PAPER PRESENTED BY SATISH MENON FOR DISCUSSION AT THE 33rd

NATIONAL CONVENTION OF COMPANY SECRETARIES – INDIA - CHENNAI –

OCTOBER 20 -22 ,2005

ACHIEVING GLOBAL EXCELLENCE IN CORPORATE GOVERNANCE: AN

EMERGING PARADIGM IN AN EXTREMELY COMPETITIVE ENVIRONMENT

I. INTRODUCTION

Against the backdrop of globalization and liberalization of the Indian businesses as well
as the emergence of an extremely competitive environment, the concept of Corporate
Governance, today goes far beyond mere Board Practices and extends to Ethics
Controllership, Compliance, Risk and Exposure Management Systems.

This Paper, which attempts an Out of the Box Thinking in the Emerging Paradigm of
Achieving Global Excellence in meeting Corporate Governance Norms both in form as
well as in substance, also facilitates the successful pursuit of a Change Management
initiative in the achievement of Excellence in Corporate Governance by an organization,
through several value creating strategies and initiatives, so to Strategically and
Innovatively Create Value, not only for the organization but also for each one of its
stakeholders.

II. WHAT DOES ONE MEAN BY “EXCELLENCE”?

In the words of Mr. Azim Premji, the Chairman of Wipro Limited;

“Excellence is going a little beyond: beyond what is expected from others and beyond
what we expect from ourselves.”

Mr. N. R. Narayana Murthy, the Chairman of Infosys Technology Limited professes

that; “Excellence is not just a product or a process. It is an attitude that says Nothing Else
Would Do.”

Sir. Joshua Reynolds, the English Artist says that: “Excellence is never granted to man
but as the reward of labor. It argues no small strength of mind to persevere in the habits
of industry without the pleasure of perceiving those advances, which, like the hands of a
clock, whilst they make hourly approaches to their point, proceed so slowly as to escape
observation.”

Excellence therefore, is undoubtedly never the result of a “Chance” but always a

conscious exercise of a “Choice ” .

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 III. THE BUSINESS AND ECONOMIC ENVIRONMENT

The globalization, dynamism and the uncertainties of the Indian businesses have made it
extremely difficult and unviable for organizations to pursue their objectives in the
manner, in which, they were traditionally known to operate. Business organizations now
have very little option but to adopt strategies and initiatives that meet world class
standards in their endeavor to enhance competitive advantages, reduce costs, improve
quality, mitigate legal and contractual risks and thereby enabling the most optimum use
of their available resources.

With the increasing use of Information Technology globally, coupled with the advent of
the Internet, one has witnessed an upward trend towards revolutionizing the way
businesses operate, with organizations searching for ways and means to reinvent
themselves with proactive strategies and initiatives, so as to survive in an extremely
competitive environment.

The stringent provisions of the Sarbanes Oxley Act in the USA and the Securities and
Exchange Board of India Act in India and in particular the periodic certification by the
CEO/CFO of Listed Organizations envisaged therein, coupled with the accountability
and listing standards stipulated by the Stock Exchanges globally and in particular the
onerous responsibilities, duties and obligations cast upon the Audit Committee, have
brought the importance and necessity of Exemplary Corporate Behavior into a sharp and
significant focus.

Exemplary Corporate Behavior is always evidenced by not only the successful pursuit of
the highest Global Standards of Good Corporate Governance, Ethical and Controllership
Practices but also a near total compliance with all the applicable laws of the land and
contractual obligations applicable to the business so as to minimize and mitigate risks and
exposures, both legal and contractual, on a regular and a consistent basis.

The ideal approach in this regard would, therefore, be to view the entire endeavor as a
process discipline. It has therefore, become imminent for business organizations,
particularly those operating in an extremely competitive environment, to put in place
appropriate processes, systems and procedures, to not only successfully implement the
highest Global Standards of Good Corporate Governance and Ethical and Controllership
Practices but also a robust and a well structured Compliance, Risk and Exposure
Management Systems.

IV. VALUE CREATING STRATEGIES AND INITIATIVES

Against this scenario, let us now look at a few value creating strategies and initiatives,
meeting global standards of excellence, which could be considered for implementation by
an organization operating globally, in an extremely competitive environment, so as to
Strategically and Innovatively Create Value not only for the organization, but also for
each one of its stakeholders.
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A. Exemplary Corporate Governance Practices
Organizations are generally found to be complying with the corporate governance
standards as mandated by regulatory agencies, most often in form, but seldom in spirit.

