Chapter I

CORPORATE GOVERNANCE:AN INTRODUCTION INTRODUCTION:Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed. The system by which business corporations are directed and controlled is known as Corporate Governance. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the organization, such as the Board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. In the broadest sense, which is increasingly widespread today, corporate governance is concerned with holding the balance between 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 interests of individuals, corporations and society. Code of behavior that defines guidelines for the transparent management and control of companies is called as Corporate Governance. It creates transparency, strengthens confidence in the company management and in particular serves the protection of the shareholders and stakeholders. Corporate Governance is a means whereby society can be sure that large corporations are well-run institutions to which investors and lenders can confidently commit their funds. It Is a term that refers broadly to the rules,
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processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as customer groups, clients and government regulations. It safeguards against corruption and mismanagement, while promoting fundamental values of a market economy in democratic society. It a sincere commitment of creating and sustaining an ethical business culture in public and private sectors. Many committees have suggested ways and means to strengthen corporate governance. Some of the Definitions given by various committees are as follows:-

According to Monks and Minow Corporate Governance is, Relationships among various participants in determining the direction and performance of a corporation

The primary participants in a corporation are the tripod of shareholders, management-led by the C.E.O. and the Board of Directors. There are other participants as well as the employees, customers, suppliers, creditors and the community. Keeping in view the interest of various stakeholders in a company, corporate governance is concerned with effective management of relationship.

According to James D. Wolfensohn, President of World Bank: Corporate Governance is about promoting corporate fairness, transparency, and accountability.

Cadbury Committee, U.K has defined corporate governance as follows:

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It may also be defined as a system of structuring, operating and controlling a company with the following specific aims:1. 2. 3. 4. Fulfilling long-term strategic goals of owners; Taking care of the interests of employees; A consideration for the environment and local community Proper compliance with all the applicable legal and regulatory requirements.

Corporate Governance denotes the process, structure and relationship through which the Board of Directors oversees what the management does. It is also about answerable to different stakeholders.

The Kumar Mangalam Birla Committee constitutes by SEBI has observed that:

Strong Corporate governance is indispensable to resilient and vibrant capital markets and is an important instrument of investor protection. It is the blood that fills the veins of the transparent corporate disclosure and high quality accounting practices. It is the muscle that moves a viable and accessible financial reporting structure.

N.R. Narayana Murthy Committee on Corporate Governance constituted by SEBI has observed that: Corporate Governance is the acceptance by management of the inalienable rights of the shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a

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distinction between personal and corporate funds in the management of a company

HISTORY OF CORPORATE GOVERNANCE:Ever since the concept of corporate entity was recognized, corporate governance in various manifestations has been in existence. The Foreign Corrupt Practices Act, 1977 (USA) made specific provisions regarding establishment, maintenance and review of systems of internal control. In 1979, US Securities Exchange Commission prescribed mandatory reporting on internal financial controls. Due to high profile failures in the US, the Treadway Commission constituted in 1985 highlighted the need of putting in place a proper control environment, desirability if constituting independent boards and its committees and objective internal audit function. As a consequence, the Committee of Sponsoring Organizations took birth. It produced and stipulated in 1992, a control framework. After the Enron debacle of 2001, came other scandals involving large US companies such as WorldCom, Qwest, Global Crossing and the Auditing lacunae that eventually led to the collapse of Anderson. These developments triggered another phase of reforms in the area of corporate Governance. In July 2002, the Sarbanes-Oxley Act popularly called SOX was enacted. The Act made fundamental changes in virtually every aspect of Corporate Governance in general and auditor independence, conflict of interests, corporate responsibility, enhanced financial disclosures and severe penalties for willful default by managers and auditors, in particular.

A Spate of scandals and financial collapses in the UK in the late 1980s and early 1990s made the shareholders and banks worry about their investments. This led the UK Government to recognize insufficiency of existing
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legislation and role of self regulation as a measure of controlling scandals and financial collapses. Some of the corporate disasters took place primarily due to insufficiency of implementable governance practices. To prevent the recurrence of such business failures, the Cadbury Committee was set up by the London Stock Exchange in May 1991. In its report it spelt out the methods of governance needed to achieve a balance between the essential powers of the Board of Directors and their proper accountability. Of the 19

recommendations, the most debatable one was the one obliging the directors to report on the effectiveness of a companys system of internal records. Subsequently constitutes Paul Ruthman Committee to some extent watered down the Cadbury proposal. It restricted the reporting requirements to internal financial control as against the effectiveness of the companys system of internal control. After about 5 yrs, the Ron Hampel Committee on Corporate Governance was appointed to assess the impact of Cadbury recommendations and to develop further guidance. The Greenbury Committee submitted a report in 1995 to address the issues relating to the Directors Remuneration. The cumulative effect of above efforts was the formulation of London Stock Exchanges combined code appended to the listing rules of the Exchange. Listing rules of the Exchange require a listed company to include in the annual report a disclosure statement that should be in 2 parts. In the first part the Company has to add a report as to how it applies the principles in the combined code while in the second part of the statement the company has either to confirm that it complies with the Code provisions or alternatively add an explanation where it does not The Turalsull Guidance (1992) requires the board of directors to confirm that an ongoing process for identifying, evaluating and managing the key business risks is in place.

