDING PATTERN (%) Promoters FIIs 33 18.96 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 8 Board Directors in the Board Number of Non Executive 4 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO Tata Power has been practicing BOARD SECRETARIAT good governance practices even Does the company has a Chief before they were mandated. Compliance Officer Leadership with Trust is the Is the Chief Compliance Officer same principle of operation of the as the Company Secretary MarketCap (Rs. In Mn) 234070

PE Ratio (%) 30.6 Individuals 21 12

7 meetings 11 meetings 2 meetings Yes Yes

136

Company. The Business Excellence Brand Promotion (BEBP) process includes the Tata Business Excellence Model and the Tata Code of Conduct, which form guidelines for Leadership with Trust. The Company has adopted all these processes formally right from inception and continuously works on them to improve business performance and enhance stakeholder trust.

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Tata Steel Ltd Bombay House, 24, Homi Mody Street,Fort, Mumbai 400 001 Tel.+91 022 6665 8282/7289 Fax.+91 022 6665 7724 / 6665 7725 Email.cosectisco@tata.com Website.www.tatasteel.com R N Tata

4 5 6 7

Chairman Chief Executive Officer Managing Director B Muthuraman Company Secretary J C Bham FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 252133 5800 138941 274373 256514 Gross Profit 74770 Depreciation -10110 Profit Before Tax 64661 Profit After Tax 43186 Net Profit 41656

Operating Profit 78882 EPs 73

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 970 353 SHARE HOLDING PATTERN (%) Promoters FIIs 30.52 17.42 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 8 Board Directors in the Board Number of Non Executive 5 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO BOARD SECRETARIAT Tata Steel believes in adopting the Does the company has a Chief best practices in the areas of Compliance Officer MarketCap (Rs. In Mn) 598560

PE Ratio(%) 5.2 Individuals 25.32 11

11 Meetings 6 meetings Yes

137

Corporate Governance. Even in a fiercely competitive business environment, the Management and Employees of the Company are committed to uphold the core values of transparency, integrity, honesty and accountability which are fundamental to the Tata Group. The Company retains focus on its resources, strengths and strategies for creation and safeguarding of shareholders wealth and at the same time protects the interests of all its shareholders.

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Ultratech Cement Ltd "B" Wing, 2nd floor, Ahura Centre, Mahakali Caves Road, Andheri (East), Mumbai 400 093 Tel.+91 022 66917800 Fax.+91 022 66928109 Email.sharesutcl@adityabirla.com Website.www.ultratechcement.com Kumar Mangalam Birla

4 5 6 7

Chairman Chief Executive Officer Managing Director S Misra Company Secretary S K Chatterjee FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 49108 49723 1245 16393 49108 Gross Profit 13924 Depreciation -2263 Profit Before Tax 11662 Profit After Tax 7823 Net Profit 7823

Operating Profit 14793 EPs 63

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 1205 662 SHARE HOLDING PATTERN (%) Promoters FIIs 51.08 7.5 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 11 Board Directors in the Board Number of Non Executive 4 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO The Aditya Birla Group is committed BOARD SECRETARIAT MarketCap (Rs. In Mn) 128250

PE Ratio(%) 14.4 Individuals 16.23 12

7 meetings 8 meetings 2 meetings

138

to the adoption of best governance practices and their adherence in spirit. The governance philosophy rests on five basic tenets viz., Board accountability to the Company and shareholders, strategic guidance and effective monitoring by the Board, protection of minority interests and rights, equitable treatment of all shareholders as well as superior transparency and timely disclosure. The Aditya Birla Group Values Integrity; Commitment; Passion; Seamlessness and Speed also reflect this philosophy.

Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

Yes Yes

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Videocon Industries Ltd. 14 Kms Stone, Aurangabad-Paithan Road, Chitegaon, Tq. Paithan, Dist. Aurangabad - 431 105 (India) Tel.+91 02431-251501, 02, 03, 04 Fax.Email.contact@videoconmail.com/secretariat@videoconmail.com Website.www.videoconworld.com Venugopal N Dhoot, CMD

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary Vinod Kumar Bohra FINANCIALS (Rs. In Mn) (Audited 1 Oct 05 30 Sep 06) Equity Reserves Gross Sales Net Sales Total Income 2208 38476 75803 77458 Gross Profit Depreciation -3356 MarketCap (Rs. In Mn) 81320 Profit Before Tax 9137 Profit After Tax 8185 Net Profit 8188

Operating Profit 12492 EPs 37

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 503 336 SHARE HOLDING PATTERN (%) Promoters FIIs 70.34 4.05 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 8 Board Directors in the Board Number of Non Executive 4 Audit Committee Directors who are Independent

PE Ratio(%) 9.7 Individuals 2.71 12

17 meetings 5 meetings

139

Term of the NA Chairman/CEO Videocon believes that sound corporate governance is critical to enhance and retain investors trust. The Companys philosophy on Corporate Governance is based on: Transparency & maintaining high disclosure levels, Accountability, Equity, Compliance with the laws in all the Countries in which the Company operates and Sustainability. The objective is to institutionalize Corporate Governance practices that go beyond adherence to the extant regulatory framework.

Investor Grievance Committee BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

Yes Yes

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Videsh Sanchar Nigam Ltd (VSNL) Videsh Sanchar Bhavan, Mahatma Gandhi Road, Fort Mumbai 400 001 Tel.+91-022-66504357 FaxEmail. corp.helpdesk@vsnl.co.in Website. www.vsnl.in Subodh Bhargava Srinath Narasimham, MD & CEO

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary Satish Ranade FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 2850 86112 88566 Gross Profit 11554 Depreciation -7830 Profit Before Tax 3724 Profit After Tax 930 Net Profit 17

Operating Profit 12990 EPs 0.54

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 600 342 SHARE HOLDING PATTERN (%) Promoters FIIs 76.23 2.83 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 10 Board Directors in the Board Number of Non Executive 4 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO MarketCap (Rs. In Mn) 167440

PE Ratio (%) 34.5 Individuals 2.56 11

9 Meetings 9 Meetings 4 Meetings

140

The Company believes that total business risk elimination is never possible but can be minimized by consistently developing and following the best practices of Corporate Governance. The Company is installing new state-ofthe art systems including integrated financial accounting and budgeting systems and through a systematic process of training and development has increased the quality of its personnel. Fairness in words, actions and deeds with all stakeholders are the pillars of corporate governance philosophy of the Company.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

Yes Yes

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Whirlpool of India Limited Plot No.A 4, MIDC Ranjangaon, Taluka Shirur, District Pune 419204, India Tel.+91-0129-2232381, 2234071-73, 2234046-49 Fax.+91-0129-2233283 Email.ravi_kumar_sabharwal@whirlpool.com

Website.www.whirlpool.com

4 5 6 7

Chairman Mark Hu Chief Executive Officer Managing Director Arvind Uppal Company Secretary Ravi Sabharwal FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 14806 14968 1269 132 16222 Gross Profit 471 Depreciation -344 Profit Before Tax 127 Profit After Tax 130 Net Profit -53

Operating Profit 634 EPs -2

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 52 23 SHARE HOLDING PATTERN (%) Promoters FIIs 82.33 0.01 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 3 Board Directors in the Board Number of Non Executive 2 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee MarketCap (Rs. In Mn) 4910

PE Ratio(%) 203.7 Individuals 15.86 6

7 meetings 4 meetings 4 meetings

141

Chairman/CEO Whirlpools philosophy Corporate governance is based on the foundation of enduring Values. Over the years, the core Values of the company have not changed. These Values are the guidelines in all transactions and relations. That is the Spirit of Whirlpool and they call it the Spirit of Winning. On to Leadership. Sustainable and profitable. It tries to stretch and achieve that which seems beyond our grasp.. BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary Yes Yes

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Wipro Limited Doddakanneli, Sarjapur Road, Bangalore 560 035 Tel.+91 080 28440011 Fax.+91 080 28440214/28440256 EmailWebsite.www.wipro.com Azim H Premji V Ramachandran FINANCIALS (Rs. In Mn) Gross Sales Net Sales 136796 Profit Before Tax 31762 Profit After Tax 28421

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary Reserves 90250 Depreciation -3598

Equity 2918 Gross Profit 35360

Total Income 139527 Net Profit 28421

Operating Profit 35432 EPs 20

MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 690 425 SHARE HOLDING PATTERN (%) Promoters FIIs 79.58 5.14 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 6 Board Directors in the Board Number of Non Executive 6 Audit Committee Directors who are Independent Term of the NA Investor Grievance Chairman/CEO Committee MarketCap (Rs. In Mn) 743810

PE Ratio (%) 23.5 Individuals 7.58 7

5 meetings 6 meetings 4 meetings

142

Wipro was the pioneers/early adopters of some of the key governance practices in India. It instituted stock ownership in 1984, constituted in 1986, the sub-committees of the Board of Directors for Audit, and Compensation and benefits. On the disclosure front, it presented consolidated financial statements in 1983, the first year in which we established subsidiary company for carrying on our business, and followed it up with reporting on Segmental Business Results. Corporate Governance in Wipro has four layers, namely, 1.Governance by Shareholders, 2. Governance by Board of Directors, 3. Governance by Sub-committee of Board of Directors, and 4. Governance of the management process.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

Yes Yes

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Britannia Industries Limited 5/1A, Hungerford Street, Kolkata - 700 017, West Bengal. Tel.+91 033 2287 2439/ 2287 2057 Fax.+91 033 2287 2501 Email.bguha@britindia.com/pousali@britindia.com, Website.www.britannia.co.in Nusli N Wadia

4 5 6 7

Chairman Chief Executive Officer Managing Director Vanita Bali Company Secretary V. Madan FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 239 2900 23841 22663 22951 1595 Profit Net Profit Gross Profit Depreciation Profit EPs Before Tax After Tax 1478 -260 1218 1105 1051 43.97 MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 36520 1780 1030 25.9 SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 50.96 14.64 18.67 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors 13 Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 12 Board 4 meetings Directors in the Board Number of Non Executive 5 Audit Committee 4 meetings Directors who are Independent Term of the NA/5 Investor Grievance Committee 24 meetings Chairman/CEO BOARD SECRETARIAT

143

Our Company considers good corporate governance a prerequisite for meeting the needs and aspirations of its holders and other stakeholders in the company and firmly believes it can be achieved by maintaining transparency in its dealings, integrity and strict regulatory compliance. And with this view the corporate governance report contains relevant disclosure about the Board, Board committees as also on the financial and stock performance.

Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

Yes Yes

CORPORATE GOVERNANCE PRACTICE

Practice Bharati Airtel Limited Qutab Ambience, H-5/12, Mehrauli Road, New Delhi 110 030 Tel. +91 11 41666000-07 Fax. +91 11 41666011-12 Email.compliance.officer@bharati.in Website.www.bharatiairtel.in 4 Chairman Sunil Bharti Mittal 5 Chief Executive Officer Manoj Kohli (CEO & President) 6 Managing Director Sunil Bharati Mittal 7 Company Secretary Vijaya Sampath, Group Gen. Counsel & Co. Secretary FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 184202 185321 75526 Profit Net Profit Gross Profit Depreciation Profit EPs Before Tax After Tax 73037 -26191 46846 41165 41102 MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 1887560 1149 527 40.5 SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 45.36 25.41 0.69 CG COMPLIANCE BOARD CG Report included in the Yes 18 No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 16 Board 4 meetings Directors in the Board Number of Non Executive 9 Audit Committee 4 meetings Directors who are Independent Term of the NA Investor Grievance Committee 10 meetings Chairman/CEO BOARD SECRETARIAT 1 2 3 Particulars Name of the Company Registered Address Contacts

144

Corporate governance refers to a combination of law, regulation, compliances and adoption of certain mandatory practices voluntarily by the board and company that enables an organization to perform efficiently and ethically, generate long term wealth and value for all its stakeholders and respect the interests of society as a whole, besides attracting the best talent and raise capital and funding optimally.

Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

Yes Yes

CORPORATE GOVERNANCE PRACTICE

1 2 3 Particulars Name of the Company Registered Address Contacts Practice Mahanagar Telephone Nigam Ltd. (MTNL) Jeevan Bharti Building, Tower 1, 12th Floor, 124 Connaught Circus, New Delhi 110 001 Tel.+91 11 23742212/3326 Fax.+9111 23314243 Email.feedback.delhi@boi.net.in Website.www.mtnl.net.in R S P Sinha, CMD

4 5 6 7

Chairman Chief Executive Officer Managing Director Company Secretary S C Ahuja FINANCIALS (Rs. In Mn) (Unaudited 01 Apr 06 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 49234 55307 14908 Profit Net Profit Gross Profit Depreciation Profit EPs Before Tax After Tax 14887 -6803 8085 5274 6431 10.21 MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 121500 194 124 19.5 SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 56.25 13.04 2.71 CG COMPLIANCE BOARD CG Report included in the Yes 7 No of Directors Annual Report of the Company Is the Chairman Non No COMMITTEE MEETINGS Executive Number of Non Executive 4 Board 10 meetings Directors in the Board Number of Non Executive 3 meetings 1 Audit Committee Directors who are Independent Term of the NA Investor Grievance Committee Chairman/CEO

145

The company's philosophy on corporate governance encompasses achieving the balance between shareholders interest and corporate goals through the efficient conduct of its business and meeting its stakeholders obligation in a manner that is guided by transparency, accountability and integrity.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

Yes Yes

CORPORATE GOVERNANCE PRACTICE

Practice Jindal Steel & Power Ltd. 28, Najafgarh Road, New Delhi 110 015 Tel. +91 113058 9739-40 Fax +91 11 3058 9755 Email. Website.www.jindalstreelpower.com 4 Chairperson Savitri Jindal 5 Chief Executive Officer Naveen Jindal Er. Vice Chairman & MD 6 Managing Director Vikrant Gujral Vice Chairman & CEO 7 Company Secretary S Ananthakrishnan FINANCIALS (Rs. In Mn) (Audited 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income 154 35198 35488 Gross Profit Depreciation Profit Profit Net Profit Before Tax After Tax -3365 9448 7030 7030 1 2 3 MARKET STATISTICS Price High (Rs.) Price Low (Rs.) 9220 1780 SHARE HOLDING PATTERN (%) Promoters FIIs 59.084 24.49 CG COMPLIANCE BOARD CG Report included in the Yes No of Directors Annual Report of the Company Is the Chairman Non Yes COMMITTEE MEETINGS Executive Number of Non Executive 5 Board Directors in the Board Number of Non Executive 3 Audit Committee Directors who are Independent Term of the NA/5 Investor Grievance Committee Chairman/CEO MarketCap (Rs. In Mn) 273650 Particulars Name of the Company Registered Address Contacts

Operating Profit 14314 EPs

PE Ratio(%) 34.2 Individuals 10.04 10

5 meetings 5 meetings 4 Meetings

146

Corporate Governance in Jindal Steel is adopted as a value system for ensuring efficient working and proper conduct of the business and affairs of the Company with a view to put the available resources at optimum use, increase operational efficiency and enhance shareholders wealth. Companys Corporate Governance Philosophy is equity, fairplay, judicious utilization of resources, responsiveness towards stakeholders such as shareholders, lenders, customers, vendors, employees, societys needs, empowerment of human resource, preserving natural heritage, strengthening administrative structure, its systems, policies and procedures.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer Is the Chief Compliance Officer same as the Company Secretary

Yes Yes

147

ANNEXURES

148

List of Annexures
Pariculars Page No.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Objectives of Corporate Governance

154

Corporate Governance Assessment and Policy Recommendations for India 163 Questionnaire for Performance Evaluation of the Audit Committees 167 Ownership of Global Corporations 172 Total Value of listed corporate assets under family control 173 Indexes based on Corporate Governance 174 Index of Corporate Governance Codes in Various Countries 177 Best Practices in Practice Country Comparisons- 183 India China, Brazil and Malaysia Overview of the Functions of Audit Committees in Selected Companies 191 Differences between US and Indian Corporate Governance 223 Evolution of Corporate Governance 224 Indices of Regulation of Securities Markets 226

149

Annexure- 1 Objectives of Corporate Governance

SAIL The Corporate Governance philosophy of SAIL is to ensure transparency, disclosures and reporting that complies fully with laws, regulations and guidelines, and to promote ethical conduct throughout the organization, with the primary objective of enhancing shareholders value, while being a responsible corporate citizen. The Company is committed to conforming to the highest standards of corporate governance in the country. It recognizes that the Board is accountable to all shareholders and that each member of the Board owes his/her first duty for protecting and furthering the interest of the Company. Tata Steel Tata Steel believes in adopting the best practices in the areas of Corporate Governance. Even in a fiercely competitive business environment, the Management and Employees of the Company are committed to uphold the core values of transparency, integrity, honesty and accountability which are fundamental to the Tata Group. The Company retains focus on its resources, strengths and strategies for creation and safeguarding of shareholders wealth and at the same time protects the interests of all its shareholders. Hindalco The Aditya Birla Group is committed to the adoption of best governance practices and its adherence in the true spirit, at all times. Its governance practices stems from an inherent desire to improve and innovate and reflects the culture of trusteeship that is deeply ingrained in value system and forms part of the strategic thought process. The governance philosophy rests on the following five basic tenets; Board accountability to the Company and shareholders, strategic guidance and effective monitoring by the Board, protection of minority interests and rights, equitable treatment of all shareholders and Superior transparency and timely disclosure.

Jindal Steel Corporate Governance in Jindal Steel is adopted as a value system for ensuring efficient working and proper conduct of the business and affairs of the Company with a view to put the available resources at optimum use, increase operational efficiency and enhance shareholders wealth. Companys Corporate Governance Philosophy is equity, fairplay, judicious utilization of resources, responsiveness towards stakeholders such as shareholders, lenders, customers, vendors, employees, societys needs, empowerment of human resource, preserving natural heritage, strengthening administrative structure, its systems, policies and procedures. This is continuous process which evolves over a period of time and undergoes changes to suit the changing times and needs of the business, society and the state. Essar Steel Essar Steel Limited believes that good Corporate Governance is essential to achieve long term corporate goals and to enhance stakeholders value. The Companys philosophy on Corporate Governance envisages attainment of high level transparency, accountability and integrity in the functioning of the Company and the conduct of its business, its relationship with employees, stakeholders, creditors, customers and institutional and other lenders. The company places due emphasis on regulatory compliance.

150

Sterlite The company believes in conducting its affairs in a fair and transparent manner and in maintaining the highest ethical standards in its dealings with all its constituents. It is committed to following good corporate governance practices. The companys mission is to constantly review its systems and procedures to achieve the highest level of corporate governance in the overall interest of all the stakeholders. HLL At Hindustan Unilever Limited, good governance is an ongoing process, thereby ensuring truth, transparency, accountability and responsibility in all dealings with employees, shareholders, consumers and the community at large. At Hindustan Unilever, corporate governance in its widest sense, almost like a trusteeship; it is a philosophy to be professed, a value to be imbibed and an ideology to be ingrained in corporate culture. Corporate governance goes much beyond mere compliance; it is not a simple matter of creating checks and balances (although we also engage in that!). It is in fact a continuous process of realizing the Company's objectives with a view to make the most of every opportunity. It involves leveraging its resources and aligning its activities to consumer need, shareholder benefit and employee growth. Thereby the company succeeds in delighting its stakeholders while minimizing risks. The primary objective is to create and adhere to a corporate culture of conscientiousness and consciousness, transparency and openness. The Company aims to develop capabilities and identify opportunities that best serve the goal of value creation, thereby creating an outstanding organization. Nestle Nestl India Limited, as a part of Nestl Group, Switzerland has over the years followed best practice of Corporate Governance by adhering to practices laid down by Nestl Group. The two most significant documents from Nestl Group, which define the standard of behaviour of Nestl India, are Nestl Corporate Business Principles and The Nestl Management and Leadership Principles. Nestl Indias business objective and that of its management and employees is to manufacture and market the Companys products in such a way as to create value that can be sustained over the long term for consumers, shareholders, employees, business partners and the national economy. Nestl India is conscious of the fact that the success of a corporation is a reflection of the professionalism, conduct and ethical values of its management and employees. In addition to compliance with regulatory requirements, Nestl India endeavors to ensure that highest standards of ethical and responsible conduct are met throughout the organization. Britannia Company considers good corporate governance a pre-requisite for meeting the needs and aspirations of its holders and other stakeholders in the company and firmly believes it can be achieved by maintaining transparency in its dealings, integrity and strict regulatory compliance. And with this view the corporate governance report contains relevant disclosure about the Board, Board committees as also on the financial and stock performance. Whirlpool Whirlpools philosophy on Corporate Governance is based on the foundation of enduring Values. Over the years, the core Values of the company have not changed. These Values are the guidelines in all transactions and relations. That is the Spirit of Whirlpool and they call it the Spirit of Winning. On to Leadership. Sustainable and profitable. It tries to stretch and achieve that which seems beyond our grasp. It envisages attainment of the highest levels of transparency, accountability and equity in all facets of its operations and its interaction with its stakeholders including Shareholders, Employees, Lenders and the Government. Whirlpool believes in implementing the philosophy of corporate governance in letter and spirit.