However, organizations operating at exemplary levels almost always pursue Exemplary

Corporate Governance Standards, which means that they comply with not only the
regulatory obligations in letter but also in spirit as well, by making consistent and
committed efforts which goes far beyond the call of the law.

Pursuit of Exemplary Corporate Governance Practices by organizations, therefore

envisages the formulation and implementation of structured systems and processes which
meets the highest level of standards and these would, apart from complying with the
normal regulatory obligations, would also include the following strategic initiatives;

1. Detailed Corporate Governance Guidelines for the board which involves

documentation of the following;

(a) Size, composition and constitution of the Board & Committees thereof
(b) Criteria and procedure for selection and appointment of Board members
(c) Tenure of appointment of Directors
(d) Criteria and procedure for reappointment of Directors
(e) Resignation, retirement and succession of Directors
(f) Policies for fixing of remuneration of Directors

2. Detailed Role Clarity and Responsibility Matrix for the Directors and in
particular the following;

(a) Duties and Responsibilities of the Directors

(b) Expectations from the individual Directors
(c) Performance evaluation System of the Directors
(d) Internal Policies and Codes applicable to the Directors

3. Detailed Business and Company Orientation of the Directors which involves

inducting the Directors by sharing with them the following, on a periodical basis;

(a) Vision, Mission and Long and Short Term Goals

(b) Brief note on the business and its objectives
(c) Organizational Structure and Key Management
(d) Annual Reports for the immediately preceding two years
(e) Memorandum and Articles of Association
(f) Customer and Supplier Profile
(g) Stock Option Plans

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4. Detailed Role Clarity and Responsibility Matrix for Audit Committee and in
particular, the following;

(a) Written Charter

(b) Duties and responsibilities
(c) Scope and Schedule of Internal Audit
(d) Accounting Policies and Practices
(e) Details of Related Party Contracts

5. Detailed Role Clarity and Responsibility Matrix for the Compensation and
Benefit Committee and in particular, the following;

(a) Written Charter

(b) Duties and responsibilities
(c) Key Result Areas of the Key Management
(d) Policies for fixing of remuneration of Key Management
(e) Performance Evaluation System for Key Management

6. Detailed Director’s Statutory Obligation Guide which comprises of the

following;

(a) Overview of statutory obligations of Directors

(b) Formats of all declarations and filings of/by Directors
(c) Registers & documents required to be signed by Directors
(d) Time Schedule for completion of various statutory obligations

7. Detailed Guidelines for Directors and General Body Meetings and in

particular, in respect of the following;

(a) Schedule of the Meetings and Quorum thereat

(b) Attendance requirements at the Meetings
(c) Preparation and Circulation of Notices and Agendas
(d) Formats and Statutory contents of Meeting Folder
(e) Methodology for preparation and circulation of Meeting Folder
(f) Logistics for holding the Meetings and responsibility thereof
(g) Guidelines for invitation to others for attendance at Meetings
(h) Facilitating free, fair and meaningful discussions.
(i) Evaluating quality and effectiveness of meetings
(j) Recording and implementing board decisions
(k) Preparation, Circulation, Approval and Signing of Minutes
(l) Payment of sitting fees for attending Meetings
(m) Payment of periodic Directors remuneration
(n) Reimbursement of out of pocket expenses

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B. Exemplary Corporate Ethical and Controllership Practices
Integrity is difficult to define, but lack of integrity is not - Peter F. Drucker

The most effective way to enhance Corporate Governance is through

conscientious and forward looking action by the business community that focuses
on generating long term stock holder value with the highest degree of Integrity.
The Business Round Table’s “Principles of Corporate Governance”– May 2002

Competitive Advantage and Stakeholder Value in an organization can be

generated as well as sustained only and only on the plank of “Integrity”, “Ethics”
and “Controllership”. Pursuit of Exemplary Corporate Ethical and Controllership
Practices therefore attains great significance and importance for an organization.