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DEVELOPMENTS IN INDIA:The Initiatives taken by Government in 1991, aimed at economic liberalization and Globalization of the domestic economy, led India initiate reform process in order to suitably respond to the developments taking place world over. On account of the interest generated by Cadbury Committee Report, the CII, the ASSOCHAM and SEBI constituted committees to recommend initiatives in Corporate Governance. The recommendations of the Kumar Mangalam Birla Committee, constituted by SEBI, led to the addition of Clause 49 in the Listing Agreement. These recommendations aimed at improving the standards of Corporate Governance, are divided into mandatory and non-mandatory recommendations. The recommendations have been applicable to all listed companies, their Directors, Management, employees and Professionals associated with such companies. The ultimate responsibility for putting the recommendations into practices lies directly with the Board of Directors and the management of the company.

Other developments include the constitution of a Committee by SEBI under the Chairmanship of Shri N.R Narayan Murthy, for reviewing implementation of the Corporate Governance by listed companies and issue of revised clause 49 based on its recommendations; setting up of proactive Standing Company Law Advisory Committee by Department of Company affairs to advise on several issues like inspection of corporate for wrong doings, role of independent auditors and directors and their liability and suggesting steps to enhance imposition of penalties. Another Committee had been constituted by the Department of Company Affairs known as the Working Group for examination of suggestions received on good Corporate Governance. A High Powered Central Coordination and Monitoring Committee
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(CCMC) co-chaired by secretary, Department of Company Affairs and Chairman, SEBI was set up to monitor the action taken against the vanishing companies, and unscrupulous promoters who misused the funds raised from public. It was decided by this Committee that 7 task forces be set up at Mumbai, Delhi, and Chennai, Kolkata, Ahmedabad, Bangalore, and Hyderabad with Regional Directors/ Registrar of Companies of respective regions as convener, and Regional Offices of SEBI and stock Exchanges as Members. The main task of these Task Forces was to identify the companies, which have disappeared, or which have misutilsed the funds from the investors, and suggests appropriate action in terms of Companies Act or SEBI Act.

PRINCIPLES ON WHICH CORPORATE GOVERNANCE SHOULD BE BASED: Transparency in Board processes and independence in the functioning of Boards. Boards should provide effective leadership to all company and management for achieving sustained prosperity for all stakeholders. It should provide independent judgment for achieving companys objective. Accountability to stakeholders with a view to serve the stakeholders and account to them at regular intervals for action taken, through strong communication processes. Fairness to all stakeholders; and Social, regulatory and environmental concern.

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OBJECTIVES OF CORPORATE GOVERNANCE:

Good Governance is integral to the very existence of a company. It inspires and strengthens investors confidence by ensuring companys commitment to higher growth and profits. It seeks to achieve following objectives: A properly structured Board capable of taking independent and objectives is in place at the helm of affairs; The Board is balanced as regards the representation of adequate number of non-executive and independent directors who will take care of the interests and well being of all the stakeholders; The Board adopts transparent procedures and practices and arrives at decisions on the strength of adequate information; The Board has an effective machinery to sub serve the concerns of stakeholders; The Board keeps the shareholders informed of relevant developments impacting the company; The Board effectively and regularly monitors the functioning of the management team; and The Board remains in effective control of the affairs of the company at all times. The overall Endeavour of the Board should be to take organization forward, to maximize long-term value and shareholders wealth.

ELEMENTS OF GOOD CORPORATE GOVERNANCE:1. Role and Powers of Board

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Good governance is decisively the manifestation of personal beliefs and values which configures the organizational values, beliefs and actions of its Board. The Board as a main functionary is primary responsible to ensure value creation for its stakeholders. The absence of clearly designated role and powers of Board weakens accountability mechanism and threatens the achievement of organizational goals. Therefore, the foremost requirement of good governance is the clear identification of powers, roles, responsibilities and accountability of the Board, CEO, and the Chairman of the Board. The role of the Board should be clearly documented in a Board Charter.

2.

Legislation

Clear

and

unambiguous

legislation

and

regulations

are

fundamental to effective corporate governance. Legislation that requires continuing legal interpretation or is difficult to interpret on a day-to-day basis can be subject to deliberate manipulation or misinterpretation.

3.

Management Environment

Management Environment includes setting up of clear objectives and appropriate ethical framework, establishing due processes, providing for transparency and clear enunciation of responsibility and accountability, implementing sound business planning, encouraging business risk assessment, having right people and right skill for the jobs, establishing clear boundaries for acceptable behavior, establishing

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performance evaluation measures and establishing performance and sufficiently recognizing individual and group contribution.

4.

Board Skills

To be able to undertake its function efficiently and effectively, the Board must possess the necessary blend of qualities, skills, knowledge and experience. Each of the directors should make quality contribution. A Board should have a mix of the following skills, knowledge and experience;

Operational or technical expertise, commitment to establish leadership; Financial Skills; Legal skills; and Knowledge of Government and regulatory requirement.

5.