151

Videocon Videocon believes that sound corporate governance is critical to enhance and retain investors trust. The Companys philosophy on Corporate Governance is based on: 1. Transparency & maintaining high disclosure levels. 2. Accountability. 3. Equity. 4. Compliance with the laws in all the Countries in which the Company operates. 5. Sustainability. The objective is to institutionalize Corporate Governance practices that go beyond adherence to the extant regulatory framework. In fact, our corporate structure, business and disclosure practices are aligned to our Corporate Governance philosophy. HPCL HPCL lays special emphasis on conducting its affairs within the framework policies, internal and external regulations and in a transparent manner. Being a Government Company its activities are subject to review by several external authorities like the Comptroller & Auditor General of India (CAG), the Central Vigilance Commission (CVC), parliamentary Committees etc. At the apex level is the HPCL Board of Directors (The Board). The Board has constituted several sub-committees, such as the Committee of Functional Directors (CFD), the Audit Committee, the Investment Committee, the HR Committee, the Investor Grievance Committee, etc. BPCL Bharat Petroleum Corporation Ltds corporate philosophy on Corporate Governance has been to ensure fairness to the stakeholders through transparency, full disclosures, empowerment of employees and collective decision making. Indian Oil Indian Oil believes that good Corporate Governance practices ensure efficient conduct of the affairs of the Company and also help in maximizing value for all its stakeholders. The Company endeavors to uphold the principles and practices of Corporate Governance to ensure transparency, integrity and accountability in its functioning, which are vital to achieve its Vision of becoming a major diversified, transnational, integrated energy company. With the adoption of the following policies, the Company has further enhanced its Governance structure: (a) Code of Conduct for Directors and senior management personnel, (b) Code of Conduct for prevention of insider trading and (c) Policy on risk assessment and minimizing procedures. Reliance Oil Over the years, governance processes and systems have been strengthened at Reliance. In addition to complying with the statutory requirements, effective governance systems and practices inter alia towards transparency, disclosures, internal controls and promotion of ethics at work-place have been institutionalized. Reliance recognizes that good Corporate Governance is a continuing exercise and reiterates its commitment to pursue highest standards of Corporate Governance in the overall interest of all the stakeholders. For implementing the Corporate Governance practices, Reliance has a well defined policy framework consisting of the following: Reliances values and commitments policy Reliances code of ethics Reliances business policies Reliances policy for prohibition of insider trading A detailed programme of ethics management

152

State Bank of India State Bank of India is committed to the best practices in the area of corporate governance, in letter and in spirit. The Bank believes that good corporate governance is much more than complying with legal and regulatory requirements. Good governance facilitates effective management and control of business, maintaining a high level of business ethics and optimizing the value for all its stakeholders. The objectives can be summarized as: To enhance shareholder value. To protect the interests of shareholders and other stakeholders including customers, employees and society at large. To ensure transparency and integrity in communication and to make available full, accurate and clear information to all concerned. To ensure accountability for performance and to achieve excellence at all levels. To provide corporate leadership of highest standard for others to emulate ICICI ICICI Banks corporate governance philosophy encompasses not only regulatory and legal requirements, such as the terms of listing agreements with stock exchanges, but also several voluntary practices aimed at a high level of business ethics, effective supervision and enhancement of value for all stakeholders. HDFC HDFC encompasses the simple tenets of integrity, transparency and fairness in whatever it does. Each relationship that HDFC has, be its borrowers, depositors, agents, shareholders or other stakeholders is highly valued by the organisation. Across the organisation, HDFC has always followed an open-door policy. This not only ensures transparency, but also enables rapport building and gives employees an opportunity to freely address issues of concern. The Board of Directors fully supports and endorses corporate governance practices in accordance with the provisions of Clause 49 of the listing agreements. The Corporation has complied with the mandatory requirements of the said Clause and listed below is the status with regard to the same. NTPC NTPC believes in the philosophy that corporate governance is a key element in improving efficiency and growth as well as enhancing investor confidence and accordingly the Corporate Governance philosophy has been scripted as under: As a good corporate citizen, the Company is committed to sound corporate practices based on conscience, openness, fairness, professionalism and accountability in building confidence of its various stakeholders in it thereby paving the way for its long term success. Tata Power Tata Power has been practicing good governance practices even before they were mandated. Leadership with Trust is the principle of operation of the Company. The Business Excellence Brand Promotion (BEBP) process includes the Tata Business Excellence Model and the Tata Code of Conduct, which form guidelines for Leadership with Trust. The Company has adopted all these processes formally right from inception and continuously works on them to improve business performance and enhance stakeholder trust. The Company will continue to focus its energies and resources in creating and safeguarding of shareholders wealth, and at the same time, protect the interests of all its stakeholders. Reliance Energy In our commitment to practice sound governance principles, Reliance Energy is guided by the following core principles.: 1. Transparency To maintain the highest standards of transparency in all aspects of our interactions and dealings. 2. Disclosures To ensure timely dissemination of all price sensitive information and matters of interest to our stakeholders. 3. Accountability To demonstrate highest levels of personal responsibility and continually affirm that employees are responsible to themselves for the pursuit of excellence. 4. Compliances

153

To comply with all the laws and regulations as applicable to the company. 5. Ethical conduct To conduct the affairs of the company in an ethical manner. 6. Stakeholders interests To promote the interests of all stakeholders including of customers, shareholders, employees, lenders, vendors, governments and the community. Tata Motors As part of the Tata group, the Companys philosophy on Corporate Governance is founded upon a rich legacy of fair, ethical and transparent governance practices, many of which were in place even before they were mandated by adopting highest standards of professionalism, honesty, integrity and ethical behavior. Through the Governance mechanism in the Company, the Board along with its Committees endeavors to strike the right balance with its various stakeholders. The Corporate Governance philosophy has been further strengthened with the implementation, a few years ago, by the Company of the Tata Business Excellence Model, the Tata Code of Conduct applicable to the Company, its directors and employees. The Company is in full compliance with the requirements of Corporate Governance under Clause 49 of the Listing Agreement with the Indian Stock Exchanges. With the listing of the Companys Depositary Programme on the New York Stock Exchange, the Company is also compliant with US regulations as applicable to Foreign Private Issuers (non-US listed companies) which cast upon the Board of Directors and the Audit Committee, onerous responsibilities to improve the Companys operating efficiencies. Risk management and internal control functions have been geared up to meet the progressive governance standards. Bajaj Auto The commitment of Bajaj Auto Limited (Bajaj Auto, BAL or the Company) to the highest standards of good corporate governance practices predates SEBI and clause 49 of the Listing Agreements. Transparency, fairness, disclosure and accountability are central to the working of the Company and its Board of Directors. Hero Honda Hero Hondas philosophy of corporate governance stems from its belief that the companys business strategy and plans should be consistent with the welfare of all its stakeholders, including shareholders. Corporate governance rests upon the four pillars of transparency, full disclosure, independent monitoring and fairness to all, especially to minority shareholders. Dr.Reddy Dr.Reddys philosophy of corporate governance stems out from its belief that timely disclosures, transparent accounting policies, and a strong and independent Board go a long way in preserving shareholders trust while maximizing long-term corporate values. Keeping in view the Companys size and complexity in operations, Dr. Reddys corporate governance framework is based on the following main principles: Appropriate composition and size of the Board, with each Director bringing in key expertise in different areas. Proactive flow of information to the members of the Board and Board Committees to enable effective discharge of their fiduciary duties. Ethical business conduct by the management and employees. Full-fl edged systems and processes for internal controls on all operations, risk management and financial reporting; Timely and accurate disclosure of all material operational and financial information to the stakeholders. Cipla The Company is committed to good corporate governance. The Company respects the rights of its shareholders to secure information on the performance of the Company and it is its endeavor to maximize the long term value to the shareholders of the Company.

154

Merck Merck is committed to the adoption of the best governance practices and their adherence in the true spirit, at all times. The Companys philosophy on Corporate Governance is to ensure that the systems and procedures which monitor compliance with laws, rules and regulations are in place in each area of its operations and the relevant information regarding the Company and its operations is disclosed, disseminated and easily available to all its stakeholders. Ranbaxy Ranbaxy has always believed in such a "Sound" Code of Corporate Governance, as a tool for highest standards of management and business integrity and as a result started implementing a series of voluntary initiatives as early as 1999. Some of these measures included: Composition of the Board of Directors (eg. Majority Independent Directors). Constitution of various Board Committees for oversight and guidance concerning key decisions and soundness of decision making processes connected with the functioning of the Company. Timely dissemination of information to shareholders. Code of Conduct. GlaxoSmithkline The Companys philosophy of Corporate Governance is aimed at assisting the management of the Company in the efficient conduct of its business and in meeting its obligations to stakeholders, and is guided by a strong emphasis on transparency, accountability and integrity. For several years, the Company has adopted a codified Corporate Governance Charter, which is in line with the best practice, as well as meets all the relevant legal and regulatory requirements. All Directors and employees are bound by Codes of Conduct that sets out the fundamental standards to be followed in all actions carried out on behalf of the Company. Infosys Over the years, the Board has developed corporate governance guidelines to help fulfill corporate responsibility to various stakeholders. This ensures that the Board will have the necessary authority and practices in place, to review and evaluate our operations when required. Further, it allows the Board to make decisions that are independent of the Management. Our corporate governance philosophy is based on the following principles: Satisfy the spirit of the law and not just the letter of the law. Corporate governance standards should go beyond the law. Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose. Make a clear distinction between personal conveniences and corporate resources. Communicate externally, in a truthful manner, about how the Company is run internally. Comply with the laws in all the countries in which the Company operates. Have a simple and transparent corporate structure driven solely by business needs. Management is the trustee of the shareholders capital and not the owner. Wipro Wipro was the pioneers/early adopters of some of the key governance practices in India. It instituted stock ownership in 1984, constituted in 1986, the sub-committees of the Board of Directors for Audit, and Compensation and benefits. On the disclosure front, it presented consolidated financial statements in 1983, the first year in which we established subsidiary company for carrying on our business, and followed it up with reporting on Segmental Business Results. Corporate Governance in Wipro has four layers, namely, 1. Governance by Shareholders, 2. Governance by Board of Directors, 3. Governance by Sub-committee of Board of Directors, and 4. Governance of the management process Satyam

155

Corporate Governance assumes a great deal of importance in the business life of Satyam. The driving forces of Corporate Governance at Satyam are its core values Associate Delight, Investor Delight, Customer Delight and the Pursuit of Excellence. The Companys goal is to find creative and productive ways of delighting its stakeholders, i.e., Investors, Customers, Associates and Society, thereby fulfilling the role of a responsible corporate representative committed to best practices. Mphasis MphasiS Corporate Governance is directed at the enhancement of shareholder value, keeping in mind the interests of the other stake holders, viz., clients, employees, investors, regulatory bodies, etc. The functions of the Board of Directors of the Company are well defined. The Company has taken various steps including setting up of various sub-committees of the Board to oversee the functions of the Management. MphasiS is committed to good corporate governance and has bench marked itself against global best practices. ACC ACC is respected for its professional management and good business practices in the Indian corporate world. Integrity, emphasis on product quality and transparency in its dealings with all stakeholders are its core values. ACC believes that good governance generates goodwill among business partners, customers and investors, earns respect from society and brings about a consistent sustainable growth for the Company and generates competitive returns for the investors. Towards its objectives of achieving good corporate governance, it has endowed a Chair for Business Ethics at the Management Centre for Human Values, Indian Institute of Management, Kolkata. Ultratech The Aditya Birla Group is committed to the adoption of best governance practices and their adherence in spirit. The governance philosophy rests on five basic tenets viz., Board accountability to the Company and shareholders, strategic guidance and effective monitoring by the Board, protection of minority interests and rights, equitable treatment of all shareholders as well as superior transparency and timely disclosure. The Aditya Birla Group Values - Integrity; Commitment; Passion; Seamlessness and Speed also reflect this philosophy. Gujarat Ambuja The company believes in transparency, empowerment, accountability, safety of people and environment, motivation, respect for law and fair business practices with all its stakeholders. These practices being followed since inception have helped the company in its sustained growth. ITC ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth-generating capacity. Since large corporations employ a vast quantum of societal resources, ITC believes that the governance process should ensure that these resources are utilized in a manner that meets stakeholders aspirations and societal expectations. This belief is reflected in the Companys deep commitment to contribute to the triple bottom line, namely the development, nurture and regeneration of the nations economic, social and environmental capital. ITC's Corporate Governance structure, systems and processes are based on two core principles: (i) Management must have the executive freedom to drive the enterprise forward without undue restraints, and (ii) This freedom of management should be exercised within a framework of effective accountability. L&T The Company's philosophy on Corporate Governance is built on a rich legacy of fair and transparent governance and disclosure practices, many of which were in existence even before they were mandated by legislation. The Company's essential character revolves round values based on transparency, integrity, professionalism and accountability. At the highest level, the Company continuously endeavours to improve upon these aspects and adopts innovative approaches for leveraging resources, converting opportunities into achievements through proper empowerment and motivation, fostering a healthy growth and development of human resources. Bharti Airtel

156

Corporate governance refers to a combination of law, regulation, compliances and adoption of certain mandatory practices voluntarily by the board and company that enables an organization to perform efficiently and ethically, generate long term wealth and value for all its stakeholders and respect the interests of society as a whole, besides attracting the best talent and raise capital and funding optimally. The principals of corporate governance practices in Bharti Airtel Ltd. are based on the following broad principals: Transparency in disclosure and communication of relevant financial and operational information in timely manner; Accountability, supported by robust internal processes of management oversight and control for monitoring of performance and evaluation of risk; Integrity and ethics in our dealings with all stakeholders; Balancing the enforcement and protection of the rights of all stakeholders, thus creating wealth and value in the long term; Independence of directors in reviewing and approving corporate strategy, major business plans and activities as well as senior management appointments; Well-defined corporate structure that establishes checks and balances and delegates decision making to appropriate levels in the organization. VSNL VSNL has evolved from the only ILD player in India to a multi-national corporation having its presence felt across the globe. Today, VSNL being one of the leaders in the global ILD market, the challenge lies in designing a model addressing the specific and unique needs of geographies and yet strengthening and aligning the overall business objectives and goals. The Company believes that total business risk elimination is never possible but can be minimized by consistently developing and following the best practices of Corporate Governance. To this end, the Company focuses on developing and implementing higher standards of accountability to enable optimum returns to all stakeholders. The Company is installing new state-of-the art systems including integrated financial accounting and budgeting systems and through a systematic process of training and development has increased the quality of its personnel. Fairness in words, actions and deeds with all stakeholders are the pillars of corporate governance philosophy of the Company. Corporate Governance in substance rather than form is what the Company believes in and actively implements. To ensure this, a high level Corporate Governance Council has been formed to ensure that the best practices of Corporate Governance are adopted. MTNL The company's philosophy on corporate governance encompasses achieving the balance between shareholders interest and corporate goals through the efficient conduct of its business and meeting its stakeholders obligation in a manner that is guided by transparency, accountability and integrity. ONGC The company views corporate governance in its widest sense almost like a trusteeship, a philosophy to be progressed, a value to be imbibed and an ideology to be ingrained into the corporate culture. It has been practicing corporate governance principles much before it became mandatory. They maintain that to be successful it must maintain global standards of corporate conduct towards it stakeholders. It views to translate opportunities into reality. The primary objective is to create and adhere to a corporate culture of conscience and consciousness, transparency and openness, fairness, accountability, propriety, equity, sustainable value creation, ethical practices, thereby creating an outperforming organization. To that end, your company has always focused on good corporate governance which is the key driver of sustainable corporate growth and long term value creation.

157

Annexure- 2
Corporate Governance Assessment and Policy Recommendations for India World Bank, 2004 I. The Rights of Shareholders 1. Basic shareholder rights : OBSERVED Shares traded through a stock exchange are held in dematerialized form in the two depositories: National Securities Depository and Central Depository Services. Registration in a depository is proof of ownership. Companies must maintain a register of shareholders or outsource this function to a share transfer agent. Shares traded through stock exchanges are transferred through book entry at the depositories. Cash settlement occurs at designated clearing banks of stock exchange clearing houses. Clearance/settlement occurs in DVP2 on T+2. Novation exists at National Stock Exchange (NSE), but not Stock Exchange, Mumbai (BSE). Guarantee funds have largely eliminated settlement risk. Central Bank plans to introduce real time gross settlement in 2004. Annual and half yearly accounts are mailed to shareholders; quarterly accounts are published in newspapers and posted on web pages of issuers and stock exchanges. Companies must file memorandum, articles of association and periodic financial information with a Registrar of Companies (ROC). Investors can access this information for nominal fee (about USD 1). Usually, directors are proposed by board and elected by shareholders. Shareholders can propose candidates up to fourteen days before AGM [annual general meeting], but shareholders seldom use this right. Board proposes dividend, and AGM approves it. Policy Recommendations: N.A 2. Rights to participate in fundamental decisions: OBSERVED Certain fundamental corporate decisions are the exclusive power of AGM and require 75 percent majority: changing registered office; authorizing capital increases; waiving pre-emptive rights; buying back shares; amending articles of association; delisting; acquisitions, disposals, mergers and takeovers; changes to company business or objectives; making loans and investments beyond limits prescribed under CA Section 372A, authorizing board to: sell or lease major assets; borrow money in excess of paid-up capital and free reserves, and (iii) Appoint sole selling agents and apply to the court for the winding up of company. Policy Recommendations: The provision dealing with the selling or leasing of major assets should be further refined to avoid any abuse. 3. Shareholders AGM rights: OBSERVED AGM mandatory, according to Companies Act (CA). 21 day AGM notice (meeting place, time, agenda) sent to all shareholders. In case of special business, agenda must set out material facts, including nature of concern or interest of any director or manager. Some companies reportedly hold AGMs in remote locations. Quorum is five shareholders. If quorum is not met after half an hour, meeting is dissolved if called by shareholders, or postponed for one week if called by board. Shareholders may vote in person or proxy. CA allows postal voting for fundamental situations. Any shareholder may apply to Company Law Board (CLB) to call AGM. Shareholders with 10 percent of paid-up voting capital can call EGM [exceptional general

158

meeting]. Shareholders can vote by show of hands or demand poll, if they own at least 10 percent of voting rights. Policy Recommendations: N.A 4. Disproportionate control disclosure: LARGELY OBSERVED No nominee accounts. Shareholder agreements need not be disclosed to company/shareholders. Prevalence of complex cross-holdings across family or business groups still fails to provide a fully transparent picture for shareholders. Policy Recommendations: Shareholder agreements should be disclosed 5. Markets for corporate control should be allowed to function: OBSERVED SEBI [Securities and Exchange Board of India] Takeover Code has been successfully tested in 25 + hostile bids. Takeover Code requires anyone whose holdings cross 15 percent threshold to make offer for at least 20 percent more of shares. Policy Recommendations: N.A 6. Cost/benefit to voting: MATERIALLY NOT OBSERVED Pension funds seldom exercise voting rights; instead exert influence through nominee directors on the board of their portfolio companies. Policy Recommendations: - Regulators should consider introducing an obligation that institutional investors acting in a fiduciary capacity adopt and disclose their corporate governance and voting policy. - Regulators should also disclose to the public how they manage material conflicts of interest that may affect the exercise of their corporate governance rights. - Shareholder activism among retail investors should be encouraged. II. Equitable Treatment of Shareholders 1. All shareholders should be treated equally: PARTIALLY OBSERVED Shareholders can apply [to] the CLB, SEBI or the company Grievance Committee for redress. Derivative and class action suits exist. Doubts persist about the effectiveness of legal remedies in practice. Policy Recommendations: - Depository receipt contracts should provide owners with same rights to vote as are accorded to holders of underlying shares. - Consider strengthening regulators enforcement power to offset backlog and delays of court procedures. 2. Prohibit insider trading PARTIALLY OBSERVED Insider trading is a criminal offense, but enforcement is problematic. Senior management must disclose to board potential conflicts of interest. Directors must disclose share dealings beyond certain threshold. Policy Recommendations: - Implement SEBIs initiative of a unique client code for each investor. - There should be greater cooperation between NSE and BSE on surveillance. - Publish share trading by directors and senior management in the newspaper. - Successfully prosecute one insider trading case to enhance perception of market integrity. 3. Board/Mgrs. disclose interests PARTIALLY OBSERVED Reportedly, misuse of corporate assets and abuse in related party transactions remain problems. Policy Recommendations: - While audit committees should pre-vet related party transactions, ultimate responsibility of judging whether a related party transaction is in the best interest of the company should

159

remain with the board. III. Role of Stake holders in Corporate Governance 1. Stakeholder rights respected Board is required to discuss material issues regarding stakeholders. Policy Recommendations: N.A

OBSERVED

2. Redress for violation of rights PARTIALLY OBSERVED Redress can be sought through civil and high courts; however, there are long delays and backlogs. Policy Recommendations: 3. Performance enhancement: OBSERVED SEBI has issued detailed guidelines on the issue of stock options. Policy Recommendations: Closely follow the international debate on good practices regarding the treatment of stock options. 4. Access to information: OBSERVED Relevant information is posted on company and stock exchange websites, but quality of info varies among companies. Policy Recommendations: N.A IV. Disclosure and Transparency 1. Disclosure standards: LARGELY OBSERVED Companies must send annual report to shareholders, stock exchanges, DCA [Department of company Affairs] and ROC; content regulated by statute. Disclosure does not extend to level of ultimate beneficiary and structure of business groups. Quality of financial reporting improving, but stock exchanges lack sufficient resources to ensure compliance and rely heavily on auditors. Policy Recommendations: SEBI and stock exchanges need to cooperate more closely to effectively monitor and enforce compliance with listing agreement. Steps must be taken to clarify division of responsibilities among stock exchanges, SEBI and DCA to avoid unintentional regulatory overlap and potential conflicts. 2. Standards of accounting & audit LARGELY OBSERVED Quality of financial disclosure determined by DCA, SEBI and ICAI [Institute of Chartered Accountants of India]. ICAI says India conforms with ISA [International Standards of Auditing]. Judicial delays diminish deterrence factor of some penalties. Policy Recommendations: Significantly enhance fines to act as credible deterrents. 3. Independent audit annually PARTIALLY OBSERVED Auditors can provide consulting services to the company they audit up to the level of the audit fee, and fees disclosed in the annual report. Disciplinary proceedings can be lengthy. Policy Recommendations: - Recommendations of Naresh Chandra Committee on Corporate Audit and Governance are included in pending legislation, which should go forward. - Consider different options to subject auditors to an auditor oversight body that operates in the public interest and that is not under the control of the auditing profession. 4. Fair & timely dissemination: OBSERVED Dissemination channels include direct mailing, company websites, the stock exchange, and press announcements. Printing/distribution of annual report to all shareholders and necessity of publishing accounts of all subsidiaries add greatly to issuer costs

160

Policy Recommendations: Give shareholders option to decline full annual report in lieu of summary, whose content would be regulated by SEBI. V. Responsibilities of the Board 1. Acts with due diligence, care: LARGELY OBSERVED Unitary board structure. Basic fiduciary duties are not spelled out in legislation, but embedded in sparse existing jurisprudence. Policy Recommendations: - The fiduciary obligations should be clearly spelled out in the legal or regulatory framework. - Have same standards of care for executive and independent directors, with few exceptions. - Provide directors with access to training. 2. Treat all shareholders fairly: LARGELY OBSERVED Board members have a fiduciary obligation to treat shareholders fairly. Shareholders can appeal to SEBI or the courts At least 2/3 of board rotational. Policy Recommendations: - Have DFIs [development finance institutions] nominate expert independent directors on their behalf. - Maximum term of independent directors should be capped. 3. Ensure compliance w/ law: OBSERVED The company secretary ensures the board complies with its statutory duties and obligations. Policy Recommendations: N.A 4. The board should fulfill certain key functions: LARGELY OBSERVED There is no rule vesting the responsibility of overseeing the process of disclosure and communication with the board. Small companies practice box-ticking. Policy Recommendations: - Consider consulting shareholders with regard to general compensation policy for senior management, rather than individual packages. - The department in charge of corporate communication should have a direct reporting line to the board. - Clearly-defined board procedures are needed to allow board to effectively exercise its oversight function on risk management. 5. The board should be able to exercise objective judgment: PARTIALLY OBSERVED Audit and remuneration committees are common. Audit committee has three members, all non-executive and a majority of them independent. Director may have membership on 15 boards and ten committees and may chair five committees. Policy Recommendations: - Given that multiple board memberships by one person can interfere with performance of directors, companies and shareholders should consider desirability of such a situation. - Consider special training and certification program for audit committee members. - Adequate across-the-board compensation for independent directors will help increase supply of high quality candidates and ensure sufficient time is devoted to their responsibilities. - Compliance with the audit committee requirement should be monitored closely by regulators. 6. Access to information: OBSERVED Clause 49 mandates information to be placed before the board; it is sufficient to inform directors about firms financial/non-financial situation. Policy Recommendations: N.A

161

Annexure - 3 Audit Committee Questionnaire for Performance Evaluation

Self assessment of the audit committee is an important aspect of the corporate governance practice. A typical check list of the self evaluation process as designed by the audit firm Deloitte & Touche is given below for the purpose of illustration and general guidance. When completing the performance evaluation, the following process may be employed: Select a coordinator and establish a timeline for the evaluation process. Audit committee members should complete the form as a self evaluation. The audit committee should also identify those individuals who interact with the audit committee members and who can provide feedback. Select the appropriate rating that most closely reflects the audit committees performance related to each practice. Provide completed evaluations to the evaluation coordinator for consolidation into a summarize document.