Excellence in this important initiative envisages the formulation and

implementation of the following structured systems and processes which meets
the highest standards of Integrity, Ethics and Controllership;

1. Code of Business Conduct and Ethics for Company as a whole

2. Code of Conduct applicable to Directors and Senior Management

3. Statutory Codes and Policies;

(a) Insider Trading Code

(b) Corporate Disclosure Code
(c) Intellectual Property Policy
(d) Confidentiality Preservation Policy
(e) Electronic Resource Usage and Security Policy
(f) Risk Management Policy
(g) Sexual Harassment Policy

4. Ethical Policies;

(a) Conflict of Interest Policy

(b) Business Relationships Policy
(c) Ethical Competition Policy
(d) Gift taking and receiving Policy
(e) Whistle Blowing Policy
(f) Employment Policy
(g) Equal Opportunities Policy
(h) Prohibition of Discrimination and Harassment Policy

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5. Controllership Policies and Manuals;

(a) Cheque and Document Signing Policy

(b) Employee Separation Policy
(c) Document Retention Policy
(d) Power of Attorney Policy

6. Other Miscellaneous Policies;

(a) Press, Media and Advertisement Policy

(b) Environment, Health and Safety Policy

C. Compliance Risk Management System

When the business operations are spread over multiple locations, organizations
are often in a great predicament as to how they can monitor compliance of all
laws and regulations applicable to it in every location they operate.

The endeavor becomes even more challenging when the organization has global
operations as the complexities of the laws and regulations involved vary
significantly from country to country.

Compliance Risk Management System is therefore a very valuable tool which

enables organizations in their pursuit of complying with all applicable laws and
regulations at all locations as well as monitor, control, minimize and mitigate
Compliance Risks.

The process being a highly proactive one helps reduce the incidence of non
compliance within an organization and also acts as an effective training tool to the
operating teams.

1. Compliance Risks are legal risks and financial exposures carried by an

organization in the course of pursuit of its business objectives, resulting from a
non compliance of either a legal or statutory obligation pursuant to:

(a) All applicable laws and regulations requiring compliance

(b) All licenses and approvals obtained for pursuit of the business
(c) All internal policies, procedures and codes applicable to the organization.

2. Compliance Risk Management is the systematic and structured methodology

that can be pursued by an organization for identifying, monitoring, controlling
and mitigating Compliance Risks and thereby enhancing the competitive
advantages of the organization. This methodology enables the clear definition of
“What If” situations and the risk mitigation strategies to proactively deal with any
adverse impact arising out of the events identified during the “What If” exercise.

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3. Compliance Risk Management System in an organization involves
systematically taking the following steps with a view to bringing about process
and cost effectiveness and efficiencies in the management of compliance risks and
exposures and thereby enhancing the competitive advantages of the organization:

(a) Inventorying all the Acts, Statutes, Licenses and Approvals

(b) Inventorying all the internal Policies Procedures and Codes
(c) Inventorying all the Compliance Activities and Obligations under above
(d) Risk Profiling each Obligation and assigning Risk Matrices
(e) Identifying owners for every Obligation and assigning responsibilities
(f) Empowering operational teams by appropriate training
(g) Firming plans for monitoring of compliance of each Obligation
(h) Monitoring compliance of each Obligation
(i) Pursuing risk/exposure mitigation strategies for all Obligations

D. Contract Execution and Risk Management System

The overall health of an organization is epitomized by the health of the contracts
executed by it as well as its ability to successfully negotiate and document the
precise understanding between the parties in clear and unambiguous terms which
would leave no room for misinterpretation.

Given the complex nature of structures often being pursued by the businesses
today coupled with the multifarious issues and concerns which impact a
transaction envisaged in a contract, a successful pursuit of the transaction today,
undoubtedly calls for an in-depth and exhaustive understanding and appreciation
of all the relevant legal, taxation, accounting, commercial and business issues.

Once a contract is negotiated and executed, it is often found that the challenge for
organizations actually just begins, particularly from the perspective of monitoring
and mitigating risks of non – compliance of contractual obligations contained
therein.