Board Appointments

To ensure that the most competent people are appointed in the Board, the Board positions should be filled through the process of extensive search. A well-defined and open procedure must be in place for reappointments as well as for appointment of new Directors. Appointment mechanism should satisfy all statutory and administrative requirements. High on the priority should be an understanding of skill requirements of the Board particularly at the time of making a choice of appointing a new director. All new directors should be provided with a
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letter of appointment setting out in detail their duties and responsibilities.

6.

Board Induction and Training

Directors must have a broad understanding of the area of operation of the companys business, corporate strategy and the challenges being faced by the Board. Attendance at continuing education and professional development programmes is essential to ensure that directors remain abreast of all developments, which are or may impact on their Corporate Governance and other related duties.

7.

Board Independence

Independent Board is essential for sound corporate governance. This goal may be achieved by associating sufficient number of independent directors with the Board. Independence of directors would ensure that there are no actual or perceived conflicts of interest. It also ensures that the Board is effective in supervising and where necessary, challenging the activities of management. The Board needs to be capable of assessing the performance of managers with an objective perspective. Accordingly, the majority of Board members should be independent of both the management team and any commercial dealings with the company.

8.

Board Meetings
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Directors must devote sufficient time and give due attention to meet their obligations. Attending Board meetings regularly and preparing thoroughly before entering the Boardroom increases the quality of interaction at Board Meetings. Board Meetings are the forums for Board decision making. These meetings enable directors to discharge their responsibilities. The effectiveness of Board, meetings is dependent on carefully planned agendas and providing relevant papers and materials to directors sufficiently prior to Board meetings. Also, in the present scenario, Board meetings through modern means of communication like tele-conferencing, video conferencing may be expressly allowed under law.

9.

Board Resources

Board members should have sufficient resources to enable them to discharge their duties effectively. It includes an access for director to independent legal and professional advice at the companys expense. The costs of supporting the Board should be transparent and reported.

10.

Code of Conduct

It is essential that the organizations explicitly prescribed norms of ethical practices and code of conduct are communicated to all stakeholders and are clearly understood and followed by each member of the organization. Systems should be in place to periodically measure, evaluate and if possible recognize the adherence to code of conduct.
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11.

Strategy Setting

The objectives of the company must be clearly documented in a long-term corporate strategy including an annual business plan together with achievable and measurable performance targets and milestones.

12.

Business and community Obligations

Though basic activity of a business entity is inherently commercial yet it must also take care of communitys obligations. Commercial objectives and community service obligations should be clearly documented after approval by the Board. The stakeholders must be informed about the proposed and ongoing initiatives taken to meet the community obligations.

13.

Financial and Operational Reporting

The Board requires comprehensive, regular, reliable, timely, correct and relevant information in a form and of a quality that is appropriate to discharge its function of monitoring corporate performance. For this purpose, clearly defined performance measures

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Financial and Non-financial should be prescribed which would add to the efficiency and effectiveness of the organization. The reports and information provided by the management must be comprehensive but not so extensive and detailed as to hamper comprehension of the key issues. The reports should be available to Board members well in advance to allow decision-making. Reporting should include status report about the state of implementation to facilitate the monitoring of the progress of all significant Board approves initiatives.

14.

Monitoring the Board Performance

The Board must monitor and evaluate its combined performance and also that of individual directors at periodic intervals, using key performance indicators besides peer review. The Board establishes an appropriate mechanism for reporting the results of Boards performance evaluation results.

15.

Audit Committee The Audit Committee in responsible for liaison with the

management; internal and statutory auditors, reviewing the adequacy of internal control and compliance with significant policies and procedures, reporting to the Board on the key issues. The quality of Audit Committee significantly contributes to the governance of the company.

16.

Risk Management

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Risk is an important element of corporate functioning and governance. There should be a clearly established process of identifying, analyzing, and treating risk, which could prevent the company from effectively achieving its objective. It also involves establishing a link between risk-return and resource priorities. Appropriate control procedures in the form of a risk management plan must be put in place to manage risk throughout the organization. The plan should cover activities as diverse as review of operating performance, effective use of information technology, contracting out and outsourcing. The Board has ultimate responsibility for identifying major risk to the organization, setting acceptable levels of risk and ensuring that senior management takes steps to detect, monitor and control these risks. The Board must satisfy itself that appropriate risk management system and procedures are in place to identify and manage risks. For this purpose the company should subject itself to periodic external and internal risk reviews.