For each of the following statements, select a number between 1 and 5, with 1 indicating that you strongly disagree, and 5 indicating that you strongly agree with the statement. Select 0 if you do not have enough knowledge or information to rank the organizations audit committee on a particular statement.

012345 5 strongly agree: 1 strongly disagree Composition and Quality

1. Potential audit committee members are identified with explicit consideration being given to the candidates qualifications for serving on the audit committee. 2. Sources acting independent of management (e.g. independent board members assisted by an outside search firm) have been utilized to identify qualified audit committee members. 3. Audit committee members have the appropriate qualifications to meet the objectives of the audit committees charter, including appropriate financial literacy. 4. Audit committee members have differing perspectives due to a diversity of experiences and backgrounds. 5. The audit committee demonstrates integrity, credibility, trustworthiness, willingness to actively participate, ability to constructively handle conflict, interpersonal skills, and proactiveness. 6. The audit committee demonstrates appropriate industry knowledge. 7. Members of the audit committee meet all applicable independence requirements. 8. The audit committee reviews its charter annually to determine whether its responsibilities are adequately described and recommends any changes to the board for approval. 9. The audit committee monitors compliance with corporate governance regulations and guidelines. 10. The audit committee has participated in a continuing education program to enhance its members understanding of relevant auditing, accounting, regulatory, and industry issues. 11. New audit committee members are provided with an orientation program to educate them on the company, their responsibilities, and the companys financial reporting and accounting practices. 12. The leadership of the audit committee chair is effective 13. The audit committee, in conjunction with the nominating committee (or its equivalent) as appropriate, creates a succession/rotation plan for audit committee members, including the audit committee chair

Understanding the Business, including Risks

162

14. The audit committee considers the pressures on management that may impact the quality of financial reporting (e.g. earnings targets, compensation plans, and performance measures). 15. The audit committee considers the significant risks faced by the company. Examples include (but are not limited to): Regulatory and legal requirements Concentrations (e.g. suppliers and customers) Market and competitive trends Financing/liquidity needs Financial exposures Business continuity Company reputation Financial strategy execution 16. The audit committee understands and approves the process implemented by management to effectively identify, assess, and respond to the organizations key risks. 17. The audit committee understands and approves managements fraud risk assessment and has an understanding of identified fraud risks. 18. Management provides the audit committee with reports that include benchmarking information (comparing the companys financial performance and ratios with industry competitors/peers) with explanations for areas that differ significantly.

Process and Procedures

19. The audit committee reports its proceedings and recommendations to the board after each committee meeting. 20. The audit committee dedicates appropriate time and resources to execute its responsibilities. 21. The audit committee participates in the development of a calendar to ensure that responsibilities are met. 22. Audit committee members have the option to influence their meeting agendas in order to address emerging issues. 23. Audit committee meetings are conducted in an effective manner, with time being spent primarily on significant issues. 24. The audit committee chair encourages input on the meeting agenda from the committee, management, the internal auditor, the independent auditor, and the other board of directors. 25. The audit committee sets clear expectations and provides feedback to the full board concerning the competency of the organizations CFO and senior financial management. 26. The audit committee has input into the succession planning process for the CFO. 27. The agenda and related information (e.g. prior meeting minutes, press releases, financial statements, etc.) are circulated in advance of meetings to allow audit committee members sufficient time to study and understand the information. 28. The written materials provided to audit committee members are appropriately balanced (i.e. relevant and concise). 29. The audit committee meetings are held at least quarterly. 30. The audit committee maintains adequate minutes of each meeting. 31. The audit committee, together with the compensation committee, regularly reviews management incentive plans to consider whether the incentive process is appropriate. 32. The audit committee meets periodically with the companys disclosure committee (committee responsible for reviewing the companys disclosure procedures). 33. The audit committee respects the line between oversight and management of the financial reporting process. 34. Audit committee members come to meetings well prepared.

Communication and Information

35. The level of openness between the audit committee and relevant parties (other board members, management, internal audit, and external audit) is appropriate. 36. For matters that require specialized expertise, the audit committee engages external parties as appropriate.

163

37. The audit committee receives and analyzes information from management on significant industry trends, analyst estimates and variations from budget. 38. Audit committee members periodically visit company locations to conduct on-site meetings with key members of management.

Oversight of Financial Reporting Process, Including Internal Controls

The audit committee considers the quality and appropriateness of financial accounting and reporting. 40. The audit committee considers the transparency of disclosures. 41. The audit committee reviews the companys significant accounting policies. 42. The audit committee has a process for the review of significant issues prior to quarterly and annual earnings releases (e.g. with management and the independent auditors). 43. The audit committee understands and approves the process used by management to identify and disclose related-party transactions. 44. The audit committee has a process to review earnings releases (including pro forma or nonGAAP information, and other financial information or earnings guidance). managements discussion and analysis), proxies and other filings, as appropriate, before issuance and provides comments to management and independent auditors as applicable. 46. The audit committee reviews the processes related to financial statement certifications made by the CEO and CFO. 47. The audit committee receives sufficient information to assess and understand managements process to evaluate the organizations system of internal controls (e.g. financial reporting and disclosure controls,operation controls, and compliance controls). 48. The audit committee oversees the organizations external financial reporting and internal control over financial reporting. 49. The audit committee understands and gives appropriate consideration to the internal control testing conducted by management, the internal auditors, and independent auditors to assess t he process of detecting internal control issues or fraud. 50. The audit committee believes that managements scope of internal control testing adequately supports its internal control assessment (as required by Section 404 of the Sarbanes-Oxley Act). 51. If managements assessment of internal controls resulted in the identification of significant deficiencies or material weaknesses, plans to address these issues are reviewed, evaluated and monitored by the audit committee. 52. The audit committee makes inquiries of the appropriate parties (independent auditor, internal auditor and management) on the depth of experience and sufficiency of the companys accounting and finance staff. 53. The audit committee reviews the management recommendation letters written by the auditors (external and internal) and monitors the process to determine that all significant matters raised are addressed. 54. The audit committee ensures that management takes action to achieve resolution when there are instances of repeat comments from auditors, particularly for those related to internal controls. 55. Adjustments to the financial statements that resulted from the audit process are reviewed by the audit committee, regardless of whether they were recorded by management. 56. The audit committee is consulted when management is seeking a second opinion on an accounting or auditing matter.

Oversight and Audit Functions

The audit committee understands the coordination of work between the auditors (external and internal). 58. The audit committee regularly reviews the adequacy of the internal audit function (e.g. the charter, audit plan, budget, compliance, and number, quality and continuity of staff). 59. The audit committee oversees the role of the internal audit director from selection to termination (e.g. appointment, evaluation, compensation and retention). 60. The audit committee provides feedback to the internal audit director at least annually. 61. The internal audit reporting lines established with the audit committee promote an atmosphere where significant issues that might involve management will be brought to the attention of the audit committee.

164

62. The audit committee appropriately considers internal audit reports, managements responses, and improvement actions. 63. The audit committee oversees the role of the independent auditors from selection to termination (e.g. appointment, oversight, evaluation, retention, and pre-approval of services). 64. The audit committee considers the external audit plan and provides recommendations as appropriate. 65. The audit committee reviews the appropriateness of the audit fees paid to the independent auditor. 66. The audit committee comprehensively reviews managements representation letters to the independent auditors (including making inquiries about any difficulties obtaining the representations). 67. The audit committee has an effective process to evaluate the independent auditors qualifications and performance. 68. The audit committee pre-approves all services (audit and non-audit) provided by the independent auditor. 69. The audit committee considers the scope of non-audit services provided by the independent auditor in determining the auditors independence. 70. The audit committee reviews other professional services that relate to financial reporting (e.g. consulting, legal and tax strategy services) provided by outside consultants. 71. The audit committee monitors the process to determine that the independent auditors partners are rotated in accordance with applicable rules. 72. The audit committee has private executive sessions with management, internal audit and external audit, which result in candid discussion of pertinent issues.

Overall Ethhics and Compliance Culture

Audit committee members are notified of communications received from agencies (e.g. governmental or regulatory) relating to areas of alleged violations or areas of non-compliance. 74. The audit committee oversees managements procedures for enforcing the companys code of conduct. 75. The audit committee determines that there is a senior level person designated as specifically responsible for knowing and understanding relevant legal and regulatory requirements. 76. The audit committee oversees the process in place to address: - the risks of noncompliance with applicable regulations - conflicts of interest - violations of the code of ethical conduct. 77. The audit committee oversees the organizations whistleblower process and reviews the log of incoming calls. 78. The audit committee oversees procedures designed to prohibit retaliation against whistleblowers.

Monitoring Activities
79. An annual performance evaluation of the audit committee is conducted and the findings are presented to the full board. 80. Matters identified from the audit committee self-assessment that require follow-through are resolved. 81. The company provides the audit committee with sufficient funding to fulfill its objectives.

Overall Assessment
82. What is your overall evaluation of the performance of the audit committee? (Scale of 1 to 5, 5 being the highest):0 1 2 3 4 5

165

Annexure 4 Ownership of Global Corporations

166

Annexure 5 Total Value of Listed Corporate Assets Under Family Control

Country/ Economy No. of corporations surveyed Share of total market capitalization (%) Per cent family owned (20 per cent + control) 66.7 71.5 67.2 44.6 55.4 48.4 48.2 61.6 Stateowned (Per cent) Total Value of listed corporate assets that families control (%) Top 5 Top 10 families families 26.2 32.1 40.7 17.3 42.8 19.5 29.7 14.5 32.2 57.7 24.8 52.5 26.6 26.8 18.4 46.2

Hong Kong, China Indonesia Malaysia Philippines Singapore Republic of Korea Taiwan Province of China Thailand

330 178 238 120 221 345 141 167

78 89 74 82 96 76 66 64

1.4 8.2 13.4 2.1 23.5 1.6 2.8 8.0

Source : Finance Asia, Vol5; Issue 4, February 2001, page 27, quoted in a paper by Cheung, Stephen Y.L., and Chan Bob Y, 2004, Corporate Governance in Asia, Asia Pacific Development Journal, Vol 11, No. 2, December 2004

167

Annexure 6 Indexes based on Corporate Governance

The World Banks corporate governance assessments reveal growing awareness around the world of the importance of corporate governance. Almost all the countries assessed are undertaking reforms to bring their legal and regulatory frame-works into compliance with the Organization for Economic Co-operation and Developments (OECD) principles of corporate governance. Quantifying the risk of corporate governance across international markets has also posed a challenge for investors trying to deal with the issue. Setting up of corporate governance indexes and exchanges would be such a reform. This not only provides natural incentive to companies complying with good corporate governance but also provides a platform for small and medium sized enterprises. Below mentioned are some of the major indexes observing corporate governance as the threshold for its listings:

Novo Mercado
In 2001, BOVESPA, the Sau Paulo Stock Exchange launched Novo Mercado, a separate listing segment for companies that adhere to good corporate governance. It accounts for almost 15% of the number of companies traded in Brazil, and contributes 43% of the market capitalization, and has out-performed the general market index by more than 100% since June, 2001. It is a special listing segment that demands timely compliance to the set of rules and laws that are more than what is required by any other listings. The establishment of Novo Mercado promotes socially responsible business community and fosters growth in the Brazilian market. The stock exchange is reserved only for well governed companies and organizations promoting interests of minority shareholders and adoption of ethics and values in the business community. Listing in Nova Mercado requires the following: Public share offerings have to use mechanisms to favor capital dispersion and broader retail access. Maintenance of a minimum free float, equivalent to 25% of the capital. Same conditions provided to majority shareholders in the disposal of the Companys Control will have to be extended to all shareholders. Establishment of a two-year unified mandate for the entire Board of Directors, which must have five members at least, of which at least 20% (twenty percent) shall be Independent Members. Disclosure of annual balance sheet, according to standards of the US GAAP or IFRS. Improvements in quarterly reports, such as the requirement of consolidated financial statements and special audit revision. Obligation to hold a tender offer by the economic value criteria, in case of delisting or cancellation of registration as publicly-held company. Compliance with disclosure rules in trades involving securities issued by the company in the name of controlling shareholders. Some of these obligations must be approved at the General Shareholders Meetings and included in the corporate bylaws

These listing regulation help increase shareholder's rights and enhance the quality of information commonly disclosed by companies. Additionally, the Market Arbitration Panel for conflict resolution between investors and companies offers a safer, faster and specialized alternative to investors. Apart from this, BOVESPA has also designed Special Corporate Governance Levels; Level 1 and Level 2, based on the conduct of companies, managers and controlling shareholders considered as important for valuation of shares and other assets issued by the company.

168

FTSE ISS Corporate Governance Index

FTSE is an independent company owned by The Financial Times and the London Stock Exchange. FTSE indices are used extensively by investors world-wide such as consultants, asset owners, asset managers, investment banks, stock exchanges and Brokers. The FTSE ISS Corporate Governance Index is a collaboration of FTSE and Institutional Shareholder Services (ISS), the premier corporate governance ratings agency. The FTSE ISS Corporate Governance Index is a series based on the companies which have good corporate governance record. It comprises of six regional and country equity indices covering 24 developed countries as defined by the FTSE Global Equity Index Series. The underlying idea is to assist investors by rating the performance of the companies on the basis of its corporate governance practices. The index is primarily managed and constantly reviewed by the FTSE Index Board. The Advisory committee supports the Index by determining the listing criteria. FTSE ISS Corporate Governance Rating is mainly derived on the basis of the below mentioned five governance themes: Board structure and independence: The composition and processes of the board and the structure of key standing committee are examined. Equity Structure: This involves evaluation of the companys capital structure and existing anti takeover devices. Compensation system for executive and non executive directors: This involves evaluation of the existing rewarding schemes and practices for directors. Independence and integrity of the audit process: This evaluates the composition of the audit committee and the audit process. Executive and non-executive stock ownership: The balance between the ownership and shareholder interests is measured.

The FTSE ISS Corporate Governance Indices includes the following: FTSE ISS Developed Corporate Governance Index FTSE ISS Europe Corporate Governance Index FTSE ISS Euro Corporate Governance Index FTSE ISS Japan Corporate Governance Index FTSE ISS UK Corporate Governance Index FTSE ISS US Corporate Governance Index

Governance Metrics International

Governance Metrics International (GMI) is an independent rating and research agency founded in April 2002. It analyzes the corporate governance practices of publicly traded companies. It prepares exhaustive reports and rates the companys overall governance profile on the basis of its Board Accountability, Financial Disclosure and Internal controls, Shareholder rights, Executive compensation, Market for control and Ownership Base and Corporate Behavior and CSR Issues. All companies on the GMI list are re-rated and reviewed on a quarterly basis GMI Ratings are extensively used by corporations, law and accounting firms, proxy solicitors, insurance underwriters, central banks, regulatory agencies and other institutional investors and fund managers. Apart from rating and research, GMI is also engaged in providing advisory services on corporate governance issues to a diverse client base including stock exchanges, regulatory bodies and other institutional investors.

Conclusion

169

Corporate Governance indexes are helping the investors seeking devices that fulfill their demand for good governance. It was even revealed in a study that investors are ready to pay 18% more for shares of a well governed company. Moreover, well managed and governed companies are outpacing other companies in getting investments especially after scams like ENRON. However, the value for good governance is never immediate. But it definitely ensures long term profitability.

170

Annexure 7 Index of Corporate Codes In Various Countries

Country Argentina Australia Corporate Governance Codes - Cdigo de Mejores Prcticas de Gobierno de las Organizaciones para la Repblica Argentina - January 2004 - Revised Corporate Governance Principles and Recommendations 2 August 2007 - Principles of Good Corporate Governance and Best Practice Recommendations March 2003 - Corporate Governance: A guide for fund managers and corporations 1 December 2002 - Horwath 2002 Corporate Governance Report 2002 - Corporate Governance: A Guide for Investment Managers and Corporations July 1999 - Corporate Governance - Volume One: in Principle June 1997 - Corporate Governance - Volume Two: In Practice June 1997 - AIMA Guide & Statement of Recommended Practice (Corporate Governance Statements by Major ASX Listed Companies) June 1995 - Bosch Report 1995 - Austrian Code of Corporate Governance (as amended in January 2006) January 2006 - Austrian Code of Corporate Governance (as amended on 22 February 2005) 22 February 2005 - Austrian Code of Corporate Governance November 2002 - The Code of Corporate Governance for Bangladesh March 2004 - Code Buysse: Corporate governance for non-listed companies 21 September 2005 - Belgian Corporate Governance Code 9 December 2004 - Draft Belgian Corporate Governance Code 18 June 2004 - Director's Charter January 2000 - Guidelines on Corporate Governance Reporting 18 November 1999 - Corporate governance for Belgian listed companies (The Cardon Report) December 1998 - Corporate Governance - Recommendations January 1998 - Code of Best Practice of Corporate Governance 30 March 2004 - Recomendaes sobre Governana Corporativa June 2002 - Code of Best Practice of Corporate Governance 8 May 1999 - Bulgarian National Code For Corporate Governance 10 October 2007 - Corporate Governance: Guide to Good Disclosure (January 2006) January 2006 - Corporate Governance: A guide to good disclosure December 2003 - Corporate Governance PolicyProposed New Disclosure Requirement and Amended Guidelines 26 March 2002 - Beyond Compliance: Building a Governance Culture (Saucier Report) November 2001 - Five Years to the Dey June 1999 - Building on Strength: Improving Governance and Accountability in Canada's Voluntary Sector February 1999 - Where Were The Directors? Guidelines for Improved Corporate Governance in Canada (The Toronto Report) December 1994

Austria

Bangladesh Belgium

Brazil Bulgaria Canada

171

China

Commonwealth Comparative studies

Cyprus

Czech Republic

Denmark

Estonia Finland

France

Germany

- Provisional Code of Corporate Governance for Securities Companies 15 January 2004 - The Code of Corporate Governance for Listed Companies in China 7 January 2001 - CACG Guidelines: Principles for Corporate Governance in the Commonwealth November 1999 - Comparative Study of Corporate Governance Codes relevant to the European Union and its Member States 27 March 2002 - International Comparison of Board "Best Practices" - Investor Viewpoints 2001 - International Comparison of Corporate Governance: Guidelines and Codes of Best Practice in Developed Markets 2001 - International Comparison of Corporate Governance: Guidelines and Codes of Best Practice in Developing and Emerging Markets 2000 - Cyprus Corporate Governance Code (2nd edition, March 2006) March 2006 - Addendum of the Corporate Governance Code November 2003 - Corporate Governance Code 24 September 2002 - Corporate Governance Code based on the OECD Principles (2004) June 2004 - Revised Corporate Governance Code (Based on OECD Principles 2001) February 2001 - Revised Recommendations for Corporate Governance in Denmark 15 August 2005 - Report on Corporate Governance in Denmark December 2003 - The Nrby Committees report on Corporate Governance in Denmark 6 December 2001 - Guidelines on Good Management of a Listed Company (Corporate Governance) 29 February 2000 - Corporate Governance Recommendations 1 January 2006 - Improving Corporate Governance of Unlisted Companies January 2006 - Corporate Governance Recommendations for Listed Companies December 2003 - Recommandations sur le gouvernement d'entreprise March 2004 - The Corporate Governance of Listed Corporations October 2003 - Promoting Better Corporate Governance In Listed Companies 23 September 2002 - Vienot II Report July 1999 - Recommendations on Corporate Governance 9 June 1998 - Vienot I Report June 1995 - German Corporate Governance Code as amended 14 June 2007 14 June 2007 - Amendment to the German Corporate Governance Code - The Cromme Code (June 2006) 12 June 2006 - Amendment to the German Corporate Governance Code - The Cromme Code (June 2005) 2 June 2005 - Corporate Governance Code for Asset Management Companies 27 April 2005 - Amendment to the German Corporate Governance Code - The Cromme Code (May 2003) 21 May 2003 - The German Corporate Governance Code (The Cromme Code) 26 February 2002 - Baums Commission Report (Bericht der Regierungskommission Corporate Governance) 10 July 2001 - German Code of Corporate Governance (GCCG) 6 June 2000 - Corporate Governance Rules for German Quoted Companies January 2000

172

Greece Hong Kong

Hungary Iceland India

Indonesia Ireland

Jamaica Japan

Kenya Latin America Latvia Lebanon Lithuania Luxembourg Macedonia Malaysia Malta

- DSW Guidelines June 1998 - Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG) 5 March 1998 - Principles of Corporate Governance 24 July 2001 - Principles on Corporate Governance in Greece: Recommendations for its Competitive Transformation October 1999 - Hong Kong Code on Corporate Governance 19 November 2004 - Model Code for Securities Transactions by Directors of Listed Companies: Basic Principles June 2001 - Corporate Governance Disclosure in Annual Reports March 2001 - Code of Best Practice February 1999 - Corporate Governance Recommendations February 2002 - Guidelines on Corporate Governance 16 March 2004 - Report of the Kumar Mangalam Birla Committee on Corporate Governance February 2000 - Draft Report of the Kumar Mangalam Committee on Corporate Governance September 1999 - Desirable Corporate Governance in India - A Code April 1998 - Code of Good Corporate Governance 2006 January 2007 - Code for Good Corporate Governance April 2001 - Code for Good Corporate Governance March 2000 - Corporate Governance Code (Codice di Autodisciplina) 14 March 2006 - Handbook on Corporate Governance Reports February 2004 - Corporate Governance Code (il Codice di Autodisciplina delle societ quotate rivisitato) July 2002 - Report & Code of Conduct (The Preda Code) October 1999 - Testo Unico sulle disponsizioni in materia di intermediazione February 1998 - Code on Corporate Governance (Final) 25 October 2006 - Code of Corporate Governance (Second draft) 6 October 2005 - Proposed Code on Corporate Governance 20 January 2005 - Principles of Corporate Governance for Listed Companies 16 April 2004 - Revised Corporate Governance Principles 26 October 2001 - Report of the Pension Fund Corporate Governance Research Committee, Action Guidelines for Exercising Voting Rights June 1998 - Corporate Governance Principles: A Japanese view 30 October 1997 - Urgent Recommendations Concerning Corporate Governance September 1997 - Principles for Corporate Governance in Kenya 2002 - Sample Code of Best Practice for Corporate Governance 2002 - Latin American Corporate Governance White Paper 2003 - Principles of Corporate Governance and Recommendations on their Implementation 27 December 2005 - Corporate Governance Code for Small and Medium Enterprises (SMEs) 13 June 2006 - Corporate Governance Code for the Companies listed on the National Stock Exchange of Lithuania 23 April 2003 - The Ten Principles of Corporate Governance of the Luxembourg Stock Exchange April 2006 - White Paper on Corporate Governance in South-Eastern Europe June 2003 - Malaysian Code on Corporate Governance (Revised 2007) 1 October 2007 - Malaysian Code on Corporate Governance March 2000 - Principles of Good Corporate Governance: Revised Code for Issuers of Listed Securities 3 November 2005