Contract Execution and Risk Management System is therefore an endeavor to

improve the effectiveness and efficiencies of contract negotiation and execution
as well as for monitoring and mitigating risks and exposures associated with it.
1. General Contract Counseling concerns with the provision of general and
specific legal advice in connection with and pertaining to drafting, negotiating,
finalizing and executing contracts and agreements (collectively “Contracts”) for
the benefit of the organization. These Contracts relate to the following
transactions pursued by the organization, (collectively the “Transactions”) ;

(a) Mergers, Acquisitions, sale and purchase of shares and business

(b) Joint ventures and corporate restructuring
(c) General commercial business associations
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2. Value Added Contract Counseling concerns with the provision of the following
value added legal services for the benefit of an organization in relation to
Contracts each of which would help, support and facilitate such an organization to
pursue the Transaction most effectively and efficiently by:

(a) Identifying and evaluating the impacting top level taxation, accounting,
commercial and business issues of concern
(b) Identifying and inventorying all obligations under executed contracts to
enable monitoring of compliance thereof
(c) Identifying and evaluating legal and contractual risks and exposures under
executed Contracts
(d) Pursuing risk mitigation strategies in connection with executed Contracts.

3. Contract Execution Management is the systematic and structured methodology

that can be pursued by an organization in relation to obtaining of both General
Contract Counseling and Value Added Contract Counseling for the benefit of the
organization.

4. Contract Risks are contractual risks and financial exposures carried by an

organization in the course of pursuit of its business objectives, resulting from a
non compliance of any contractual obligation with any third party.

5. Contract Risk Management is the systematic and structured methodology that

can be pursued by an organization for identifying, monitoring, controlling and
mitigating Contract Risks and thereby enhancing the competitive advantages of
the organization.

6. Contract Execution and Risk Management System in an organization involves

systematically taking the following steps in relation to Contracts in an
organization, with a view to bringing about process and quality effectiveness and
efficiencies in the management of these Contracts and thereby enhancing the
competitive advantages of the organization.

(a) All general and specific legal issues

(b) All general taxation, accounting, commercial and business issues
(c) Standardization of Contract for a Transaction
(d) Risk Profiling all clauses in a standard contract
(e) Assigning Risk Matrices to all clauses in a standard contract
(f) Evolving alternative negotiating strategies for every contract
(g) Evolving process for negotiating, finalizing & executing contract
(h) Monitoring compliance of obligations under executed contract
(i) Pursuing risk & exposure mitigation strategies for all contracts

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E. Legal Process Management System
Poor legal processes and procedures undoubtedly result in errors, rework, delays,
and thereby makes the costs for completing a legal transaction very expensive.
Improvement in legal processes therefore translates into a cutting edge strategy
for the winners.

Implementation of a Legal Process Management System which brings about legal

process transformation within the organization, is therefore the first step towards
achieving operational excellence within an organization particularly from the
perspective of legal processes.

1. Legal processes are the general processes and procedures followed by an

organization in the course of pursuit of various corporate transactions. These
general processes and procedures are in fact the actual work flow generally
followed by an organization to accomplish the various individual tasks that form
part of every corporate transaction.

2. Legal Process Management concerns with the systematic and structured

endeavor to accomplish the various individual tasks that are required to be
pursued by an organization in the course of successful completion of the various
corporate transactions .Legal Process Management encompasses reengineering of
the various legal processes including by way of preparation of Standard Operating
Procedures (SOPs).

3. Legal Process Management System in an organization involves systematically

taking the following steps with a view to bringing about process, quality and cost
effectiveness and efficiencies and managing risks and exposures, including by
eliminating duplications and rework and thereby enhancing the competitive
advantages of the organization.

(a) Inventorying & categorizing and prioritizing Transactions

(b) Inventorying individual tasks in Transactions
(c) Ascertaining current work flow in respect of individual tasks
(d) Identifying pain areas and inefficiencies under each tasks
(e) Reengineer the processes, work flows and sequence of events
(f) Document each of the revised processes and procedure in SOPs
(g) Identifying owners for each SOPs
(h) Empowering operational teams through adequate training
(i) Firming plans for reviewing and updating SOPs
(j) Monitoring compliance under each SOPs
(k) Pursuing risk & exposure mitigation strategies under each SOPs

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F. Legal Knowledge Management System
The Legal profession is indeed, a very information intensive profession and the
success of legal professionals depends significantly upon the accessibility of vast
amount of complex legal data and information in connection with their work. This
data and information has a recognized value because it holds experience and
expertise learnt by the team over a long period of time. The preservation and
transfer of this knowledge existing within an organization, seldom occurs in a
systematic manner. This often results in a substantial waste of time.