FACTORS INFLUENCING QUALITY OF CORPORATE GOVERNANCE:Quality of governance primarily depends on following factors: Integrity of the Management; Ability of the board; Adequacy of the processes; Commitment level of individual Board members; Quality of Corporate Reporting; Participation of stakeholders in the Management;

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The degree to which corporation observe basic principles of good corporate governance is an increasingly factor for taking key investment decisions. International flow of capital enables companies to seek financing for larger pool of investors. If companies are to reap the full benefits of the global capital markets, capture efficiency gains, benefits by the economies of scale and attract long term capital, adoption of corporate governance standard must be credible, consistent, coherent and inspiring. Factors which add greater value through Good Corporate Governance may be summarized as follows: Adoption of good governance practices provides stability and growth to the enterprise. Good governance system, demonstrated by adoption of good corporate governance practices, builds confidence amongst stakeholders as well as prospective stakeholders. Investors are willing to pay higher price to the corporate demonstrating strict adherence to internationally accepted norms of corporate governance. Effective governance reduces perceived risk, consequently reduces cost of capital and enables Board of Directors to take quick and better decisions which ultimately improves bottom line of the corporate. In todays knowledge driven economy, demonstrating excellence in skills has become the ultimate tool in the hands of Board of Directors to leverage competitive advantage. Adoption of good corporate governance practices provides longterm sustenance and strengthens stakeholders relationship.

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 A good corporate citizen becomes an icon and enjoys a position of respect. Potential stakeholders aspire to enter into relationships with enterprises whose governance credentials are exemplary.

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Chapter II
SALIENT FEATURES OF CORPORATE GOVERNANCE REQUIREMENTS UNDER LISTING AGREEMENTS:SEBI requires the listed companies to include a separate report on Corporate Governance in their Annual Report by including Clause 49 in the Listing Agreement. The disclosures about Corporate Governance to be made in the Annual Report are as under:

i.

Disclosures on Mandatory Requirements

ii.

Disclosures on Non-Mandatory Requirements

The management Discussion and analysis Report can be given either as part of the directors report or as an addition to the Directors Report. However, the disclosures relating to mandatory items and the general information to shareholders along with a detailed compliance report on corporate Governance must be given in a separate section in the Annual Report and the heading of the section shall be Report on Corporate Governance. Non-compliance of any mandatory requirements of this clause with reasons thereof and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted. DISCLOSURE ON MANDATORY REQUIRMENTS: Brief statement on companys philosophy on code of Governance:-

Under this heading each company must set out its philosophy on Corporate Governance keeping in view the nature of its business, the
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objective sought to be achieved and the manner in which it will serve the companys stakeholders.

Board of Directors:-

1. Composition of Board of Directors:As per Clause 49-I (A) of the Listing Agreement, the Board of Directors of the company shall have an optimum combination of executive and non-executive directors. Further: Not less than 50 percent of the board of directors shall comprise of non-executive directors; The number of independent directors would depend on whether the chairmen is executive or non-executive; If the Board has a Non-executive Chairman, at least onethird of the Board should comprise of independent directors; If the Board has an Executive Chairman, at least half of the Board should comprise of independent directors. In the Listing Agreement, there is considerable emphasis on the induction of independent directors on the Board of Directors. The induction of independent directors results in more objective and fair decision making by the Board, which would enhance the confidence of outsiders in the corporate Board. The following suggestions could contribute further in making the Board well balanced:-

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 The company should clearly spell out the maximum size of the Board and then leave it to the Board to decide the actual size within limit; Age limit for retirement of directors from the Board should be Cleary prescribed; The Board members should have a balance as regards the representation of business leadership skills vis--vis specialist, technical or other expertise; The non-executive directors should be person drawn from amongst professionals having expertise in business, finance, law, etc.

2. Disclosure on Remuneration of Directors:The specific disclosure on the remuneration of directors regarding all elements of remuneration package of individual directors summarized under major group such as salary, benefits, bonuses, pensions etc., details of fixed component and performance linked incentives, along with performance criteria, service contract, notice period, severance fee, stock option details, if any, and whether issued at a discount as well as the period over which accrued and over which exercisable, should be made in the section on Corporate Governance of the Annual Report. The company shall publish its criteria of making payment to non-executive directors in the annual reports. This may be put on the website of the company. Number of share and convertible instrument held by non-executive directors should be disclosed in
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annual reports. Non-executive directors should disclose their shareholdings in the listed company in which they are proposed to be appointed as directors, prior to their appointment. These details should be disclosed in the notice to the general meeting called for appointment of such director. Non-executive directors compensation and disclosures:As per Clause 49-I (B), all fees, compensation, if any, paid to non-executive directors including independent directors shall be fixed by the Board of Directors and shall require previous approval by shareholders in the general meeting. The shareholders resolution shall specify the limits for the maximum number of stock option that can be granted to non-executive directors including independent directors in any financial year and in aggregate.

3. Board Procedure:As per Clause 49-I (C), the Board shall meet at least four times a year, with a maximum time gap of three months between any two meetings. The time gap between any two Board Meetings should not be more than three months. Limitation on the number of committee memberships:As per Clause 49-I (C) (ii), a director shall not be a member in more than 10 committees or act as Chairman of more than 5 Committees across all companies in which he is a director. Every director must inform the company about the committee position he occupies in other companies and notify changes as and when they take place.
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4. Code of Conduct:The Board shall lay down a code of conduct for all Board members and senior management of the company. The 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. For this purpose, the term senior management shall mean personnel of the company who are members of its core management team excluding Board of Directors. Normally, this would comprise all members of management one level below the executive directors, including all functional heads.