173

Mexico New Zealand

Nigeria Norway

OECD

Pakistan pan-Europe

Peru

Poland

Portugal

Romania Russia Singapore

- Principles of Good Corporate Governance for Public Interest Companies 3 November 2005 - Principles of Good Corporate Governance 1 October 2001 - Cdigo de Mejores Prcticas Corporativas July 1999 - Corporate Governance in New Zealand: Principles and Guidelines A Handbook for Directors, Executives and Advisers 16 March 2004 - Corporate Governance in New Zealand: Principles and Guidelines 16 February 2004 - Corporate Governance Principles 6 November 2003 - Corporate Governance in New Zealand: Consultation on Issues and Principles Background Reference 5 September 2003 - Corporate Governance in New Zealand: Consultation on Issues and Principles Questionnaire 3 September 2003 - Code of Corporate Governance for Banks in Nigeria Post Consolidation 1 March 2006 - The Norwegian Code of Practice for Corporate Governance 28 November 2006 - The Norwegian Code of Practice for Corporate Governance (Revised 2005) 8 December 2005 - The Norwegian Code of Practice for Corporate Governance 7 December 2004 - OECD Guidelines on Corporate Governance of State-Owned Enterprises September 2005 - Draft Guidelines on Corporate Governance of State-owned Enterprises 20 December 2004 - OECD Principles of Corporate Governance 22 April 2004 - Draft Revised Text: OECD Principles of Corporate Governance January 2004 - OECD Principles of Corporate Governance May 1999 - Code of Corporate Governance (Revised) 28 March 2002 - Stock Exchange Code of Corporate Governance 4 March 2002 - Euroshareholders Corporate Governance Guidelines 2000 February 2002 - EASD Principles and Recommendations May 2000 - Corporate Governance Guidelines 2000 February 2000 - Sound business standards and corporate practices: A set of guidelines September 1997 - Corporate Governance in Europe June 1995 - Principios de Buen Gobierno para las Sociedades Peruanas July 2002 - Per: Cdigo de Buen Gobierno Corporativo para Empresas Emisoras de Valores November 2001 - Best Practices in Public Companies 2005 29 October 2004 - Best Practices in Public Companies in 2002 4 July 2002 - The Corporate Governance Code for Polish Listed Companies (The Gdask Code) 15 June 2002 - Proposal on the Corporate Governance Code 3 April 2007 - White Book on Corporate Governance in Portugal February 2006 - Recommendations on Corporate Governance November 2003 - CMVM Regulation N 11/2003: Corporate Governance 2003 - CMVM Regulation No 07/2001: Corporate Governance December 2001 - Recommendations on Corporate Governance November 1999 - Corporate Governance Code in Romania 24 June 2000 - The Russian Code of Corporate Conduct 4 April 2002 - Code of Corporate Governance 2005 14 July 2005 - Proposed Revisions to the Code of Corporate Governance December 2004 - Code of Corporate Governance 21 March 2001

174

Slovakia Slovenia

South Africa South Korea Spain

Sri Lanka Sweden

Switzerland

Taiwan Thailand

The Netherlands

The Philippines The World

Trinidad and Tobago Turkey Ukraine United Kingdom

- Corporate Governance Code (Based on the OECD Principles) September 2002 - Corporate Governance Code (Amended 5 February 2007) 5 February 2007 - Corporate Governance Code 14 December 2005 - Corporate Governance Code 18 March 2004 - King Report on Corporate Governance for South Africa - 2002 (King II Report) March 2002 - King I Report 24 November 1994 - Code of Best Practice for Corporate Governance September 1999 - Code of Ethics for Companies April 2006 - Draft Unified Code of Recommendations for the Good Governance 16 January 2006 - IC-A: Principles of Good Corporate Governance December 2004 - Declogo del Directivo May 2004 - The Aldama report 8 January 2003 - Cdigo de Buen Gobierno 26 February 1998 - Crculo de Empresarios October 1996 - Draft rules on Corporate Governance for Listed Companies July 2006 - Swedish Code of Corporate Governance Report of the Code Group 16 December 2004 - Swedish Code of Corporate Governance A Proposal by the Code Group 21 April 2004 - The NBK Recommendations February 2003 - Corporate Governance Policy 26 October 2001 - Governance in Family Firms December 2006 - Swiss Code of Best Practice for Corporate Governance: 25 June 2002 - Corporate Governance Directive 1 June 2002 - Taiwan Corporate Governance Best-Practice Principles 2002 2002 - The Principles of Good Corporate Governance For Listed Companies 2006 March 2006 - Code of Best Practice for Directors of Listed Companies October 2002 - Best Practice Guidelines for Audit Committee 23 June 1999 - The SET Code of Best Practice for Directors of Listed Companies 19 January 1998 - SCGOP Handbook of Corporate Governance 2004 2004 - The Dutch corporate governance code (the Tabaksblat Code) 9 December 2003 - Draft Corporate Governance Code 1 July 2003 - SCGOP Handbook of Corporate Governance August 2001 - Government Governance; Corporate governance in the public sector, why and how? 2 November 2000 - Peters Report & Recommendations, Corporate Governance in the Netherlands 27 July 1997 - ICD Code of Proper Practices for Directors 30 March 2000 - ICGN Statement on Global Corporate Governance Principles 8 July 2005 - Enhancing Corporate Governance for Banking Organisations September 1999 - ICGN Statement on Global Corporate Governance Principles 9 July 1999 - Corporate Governance Guideline May 2006 - Corporate Governance Principles June 2003 - Ukrainian Corporate Governance Principles 3 June 2003 - The Combined Code on Corporate Governance June 2006 - Good practice suggestions from the Higgs Report June 2006

175

USA

- Internal Control: Revised Guidance for Directors on the Combined Code October 2005 - Pension Scheme Governance - fit for the 21st century: A Discussion Paper from the NAPF July 2005 - Good Governance: The Code of Governance for the Voluntary and Community Sector June 2005 - Corporate Governance: A Practical Guide 24 August 2004 - The Combined Code on Corporate Governance 23 July 2003 - Audit Committees - Combined Code Guidance (the Smith Report) January 2003 - The Higgs Report: Review of the role and effectiveness of nonexecutive directors January 2003 - The Responsibilities of Institutional Shareholders and Agents Statement of Principles 21 October 2002 - The Hermes Principles 21 October 2002 - Review of the role and effectiveness of non-executive directors (Consultation Paper) 7 July 2002 - Code of Good Practice January 2001 - The Combined Code: Principles of Good Governance and Code of Best Practice May 2000 - Hermes Statement on International Voting Principles 13 December 1999 - The KPMG Review Internal Control: A Practical Guide October 1999 - Internal Control : Guidance for Directors on the Combined Code (Turnbull Report) September 1999 - Hampel Report (Final) January 1998 - Greenbury Report (Study Group on Directors' Remuneration) 15 July 1995 - Cadbury Report (The Financial Aspects of Corporate Governance) 1 December 1992 - Asset Manager Code of Professional Conduct November 2004 - Final NYSE Corporate Governance Rules 3 November 2003 - Restoring Trust - The Breeden Report on Corporate Governance for the future of MCI, Inc. August 2003 - Commission on Public Trust and Private Enterprise Findings and Recommendations: Part 2: Corporate Governance 9 January 2003 - Corporate Governance Rule Proposals 1 August 2002 - Principles of Corporate Governance May 2002 - Core Policies, General Principles, Positions & Explanatory Notes 25 March 2002 - Principles of Corporate Governance: Analysis & Recommendations 2002 - Report of the NACD Blue Ribbon Commission on Director Professionalism 2001 - TIAA-CREF Policy Statement on Corporate Governance March 2000 - Global Corporate Governance Principles 1999 - Statement on Corporate Governance September 1997

Annexure 8 Best Practices in Practice Country Comparisons India China, Brazil and Malaysia Best Practice
1.Proxy voting: Firms are encouraged to allow proxy voting India: Shareholders can appoint a proxy. A proxy can demand a poll and cast his vote but

176

cannot speak at the meeting. The notice convening the meeting must state that shareholders can appoint a proxy China: Proxy voting is allowed. (Code, CL) Malaysia: A member of a company entitled to attend and vote at a meeting of the company, or at a meeting of any class of members of the company, shall be entitled to appoint another person or persons as his proxy to attend and vote instead of the member at the meeting. A proxy appointed to attend and vote instead of a member shall also have the same right as the member to speak at the meeting, but unless the articles otherwise provide: (a) a proxy shall not be entitled to vote except on a poll; (b) a member shall not be entitled to appoint a person who is not a member as his proxy unless that person is an advocate, an approved company auditor or a person approved by the Registrar in a particular case; (c) a member shall not be entitled to appoint more than two proxies to attend and vote at the same meeting; and (d) where a member appoints two proxies the appointments shall be invalid unless he specifies the proportions of his holdings to be represented by each proxy. A proxy shall be entitled to vote on a show of hands on any question at any general meeting.(LR Section 7.20) Where a member of the company is an authorized nominee as defined under the Securities Industry Act 1991, it may appoint at least one proxy in respect of each securities account it holds with ordinary shares of the company standing to the credit of the said securities account. (LR Section 7.22) Brazil: Proxy voting is allowed (CL Arts. 118, 126). 2. One share one vote principle: One share on vote should be a threshold requirement for new issues. India: All shares are equal within one class. Shares with different voting rights or dividend can be issued as long as shareholders approve the issue and such shares do not exceed 25% of total share capital. (Companies Rule 2001 issue of share capital with different voting rights or dividends) China: At shareholders meetings, each share that a shareholder holds is entitled to one vote (CL). A company has no voting rights on its own shares it holds. (CL) Malaysia: On a poll each member shall have one vote in respect of each share held by him and where all or part of the share capital consists of stock or units of stock each member shall have one vote in respect of the stock or units of stock held by him which is or are or were originally equivalent to one share. (CA Section 147) Brazil: Each common share carries the right to one vote in a meeting. Although restrictions on total number of votes of each shareholder are permitted (CL Art. 110). For companies founded preOctober 31, 2001, 2/3rds of capital could be non-voting; and post that date, or to older companies going public, only 50% (CL Art. 15). CVM: With respect to certain key decisions no voting restrictions should apply and each share should carry the right to one vote (III.1). All companies should comply with the 50% maximum; those already above should not issue any more non-voting shares (III.7). Bovespa: With respect to certain key decisions no voting restrictions should apply and each share should carry the right to one vote (Level 2). All shares must be voting (Novo Mercado). IBGC Companies should consider having voting stock only (1.01). 3. Meeting notice and Agenda: Meeting notice and agenda should be sent to shareholders within a reasonable amount of time prior to meetings India: Companies are required to hold an Annual General Meeting (AGM) every year. (Sec. 166 of CA). Notice for such meeting should be sent to shareholders 21 days in advance. (Sec. 171 of CA) China: Meeting notice should be given to each shareholder 20 days in advance. Meeting notice for a temporary shareholders meeting should be given to each shareholder 15 days in advance. (CL). Malaysia: The notices convening meetings shall specify the place, day and hour of the meeting,

177

and shall be given to all shareholders at least 14 days before the meeting or at least 21 days before the meeting where any special resolution is to be proposed or where it is an annual general meeting. Any notice of a meeting called to consider special business shall be accompanied by a statement regarding the effect of any proposed resolution in respect of such special business. At least 14 days notice or 21 days notice in the case where any special resolution is proposed or where it is the annual general meeting, of every such meeting shall be given by advertisement in at least 1 nationally circulated Bahasa Malaysia or English daily newspaper and in writing to each stock exchange upon which the company is listed. (LR Section 7.17) Brazil: Law: Meeting notice of publicly held companies should be given to each shareholder 15 days in advance for a meeting and 8 days in advance for an adjourned meeting. The CVM may, upon request by a shareholder in a publicly held company, increase notice time by 15 days (CL Art. 124). CVM: Where complex issues are involved, notice should be at least 30 days in advance. If a company has a foreign depositary receipts program, notice should be at least 40 days in advance (I.2). Bovespa: Agenda should be included at the time of meeting notice (Level 1 and above). IBGC Shareholders should be notified of regular annual meeting by the last day of the fiscal year (1.04.02). 4. Special Meetings: Minority shareholders should be able to call special meetings with some minimum threshold of the outstanding shares India: Shareholder controlling 10% of voting rights or paid-up capital can call for a special or Extraordinary General Meeting (EGM). (Sec.169 of CA) China: Shareholders holding at least 10% of a companys stocks can make a request for an interim shareholders meeting also know as a temporary meeting. (CL) Malaysia: Two or more members holding not less than one-tenth of the issued share capital or, if the company has not a share capital, not less than five per centum in number of the members of the company or such lesser number as is provided by the articles may call a meeting of the company. (CA Section 145) Brazil: Law: Shareholders holding at least 5% of the companys capital can call a meeting plus matters to be discussed if they have previously requested a meeting but the meeting was not called (CL Art. 123). 5. Treatment of foreign shareholders: Foreign shareholders should be treated equally with domestic shareholders India: Foreign Institutional Investors (FIIs) must register with SEBI to participate in the market. Investments and returns are freely repatriable, except in the case of 22 specified items which attract the condition of dividend balancing and/or where the approval is subject to specific conditions such as lock in period on original investment, dividend cap, foreign exchanging neutrality, etc China: Shares are categorized based on ownership. Foreign owners (except for a QFII or a strategic investor under the Strategic Investment Measures) cannot buy class A shares. Malaysia: Every company shall have at least two directors, who each has his principal or only place of residence within Malaysia. (CA Section 122) Brazil: N.A 6. Conflicts between shareholders: Mechanisms Should be designed whereby a majority of minority shareholders can trigger an arbitration procedure to resolve conflicts between minority and controlling shareholders India: Companies are required to create a Shareholders/Investors Grievance Committee under the chairmanship of a non-executive director to look into the redressing of shareholder and investor complaints like transfer of shares, non-receipt of balance sheet, non receipt of declared dividends etc. (SEBI Code, Clause 49) China: If the procedure for convening or the method of voting at a shareholders meeting, shareholders general meeting or meeting of the board of directors violates laws, administrative regulations, or the companys articles of association, or if the substance of a

178

resolution breaches the companys articles of association, a shareholder may, within 60 days, request that the People's Court revoke such board or shareholder resolution that violates their rights. (CL) Malaysia: No provision Brazil: Law: The by-laws of the company may establish that disputes between shareholders be submitted to an arbitration panel (CL Art. 109). Bovespa: Must submit disputes by shareholders to arbitration panel (Level 2 and above). 7. Quorum: Should not be set too high or too low. Suggested level would be about 30% and should include some independent non-majority-owning shareholders India: Quorum is set at five persons for a public company and two for other companies. (Sec. 174 of CA) China: No provisions Malaysia: Two members of the company, personally present shall be a quorum. (CA Section 147). Brazil: Law: Shareholders representing 25% voting capital (for meetings to amend by-laws, 2/3rds), adjourned meeting, none (CL Arts 125, 135). Certain types of extraordinary resolutions require a majority of representing 50% of voting shares is required (CL Art. 136). 8. Definition of independence: Cannot have a business or personal relationship with the management or company, and cannot be a controlling shareholder such that independence, or appearance of independence, is jeopardized India: An independent director is a non-executive director who: (i)aside from directors remuneration, does not have any material pecuniary relationship or transactions with the company, its promoters, management or subsidiaries which may affect the independence of judgment, (ii) is not related to the promoter or a person in management on the board or one level below the board, (iii) has not been an executive for the past three years, (iv) is not or has not been a partner in the past three years of a statutory or internal audit firm or a firm providing consulting services to the company, (v) is not a material supplier, service provider or customer or a lessor or lessee of the company which may affect independence of the director, (vi) is not a substantial (owning 2% or more of voting rights) shareholder of the company. (SEBI Code, Clause 49) All pecuniary relationship/transactions of non-executive directors should be disclosed in the annual report. (SEBI Code, Clause 49) China: Cannot have any posts in the company or its affiliated enterprises, cannot maintain (both business and social) relationship with the company and its major shareholders that might undermine objective judgment, cannot be a shareholder who holds more than 1% of the outstanding shares of the company or is among the top 10 largest shareholders of the company, and cannot hold a position in a unit that holds more than 5% of outstanding shares or ranks as one of the 5 largest shareholders of the company. There is a one-year look back period on these requirements. (Guideline) Malaysia: Without limiting the generality of the foregoing, an independent director is one who - is not an executive director of the company or related company - has not been within the last 2 years an officer of the Corporation - is not a major shareholder in the company - is not a relative of any executive director, officer or major shareholder of the company - is not acting as a nominee or representative of any executive director or major shareholder of said company - has not been engaged as a professional adviser by the said company under such circumstances as prescribed by the Exchange or is not presently a partner, director or major shareholder, as the case may be, of a firm or corporation which provides professional advisory services to the said company under such circumstances as prescribed by the Exchange - has not engaged in any transaction with the said Company under such circumstances as prescribed by the Exchange is not presently a partner, director, or major shareholder, as the case may be, of a firm or company which has engaged in any transaction with the said company under such circumstances as prescribed by the Exchange.

179

(LR Section Definitions) Brazil: IBGC: No ties at all with company except for some shares, not a supplier, not a relative of company director or manager (2.16). 9. Share of independent directors: At least one-third of the board should be nonexecutive, a majority of whom should be independent India: The number of independent directors is dependent on whether the Chairman is an executive or non-executive director. In the case of a non-executive chairman, at least onethird of the board should be comprised of independent directors and in the case of an executive chairman; at least half of the board should be comprised of independent directors. (SEBI Code, Clause 49) China: By end-June 2003, at least 1/3 of the board members were required to be independent directors (Code) Malaysia: An applicant must ensure that at least 2 directors or 1/3rd of the board of directors of the applicant, whichever is higher, are independent directors. (LR Section 3.14). The board should include a balance of executive directors and non-executive directors (including independent non-executives) such that no individual or small group of individuals can dominate the boards decision making. (Code Part 1.A.II) To be effective, independent non-executive directors need to make up a least one third of the membership of the board. (Code Part 2.AA.III) Brazil: Law: A maximum of 1/3 of board members may serve as members of the executive board, but no restrictions regarding company officers who are not executive board members (CL Art. 143). CVM: As many board members as possible should be independent (II.1). IBGC : Most directors should be independent (2.10) 10. Frequency and record of meetings: For large companies, board meetings every quarter, audit committee meetings every 6 months. Minutes of meetings should become part of public record India: The Board shall meet at least four times a year, with a minimum time gap of three months between any two meetings. (SEBI Code, Clause 49) China: The board should hold meetings at least twice a year. A shareholder representing onetenth or more of the voting rights or one-third or more of directors or supervisory board members may call for a temporary meeting of the board of directors. (CL) Minutes/records of meetings should be properly maintained. Malaysia: The board should meet regularly, with due notice of issues to be discussed and should record its conclusions in discharging its duties and responsibilities. (Code Part 2.AA.XIV). The Committee considered that stipulating a minimum figure for bard meetings to be unpractical. However, it is difficult to imagine how a board is in control of the company if it meets less than four times. We recommend instead that the directors should be required to disclose the number of board meetings held a year and the details of the attendance of each individual director to enable shareholders to evaluate the commitment of a particular director to the affairs of the company. (Code Section 4.44) Every company shall cause (a) minutes of all proceedings of general meetings and of meetings of its directors and of its managers, if any, to be entered in books kept for that purpose within fourteen days of the date upon which the relevant meeting was held; and (b) those minutes to be signed by the chairman of the meeting at which the proceedings were had or by the chairman of the next succeeding meeting. (CA Section 156) The books containing the minutes of proceedings of any general meeting shall be kept by the company at the registered office of the company, and shall be open to the inspection of any member without charge. (CA Section 157) Brazil: Law: At least one shareholder meeting must be held within first quarter following end of financial year. Minutes of meetings that contain resolutions designed to affect 3rd parties become part of public record (CL Arts. 132, 142). 11. Nomination and Election of directors: Should be done by nomination committee chaired by an independent director. Minority shareholders should have mechanism for putting forward directors at Annual General Meeting (AGM) and Extraordinary General Meeting

180

(EGM). India: No specific provision mandating the creation of a board-level nominating committee. The directors of the Board are appointed by the company in the Annual General Meeting. (Sec.255 of CA) At the time of appointment of a new director or the re-appointment of a director, shareholders must be provided with a brief rsum of the director, nature of his expertise in specific functional areas and names of companies in which the person also holds other directorships. (SEBI Code, Clause 49) China: Should be done by nomination committee chaired by an independent director. (Code) Shareholders who independently or jointly hold more than 1% of the shares issued by the company may nominate independent directors at the shareholders meeting. (Guideline) Malaysia: The actual decision as to who shall be nominated should be the responsibility of the full board after considering the recommendations of a nominating committee that is composed exclusively of non-executive directors, the majority of whom are independent. The committee should consider candidates proposed by the CEO and, within the bounds of practicability, by any other senior executive, director or shareholder (Code Part 2.AA.VIII). Brazil: Law Directors are elected by a majority of voting capital. Separate director elections for minority shareholders representing at least 15% of shares with voting rights, 10% of preferred shares with restricted/no voting rights, at any meeting (CL Art. 141). 12. Term limits for independent directors : For large companies, re-election should be every 3 years with specified term limits India: Unless the Articles of a Company provide for the retirement of all directors at every AGM, not less than one-third directors have to be appointed by the company at the AGM (Sec 255 of CA) China: Each term should not exceed 3 years (CL). Re-election is allowed but the consecutive term should not exceed 6 years (Guideline) Malaysia: An election of directors shall take place each year. All directors shall retire from office once at least in each 3 years, but shall be eligible for re-election. (LR Section 7.28). All directors should be required to submit themselves for re-election at regular intervals and at least every three years. (Code, Part 1.A.V.) Brazil: Law: Each term should not exceed 3 years, with re-election permitted (CL Art. 140). CVM: Terms should be 1 year, and concurrent, with possibility of reelection. (II.1). IBGC: Each term should be short, preferably for no longer than a year (2.11). 13. Board Committees: The board should set up 3 essential committees: nomination, compensation and audit. India: Every board is required to have an audit committee and a shareholder grievance committee. The board of directors is required to consider the CEOs remuneration. Creation of a separate remuneration committee is a non mandatory requirement in Clause 49 of SEBIs listing requirements. In practice, however, most boards of large companies have an audit, remuneration and nomination committee. China: The board may establish specialized committees on: corporate strategy, nomination, remuneration/appraisal, and audit. Committees should be chaired by an independent director and independent directors should constitute the majority of each committee. (Guideline) Malaysia: Boards should appoint remuneration committees, consisting wholly or mainly of nonexecutive directors, to recommend to the board the remuneration of the executive directors in all its forms, drawing from outside advice as necessary. (Code Part 2.AA.XXIV) The board of every company should appoint a committee of directors composed exclusively of non executive directors, a majority of whom are independent, with the responsibility for proposing new nominees for the board and for assessing directors on an on-going basis. (Code Part 2.AA.VIII) The board should establish an audit committee of at least three directors, a majority of whom are independent. The Chairman of the audit committee should be an independent nonexecutive director. (Code Part 2.BB.I) Brazil: Law: There must be a statutory audit committee. (CL Art. 161). CVM: The Board should establish a committee on relations with auditors (II.2). IBGC: There should be nomination, compensation, and audit committees (2.04).