Legal Knowledge System is therefore an endeavor to ensuring consistent

availability of informative data on an updated basis for decision making as well as
for capturing learning from daily transactions for future use so as to eliminate re-
invention as well as duplication of efforts within the organization and thereby
minimizing overall costs of operation.
1. Legal Knowledge comprises of collectively the following information pertaining
to an organization which is either required or generated or used by an
organization in the course of pursuit of its day to day business and which has a
recognized value because it holds experience and expertise learnt by the team
over a long period of time;

(a) Laws, statutes, regulations and amendments thereof

(b) Latest relevant judicial pronouncements
(c) Learning after every transaction.
(d) Precedents in the organization

2. Legal Knowledge Management involves the implementation of a systematic and

structured processes for acquiring, capturing, updating, storing, maintaining and
retrieving knowledge of not only legal data but all other data which would have
an implication arising out of a statutory or contractual obligation in an
organization, including the experience and learning of the individual team
members in the course of their day to day work.

3. Legal Knowledge Management System in an organization involves

systematically taking the following steps with a view to capturing learning from
daily transactions and bringing about a consistent availability of informative data
on an updated basis for decision making and thereby enhancing the competitive
advantages of the organization.

(a) Syndicating latest laws, statutes, regulations and amendments

(b) Identifying and analyzing of the latest relevant judicial pronouncements
(c) Periodic circulation of the above captured information.
(d) Preparation of a detailed summary of learning after every transaction.
(e) Maintaining a data bank of these learning and precedents for future use
(f) Periodic internal circulation of a Legal Bulletin
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G. Legal Environment Management System
While evaluating business strategies for implementation within an organization,
managements often come across legal and economic hurdles which often results
in the environment playing the role of being “ Spoil Sports ”.

Again, while implementing business decisions, it is not unusual to come across

instances when organizations meeting with legal and economic road blocks
resulting in significant delays in the implementation of these decisions.

Legal Environment Management is therefore a proactive endeavor which could

undoubtedly enable organizations to meet with its emerging challenges in a much
more effective and efficient manner.

1. Legal Environment comprises of collectively the following internal and external

factors which , directly or indirectly or adversely or favorably, impact the
organization and its business ;
(a) Laws, statutes, regulations and amendments thereof
(b) Latest relevant judicial pronouncements
(c) Economical or financial policies of the Government
(d) Vision , Mission and Long and Short Term Goals
(e) Mergers, Acquisitions, Joint Ventures and other Corporate Restructuring

2. Legal Environment Management concerns with the systematic and structured

endeavor to effectively and efficiently manage the Legal Environment in which
an organization operates, in such a manner so as to enable a proactive
identification, analysis and elimination of any treats, surprises or road blocks
arising out of the Legal Environment in the pursuit of the business objectives of
the organization.

3. Environment Management System in an organization involves systematically

taking the following steps with a view to eliminating any treats, surprises or road
blocks arising out of the Legal Environment in the pursuit of the business
objectives of the organization and thereby enhancing the competitive advantages
of the organization.
(a) Inventorying all laws, statutes and regulations applicable to the business
(b) Identifying all latest judicial pronouncements applicable to the business
(c) Identifying all economical or financial policies of the Government
(d) Analyzing each of the above with particular reference to the organization
(e) Identification of Legal threats to the organization and its business
(f) Pursuit of appropriate de-risking strategies for damage control
(g) Successfully lobbying for changes through representations

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 V. CONCLUDING THOUGHT

The importance of this Paper would be evident from the following quote by Mr. Ira .M.
Millstein from page 10 of Money and Business Section of the New York Times, April 6,
1997. Mr. Millstein, an authority on Corporate Governance, and who was also the co
chairman of the Blue Ribbon Committee.

“Darwin learned that in a competitive environment an organism’s chance of survival and

reproduction is not simply a matter of chance. If one organism has even a tiny edge over
the others, the advantage becomes amplified over time. In ‘The Origin of the Species,
‘Darwin noted, ‘A grain in the balance will determine which individual shall live and
which shall die.”

Each of the above value creating strategies and initiatives are “grains in the balance”
which if implemented by an organization would, individually and collectively, provide
the organization the “tiny edges” over the others and in a competitive environment the
advantages of such tiny edges would become amplified over time and such advantages
would undoubtedly add value to itself as well as its Stakeholders.

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