Audit Committee:Audit Committee plays a critical role in ensuring the integrity of financial management of the company. This committee adds assurance to the shareholders that the auditors, who acted on their behalf, are in a position to safeguard their interest. Sub-clause II (A) of Clause 49 stipulates that the Board shall set up a qualified and independent Audit Committee and give its terms of reference. While the requirement of Clause 49 applies to all listed companies, provision of section 292A of the Companies Act, 1956 apply to every public limited company having a paid-up share capital of 5 crore or more.

1. Constitution of the Audit Committee:22 | P a g e

The audit committee shall have minimum three directors as members. Two-thirds of the members of audit committee shall be independent directors. 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. The Chairman of the Audit Committee shall be an independent director. The Chairman of the Audit Committee shall be present at Annual General Meeting to answer shareholder queries. The Company Secretary shall act as the secretary to the committee. The audit committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executives of the company. The finance director, head of internal audit and a representative of the statutory auditor may be present as invitees for the meetings of the audit committee.
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Authority of Audit Committee:The Audit Committee shall have authority to investigate into any matter. For accomplishing these purpose, the Committee shall have full access to information contained in the records of the company and can seek external professional advice, if necessary. Default:If a default is made in complying with the provision of section 292A of the Companies Act, 1956, the company and every officer who is in default, shall be punished with imprisonment for a term which may extend to one year, or with fine which may extend to fifty thousand rupees or with both.

2. Meetings of Audit Committee:As per Clause 49-II (B), The audit committee should meet at least four times in a year and not more than four months shall elapse between two meetings. The quorum shall be either two members or one third of the members of the audit committee whichever is greater, but there should be a minimum of two independent members present.

3. Powers of Audit Committee:As per Clause 49-II (C), the audit committee shall have powers, which should include the following: To investigate any activity within its terms of reference. To seek information from any employee. To obtain outside legal or other professional advice.
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 To secure attendance of outsiders with relevant expertise, if it considers necessary.

4. Role of Audit Committee:As per Clause 49-II (D), the role of the audit committee shall include the following: 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. Recommending to the Board, the appointment, reappointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. 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 Boards report in terms of clause (2AA) of section 217 of the Companies Act, 1956 Changes, if any, in accounting policies and practices and reasons for the same

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 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 any related party transactions Qualifications in the draft audit report. Reviewing, with the management, the quarterly financial statements before submission to the Board for approval. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems. 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. Discussion with internal auditors any significant findings and follow up there on. 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.

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 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. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders,

shareholders (in case of nonpayment of declared dividends) and creditors. To review the functioning of the Whistle Blower mechanism, in case the same is existing. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.

5. Review of information by Audit Committee:As per Clause 49-II (E), The Audit Committee shall mandatorily review the following information: 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; and

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 The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee.

Subsidiary Companies:As per Clause 49-III, At least one independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of a material non listed Indian subsidiary company. The Audit Committee of the listed holding company shall also review the financial statements, in particular, the investments made by the unlisted subsidiary company. The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company. The management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company.

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 Disclosures:1. Basis of related party transaction:As per Clause 49-IV (A) states that a statement in summary form of transactions with related parties in the ordinary course of business shall be placed periodically before the audit committee. Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee. Details of material individual transactions with related parties or others, which are not on an arms length basis, should be placed before the audit committee, together with Managements justification for the same.

2. Disclosure of Accounting Treatment:As per Clause 49-IV, Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the managements

explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report.

3. Board Disclosure Risk Management:As per Clause 49-IV (B) provides that The Company shall lay down 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.
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4. Proceeds from Public issues, Right issues, Preferential issues, etc.:As per Clause 49-IV (C) When money is raised through an issue (public issues, rights issues, preferential issues etc.), it shall disclose to the Audit Committee, the uses / applications of funds by major category (capital expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and place it before the audit committee. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent. This statement shall be certified by the statutory auditors of the company. This statement shall be certified by the statutory auditors of the company. The audit committee shall make appropriate

recommendations to the Board to take up steps in this matter.

5. Directors Remuneration:The remuneration payable both to executive and nonexecutive directors is required to be determined by the Board. Clause 49 of the listing agreement provides that the following disclosure shall be made in the section on Corporate Governance in the Annual Report.

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 All elements of remuneration package of individual directors summarized under major groups, such as salary, benefits, bonuses, stock options, pension etc. Details of fixed component and performance linked incentives, along with the performance criteria. Service contracts, notice period, severance fees. Stock option details, if any and whether issued at a discount as well as the period over which accrued and over which exercisable.

6. Management:As per Clause 49-IV (E), as a part of the Directors Report or an additional thereto, a Management Discussion and Analysis report should form part of the Annual Report to the shareholders. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the companys competitive position: Industry structure and developments. Opportunities and Threats. Segmentwise or product-wise performance. Outlook Risks and concerns. Internal control systems and their adequacy. Discussion on financial performance with respect to operational performance. Material developments in Human Resources / Industrial Relations front, including number of people employed.
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Senior management shall make disclosures to the board relating to all material financial and commercial transactions, where they have personal interest that may have a potential conflict with the interest of the company at large.