181

14. Formal Evaluation of Board members: For large companies, nomination committee must review directors ahead of formal re-election at AGM India: N A China: Evaluation of directors should be conducted by the board or its remuneration/appraisal committee. Evaluation of independent directors should be conducted through a combination of self-review and peer review. (Code) Malaysia: The board should implement a process to be carried out by the nominating committee annually for assessing the effectiveness of the board as a whole, the committees of the board and for assessing the contribution of each individual director. (Code Part 2.AA.X.) Brazil: IBGC: There should be a formal appraisal each year of the Board and its members (2.09). 15. Immediate disclosure of information that affects share prices, including major asset sale or pledges: Any material information that could affect share prices should be disclosed through stock exchange. Material information includes acquisition/disposal of assets, board changes, related-party deals, ownership changes, directors shareholdings, etc India: Every company is required to appoint a compliance officer who is responsible for setting policies, procedures, monitoring adherence to the rules for the preservation of price sensitive information to prevent insider trading. (SEBI Insider Trading Regulation, 2002) There should be a separate section on Corporate Governance in the annual report to shareholders. Noncompliance with any mandatory requirements and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted. (SEBI Code, Clause 49). China: In addition to disclosing mandatory information, a company shall also disclose voluntarily and in a timely manner all other information that may have a material effect on the decisions of shareholders and stakeholders, and shall ensure equal access to information for all shareholders. (Code) Malaysia: A listed issuer must adhere to the following 6 specific policies concerning disclosure, which are as follows: - immediate disclosure of material information; - thorough public dissemination; - clarification, confirmation, or denial of rumors or reports; - response to unusual market activity; - unwarranted promotional disclosure activity; and insider trading. (LR Section 9.02) Information is considered material if it is reasonable expected to have a material effect on the price, value or market activity of any of the listed issuers securities; or the decision of a holder of securities of the listed issuer or an investor determining his choice of action. (LR Section 9.03) Immediate disclosure is required for, among others: - the entry into a joint venture agreement of merger; - the acquisition or loss of a contract, franchise or distribution rights; - a change in management; - the commencement of or the involvement in litigation and any material development arising there from; - the commencement of arbitration proceedings or proceedings involving alternative dispute resolution methods; - the purchase or sale of an asset; - a change in capital investment plans; - the making of a tender offer for another companys securities; - the occurrence of an event of default on interest and/or principal payments in respect of loans; - a change in general business direction; - a change of intellectual property rights; - the entry into a memorandum of understanding; or - the entry into any call or put option or financial futures contract. (LR Section 9.04) Brazil: NA

182

16. Procedures for information release: Through local exchanges, and as best practice, through company website India: Information such as quarterly results and presentations made by companies to analysts shall be put on the companys website, or shall be sent in such a form as to enable the stock exchange on which the company is listed to put it on its website. (SEBI Code, Clause 49) China: Disclosed information by a listed company shall be easily comprehensible. Companies shall ensure economical, convenient, and speedy access to information through various means, such as the Internet. (Code) Malaysia: Any public disclosure of material information must be made by an announcement first to the Exchange or simultaneously to the Exchange, the press and newswire services. (LR Section 9.08) Brazil: NA 17. Remuneration of directors: Should be disclosed in annual report. All major compensation schemes, including stock options, should be fully disclosed and subject to shareholder approval India: All fees/compensation paid to non-executive directors are fixed by the Board of Directors and require previous approval of shareholders in the Annual General Meeting. The shareholders resolution should specify the limits for the maximum number of stock options that can be granted to non-executive directors in any financial year and in aggregate. (SEBI Code, Clause 49) China: The board should report, at shareholders meetings, the performance evaluation and compensation of directors and disclose such information. (Code) A company shall regularly disclose to its shareholders information about remunerations obtained by the directors, supervisors, and senior managers from the company. (CL) Malaysia: The remuneration of directors of the listed issuer for the financial year must be included in the annual report in the following manner: - the aggregate remuneration of directors with categorization into appropriate components distinguishing between executive and non-executive directs and - the number of directors whose remuneration falls in each successive band of RM50,000 distinguishing between executive and non-executive directors. (LR Appendix 9C) The companys annual report should contain details of the remuneration of each director. (Code, Part 1.B.III) Brazil: Law: All remuneration of any type, including benefits and allowances, to be determined by shareholder meeting (CL Art. 152). 18. Investor Relations: Should have an investor relations program. India: No specific provisions China: The secretary of the board of directors is responsible for providing/explaining publiclydisclosed information to investors. (Code) Malaysia: The Board of Directors is responsible for developing and implementing an investor relations program or shareholder communications policy for the company. (Code Part 2.AA.I) Brazil: Law: There must be an officer of relations with investors, who is responsible for the disclosure of periodic and relevant information to the CVM(CVM Inst. 202). IBGC: There should be a company spokesman, who can be the manager of investor relations (2.20). 19. National/ International GAAP: Identify accounting standard used. Comply with local practices and use consolidated accounting (annually) for all subsidiaries in which sizable ownership exists India: India materially conforms to the International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA). (ICAI and Companies Act) China: Companies should establish an accounting system in accordance with the relevant national statutes, regulations, and the stipulations of the finance authority under the State Council. (CL) Malaysia: The Malaysian Accounting Standard Board (MASB), along with the Financial Reporting Foundation (FRF), is responsible for the accounting framework in Malaysia and complies with IAS and requires consolidated accounting to be used for financial statements. Brazil: Law: Generally accepted accounting principles (CL Art. 177). Consolidated accounting

183

required when more than 30% of the companys net worth is represented by controlled companies (CL Art. 249). CVM: Either IAS or US GAAP standards. (VI.6). Bovespa: Same (Level 2 and above). 20. Audit Committee: For large firms, must be chaired by qualified independent director with a financial background India: The audit committee shall have minimum three directors as members, with two-thirds of the members being independent. (SEBI Code, Clause 49) All members of the audit committee should be financially literate and at least one member shall have accounting or related financial management expertise. (SEBI Code, Clause 49) China: Must be chaired by an independent director. The majority of the committee members should be independent directors. (Code) At least one independent director on the committee must be an accounting professional. (Code) Malaysia: An applicant must establish an audit committee comprising a majority of independent directors. (LR Section 3.15) At least one member of the audit committee must: - be a member of the Malaysian Institute of Accountants; - or have at least 3 years working experience and either - have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act 1967 or - be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act 1967; or - fulfills such other requirements as prescribed by the Exchange. (LR 15.10) The members of an audit committee shall elect a chairman from among their number who shall be an independent director. (LR Section 15.11) The board should establish an audit committee of at least three directors, a majority of whom are independent. The Chairman of the audit committee should be an independent nonexecutive director. (Code Part 2.BB.I) Brazil: Law: Statutory audit board limited to persons with no position in competing company, no conflicts with the company, no member of an administrative body or employee of the company or controlled company in the same group, or any spouse or relative (up to the third degree) of the company. Members must have a university degree or 3 years experience as a member of the administration or audit board of a company (CL Arts. 147, 162)
Source: Institutional of International Finance. CVC: Good Practice Code;Bovespa: Listing Rules;IBGC: Best Practices Code;TOM: Malaysia Code on Takeovers and Mergers: Bursa Malaysia Securities Berhad Listing Requirements; SEBI: Securities and Exchange Commission of India

184

Annexure 9 Overview of the Functions of the Audit Committees in Selected Companies

ACC Limited The Audit Committee acts as a link between the statutory and internal auditors and the Board of Directors. It addresses itself to matters pertaining to adequacy of internal controls, reliability of financial statements/other management information, adequacy of provisions for liabilities, and whether the audit tests are appropriate and scientifically carried out and that they were aligned with the realities of the business, adequacy of disclosures, compliance with all relevant statutes and other facets of Companys operations that are of vital concern to the Company. In particular, the role of the Audit Committee includes the following: review of Management discussion and analysis of financial condition and results o operations; statement of significant related party transactions; reviewing with the statutory and internal auditors the adequacy of internal controls and steps to be taken for strengthening the areas of weaknesses in internal controls.; review the appointment, terms of remuneration and removal of the Chief Internal Auditor; review the Companys financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible.; recommending the appointment, reappointment and removal of the Statutory Auditors, fixing of audit fees and approval for payment of fees for any other services rendered by the Auditors; reviewing with the management, the quarterly/annual financial statements before submission to the Board for approval, with particular reference to:a. matters required to be included in the Directors Responsibility Statement which forms a part of the Directors Report pursuant to Clause (2AA) of Section 217 of the Companies Act, 1956, b. changes, if any, in accounting policies and practices and reasons for the same, c. major accounting entries involving estimates based on the exercise of judgments by management, d. significant adjustments made in the financial statements arising out of audit findings, e. compliance with listing and other legal requirements relating to financial statements, f. disclosure of any related party transactions, g. qualifications in the draft audit report. reviewing the operations and financial statements of Subsidiary Companies; reviewing, with the management, performance of statutory and internal auditors, adequacy of internal audit function including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit; discussion with internal auditors any significant findings and follow up thereon; reviewing the findings of any internal investigations by the internal auditors and managements response on matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board; discussion with Statutory Auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern; look into the reasons for substantial defaults in payment to depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors; review any other area which may be specified under the Listing Agreement, Companies Act, other statutes, rules and regulations as amended from time to time; to carry out any other function as mentioned in the terms of reference of the Committee

In fulfilling the above role, the Audit Committee has powers to investigate any activity within its terms of reference, to seek information from employees and to obtain outside legal and professional advice.

185

Bajaj Auto Bajaj Auto set up its audit committee in 1987. Since then, the company has been reviewing and making appropriate changes in the composition and working of the committee from time to time to bring about greater effectiveness, and comply with various requirements under the Companies Act, 1956 and clause 49 of the listing agreement. The Company Secretary acted as the secretary to the audit committee. The terms of reference of the audit committee are extensive and go beyond what is mandated in clause 49 of the listing agreement and section 292A of The Companies Act, 1956. Subsidiary companies During the year, the audit committee reviewed the financial statements (in particular, the investments made) of each unlisted Indian subsidiary company Bajaj Auto Holdings Ltd. (BAHL), Bajaj Allianz General Insurance Company Ltd. (BAGICL) and Bajaj Allianz Life Insurance Company Ltd. (BALICL). Minutes of the board meetings of these subsidiary companies were regularly placed before the board of Bajaj Auto. So too was a statement of the significant transactions and arrangements entered into by these subsidiary companies. Disclosures A summary statement of transactions with related parties was placed periodically before the audit committee during the year. Suitable disclosures have been made in the financial statements, together with the managements explanation in the event of any treatment being different from that prescribed in accounting standards. At its meeting of 16 July 2005, the board laid down procedures to inform it of the Companys risk assessment and inalization procedures. These would be periodically reviewed to ensure that management identifies and controls risk through a properly defined framework. There were no public issues, right issues, preferential issues etc. during the year. Bharat Petroleum BPC took the initiative to introduce Corporate Governance in the organization during the year 1996 itself, by constituting the Audit Compliance Committee. The said Committee was reconstituted and renamed as the Audit Committee in the year 2000 and the role, powers and functions of the Audit Committee were specified and approved by the Board. The terms of reference of the Audit Committee cover all matters specified in Clause 49 of the Listing Agreement with Stock Exchanges. The role and responsibilities of the Committee include the following:1. Overseeing the companys financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the Statutory Auditor and the fixation of audit fees. 3. Approval of payment to Statutory Auditors for any other services rendered by them. 4. Reviewing, with the management, the Annual Financial Statements before submission to the Board for approval, with particular reference to: a. Matters required, to be included in the Directors Responsibility Statement and in the Boards report in terms of Clause (2AA) of Section 217 of the Companies Act, 1956 b. Changes, if any, in accounting policies and practices and reasons for the same c. Major accounting entries involving estimates based on the exercise of judgment by management d. Significant adjustments made in the financial statements arising out of audit findings e. Compliance with listing and other legal requirements relating to financial statements f. Disclosure of any related party transactions g. Qualifications in the draft audit report 5. Reviewing, with the management, the Quarterly Financial Statements before submission to the Board for approval 6. Reviewing, with the management, the performance of the Statutory and Internal Auditors and adequacy of the internal control systems. 7. Reviewing the adequacy of the Internal Audit function, if any, including the structure of the Internal Audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 8. Discussing with the Internal Auditors any significant findings and follow up thereon.

186

9. Reviewing the findings of any internal investigations by the Internal Auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. 10. Discussing with the Statutory Auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern. 11. Looking into the reasons for substantial defaults in the payments to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. 12 Defining the significant related party transactions 13. Carrying out any other function as mentioned in the terms of reference of the Audit Committee. Britannia The role and terms of reference of the Audit Committee were revised and enlarged by the Board on 31st May 2006, which is in accordance with amended Clause 49 of the Listing Agreement and Section 292A of the Companies Act, 1956.The Audit Committee also reviews the management discussion and analysis, statement of related party transactions, management letters and the response thereto by the management. Internal Control Systems and Adequacy The Company has an adequate system of internal controls which ensures proper safeguarding of assets, maintaining proper accounting records and reliable financial information. An external independent firm carries out the internal audit of the Companys operations and reports its findings to the Audit Committee on a regular basis. Internal Audit also evaluates the functioning and quality of internal controls and provides assurance of its adequacy and effectiveness through periodic reporting. The Company has a code of business conduct for all employees and a clearly articulated and internalized delegation of financial authority. These authority levels are periodically reviewed by management and modifications, if any, are surfaced to the Audit Committee and Board for approval. The Audit Committee also reviews the risk management framework that was established last year.

187

Cipla Limited The Audit Committee was constituted on 4th September 2000 in compliance with the requirements of Clause 49 of the Listing Agreement. The Committee discharges such duties and functions generally indicated in Clause 49 of the Listing Agreement with the Stock Exchanges and such other functions as may be specifically delegated to the Committee by the Board from time to time. GlaxoSmithKline Pharmaceuticals Ltd The terms of reference of this Committee are wide enough to cover the matters specified for audit committees under Clause 49 of the Listing Agreements, as well as in Section 292A of the Companies Act, 1956, and are as follows: a) Oversight of the Companys financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible; b) to review with Management the financial statements at the end of a quarter, half year and the annual financial statements before submission to the Board for approval, focusing particularly on: 6. matters required to be included in the Directors Responsibility Statement which form part of the Boards report in terms of clause (2AA) of Section 217of the Companies Act, 1956; (ii) changes, if any, in accounting policies and practices and reasons for the same; (iii) major accounting entries involving estimates based on the exercise of judgment by management; (iv) significant adjustments made in the financial statements arising out of audit findings; 7. compliance with listing and other legal requirements relating to financial statements; (vi) disclosure of any related party transactions; and (vii)qualifications in the draft audit report. c) to consider the appointment or re-appointment of the statutory auditors, the audit fee, any questions of resignation or dismissal and payment to statutory auditors for any other services rendered by them; d) to discuss with the statutory auditors before the audit commences, about the nature and scope of the audit as well as post-audit discussion to ascertain any area of concern (in absence of management wherever necessary); e) reviewing with management the performance of statutory and internal auditors, adequacy of the internal control systems and discuss the same periodically with the statutory auditors, prior to the Board making its statement thereon; f) reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit; g) discussion with internal auditors on any significant findings and follow up thereon; h) reviewing the findings of any internal investigation by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board; i) to look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors; j) to review the functioning of the Whistle Blower mechanism, in case the same is existing; k) to review the external auditors audit reports and presentations and managements response thereto; l) to ensure co-ordination between the internal and external auditors, and to request internal audit to undertake specific audit projects, having informed management of their intentions; m) to consider any material breaches or exposure to breaches of regulatory requirements or of ethical codes of practice to which the Company subscribes, or of any related codes, policies and procedures, which could have a material effect on the financial position or contingent liabilities of the Company; n) to review policies and procedures with respect to directors and officers expense accounts, including their use of corporate assets, and consider the results of any review of these areas by the internal auditors or the external auditors; o) to consider other topics, as defined by the Board;

188

p) to review the following information: 8. Management discussion and analysis of financial condition and results of operations; ii) Statement of significant related party transactions (as defined by the audit committee), submitted by management; iii) Management letters/letters of internal control weaknesses issued by the statutory auditors; iv) Internal audit reports relating to internal control weaknesses; and 9. The appointment, removal and terms of remuneration of the Chief Internal Auditor. HDFC Bank Limited The terms of reference of the Audit Committee are in accordance with Clause 49 of the Listing Agreement entered into with the Stock Exchanges in India, and interalia includes the following: a) Overseeing the Banks financial reporting process and ensuring correct, adequate and credible disclosure of financial information; b) Recommending appointment and removal of external auditors and fixing of their fees; c) Reviewing with management the annual financial statements before submission to the Board with special emphasis on accounting policies and practices, compliance with accounting standards and other legal requirements concerning financial statements; d) Reviewing the adequacy of the Audit and Compliance functions, including their policies, procedures, techniques and other regulatory requirements; and e) Any other terms of reference as may be included from time to time in clause 49 of the listing agreement. The Board has also adopted a charter for the audit committee in connection with certain United States regulatory standards as the Banks securities are also listed on New York Stock Exchange Hero Honda Motors Ltd The genesis of Hero Hondas committee can be traced back to the Audit Sub committee, constituted in 1987. Since then it has been dealing with matters prescribed by the Board of Directors on a case by case basis. In general, the primary role/objective of the Audit Committee is to review the financial statements of the Company, strengthen internal controls and look into all transactions having monetary implications on the functioning of the Company. The nomenclature, constitution and terms of reference of the Committee were revised on January 16, 2001 and an Audit Committee was set up as per the provisions of the Section 292A of the Companies Act, 1956 and Clause 49 f the Listing Agreement of the Stock Exchanges. The members of the Committee have adequate knowledge in the filed of finance, accounting and law. The role and terms of reference of the Audit Committee includes the following. Overseeing the Companys financial reporting process and disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible. Recommending the appointment, re-appointment, replacement and removal of the statutory auditor, fixation of audit fees and approving payments for any other services. Reviewing with the management the annual financial statements with primary focus on matters required to be included in the Directors Responsibility Statement, changes, if any in accounting policies and practices and reasons thereof, compliance with accounting standards and guidelines of stock exchanges, major accounting entries, qualifications in draft audit reports, related party transactions and the going concern assumption. Reviewing with the management, the quarterly financial statements before submission to the board for approval. Compliance with Stock Exchanges and legal requirements concerning financial statements. Reviewing the adequacy of internal control systems and the internal audit function and reviewing the companys financial and risk management policies. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control system of a material nature and reporting the matter to the Board. Reviewing reports furnished by the internal auditors, discussion with internal auditors on any significant findings and ensuring suitable follow up thereon.

189

 Discussing with external auditors before the audit commences of the nature and scope of audit. Also post audit discussion to ascertain any area of a concern. Directors overseas traveling expenses. Review of foreign exchange exposure. Hindalco Industries Ltd The Company has an Audit Committee at the Board level which acts as a link between the management, the statutory and internal auditors and the Board of Directors and oversees the financial reporting process. The Audit Committee is endowed with the following powers: 1. To investigate any activity within its terms of reference. 2. To seek information from any employee. 3. To obtain outside legal or other professional advice. 4. To secure attendance of outsiders with relevant expertise, if it considers necessary. The role of the audit committee includes the following: 1. Oversight of the companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. 4. Reviewing, with the management, the annual financial statements before submission to the board for approval with particular reference to: a. Matters required, to be included in the Directors Responsibility Statement to be included in the Boards report in terms of clause (2AA) of section 217 of the Companies Act, 1956. b. Changes, if any, in accounting policies and practices and reasons for the same c. Major accounting entries involving estimates based on the exercise of judgment by management. d. Significant adjustments made in the financial statements arising out of audit findings. e. Compliance with listing and other legal requirements relating to financial statements. f. Disclosure of any related party transactions. g. Qualifications in the draft audit report. 5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval. 6. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems. 7. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 8. Discussion with internal auditors any significant findings and follow up there on. 9. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board. 10. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern. 11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditor, if any. 12. To review the functioning of the Whistle Blower mechanism, in case the same is existing. 13. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee. The Audit Committee reviews the following information: 1. Management discussion and analysis of financial condition and results of operations; 2. Statement of significant related party transactions (as defined by the audit committee), submitted by management; 3. Management letters / letters of internal control weaknesses issued by the statutory auditors; 4. Internal audit reports relating to internal control weaknesses; and 5. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee.

190

Hindustan Petroleum Corporation Ltd The terms of reference of the Audit Committee are as provided under the Companies Act, 1956 and other applicable regulations. The scope of the Audit Committee includes the following: Reviewing with the Management the annual financial statements before submission to the Board. Reviewing with the Management, Statutory Auditors and Internal Auditors, the adequacy of internal control systems. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure, coverage and frequency of internal audit. Discussion with internal auditors on any significant findings and follow up thereon. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. Reviewing the Companys financial and risk management policies. ICICI Bank Ltd The Audit Committee provides direction to the audit function and monitors the quality of internal and statutory audit. The responsibilities of the Audit Committee include the following: overseeing the financial reporting process to ensure fairness, sufficiency and credibility of financial statements, recommendation of appointment and removal of central and branch statutory auditors and chief internal auditor and fixation of their remuneration, approval of payment to statutory auditors for other services rendered by them, review of functioning of Whistle Blower Policy, review of the quarterly and annual financial statements before submission to Board, review of the adequacy of internal control systems and the internal audit function, review of compliance with the inspection and audit reports and reports of statutory auditors, review of the findings of internal investigations, review of statement of significant related party transactions, review of management letters/letter of internal control weaknesses issued by statutory auditors, discussion on the scope of audit with external auditors and examination of reasons for substantial defaults, if any, in payment to stakeholders. The Committee provides direction to the internal audit function and monitors the quality of internal and statutory audit. The Committee is also empowered to appoint/oversee the work of any registered public accounting firm, establish procedures for receipt and treatment of complaints received regarding accounting and auditing matters, engage independent counsel as also provide for appropriate funding for compensation to be paid to any firm/advisors. Indian Oil Corporation Ltd The Audit Committee has been constituted in line with the provisions of Clause-49 of the Listing Agreement and also meets the requirements of Section 292A of the Companies Act, 1956. The members of the Audit Committee have requisite financial and management expertise. The terms of reference of the Audit Committee cover all matters specified under Clause-49 of the Listing Agreement of the Stock Exchanges, which inter alia includes the following: Overseeing the Companys financial reporting process and disclosure of financial information to ensure that the financial statements are correct, sufficient and credible; Reviewing with the management the annual financial statements before submission to the Board; Reviewing with the management and statutory and internal auditors, the adequacy of internal control systems; Discussing with internal auditors any significant findings and follow-up on such issues; Discussion with statutory auditors, before the audit commences, on the nature and scope of audit, as well as having post-audit discussion to ascertain any area of concern; Reviewing the Companys financial and risk management policies.