7. Disclosure to shareholders:As per Clause 49-IV (F), In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the following information: A brief resume of the director; Nature of his expertise in specific functional areas; Names of companies in which the person also holds the directorship and the membership of Committees of the Board; and Shareholding of non-executive directors as stated in Clause 49 (IV) (E) (v) above. The company must place following information on its websites: Quarterly results. Presentation made by the company to analysts. A board committee under the chairmanship of a non-executive director shall be formed to specifically look into the redressal of shareholder and investors complaints like transfer of shares, nonreceipt of balance sheet, non-receipt of declared dividends etc. This Committee shall be designated as Shareholders/Investors Grievance Committee. The Company Secretary should be appointed as Compliance Officer to monitor the share transfer process and to submit a report at each meeting of Board.
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 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 discharging that 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 statement or omit any material fact or contain statements that might be misleading; These statements together present a true and fair view of the companys affairs and are in compliance with existing accounting standards, applicable laws and regulations. There are, to the best of their knowledge and belief, no transactions entered into by the company during the year which are fraudulent, illegal or violative of the companys code of conduct. They accept responsibility for establishing and

maintaining internal controls for financial reporting and that they have evaluated the effectiveness of internal control systems of the company pertaining to financial reporting and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which they
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are aware and the steps they have taken or propose to take to rectify these deficiencies. They have indicated to the auditors and the Audit committee significant changes in internal control over financial reporting during the year; significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and Instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the companys internal control system.

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 Report on Corporate Governance:Clause 49-VI provides that there shall be a separate section on Corporate Governance in the Annual Reports of company, with a detailed compliance report on Corporate Governance. Noncompliance of any mandatory requirement of this clause with reasons thereof and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted. The companies shall submit a quarterly compliance report to the stock exchanges within 15 days from the close of quarter.

Compliance:The company shall obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance as stipulated in this clause and annex the certificate with the directors report, which is sent annually to all the shareholders of the company. The same certificate shall also be sent to the Stock Exchanges along with the annual report filed by the company.

Disclosures on Non-Mandatory Requirements:These requirements may be implemented at the discretion of the company. However, the disclosures of the compliance with mandatory requirements and adoption / non-adoption of the non-mandatory

requirements shall be made in the section on corporate governance of the Annual Report. Corporate should on their own, adopt and implement the nonmandatory requirements of corporate governance as a measure of good governance.
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Chapter III
Case Study on Corporate Governance practices followed by Infosys
The primary purpose of corporate leadership is to create wealth legally and ethically. This translates to bringing a high level of satisfaction to five constituencies - customers, employees, investors, vendors and the society-atlarge. The raison d'tre of every corporate body is to ensure predictability, sustainability and profitability of revenues year after year. - N.R. Narayana Murthy

Chairman of the Board and Chief Mentor

Corporate Governance Report

"Corporate governance is about maintaining an appropriate balance of accountability between three key players: the corporation's owners, the directors whom the owners elect, and the managers whom the directors select. Accountability requires not only good transparency, but also an effective means to take action for poor performance or bad decisions."

Mary L. Schapiro, Chairperson, Securities and Exchange Commission, USA, Address to Transatlantic Corporate Governance Dialogue - September 17, 2009.

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Corporate governance is about commitment to values and ethical business conduct. It is about how an organization is managed. This includes its corporate and other structures, its culture, policies and the manner in which it deals with various stakeholders. Accordingly, timely and accurate disclosure of information regarding the financial situation, performance, ownership and governance of the company is an important part of corporate governance. This improves public understanding of the structure, activities and policies of the organization. Consequently, the organization is able to attract investors, and enhance the trust and confidence of the stakeholders.

Corporate governance guidelines and best practices have evolved over a period of time. The Cadbury Report on the financial aspects of corporate governance, published in the United Kingdom in 1992, was a landmark. The Sarbanes-Oxley Act, which was signed by the U.S. President, George W. Bush as a law in July 2002, has brought about sweeping changes in financial reporting. This is perceived to be the most significant change to federal securities law since the 1930s. Besides laying down the standards for directors and auditors, the Act has also laid down new accountability standards for security analysts and legal counsels.

In India, the Confederation of Indian Industry (CII) took the lead in framing a desirable code of corporate governance in April 1998. This was followed by the recommendations of the Kumar Mangalam Birla Committee on Corporate Governance. This committee was appointed by the Securities and Exchange Board of India (SEBI). The recommendations were accepted by SEBI in

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December 1999, and are now incorporated in Clause 49 of the Listing Agreement. Our compliance with these various requirements is presented in this section. Infosys fully complies with, and indeed go beyond, all these recommendations on corporate governance.

SEBI also instituted a committee under the chairmanship of N. R. Narayana Murthy which recommended enhancements in corporate governance. SEBI has incorporated the recommendations made by the Narayana Murthy Committee on Corporate Governance in clause 49 of the Listing Agreement. The revised clause 49 was made effective from January 1, 2006.