Infosys Technologies Ltd

191

Primary objective of the audit committee The primary objective of the audit committee (the committee) of Infosys Technologies Limited is to monitor and provide effective supervision of the managements financial reporting process with a view to ensure accurate, timely and proper disclosures, and transparency, integrity and quality of financial reporting. The committee oversees the work carried out in the financial reporting process by the management, the internal auditors and the independent auditor, and notes the processes and safeguards employed by each. Responsibilities of the audit committee Provide an open avenue of communication between the independent auditor, internal auditor, and the Board of Directors (BoD). Meet at least four times every year, or more frequently as circumstances require. The audit committee may ask members of the management or others to attend meetings and provide pertinent information as necessary. Confirm and assure the independence of the independent auditor and objectivity of the internal auditor. Appoint, compensate and oversee the work of the independent auditor (including resolving disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. Review and pre-approve all related party transactions in the Company. For this purpose, the committee may designate a member who shall be responsible for pre-approving related party transactions Review with the independent auditor the co-ordination of audit efforts to assure completeness of coverage, reduction of redundant efforts, and the effective use of all audit resources. Consider and review the following with the independent auditor and the management: 10. The adequacy of internal controls including computerized information system controls and security, and (ii) Related findings and recommendations of the independent auditor and internal auditor, together with the managements Responses Consider and, if deemed fit, pre-approve all non-auditing services to be provided by the independent auditor to the Company. For the purpose of this clause, non-auditing services shall mean any professional services provided to the Company by the independent auditor, other than those provided to the Company in connection with an audit or a review of the financial statements of the Company and includes (but is not limited to): Bookkeeping or other services related to the accounting records of financial statements of the Company Financial information system design and implementation Appraisal or valuation services, fairness opinions, or contribution-in-kind reports Review and discuss with the management and the independent auditor, the annual audited financial statements and quarterly audited / Unaudited financial statements, including the Companys disclosures under Managements Discussion and Analysis of Financial Condition and Results of Operations, prior to filing the Companys Annual Report on Form 20-F and quarterly results on Form 6-K, respectively, with the SEC. Direct the Companys independent auditor to review before filing with the SEC, the Companys interim financial statements included in quarterly reports on Form 6-K, using professional standards and procedures for conducting such reviews. Coduct a post-audit review of the financial statements and audit findings, including any significant suggestions for improvements provided to the Management by the independent auditor. Review before release, the unedited quarterly operating results in the Companys quarterly earnings release. Oversee compliance with the requirements of the SEC and SEBI, as the case may be, for disclosure of auditors services and audit committee members, member qualifications and activities. Review, approve and monitor the code of ethics that the Company plans for its senior financial officers. Review managements monitoring of compliance with the Companys standards of business conduct and with the Foreign Corrupt Practices Act.

192

Review, in conjunction with the counsel, any legal matters that could have a significant impact on the Companys financial statements. Oversee and review, at least annually, the Companys risk management policies, including its investment policies. Review the Companys compliance with employee benefit plans. Oversee and review the Companys policies regarding information technology and management information systems. If necessary, institute special investigations with full access to all books, records, facilities and personnel of the Company. As appropriate, obtain advice and assistance from outside legal, accounting or other advisors. Review its own charter, structure, processes and membership requirements. Provide a report in the Companys proxy statement in accordance with the rules and regulations of the SEC. Establish procedures for receiving, retaining and treating complaints received by the Company regarding accounting, internal accounting controls or auditing matters and procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Consider and review the following with the Management, internal auditor and the independent auditor: S (i) Significant findings during the year, including the status of previous audit recommendations A (ii) Any difficulties encountered during audit work including any restrictions on the scope of activities or access to required information, and (iii) Any changes required in the planned scope of the internal audit plan Report periodically to the BoD on significant results of the foregoing activities.

Composition of the audit committee The committee shall consist solely of independent directors 11. NASDAQ Rule 4200 and ii) the rules of the Securities and Exchange Commission) of the Company and shall be comprised of a minimum of three directors. Each member will be able to read and understand fundamental financial statements, in accordance with the NASDAQ National Market Audit Committee requirements. They should be diligent, knowledgeable, dedicated, interested in the job and willing to devote a substantial amount of time and energy to the responsibilities of the committee, in addition to BoD responsibilities. At least one of the members shall be a Financial Expert as defined in Section 407 of the Sarbanes-Oxley Act. The members of the committee shall be elected by the BoD and shall continue until their successors are duly elected. The duties and responsibilities of a member are in addition to those applicable to a member of the BoD. In recognition of the time burden associated with the service and, with a view to bringing in fresh insight, the committee may consider limiting the term of the audit committee service, by automatic rotation or by other means. One of the members shall be elected as the chairperson, either by the full BoD or by the members themselves, by majority vote. Relationship with independent and internal auditors The committee has the ultimate authority and responsibility to select, evaluate, and, where appropriate, replace the independent auditor in accordance with the law. All possible measures must be taken by the committee to ensure the objectivity and independence of the independent auditor. These include: (i) Reviewing the independent auditors proposed audit scope, approach and independence (ii) Obtaining from the independent auditor periodic formal written statements delineating all relationships between the auditor and the Company consistent with applicable regulatory requirements and presenting this statement to the BoD (iii) Actively engaging in dialogue with the auditors with respect to any disclosed relationships or services that may impact their objectivity and independence and /

193

(iv)

(v)

or recommend that the full BoD take appropriate action to ensure their independence Encouraging the independent auditor to have open and frank discussions on their judgments about the quality, not just the acceptability, of the Companys accounting principles as applied in its financial reporting. This includes such issues as the clarity of the Companys financial disclosures, and degree of aggressiveness or conservatism of the Companys accounting principles and underlying estimates, and other significant decisions made by the management in preparing the financial disclosure and audited by them. Carrying out the attest function in conformity with U.S. GAAS, to perform an interim financial review as required under Statement of Auditing Standards 71 of the American Institute of Certified Public Accountants and also discuss with the committee or its chairman, and an appropriate representative of Financial Management and Accounting, in person or by telephone conference call, the matters described in SAS 61, Communications with the Committee as amended by SAS 90 Audit Committee Communication prior to the Companys filing of its Form 6K (and preferably prior to any public announcement of financial results), including significant adjustments, management judgment and accounting estimates, significant new accounting policies, and disagreements with management, and Reviewing reports submitted to the audit committee by the independent auditor in accordance with the applicable SEC requirements.

The internal auditors of the Company are in the best position to evaluate and report on the adequacy and effectiveness of the internal controls. Keeping in view the need for the internal auditors independence from the management to remain objective, a formal mechanism should be created to facilitate confidential exchanges between the internal auditors and the committee, regardless of irregularities or problems. The work carried out by each of these auditors needs to be assessed and reviewed with the independent auditor and appropriate recommendations made to the BoD.

Disclosure requirements The committee charter should be published in the Annual Report once every three years and also whenever any significant amendment is made to the charter. The committee shall disclose in the Companys Annual Report whether or not, with respect to the concerned fiscal year: The management has reviewed the audited financial statements with the committee, including a discussion of the quality of the accounting principles as applied, and significant judgments affecting the Companys financial statements The independent auditors have discussed with the committee their judgments of the quality of those principles as applied and judgments referred to above under the circumstances. The members of the committee have discussed among themselves, without the management or the independent auditor being present, the information disclosed to the committee as described above The committee, in reliance on the review and discussions conducted with the management and the independent auditor pursuant to the requirements above, believes that the Companys financial statements are fairly presented in conformity with Generally Accepted Accounting Principles (GAAP) in all material respects, and The committee has satisfied its responsibilities in compliance with its charter. The committee shall secure compliance that the BoD has affirmed to the NASD / Amex Stock Exchange on the following matters, as required in terms of the relevant NASD / Amex rules: (ii) Composition of the committee and independence of committee members (iii) Disclosures relating to non-independent members Financial literacy and financial expertise of members, and (iv) Review of the committee charter. The committee shall report to shareholders as required by the relevant rules of the U.S. Securities and Exchange Commission (SEC).

Meetings and reports The committee shall meet at least four times a year.

194

The committee will meet separately with the CEO and the CFO of the Company at such times as are appropriate to review the financial affairs of the Company. The audit committee will meet separately with the independent auditors and internal auditor of the Company, at such times as it deems appropriate (but not less than quarterly) to fulfill the responsibilities of the audit committee under this charter. In addition to preparing the report in the Companys proxy statement in accordance with the rules and regulations of the SEC, the committee will summarize its examinations and recommendations to the Board of Directors as may be appropriate, consistent with the committees charter.

Delegation of authority The committee may delegate to one or more designated embers of the committee the authority to pre-approve audit and permissible non-audit services, provided such re-approval decision is presented to the full audit committee at its scheduled meetings. Definitions Independent member To be independent, members should have no relationship with the Company that may interfere with the exercise of their independence from the management and the Company. The following are not considered independent: 6. A director who is employed by the Company or any of its affiliates for the current year or in the past five years (ii) A director who has been a former partner or employee of the independent auditor who worked on the Companys audit engagement in the current year or in the past five years. (iii) A director who accepts any compensation from the Company or any of its affiliates in excess of $60,000 during the previous fiscal year, other than compensation for Board service, benefits under a tax-qualified retirement plan, or non-discretionary compensation in the current year or in the past five years (Iv) A director who is a member of the immediate family of an individual who is, or has been, in the past three years, employed by the Company or any of its affiliates as an executive officer. Immediate family includes a persons spouse, parents, children, siblings, mother-in-law, fatherinlaw, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who resides in such persons home. 7. A director who is a partner in, or a controlling shareholder or an executive officer of, any for-profit business organization to which the Company made, or from which the Company received, payments (other than those arising solely from investments in the Companys securities) that exceed 5% of the Companys or business organizations consolidated gross revenues for that year, or $200,000, whichever is more, in the past five years (vi) A director who is employed as an executive of another entity such that any of the Companys executives serve on that entitys compensation committee for the current year or in the past five years, and 8. A shareholder owning or controlling 20% or more of the Companys voting securities Financial expert For purposes of this Item, an audit committee financial expert is an individual with the following attributes: 9. An understanding of generally accepted accounting principles and financial statements (ii) The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves (iii) Experience in preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrants financial statements, or experience in actively supervising one or more persons engaged in such activities; (iv) An understanding of internal control over financial reporting, and

195

(v) An understanding of audit committee functions. The individual shall have acquired such attributes through: 10. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions (ii) Experience in actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions 11. Experience in overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements, or 12. Other relevant experience. Audit committee attendance during fiscal 2007 Four audit committee meetings were held during the year. These were held on April 13, 2006; July 11, 2006; October 10, 2006 and January 10, 2007. During the year, the audit committee held two conference calls on April 4, 2006 and July 7, 2006. 1.3 Audit committee report for the year ended March 31, 2007 Each member of the committee is an independent director, according to the definition laid down in the audit committee charter, and Clause 49 of the Listing Agreement with the relevant Indian stock exchanges. The management is responsible for the Companys internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Companys financial statements in accordance with the generally accepted auditing standards, and for issuing a report thereon. The committees responsibility is to monitor these processes. The committee is also responsible for overseeing the processes related to the financial reporting and information dissemination. This is to ensure that the financial statements are true, fair, sufficient and credible. In addition, the committee recommends to the Board the appointment of the Companys internal and independent auditors. In this context, the committee discussed with the Companys auditors, the overall scope and plans for the independent audit. The management represented to the committee that the Companys financial statements were prepared in accordance with Generally Accepted Accounting Principles. The committee discussed with the auditors, in the absence of the management (whenever necessary), the Companys audited financial statements including the auditors judgments about the quality, not just the applicability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The committee also discussed with the auditors other matters required by the Statement on Auditing Standards No.1 (SAS 61) Communication with Audit Committees as amended and the Sarbanes Oxley Act of 2002. Relying on the review and discussions conducted with the management and the independent auditors, the audit committee believes that the Companys financial statements are fairly presented in conformity with Generally Accepted Accounting Principles in all material aspects. The committee has also reviewed the internal controls put in place to ensure that the accounts of the Company are properly maintained and that the accounting transactions are in accordance with prevailing laws and regulations. In conducting such reviews, the committee found no material discrepancy or weakness in the internal control systems of the Company. The committee also reviewed the financial and risk management policies of the Company and expressed its satisfaction with the same. The companys auditors provided to the committee the written disclosures required by Independence Standards Board Standard No. 1 Independence Discussions with Audit Committees, based on which the committee discussed the auditors independence with both the management and the auditors. After review, the committee expressed its satisfaction on the independence of both the internal and the statutory auditors. Moreover, the committee considered whether any non-audit services provided by the auditors firm could impair the auditors independence, and concluded that there were no such services provided. The committee secured compliance on the affirmation of the Board of Directors to the NASDAQ stock exchange, under the relevant rules of the exchange on composition of the committee and independence of the committee members, disclosures relating to non-independent members, financial literacy and financial expertise of members, and a review of the audit charter. Based on the committees discussion with the management and the auditors and the committees review of the representations of the management and the report of the auditors to the committee, the committee has recommended the following to the Board of Directors:

196

1. The audited financial statements prepared as per Indian GAAP of Infosys Technologies Limited for the year ended March 31, 2007, be accepted by the Board as a true and fair statement of the financial status of the Company 2. The audited consolidated financial statements prepared as per Indian GAAP of Infosys Technologies Limited and its subsidiaries for the year ended March 31, 2007 be accepted by the Board as a true and fair statement of the financial status of the group, and 3. The audited financial statements prepared as per U.S. GAAP, and to be included in the Companys Annual Report on Form 20-F, for the fiscal year ended March 31, 2007 be filed with the U.S. Securities and Exchange Commission. The committee has recommended to the Board the reappointment and fees of BSR & Co., Chartered Accountants, as the statutory auditors of the Company for the fiscal year ending March 31, 2008, and that the necessary resolutions for appointing them as auditors be placed before the shareholders. The committee has also recommended to the Board, the appointment of KPMG, India, as independent auditors of the Company for the U.S. GAAP financial statements, for the financial year ending March 31, 2008.The committee recommended the appointment of internal auditors to review various operations of the Company, and determined and approved the fees payable to them. The committee has also issued a letter in line with recommendation No. 9 of the Blue Ribbon Committee on audit committee effectiveness, which is to be provided in the Financial statements prepared in accordance with U.S. GAAP section of the Annual Report on Form 20-F. In conclusion, the committee is sufficiently satisfied that it has complied with its responsibilities as outlined in the Audit committee charter. ITC Limited The Audit Committee of the Board, inter alia, provides reassurance to the Board on the existence of an effective internal control environment that ensures: efficiency and effectiveness of operations, both domestic and overseas; safeguarding of assets and adequacy of provisions for all liabilities; reliability of financial and other management information and adequacy of disclosures; compliance with all relevant statutes. The Audit Committee is empowered, pursuant to its terms of reference, inter alia, to: investigate any activity within its terms of reference and to seek any information it requires from any employee; obtain legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise, when considered necessary. The role of the Committee includes the following: (a) Overseeing the Companys financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible; (b) Recommending the appointment and removal of external auditors, fixation of audit fee and approval of payment of fees for any other services rendered by the auditors; I Reviewing with the management the financial statements before submission to the Board, focusing primarily on: Any changes in accounting policies and practic 13. Major accounting entries based on exercise of judgement by manageme 14. Qualifications in draft audit repor 15. Significant adjustments arising out of aud 16. The going concern assumpti 17. Compliance with Accounting Standards Compliance with Stock Exchange and legal requirements concerning financial statements Related party transactions; (d) Reviewing with the management, external and internal auditors, the adequacy of internal control systems and the Companys statement on the same prior to endorsement by the Board; (e) Reviewing the adequacy of the internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure, coverage and frequency of internal audit; Larsen & Toubro Ltd

197

The Audit Committee is responsible for Overseeing the Companys financial reporting process and disclosure of its financial information Recommending the appointment of the Statutory Auditors and fixation of their remuneration Reviewing and discussing with the Statutory Auditors and the Internal Auditor about internal control systems Reviewing the adequacy and independence of the Internal Audit function, and observations of the Internal Auditor Reviewing major accounting policies and practices and adoption of applicable Accounting Standards Reviewing major accounting entries involving exercise of judgment by the management Disclosure of contingent liabilities Reviewing, if necessary, the findings of any internal investigations by the Internal Auditors and reporting the matter to the Board Reviewing the risk management mechanisms of the Company Reviewing of compliance with Listing Agreement and various other legal requirements concerning financial statements and related party transactions Reviewing the Quarterly and Half yearly financial results and the Annual financial statements before they are submitted to the Board of Directors Reviewing the operations, new initiatives and performance of the business divisions Looking into the reasons for substantial defaults in payments to depositors, debenture holders, shareholders (in case of nonpayment of declared dividends) and creditors, if any. Mphasis Ltd The primary functions of the Audit Committee, as per its Charter, are to provide assistance to the Board of Directors in fulfilling their oversight responsibility to the shareholders, potential shareholders, the investment community and others relating to: overseeing processes ensuring the integrity of the Companys financial statements; overseeing processes for the management of enterprise risks; overseeing processes for compliance with laws and regulations: overseeing process by which anonymous complaints pertaining to financial or commercial matters are received and acted upon (whistleblower mechanism); enquiring into reasons for default in honouring obligations to creditors and members; reviewing the process for entering into related party transactions and related disclosures; and satisfying itself regarding the conformance of CEOs remuneration, expense reimbursements and use of Company assets with terms of his employment and Companys rules and policies. Nestle India Ltd The Audit Committee consists of a Vice Chairman, who chairs the Committee, and a minimum of two other members of the Board, excluding the Chairman/CEO. At least one member must be a financial expert. The powers and duties of the Audit Committee are established in the Audit Committee Charter, which is approved by the Board. In discharging its responsibilities, it has unrestricted access to the Companys management, books and records. It is free to appoint outside counsel. The Audit Committee supports the Board of Directors in its supervision of financial control through a direct link to KPMG (external auditors) and the Nestl Group Audit (corporate internal auditors). The Audit Committees main duties include the following: to discuss Nestls internal accounting procedures to make recommendations to the Board of Directors regarding the nomination of external auditors to be appointed by the shareholders to discuss the audit procedures, including the proposed scope and the results of the audit t to keep itself regularly informed on important findings of the audits and of their progress to oversee the quality of the internal and external auditing to present the conclusions on the approval of the Financial Statements to the Board of Directors. The Audit Committee regularly reports to the Board on its findings and proposes appropriate actions. The responsibility for approving the annual Financial Statements remains with the Board of Directors. National Thermal Power Corporation Ltd The constitution, quorum, scope, etc. of the Audit Committee is in line with the Navratna Guidelines, the Companies Act, 1956 and provisions of Listing Agreement.

198

Scope of Audit Committee 1. Discussion with Auditors periodically about internal control systems and the scope of audit including observations of the auditors. 2. Reviewing, with the management, the quarterly and half-yearly financial statements before submission to the Board for approval. 3. Ensure Compliance of Internal Control Systems. 4. Oversight of the companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 5. Noting appointment and removal of external auditors. Recommending the fixation of audit fee of external auditors and also approval for payment for any other services. 6. Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to: a. Matters required to be included in the Directors Responsibility Statement to be included in the Boards report in terms of clause (2AA) of section 217 of the Companies Act, 1956; b. Changes, if any, in accounting policies and practices and reasons for the same; c. Major accounting entries involving estimates based on the exercise of judgment by management; d. Significant adjustments made in the financial statements arising out of audit findings; e. Compliance with listing and other legal requirements relating to financial statements; f. Disclosure of any related party transactions; g. Qualifications in the draft audit report. 7. Reviewing, with the management, performance of statutory and internal auditors, the adequacy of internal control systems and suggestion for improvement of the same. 8. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 9. Discussion with internal auditors any significant findings and follow up there on. Review of internal audit observations outstanding for more than two years. 10. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. 11. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as ell as have post-audit discussion to ascertain any area of concern. 12. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors. 13. Review of Observations of C&AG including status of Government Audit paras. 14. To review the functioning of the Whistle Blower mechanism. 15. Investigation into any matter in relation to the items specified above or referred to it by the Board. Ranbaxy Laboratories Ltd The Audit Committee has been constituted as per (Promoter) 292 A of the Companies Act, 1956, and the guidelines set out in the Listing Agreements with the Stock Exchanges. The terms of reference inclue Overseeing financial reporting processes. Reviewing periodic financial results, financial statements and adequacy of internal control systems. Approving internal audit plans and reviewing efficacy of the function. Discussion and review of periodic audit reports and Discussions with external auditors about the scope of audit including the observations of the auditors. Reliance Energy Ltd The audit committee of Reliance Energy was set up way back in May 1986. Currently, the committee consists of all the four independent directors of the company. All the directors have good knowledge of finance, accounts and company law. The chairman of the committee, a chartered accountant, was formerly the executive director (finance) of Life Insurance Corporation of India and has accounting and related financial management expertise. The committee held five meetings during the year. The audit committee also advises the management on the areas where internal audit can be improved. The minutes of the meetings of the audit committee are placed

199

before the board. The terms of reference of the audit committee are in accordance with all the items listed in clause 49 (II) (D) and (E) of the listing agreement as follows: Overseeing of the companys financial reporting process and the disclosure of its financial information to ensure that the financial information is correct, sufficient and credible. ii Recommending the appointment, reappointment and replacement/removal of statutory auditor and fixation of audit fee iii Approve payment for any other services by statutory auditors iv Reviewing with management the annual financial statements before submission to the board, focusing primarily on; a. Matters required, to be included in the directors responsibility statement included in the report of the board of directors b. Any changes in accounting policies and practices c. Major accounting entries based on exercise of judgment by management d. Qualifications in draft statutory audit report. e. Significant adjustments arising out of audit. f. Compliance with listing and other legal requirements concerning financial statements g. Any related party transactions v Reviewing with the management the quarterly financial statements before submission to the board for approval. vi Reviewing with the management, external and internal auditors, the adequacy of internal control systems. vii Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. viii Discussion with internal auditors any significant findings and follow up thereon. ix Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board. x Discussion with statutory auditors before the audit commences about nature and scope of audit as well as post-audit discussion to ascertain any area of concern. xi To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. xii To review the functioning of the Whistle Blower mechanism, in case the same is existing. xiii Carrying out any other function as is mentioned in the terms of reference of the audit committee. xiv Review the following information: a Management discussion and analysis of financial condition and results of operations; b Internal audit reports relating to internal control weaknesses; c Management letters / letters of internal control weaknesses issued by statutory / internal auditors; d Statement of significant related party transactions; and e The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee. 18. Audit Committee has the following poweri) activity within its terms of reference. ii) to seek any information from any employee. iii)to obtain outside legal and professional advice. iv)to secure attendance of outsiders with relevant expertise, to investigate any i