During the year, the Ministry of Corporate Affairs, Government of India, published the Corporate Governance Voluntary Guidelines 2009. These guidelines have been published keeping in view the objective of encouraging the use of better practices through voluntary adoption, which not only serve as a benchmark for the corporate sector but also help them in achieving the highest standard of corporate governance. These guidelines provide corporate India a framework to govern themselves voluntarily as per the highest standards of ethical and responsible conduct of business. The Ministry hopes that adoption of these guidelines will also translate into a much higher level of stakeholders' confidence that is crucial to ensuring long-term sustainability and value generation by business.

Infosys believes that sound corporate governance is critical to enhancing and retaining investor trust. Accordingly, they always seek to ensure that they
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attain their performance goals with integrity. Their Board exercises its fiduciary responsibilities in the widest sense of the term.

Their disclosures always seek to attain the best practices in international corporate governance. Infosys also endeavors to enhance long-term shareholder value and respect minority rights in all our business decisions.

Infosys 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 we operate Have a simple and transparent corporate structure driven solely by business needs Management is the trustee of the shareholders' capital and not the owner. The Board of Directors ('the Board') is at the core of their corporate governance practice and oversees how the Management serves and protects

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the long-term interests of all our stakeholders. Infosys believes that an active, well-informed and independent Board is necessary to ensure highest standards of corporate governance.

The majority of their Board, eight out of 14, are independent members. Further, they have audit, compensation, investor grievance, nominations and risk management committees, which comprise only independent directors.

As part of Infosys commitment to follow global best practices, they comply with the Euroshareholders Corporate Governance Guidelines, 2000, and the recommendations of the Conference Board Commission on Public Trusts and Private Enterprises in the U.S. They also adhere to the United Nations Global Compact policy. Further, a note on our compliance with the corporate governance guidelines of six countries (Australia, Canada, France, Germany, Japan and U.K.) in their national languages is available on our website, www.infosys.com.

Corporate governance ratings CRISIL CRISIL has been consistently assigning Infosys the 'CRISIL GVC Level 1' rating over several years now. This Governance and Value Creation (GVC) rating indicates their capability to create wealth for all our stakeholders while adopting sound corporate governance practices.

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ICRA ICRA assigned 'CGR 1' rating to Infosys corporate governance practices. The rating is the highest on ICRA's Corporate Governance Rating (CGR) scale of CGR 1 to CGR 6. Infosys is the first company in India to be assigned the highest CGR by ICRA. The rating reflects our transparent shareholding pattern, sound Board practices, interactive decision-making process, high level of transparency, disclosures encompassing all important aspects of our operations and our track record in investor servicing. A notable feature of our corporate governance practices is the emphasis on substance over form, besides our transparent approach to follow such practices.

Corporate governance guidelines Over the years, the Board has developed corporate governance guidelines to help fulfill their corporate responsibility with our stakeholders. These guidelines ensure that the Board will have the necessary authority and processes in place to review and evaluate our operations when required. Further, these guidelines allow the Board to make decisions that are independent of the Management. The Board may change these guidelines from time-to-time to effectively achieve our stated objectives.

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Corporate Governance Policies Infosys has been a pioneer in benchmarking its corporate governance practices with the best in the world. Given below are the company's policies on corporate governance.

Board composition Board meetings Board committees Management review and responsibility Shareholders Code of Conduct and Ethics Whistleblower Policy

Board composition
Size and composition of the Board Our policy toward the composition of the Board is to have an appropriate mix of executive and independent directors to maintain the independence of the Board, and to separate its functions of governance and management. Currently, the Board consists of 14 members, five of whom are executive or whole-time directors, one is non-executive and eight are independent directors. Three of the executive directors are our founders. The Board believes that the current size is appropriate, based on our present circumstances. The Board periodically evaluates the need for change in composition of its size.
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Responsibilities of the Chairman, CEO and the COO

Their policy is to have a Non-Executive Chairman and Chief Mentor N. R. Narayana Murthy; a Chief Executive Officer (CEO) and Managing Director S. Gopalakrishnan; and a Chief Operating Officer (COO) and Director S. D. Shibulal. The responsibility and authority of these officials are as follows : The Chairman and Chief Mentor is responsible for mentoring their core management team in transforming us into a world-class, next-generation organization that provides state-of-the-art, technology-leveraged business solutions to corporations across the world. He also interacts with global thought leaders to enhance our leadership edge. In addition, he continues to interact with various institutions to highlight the benefits of IT and help these benefits percolate to all sections of society. As Chairman of the Board, he is also responsible for all Board and corporate governance matters. The CEO and Managing Director is responsible for corporate strategy, brand equity, planning, external contacts and other management matters. He is also responsible for achieving the annual business targets and acquisitions. The COO is responsible for all customer service operations. He is also responsible for innovation and research in technology advancements, new initiatives and investments. The CEO, COO, the other executive directors and the senior management personnel are responsible for achieving targets. They make periodic presentations to the Board on their responsibilities and performance. Board definition of independent directors According to Clause 49 of the Listing Agreement with Indian stock exchanges, an independent director means a person who is not an officer or employee of the Company or its
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subsidiaries or any other individual having a material pecuniary relationship or transactions with. the Company which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. We adopted a much stricter definitionof independence as required by the NASDAQ listing rules and the Sarbanes-Oxley Act, U.S. Lead Independent Director Prof. Marti G. Subrahmanyam is a Lead Independent Director. He represents and acts as spokesperson for the independent directors as a group, and is responsible for the following activities : Presiding over all executive sessions of the Board's independent directors Working closely with the Chairman and the CEO to finalize the information flow, meeting agendas and meeting schedules Liaising with the Chairman, CEO and the independent directors on the Board Taking the lead role, along with the Chairman in the Board evaluation process.