Steel Authority of India Ltd The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial reports; the Companys systems of internal controls regarding finance, accounting and legal compliance that management and the Board have established; and the Companys auditing, accounting and financial reporting process generally. The Audit Committee reviews reports of the Internal Auditors, meets Statutory Auditors and discusses their findings, suggestions and other related matters and reviews major accounting policies followed by the Company. The Audit Committee reviews with management, the quarterly and annual financial statements before their submission to the Board. With the revision in Terms of

200

Reference of the Audit Committee, it has started reviewing Management Discussion and Analysis of financial condition and results of operations; Statement of Significant Related Party Transactions (as defined by the Audit Committee) submitted by management; Management letters/letters of internal control weaknesses issued by the Statutory Auditors; Internal Audit Reports relating to internal control weaknesses etc. Internal Control Systems The Company has an adequate system of internal controls for achieving the following business objectives of the Company: Efficiency of operations. Protection of resources. Accuracy and promptness of financial reporting. Compliance with laid down policies and procedures. Compliance with laws and regulations. In MEL, Internal Audit Department reviews, evaluates and appraises the various systems; procedures/policies lay down by the Company and suggest meaningful and useful improvements. It helps management to accomplish its objectives by bringing a systematic and disciplined approach to improve the effectiveness of management towards good corporate governance. The Internal Audit is subjected to overall control environment supervised by Board Level Audit Committee, providing independence to the Internal Audit function, emphasizing transparency in the systems and internal controls. Annual Audit Plans are based on identification of key-risk areas with thrust on system/process so as to achieve cost reduction in overall operation of the Company. The Internal Audit system is supplemented by well-documented policies, guidelines and procedures and regular reviews are being carried out by our Internal Audit Department. The reports containing major IA observations are periodically submitted to the management and Audit Committee of the MEL Board. State Bank of India The Audit Committee of the Board (ACB) was constituted on 27th July 1994 and last re-constituted on the 1st October 2006. The ACB functions as per RBI guidelines and complies with the provisions of Clause 49 of the Listing Agreement to the extent that they do not violate the directives/guidelines issued by RBI. Composition & Attendance during 2006-07 In terms of Reserve Bank of India guidelines, the ACB has six members of the Board of Directors, including two whole time Directors, two official Directors (nominees of GOI and RBI), and two nonofficial, non-executive Directors, both of whom are Chartered Accountants. Meetings of the ACB are chaired by a non-executive Director. The quorum requirements as per RBI guidelines are complied with meticulously. Details of composition and attendance during the year are as under. Table-9 gives the attendance at each meeting. Functions of ACB (a) ACB provides direction as also oversees the operation of the total audit function in the Bank, which implies t inalizationion, operationalisation and quality control of internal audit and inspection within the Bank, and follow-up on the statutory/external audit of the Bank and inspection by RBI. (b) ACB reviews the internal inspection/audit functions in the Bank the system, its quality and effectiveness in terms of follow-up. It reviews the inspection reports of specialized and extra large branches and all branches with unsatisfactory ratings. It also, especially, focuses on the follow-up of: Inter-branch adjustment accounts Unreconciled long outstanding entries in inter-bank accounts and nostro/vostro accounts Arrears in balancing of books at various branches Frauds All other major areas of housekeepinI(c) It obtains and reviews half-yearly reports from the Compliance Department in the Bank. (d) ACB follows up on all the issues raised in the Long Form Audit Reports of the Statutory Auditors. It interacts with the external auditors befor inalizationsation of the quarterly/half yearly/ annual financial accounts and reports.

201

During the year, ten meetings of ACB (Table 9) were held to review the various matters connected with the internal control, systems and procedures and other aspects as required in terms of RBI guidelines. A formal Audit Charter or Terms of Reference laid down by the Central Board, incorporating the requirements under Clause-49 in addition to those under RBI guidelines, is in place. Sterlite Industries (India) Limited The Company had constituted an Audit Committee in accordance with the requirements of Section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreement entered with the stock exchanges. The terms of reference/powers stipulated by the Board to the Audit Committee, as contained under Clause 49 of the Listing Agreement are as follows: A. The Audit Committee shall have the following powers 1. To investigate any activity within its terms of reference. 2. To seek information from any employee. 3. To obtain outside legal or other professional advice. 4. To secure attendance of outsiders with relevant expertise, if it considers necessary. B. The role of the Audit Committee shall include the following: 1. Oversight of the Companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, reappointment and, if required, the replacement or removal of Statutory Auditors and fixation of audit fees. 3. Approval of payment to Statutory Auditors for any other services rendered by the Statutory Auditors. 4. Reviewing with the management, the annual financial statements before submission to the Board for approval, with particular reference to: Matters required to be included in the Directors responsibility statement to be included in the Directors report in terms of sub-section (2AA) of Section 217 of the Companies Act, 1956. Changes, if any, in accounting policies and practices and reasons for the same. Major accounting entries involving estimates based on the exercise of judgment by management. Significant adjustments made in the financial statements arising out of audit findings. Compliance with listing and other legal requirements relating to financial statements. Disclosure of related party transactions. Qualifications in draft audit report. 5. Reviewing with the management, the quarterly financial statements, before submission to the Board for approval. 6. Reviewing with the management the performance of Statutory and Internal auditors and adequacy of internal control systems. 7. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department reporting structure, coverage and frequency of internal audit. 8. Discussion with Internal auditors any significant findings and follow up thereon. 9. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. 10. Discussion with Statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern. 11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. 12.To review the functioning of the Whistle Blower Mechanism. 13. Carrying out such other function as may be specifically referred to the Committee by the Board of Directors and/or other Committees of Directors of the Company 14. To review the following information: The management discussion and analysis of financial condition and results of operations;

202

Statement of significant related party transactions (as defined by the Audit Committee), submitted by management; Management letters / letters of internal control weaknesses issued by the Statutory Auditors; Internal audit reports relating to internal control weaknesses; and The appointment, removal and terms of remuneration of internal audi. 19. 15. Reviewing the financial statements and in particular the investments made by the unlisted subsidiaries of the Company.

Tata Motors Ltd The Audit Committee of Directors comprises of 3 independent Directors, all of whom are financially literate and have relevant finance and/or audit exposure. The quorum of the Committee is two members or one-third of its members, whichever is higher. The composition of the Audit Committee and attendance at its meetings is as follows: The Committee meetings are held at the Companys Corporate Headquarters or at its plant locations and are usually attended by the Managing Director, the Executive Director, the Chief Internal Auditor, the Statutory Auditor and the Cost Auditor. The Business and Operation Heads are invited to the meetings, as required. The Company Secretary acts as the Secretary of the Audit Committee. The Internal Audit unction headed by the Chief Internal Auditor, reports to the Audit Committee to ensure its independence. The Committee relies on the expertise and knowledge of management, the internal auditors and the independent Statutory Auditor in carrying out its oversight responsibilities. It also uses external expertise, if required. Management is responsible for the preparation, presentation and integrity of the Companys financial statements including consolidated statements, accounting and financial reporting principles. Management is also responsible for internal control over financial reporting and all procedures are designed to ensure compliance with accounting standards, applicable laws and regulations as well as for objectively reviewing and evaluating the adequacy, effectiveness and quality of the Companys system of internal control. Deloitte Haskins & Sells (Deloitte), the Companys independent Statutory Auditor, is responsible for performing an independent audit of the Financial Statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in India. The Committee functions according to its Charter that defines its powers, scope and role in accordance with the Companies Act 1956, listing requirements and US regulations applicable to the Company and is reviewed from time to time. Whilst, the full Charter is available on the Companys website, given below is a gist of the scope of the Audit Commie: 20. a. Reviewing the quarterly financial statements before submission to the Board, focusing primarily on: Any changes in accounting policies and practices and reasons for the change; Major accounting entries involving estimates based on exercise of judgment by Management; Qualifications in draft audit report; Significant adjustments arising out of audit; Compliance with accounting standards; Analysis of the effects of alternative GAAP methods on the financial statements; Compliance with listing and other legal requirements concerning financial statements Disclosure of related party transactions; Review Reports on the Management Discussion and Analysis of financial condition, results of Operations and the Directors Responsibility Statement; Overseeing the Companys financial reporting process and the disclosure of its financial information, including earnings press release, to ensure that the financial statements are correct, sufficient and credible; Disclosures made under the CEO and CFO certification to the Board and investors. b. Reviewing with the management, external auditor and internal auditor, adequacy of internal control systems and recommending improvements to the management. c. Recommending the appointment/removal of the statutory auditor, fixing audit fees and approving non-audit/ consulting services provided by the statutory auditors firms to the Company and its subsidiaries; evaluating auditors performance, qualifications and independence.

203

d. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, coverage and frequency of internal audit, appointment, removal, performance and terms of remuneration of the chief internal auditor. e. Discussing with the internal auditor and senior management significant internal audit findings and follow-up thereon. f. Reviewing the findings of any internal investigation by the internal auditor into matters involving suspected fraud or irregularity or a failure of internal control systems of a material nature and report the matter to the Board. g. Discussing with the external auditor before the audit commences, the nature and scope of audit, as well as conduct post-audit discussions to ascertain any area of concern. h. Reviewing the Companys financial and risk management policies. i. Reviewing the effectiveness of the system for monitoring compliance with laws and regulations. j. Initiating investigations into the reasons for substantial defaults in payments to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors. k. Reviewing the functioning of the Whistle-Blower mechanism which is an extension of the Tata Code of Conduct. l. Reviewing the financial statements and investments made by subsidiary companies. The Committee has also adopted a policy for Approval of Services to be rendered by the independent statutory Auditor and its affiliates to the Company and its subsidiaries for ensuring auditors independence and objectivity. The said policy as also the Whistle Blower policy have also been extended to the Companys subsidiaries. During the year, the Committee reviewed audit reports that highlighted over 580 control improvements covering operational, financial and compliance areas. Key Management personnel presented their risk mitigation plan to the Committee. It also reviewed the internal control system in subsidiary companies, status on compliance of its obligations under the Charter and confirmed that it fulfilled its duties and responsibilities. The Committee through self-assessment evaluated its performance as well as the performance of the Statutory Auditors. The Chairman of the Audit Committee briefs the Board members about the significant discussions at Audit Committee meetings. Tata Steel Ltd The Company had constituted an Audit Committee in the year 1986. The scope of the activities of the Audit Committee is as set out in Clause 49 of the Listing Agreements with the Stock Exchanges read with Section 292A of the Companies Act, 1956. The terms of reference of the Audit Committee are broadly as follows: a) To review compliance with internal control systems; b) To review the findings of the Internal Auditor relating to various functions of the Company; c) To hold periodic discussions with the Statutory Auditors and Internal Auditors of the Company concerning the accounts of the Company, internal control systems, scope of audit and observations of the Auditors/ Internal Auditors; d) To review the quarterly, half-yearly and annual financial results of the Company before submission to the Board; e) To make recommendations to the Board on any matter relating to the financial management of the Company, including Statutory & Internal Audit Reports; f) Recommending the appointment of statutory auditors and branch auditors and fixation of their remuneration. Whistle Blower Policy The Audit Committee at its meeting held on 25th October, 2005, approved framing of a Whistle Blower Policy that provides a formal mechanism for all employees of the Company to approach the Ethics Counsellor/ Chairman of the Audit Committee of the Company and make protective disclosures about the unethical behaviour, actual or suspected fraud or violation of the Companys Code of Conduct. The Whistle Blower Policy is an extension of the Tata Code of Conduct, which requires every employee to promptly report to the Management any actual or possible violation of the Code or an event he becomes aware of that could affect the business or reputation of the Company. The disclosures reported are addressed in the manner and within the time frames prescribed in the Policy. Under the Policy, each employee of the Company has an assured access to the Ethics Counsellor/Chairman of the Audit Committee.

204

Tata Power Company Ltd The terms of reference, role and scope are in line with those prescribed by Clause 49 of the Listing Agreement with the Stock Exchanges. The Company also complies with the provisions of Section 292A of the Companies Act, 1956 pertaining to Audit Committee and its functioning. At its meeting held on 29th March 2001, the Board delegated the following powers to the Audit Committee: To investigate any activity within its terms of reference. To seek information from any employee. To obtain outside legal or other professional advice. To secure attendance of outsiders with relevant expertise, if it considers necessary. The role of the Audit Committee has been redefined as under: 1. Oversight of the Companys financial reporting process and the disclosure of its financial information, to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. 4. Reviewing, with the management, the annual financial statements before submission to the Board for approval, with particular reference to: a) Matters required to be included in the Directors Responsibility Statement to be included in the Boards report in terms of Clause (2AA) of Section 217 of the Companies Act, 1956 b) Changes, if any, in accounting policies and practices and reasons for the same c) Major accounting entries involving estimates based on the exercise of judgement by management d) Significant adjustments made in the financial statements arising out of audit findings e) Compliance with listing and other legal requirements relating to financial statements f) Disclosure of any related party transactions g) Qualifications in the draft audit report. 5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval. 6. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems. 7. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 8. Discussion with internal auditors any significant findings and follow-up there on. 9. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. 10. Discussion with the statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern. 11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. 12. To review the functioning of the Whistle Blower mechanism, in case the same is existing. 13. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee. Ultratech Cement Ltd The Company has an Audit Committee at the Board level which acts as a link between the Management, the Statutory and Internal Auditors and the Board of Directors and oversees the financial reporting process. The primary objective of the Committee is to monitor and provide effective supervision of the Managements financial reporting process. The terms of reference/ power of the Audit Committee are in accordance with Clause 49 of the Listing Agreement. The Audit Committee has the following powers: - To investigate any activity within its terms of reference.

205

- To seek information from any employee. - To obtain outside legal or other professional advice. - To secure attendance of outsiders with relevant expertise, if it considers necessary. The role of the Audit Committee includes the following: 1. Oversight of your Companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the Statutory Auditors and the fixation of audit fees. 3. Approval of payment to Statutory Auditors for any other services rendered by them. 4. Reviewing, with the Management, the annual financial statements before submission to the Board for approval, with particular reference to: a. Matters required to be included in the Directors Responsibility Statement to be included in the Boards Report in terms of clause (2AA) of section 217 of the Companies Act, 1956. b. Changes, if any, in accounting policies and practices and reasons for the same. c. Major accounting entries involving estimates based on the exercise of judgment by Management. d. Significant adjustments made in the financial statements arising out of audit findings. e. Compliance with listing and other legal requirements relating to financial statements. f. Disclosure of any related party transactions. g. Qualifications in the draft audit report. 5. Reviewing, with the Management, the quarterly financial statements before submission to the Board for approval. 6. Reviewing, with the Management, performance of Statutory and Internal Auditors, adequacy of the internal control systems. 7. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 8. Discussion with Internal Auditors any significant findings and follow up there on. 9. Reviewing the findings of any internal investigations by the Internal Auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. 10. Discussion with Statutory Auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any areas of concern. 11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors, if any. The Audit Committee reviews the following information: 1. Management Discussion and Analysis of financial condition and results of operations. 2. Statement of significant related party transactions (as defined by the Audit Committee), submitted by Management. 3. Management letters / letters of internal control weaknesses issued by the Statutory Auditors, if any. 4. Internal audit reports relating to internal control weaknesses; and 5. The appointment, removal and terms of remuneration of the Chief Internal Auditor. During the year, the Committee has reviewed the internal controls put in place to ensure that the accounts of your Company are properly maintained and that the accounting transactions are in accordance with prevailing laws and regulations. In conducting such reviews, the Committee found no material discrepancy or weakness in the internal control system of your Company. The Committee has also been mandated to periodically review the procedures laid down by your Company for assessing and managing risks. Videocon Industries Ltd. During the year under review, the Audit Committee was reconstituted on 8th December 2005. Scope of Audit Committee: The terms of reference are broadly as under:

206

a. Overall assessment of the Companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. b. Recommending the appointment of external auditor, fixation of audit fee and also approval for payment for any other services rendered by the Auditors. c. Reviewing with management the annual financial statements before submission to the board, focusing primarily on: Matters required to be included in the Directors Responsibility Statement to be included in the Boards report in terms of Clause (2AA) of section 217 of the Companies Act, 1956. Changes, if any, in accounting policies and practices. Major accounting entries based on exercise of judgment by management. Observations if any, in draft audit report. Significant changes/amendments, if any, arising out of audit. The going concern assumption. Compliance with accounting standards. Qualification in the draft audit report. Compliance with stock exchange and legal requirements concerning financial statements. Any related party transactions i.e. transactions of the company of material nature, with promoters or the management, their subsidiaries or relatives etc., that may have potential conflict with the interests of company at large. d. Review of Quarterly / Half Yearly unaudited financial results before submission to the Auditors and the Board. e. Reviewing with the management, external and internal auditors, the adequacy of internal control systems. f. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. g. Discussion with internal auditors any significant findings and follow up there on. h. Reviewing the findings, if any, of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board. i. Discussions with external auditors before the audit commences nature and scope of audit as well as have post-audit discussion to ascertain any area of concern. j. Reviewing the companys financial and risk management policies. k. To look into the reasons for substantial defaults, if any, in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. l. Financial Statements and Investments made by Subsidiaries m. To review the functioning of Whistle Blower Mechanism, if any The Audit Committee also reviews: Management discussion and analysis of financial conditions and results of operations. Statement of significant related party transactions, if any. Management Letters/Letters of internal control weaknesses issued by the Statutory Auditors; Internal Audit Reports relating to internal control weaknesses; and The appointment, removal and terms of remuneration of the Chief Internal Auditor. Dr Reddys Laboratories Ltd The management is responsible for the Companys internal controls and the financial reporting process while the statutory auditors are responsible for performing independent audits of the Companys financial statements in accordance with generally accepted auditing practices and for issuing reports based on such audits. The Board of Directors has entrusted the Audit Committee to supervise these processes and thus ensure accurate and timely disclosures that maintain the transparency, integrity and quality of financial control and reporting. The primary responsibilities of the Audit Committee are to: Supervise the financial reporting process; Review the financial results before placing them to the Board along with related disclosures and filing requirements; Review the adequacy of internal controls in the Company, including the plan, scope and performance of the internal audit function;

207

Discuss with management the Companys major policies with respect to risk assessment and risk management; Hold discussions with statutory auditors on the nature and scope of audits, and any views that they have about the financial control and reporting processes; Ensure compliance with accounting standards, and with listing requirements with respect to the financial statements; Recommend the appointment and removal of external auditors and their fees; Review the independence of auditors; Ensure that adequate safeguards have been taken for legal compliance both for the Company and its other Indian as well as foreign subsidiaries; Review related party transactions; and Review the functioning of Whistle Blower mechanism. Implementation of the applicable provisions of the Sarbanes Oxley Act, 2002.

208

Essar Steel Ltd The Company has an Audit Committee with scope of activities as set out in the amended clause 49 of the Listing Agreement with the Stock Exchanges read with Section 292A of the Companies Act, 1956. The broad terms of reference of the Audit Committee are as under: a) To hold periodic discussions with the Statutory Auditors and Internal Auditors of the Company concerning the accounts of the Company, internal control systems, scope of audit and observations of the Auditors/Internal Auditors; b) To review the quarterly, half-yearly and annual financial results of the Company before submission to the Board; c) To make recommendations to the Board on any matter relating to the financial management of the Company, including the Audit Report; d) Overseeing the Companys financial process and disclosure of financial information to ensure that the financial statement is correct. e) Recommending the appointment and removal of external auditor, fixation of audit fee and approval for payment of any services. f) Approval of payment to statutory auditors for any other services rendered by the statutory auditors. g) Reviewing with the management performance of statutory and internal auditors, and adequacy of internal control system. h) Reviewing the adequacy of internal audit function. i) Discussing with internal auditors any significant finding and follow up on such issues. j) Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control system of a material nature and reporting the matter to the Board. k) Discussing with external auditors before the audit commences on the nature and scope of audit, as well as having post-audit discussion to ascertain any area of concern. l) Reviewing the Companys financial and risk management policies; and m) Examining reasons for substantial default in the payment to depositors, debenture holders, shareholders and creditors, if any. Hero Honda Motors Ltd Audit Committee Recommendation During the year there was no such recommendation of the Audit Committee which was not accepted by the Board. Hence, there is no need for the disclosure of the same in this Report. Merck & Co., India Committees of the Board There are currently six standing committees of the Board: Audit Committee oversees the Companys financial reporting process and internal controls. This committee is directly responsible for the appointment, engagement and oversight of the independent public accountants and has sole authority to approve audit engagement fees and terms as well as significant non-audit engagements with independent public accountants. Committee on Corporate Governance considers and makes recommendations on matters related to the practices, policies and procedures of the Board. This committee has sole authority to retain and terminate director search firms and to approve retention fees and terms. Compensation and Benefits Committee makes recommendations on organization, succession, the election of officers, consultantships and similar matters, and consults on matters concerning executive compensation and on pension, savings and welfare benefit plans. This committee has sole authority to retain and terminate compensation consultants who advise on director or executive compensation and sole authority to approve retention fees and terms. Finance Committee considers and makes recommendations on matters related to the financial affairs and policies of the Company. Committee on Public Policy and Social Responsibility advises the Board and management on Company policies and practices that pertain to the Companys responsibilities as a global corporate citizen, its obligations as a pharmaceutical company, and its commitment to high standards of ethics and integrity.

209

Research Committee considers and makes recommendations on matters related to the Cmpany's strategies and operations for the research and development of pharmaceutical products and vaccines. It is the Boards philosophy that matters of significance should be considered and, where appropriate, acted on by the full Board. The Boards committees should function to perform the duties reserved to them by statute, regulation or charter, and to identify and focus issues for discussion by the full Board. At least annually, their respective members shall evaluate the effectiveness of the Audit Committee, Committee on Corporate Governance, and Compensation and Benefits Committee. The Committee on Corporate Governance recommends the composition of the Boards committees in consultation with the Chairman of the Board, or if there is no Chairman of the Board, with the Lead Director of the Board. Committee assignments are subject to the approval of a majority of the full Board. Committee assignments should reflect the expertise and interests of Board members, with the goal of ensuring that Committee members have the requisite background and expertise to participate fully on the committees on which they serve. There is not mandatory rotation of Board members among committees. Continued Service on Board After Change in Career; Retirement of Directors (a) In the event that a director changes his or her primary position, the director will advise the Chairman of the Board of such change, or if there is no Chairman of the Board, the Lead Director of the Board, who will then consult with the Committee on Corporate Governance regarding the directors continued service on the Board. The Committee will review each situation on an individual basis, taking into consideration the background, expertise and expected continued contribution of the director. (b) It is expected that a director shall not hold office beyond the next succeeding annual meeting after attaining the age of 72. (c) It is expected that a director who also is an employee of the Company will not be a candidate for reelection following termination of regular full-time employment. Other Service The Board recognizes that individuals should limit the number of boards on which they serve so that they can give proper attention to each board responsibility. However, the philosophy of the Board is not to set an invariant limit on the number of boards on which a director may serve. In the event that a director wishes to join the board of another company, it is expected that the director will advise the Chairman of the Board, or if there is no Chairman of the Board, the Lead Director of the Board, of his or her intention. The Chairman of the Board or Lead Director of the Board, as the case may be, will then consult with the Committee on Corporate Governance regarding whether the new commitment will allow the director to continue to fulfill his or her obligations to the Company. It is expected that a director will refrain from serving as a director, officer, employee or consultant with any competitive business during service with the Company and for three years or for a reasonable period of time, as determined by the Board of Directors, after service with the Company ends. Compensation of Directors The Committee on Corporate Governance should regularly review the compensation that is provided to the directors of the Company and make recommendations to the Board regarding any appropriate modifications. The Compensation and Benefits Committee shall be responsible for engaging consultants and experts to assist with this process if necessary. Compensation provided to directors should remunerate the directors fairly for their service to the Board. It should also support the Companys goal of attracting and retaining the most qualified persons to the Board. Directors compensation should include stock-based components to align the interests of the directors with those of the stockholders of the Company. The Board has determined that the Companys compensation goals are met by a compensation package that includes meeting fees, retainer arrangements, deferred compensation opportunities, and stock options. In addition, directors joining the Board prior to January 1, 1996 are eligible to receive a retirement benefit; this benefit is not available to directors joining the Board after December 31, 1995. As with all independent directors of the Company, directors who serve on the Audit Committee may not be paid remuneration by the Company other than the compensation provided to all directors of the Company. Directors who are current employees of the Company do not receive any additional compensation for their services as directors.

210

Stock Ownership Guidelines On joining the Board, each director must own at least one share of stock, with a target ownership level of 5,000 shares to be achieved by each director within five years of joining the Board or as soon thereafter as practicable. Shares held in the Merck Common Stock account under the Plan for Deferred Payment of Directors Compensation will be included in the target goal. Upon the request of a director, the Committee on Corporate Governance will consider if modification of the target ownership level is appropriate in view of a directors personal circumstances. Chairmanship of Meetings In the absence of the Chairman of the Board, or if there is no Chairman of the Board, in the absence of the Lead Director of the Board, the senior independent director present shall preside at all meetings of the stockholders and the Board of Directors. Director Orientation and Continuing Education The Committee on Corporate Governance shall oversee the education and acculturation of new directors through an orientation program developed by management that exposes the director to the Companys business and strategies, allows for formal and informal interaction with members of management, and facilitates the building of relationships with other Board members. The Committee on Corporate Governance and management shall identify and communicate external and internal training and educational opportunities for continuing directors in areas of importance to the Company. Incumbent Director Resignation Policy Under the Cmpany's Restated Certificate of Incorporation, in the case of an uncontested election of directors (that is, the number of nominees for any election of directors does not exceed the number of directors to be elected), a nominee for election as a director shall be elected to the Board of Directors if the number of votes cast for such nminee's election exceeds the number of votes cast against such nminee's election. If an incumbent director who was a nominee for reelection is not reelected in an uncontested election of directors, the incumbent director shall tender his or her resignation promptly following certification of the stockholder vote for consideration by the Committee on Corporate Governance and the Board in accordance with the following procedures. The Committee on Corporate Governance shall promptly consider such tendered resignation and recommend to the Board the action to be taken with respect to such tendered resignation. The recommendation of the Committee may be, among other things 21. (i) accept the resignation; 22. (ii)reject the resignation but address what the Committee believes to be the underlying reasons for the failure of the incumbent director to be re-elected(iii) reject the resignation. If the Committee recommends that the Board accept the tendered resignation, the Committee shall also recommend to the Board whether to fill the vacancy resulting from the resignation or to reduce the size of the Board. In considering a tendered resignation, the Committee on Corporate Governance is authorized to consider all factors it deems relevant to the best interest of the Company, including (i) what the Committee believes to be the underlying reasons for the failure of the incumbent director to be re-elected, including whether these reasons relate to the incumbent diector's performance as a director; whether these reasons relate to the Company or another company; and whether these reasons are curable and alternatives for effecting any cure; (ii) the tenure and qualifications of the incumbent director; (iii) the incumbent diector's past and expected future contributions to the Company; (iv) the other Policies of the Board; and (v) the overall composition of the Board, including whether accepting the resignation would cause the Company to fail to meet any applicable requirements of the Securities and Exchange Commission, the New York Stock Exchange or any other regulatory or selfregulatory requirements.

211

The Board will act on the recommendation of the Committee on Corporate Governance no later than 90 days following certification of the stockholder vote for the stockhlders' meeting at which the incumbent director was not reelected. In considering the Comittee's recommendation, the Board is authorized to consider the information and factors considered by the Committee and any additional information and factors as the Board deems relevant to the best interests of the Company. Following theBoard's decision, the Company will promptly file a Current Report on Form 8-K or issue a press release describing theBoard's decision and providing an explanation of the process by which the decision was reached and, if applicable, the reasons for rejecting the tendered resignation. Any incumbent director who tenders his or her resignation pursuant to this Policy in connection with an election of directors will not participate in the Committee on Corporate Govenance's or theBoard's consideration of his or her tendered resignation or, except as provided below, in the consideration of any other resignation tendered pursuant to this Policy in connection with that election of directors; provided that any incumbent director may provide to the Committee and/or the Board any information or a statement he or she deems relevant to the Comittee's and/or theBoard's consideration of his or her tendered resignation. In the event that a majority of the members of the Committee on Corporate Governance are required to tender their resignation pursuant to this Policy in connection with an election of directors, then, if the number of independent directors who are not required to tender their resignation in connection with an election of directors is three or greater, the Board shall appoint a committee, which shall be comprised of those independent directors selected by the independent directors from amongst themselves, for the purpose of considering the tendered resignations in accordance with the factors described above, and that committee shall make the recommendation contemplated to be made by the Committee on Corporate Governance to the Board under this Policy. Notwithstanding the foregoing, in the event that the number of independent directors who are not required to tender their resignation pursuant to this Policy in connection with an election of directors is less than three, a committee comprised of all independent directors, which shall be appointed by the Board, shall consider and act upon the tendered resignations in accordance with the factors described above; provided that each independent director required to tender his or her resignation pursuant to this Policy shall recuse himself or herself from consideration of his or her resignation. This Policy will be summarized or included in each proxy statement relating to election of directors of the Company. Reliance Energy Ltd The Audit Committee has the following po: 23. i. to investigate any activity within its terms of reference. 24. ii. to seek any information from any empliii. to obtain outside legal and professional ad 25. iv. to secure attendance of outsiders with relevant expertise, Oil & Natural Gas Corporation Ltd The role of the Audit & Ethics Committee includes the following: a. Overseeing financial reporting processes and the disclosure of financial information, to ensure that the financial statements are correct, sufficient and credible; b. Recommending to the Board, audit fees payable to Statutory Auditors appointed by C&AG and approving payments for any other services; c. Reviewing with management the periodic financial statements/results before submission to the Board, focusing primarily on : matters required to be included in the Directors Responsibility statement; any changes in accounting policies and practices; major accounting entries based on exercise of judgement by the management; qualifications in draft audit report; significant adjustments arising out of the audit; the going concern assumption;

212

compliance with accounting standards; compliance with listing agreement and legal requirements concerning financial statements; any related party transactions i.e. transactions of the company of material nature, with promoters or the management, their subsidiaries or relatives etc. that may have potential conflict with the interest of the company at large; d. Reviewing with the management, Statutory Auditors, Govt. Audit and internal audit reports, adequacy of internal control systems and recommending improvements to the management; e. Reviewing the adequacy of internal and function, approving internal audit plans and efficacy of the functions including the structure of the internal audit department, staffing, reporting structure, coverage and frequency of internal audits; f. Discussion with internal auditors on any significant findings and follow up thereon; g. Reviewing the findings of any internal investigations by the internal auditors into the matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board; h. Discussion with the Statutory Auditors before the audit commences, the nature and scope of audit, as well as post audit discussion including their observations to ascertain any area of concern; i. Reviewing the Companys financial and risk management policies; j. Reviewing Quarterly Compliance Report confirming adherence to all the applicable laws, rules guidelines, instructions and internal instructions/manuals including Corporate Governance principles; k. Reviewing the management discussion and analysis of financial condition and results of operations, statement of significant related party transactions, management letters/letter of internal control weaknesses issued by the statutory auditors, internal audit.

213

Whirlpool of India Ltd The functioning and terms of reference of the Audit Committee including the role, powers and duties, quorum for meeting and frequency of meetings, have been devised keeping in view the requirements of section 292A of the Companies Act, 1956 and the Listing Agreement with the Bombay Stock Exchange Ltd. The Company has a multi disciplinary Internal Audit Team which submits its report directly to the Audit Committee on a quarterly basis. The Chairman of the Audit Committee attended the last Annual General Meeting held on August 25, 2006 to answer shareholders queries. The Audit Committee is responsible 26. (i) Effective supervision of the financial reporting process, ensuring financial, accounting and operating controls and compliance with established policies and procedures. 27. (ii) Evaluating the adequacy of internal controls and its effective(iii) Reviewing the financial results of the Company for each quarter/ year before the same are placed at the Board meeting for appr 28. (iv) Providing an avenue for effective communication between the Internal Audit, the Statutory Auditors and the Board of Directors. Satyam Computer Services Ltd The Audit committee consists of 100% independent and non-executive directors and provides assistance to the Board of directors in fulfilling its oversight responsibilities. The functions of Audit committee include: 1. Oversight of the companys financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of engagement of and payment to statutory auditors for any other non-audit services rendered by the statutory auditors. 4. Reviewing with the management, the quarterly financial statements before submission to the Board for approval. 5. Reviewing with the management, performance of statutory and internal auditors, and adequacy of the internal control systems. 6. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit.

214

Annexure 10 Differences between US and Indian Corporate Governance

The NYSE Corporate Governance Standards stipulate that companies must have a majority of independent directors, where as in accordance with the listing agreements of the Indian stock exchanges, it must be an optimum combination of executive and non-executive directors with not less than 50% of the directors being non-executive directors. If the Chairman of the Board is not an executive director, at least one third of the directors should be independent. If the Chairman is an executive director, at least half of the board of the directors of the company should comprise of independent directors. In case of controlled companies (in which more than 50 percent of the voting power is held by an individual, a group of another company), it is not required to have a majority independent board as per NYSE code, where as there no such exemption available to the listed companies in India. Provisions of Clause 49 are applicable to all the listed companies who have entered into listing agreement with the Indian stock exchanges. In the NYSE code, nonmanagement directors must meet at regularly scheduled executive sessions without management, which is not a requirement in India. A listed company according to the NYSE Governance standards, should have a nominating/corporate governance committee composed entirely of independent directors in addition to the Audit Committee, where as in India, constitution of Nomination Committee is non mandatory and need not comprise of independent directors. The nominating/corporate governance committee as per the NYSE governance standards, must have a written charter that addresses certain specific committee purposes and responsibilities and provides for an annual performance evaluation of the committee. In India, since constitution of nomination committee is non-mandatory does not require a charter for such committee and the performance evaluation of the non-executive directors could be done by a peer group comprising the entire Board of Directors, excluding the director being evaluated. In the US, companies must have a compensation committee composed entirely of independent directors and it should have written charter that addresses certain specific purposes and responsibilities of the committee and provides for an annual performance evaluation of the committee. In India listed companies may constitute a compensation/remuneration committee consisting of at least three directors, alal of whom should be non-executive directors an independent chairman in order to avoid conflict of interest. These are non-mandatory requirements. The listing requirements in India do not require that the compensation committee have a charter. The annual corporate governance report of the companies generally provides details of the remuneration including brief details of its agreed terms of reference. In US companies, the audit committee must have a written charter that addresses certain specific purposes and responsibilities of the committee, provides for an annual performance evaluation of the committee and sets forth certain minimum duties and responsibilities. In India as per the listing agreement, companies need to have a qualified and independent audit committee and stipulates the powers and role of audit committee. The audit committee needs to have all its members as non-executive directors with at least 2/3 of the members to be independent. All members should be financially literate and at least one member shall have accounting or related financial management expertise. The chairman of the audit committee shall be an independent director. There is no requirement of a written charter. Each listed company in the US, having an internal audit function which is required to provide the management and audit committee with ongoing assessments of the companys risk management processes and system of internal control. A company may choose to outsource this function to a third party service provider other than its independent auditor. As per Clause 49 fo the listing agreement in India, there is no mandatory requirement of having an internal audit function, however, it is advisable to have being a necessary tool for internal control. Clause 49 defines the role of the audit committee shall inter alia include; reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. According to NYSE standards, companies must adopt and disclose corporate governance guidelines and companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or executive officers. As per Clause 49 of Indian Listing Agreement, the company needs to adopt of code of conduct/ethics for all the Board of Directors and to all senior management one level below the Board. Annual Report should disclose compliance with the Code by the Board Members and Senior Management. In NYSE standards, CEO of each listed company has to certify on an annual basis that he or she is now aware of any violation by the company of the

215

NYSE corporate governance listing standards. This certification as well as that the CEO/CFO certification required under SOX Act of 2002 must be disclosed in the companys annual report to shareholders. Further, CEO of each listed company must promptly notify the NYSE in writing after any executive officer of the listed company becomes aware of any material non-compliance with any applicable provisions of this section. In respect of Indian companies, in addition to the CEO/CFO certification on the true and fair view of financial statements and compliance, are required to submit a quarterly compliance report to the Indian stock exchanges where their shares are listed. A separate section on the corporate governance will form the annual report of the company that gives details of adoption of an compliance with the mandatory clauses and non mandatory clauses. The company has to obtain a certificate issued by the auditors or practicing company secretaries regarding compliance of conditions of corporate governance and annex the same with the directors report to be sent annually to the shareholders of the company and concerned stock exchanges.

216

Annexure 11 Evolution of Corporate Governance

1950s - The Era of Excessive Managerial Power: In the 1950s, two factors combined to bestow enormous power on corporate executives. Market oligopolies created large companies - such as General Motors, General Electric, and IBM that were largely insulated from international competition, while the separation of ownership and control gave managers great leeway to do what they pleased. Critics viewed companies as running "without any discernible controls," and assuming power that could "rival the sovereignty of the state itself." 1960s and 1970s -- The Age of Conglomerates With business conditions conducive to growth, companies morphed into modern-day conglomerates. For a time, they were viewed as a solution to the "separation" problem. Central managers in headquarters would monitor operating managers in far-flung divisions, allocating capital where returns were highest. But ultimately, inefficiencies began to creep into these vast organizations, creating the enemy of profits: Corporate bloat. 1980s - The Rise of Insider Trading With the explosion in hostile takeovers, insider trading suddenly held out the potential for vast riches. Managers and Wall Street cronies who got wind of a buyout could easily buy up stock before the deal was announced and sell it immediately after at a huge profit. Michael Milken and Ivan Boesky became poster boys for the excesses of the era Response The Trustbusters Managerial power was curbed by antitrust policy and heightened pressure from international rivals. Most big mergers during this era were barred by the Justice Dept. or the courts, but competition in manufacturing did more to diminish managerial power than all the antitrust decisions of the era.

Response -- The Hostile Takeover The conglomerate created an opportunity for the market to do what powerful managers wouldn't: Bust up the bloated bureaucracies and sell off the parts. The hostile takeover was celebrated in the 1987 film Wall Street, in which Michael Douglas plays corporate raider Gordon Gekko. Response -- The Stock Option Boom It was about this time that stock options burst on the scene and quickly gained in popularity thanks to favorable accounting treatment and tax laws. To shareholders tired of seeing managers get rich destroying their companies, options promised a solution to the "separation" problem once and for all. By turning managers into owners, options would be an incentive to create shareholder value, not destroy it. At least that was the hope. Response -- Shareholder Activism As executive pay ballooned, shareholder efforts to rein it in increased, accelerating after investment portfolios evaporated following the market collapse in 2000. At the same time, activists began attacking managerial power on other fronts - pushing for better disclosure, independent boards, and splitting the roles of chairman and CEO Response -- The Downsized CEO Directors, auditors, and lawyers emerge from the scuffle with far more power than they had - and CEOs with far less. Emboldened boards topple Fannie Mae's Franklin Raines, Boeing's Harry Stonecipher, Disney's Michael Eisner, Hewlett-Packard's Carly Fiorina, and AIG's Hank Greenberg.

1990s -- CEO Pay: Nowhere to Go but Up It didn't quite work out that way. Encouraged by favorable accounting, boards granted options with abandon. And the longest bull market in history converted them into almost unimaginable wealth for top executives. Instead of an incentive to create shareholder value, in many cases they were an incentive to fudge the numbers. In the immediate aftermath of the 1990s, earnings restatements increased dramatically. 2000s -- The Age of Scandal The collapse of Enron and massive accounting fraud at WorldCom ushered in an age of scandal that would forever tarnish the image of the CEO. A massive regulatory push to curb CEO power -- including the Sarbanes-Oxley Reform Act of 2002 - was met with equal but opposite pushback from the business community.

217

218

Annexure 12 Indices of Regulation of Securities Markets

Company

Symbol

Disclosure requirements

Liability standard

Supervisor characteristics

Rule making power 1.00 0.50 1.00 0.50 1.00 0.00 1.00 0.50 0.00 0.50 1.00 1.00 0.00 1.00 1.00 1.00 1.00 0.00 0.67 Rule making power 1.00 0.00 1.00 1.00 1.00 1.00 0.00 0.50 0.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Investigative powers

Orders

Criminal Sections

Public enforcement

English Legal Origin Australia AUS Canada CAN Hong Kong HKG India IND Ireland IRL Israel ISR Kenya KEN Malaysia MYS New Zealand NZL Nigeria NGA Pakistan PAK Singapore SGP South Africa ZAF Sri Lanka LKA Thailand THA USA USA United Kingdom GBR Zimbabwe ZWE Mean Company Symbol

0.75 0.92 0.92 0.92 0.67 0.67 0.50 0.92 0.67 0.67 0.58 1.00 0.83 0.75 0.92 1.00 0.83 0.50 0.78 Disclosure requirements

0.66 1.00 0.66 0.66 0.44 0.66 0.44 0.66 0.44 0.39 0.39 0.66 0.66 0.39 0.22 1.00 0.66 0.44 0.58 Liability standard

0.67 0.67 0.33 0.33 0.00 0.67 0.33 0.33 0.33 0.67 0.67 0.33 0.33 0.33 0.67 1.00 0.00 1.00 0.48 Supervisor characteristics

1.00 1.00 1.00 1.00 0.00 1.00 0.50 1.00 1.00 0.00 1.00 1.00 0.50 0.50 1.00 1.00 1.00 0.00 0.75 Investigative powers

1.00 1.00 1.00 0.67 0.00 1.00 1.00 1.00 0.00 0.00 0.17 1.00 0.00 0.00 0.33 1.00 1.00 0.08 0.57 Orders

0.83 0.83 1.00 0.83 0.83 0.50 0.67 1.00 0.33 0.50 0.08 1.00 0.42 0.33 0.58 0.30 0.42 1.00 0.65 Criminal Sections

0.90 0.80 0.87 0.67 0.37 0.63 0.70 0.77 0.33 0.33 0.58 0.87 0.25 0.43 0.72 0.90 0.68 0.42 0.62 Public enforcement

French Legal Origin Argentina ARG Belgium BEL Brazil BRA Chile CHL Colombia COL Ecuador ECU Egypt EGY France FRA Greece GRC Indonesia IDN Italy ITA Jordan JOR Mexico MEX Netherlands NLD Peru PER Philippines PHL

0.50 0.42 0.25 0.58 0.42 0.00 0.50 0.75 0.33 0.50 0.67 0.67 0.58 0.50 0.33 0.83

0.22 0.44 0.33 0.33 0.11 0.11 0.22 0.22 0.50 0.66 0.22 0.22 0.11 0.89 0.66 1.00

0.67 0.00 0.33 0.33 0.33 1.00 0.67 1.00 0.67 0.33 0.67 0.33 0.00 0.33 0.67 0.67

1.00 0.25 0.50 0.75 0.75 0.25 0.25 1.00 0.25 1.00 0.25 1.00 0.25 0.50 0.75 1.00

0.08 0.00 0.75 0.42 0.33 0.08 0.17 1.00 0.17 0.25 0.00 0.67 0.00 0.00 1.00 1.00

0.17 0.50 0.33 0.50 0.50 0.42 0.42 0.33 0.50 0.50 0.50 0.00 0.50 0.50 0.50 0.50

0.58 0.15 0.58 0.60 0.58 0.55 0.30 0.77 0.32 0.62 0.48 0.60 0.35 0.47 0.78 0.83

219

Portugal Spain Turkey Uruguay Venezuela Mean

PRT ESP TUR URY VEN

0.42 0.50 0.50 0.00 0.17 0.45

0.66 0.66 0.22 0.11 0.22 0.39

0.67 0.67 0.67 0.67 0.33 0.52

1.00 0.00 1.00 1.00 1.00 0.79

1.00 0.50 1.00 0.25 1.00 0.64

0.25 0.00 0.00 0.50 0.08 0.32

0.00 0.50 0.50 0.42 0.33 0.40

0.58 0.33 0.63 0.57 0.55 0.53

This table shows the securities laws variables for each country covering the areas of (a) disclosure requirements (b) Liability standards (c) Supervisor characteristics (d) Rule making power of the Supervisor (e) Investigative powers of the Supervisor (f) Orders to issuers, distributors, and accountants (f) Criminal sanctions applicable to directors, distributors, and accountants and (g) Public enforcement

220

Company

Symbol

Disclosure requirements

Liability standard

Supervisor characteristics

Rule making power 0.00 0.00 0.00 0.00 1.00 1.00 0.33

Investigative powers

Orders

Criminal Sections

Public enforcement

German Legal Origin Austria AUT Germany DEU Japan JPN Korea KOR Switzerland CHE Taiwan TWN

0.25 0.42 0.75 0.75 0.67 0.75 0.60

0.11 0.00 0.66 0.66 0.44 0.66 0.42

0.33 0.33 0.00 0.33 0.33 0.33 0.28

0.00 0.00 0.00 0.00 1.00 1.00 0.17

0.00 0.00 0.00 0.08 0.00 0.17 0.04

0.50 0.50 0.00 0.33 0.33 0.83 0.42

0.17 0.22 0.00 0.25 0.33 0.52 0.25 0.37 0.32 0.32 0.50 0.38 0.52

Scandinavian Legal Origin Denmark DNK 0.58 0.55 0.00 1.00 0.50 0.33 0.00 Finland FIN 0.50 0.66 0.67 0.00 0.25 0.17 0.50 Norway NOR 0.58 0.39 0.00 0.00 0.25 0.33 1.00 Sweden SWE 0.58 0.28 0.00 1.00 0.25 0.67 0.38 Mean 0.56 0.47 0.17 0.50 0.31 0.38 0.52 Mean all countries 0.60 0.47 0.45 0.66 0.60 0.38 0.50 Source: What Works in Securities Laws? Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer*, Dartmouth College, Yale University, and Harvard University, June 11, 2004

221