Board membership criteria

The nominations committee works with the entire Board to determine the appropriate characteristics, skills and experience required for the Board as a whole as well as its individual members. Board members are expected to possess the expertise, skills and experience required to manage and guide a high-growth, high-tech IT services company, deriving revenue primarily from G7 countries. Expertise in strategy, technology, finance, quality and human

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resources is essential. Generally, the members are between 40 and 60 years of age, and are not related to any executive directors or independent directors.

Selection of new directors

The Board is responsible for the selection of new directors. The Board delegates the screening and selection process involved in selecting new directors to the nominations committee, which consists exclusively of independent directors. The nominations committee in turn makes

recommendations to the Board on the induction of any new directors.

Retirement policy
Under this policy, the maximum age of retirement for executive directors is 60 years, which is the age of superannuation for our employees. Their continuation as members of the Board upon superannuation / retirement is determined by the nominations committee. The age limit for serving on the Board is 65 years. The age limit for the independent chair is 70 years. Succession planning The nominations committee constantly works with the Board to evolve succession planning for the positions of the Chairman, CEO, COO and CFO and also develop contingency plan for interim succession for any of them, in case of any exigencies. The Board, if required, may increase the review frequency of the succession plan.

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Board compensation policy The compensation committee determines and recommends to the Board the compensation payable to the directors. All Board-level compensation is approved by the shareholders and separately disclosed in the financial statements. Remuneration of the executive directors consists of a fixed component and a performance incentive. The compensation committee makes a quarterly appraisal of the performance of the executive directors based on a detailed performance-related matrix. The annual compensation of the executive directors is approved by the compensation committee, within the parameters set by the shareholders at the shareholders' meetings. The compensation payable to the independent directors is limited to a fixed amount per year as determined and approved by the Board, the sum of which is within the limit of 1% of our net profits for the year, calculated as per the provisions of the Companies Act, 1956.

Non-executive / independent directors' remuneration

Section 309 of the Companies Act, 1956, states that a director who is neither in the whole-time employment of the Company nor a managing director may be paid remuneration by way of commission, if the Company, by special resolution, authorizes such payment. Members of the Company at the Annual General Meeting held on June 22, 2007, approved payment of remuneration by way of commission to non-executive directors, at a sum not exceeding 1%

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per annum of our net profits. We have paid Rs. 5.63 crore (US $1,248,750) ascommission to our non-executive directors.

Independent directors based overseas and traveling to India to attend Board meetings will be eligible to receive an additional US $5,000 permeeting. This is based on the fact that these independent directors have to spend at least two additional days in travel while attendingboard meetings in India. The Board believes that the above commission structure is commensurate with global best practices in terms of remunerating non-executive / independent directors of a company of similar size and adequately compensates for the time and contribution made by our non-executive / independent directors.

Board meetings
Scheduling and selection of agenda items for Board meetings Dates for Board meetings in the ensuing year are decided in advance and published as part of the Annual Report. Most Board meetings are held at our registered office at Electronics City, Bangalore, India. The Chairperson of the Board and the Company Secretary draft the agenda for each meeting, along with explanatory notes, in consultation with the CEO and the Lead Independent Director, and distribute these in advance to the directors. Every Board member can suggest additional items for inclusion in the agenda. The Board meets at least once a quarter to review the quarterly results and other items on the agenda, and also on the occasion of the Annual General Meeting of the shareholders. Additional meetings are held, when necessary. Independent directors are expected to attend at least four Board meetings in a year. However, the Board being
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represented by independent directors from various parts of the world, it may not be possible for each one of them to be physically present at all the meetings. We use video / teleconferencing facilities to enable their participation. Committees of the Board usually meet the day before the formal Board meeting, or whenever the need arises for transacting business. Six Board meetings were held during the year ended March 31, 2010. These were held on April 15, 2009; May 02, 2009; June 20, 2009 (coinciding with last year's Annual General Meeting of the shareholders); July 10, 2009; October 9, 2009 and January 12, 2010.

Availability of information to Board members

The Board has unfettered and complete access to any information within the Company, and to any of our employees. At Board meetings, managers who can provide additional insights into the items being discussed are invited. Regular updates provided to the Board include : Annual operating plans and budgets, capital budgets and updates Quarterly results of our operating divisions or business segments Minutes of meetings of audit, compensation, nominations, risk management and investor grievance committees as well as abstracts of circular resolutions passed The Board minutes of the subsidiary companies General notices of interest received from directors Dividend data

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 Information on recruitment and remuneration of senior officers just below the Board level, including appointment or removal of the CFO and Company Secretary Materially important litigations, show cause, demand, prosecution and penalty notices Fatal or serious accidents, dangerous occurrences, and material effluent or pollution problems Any materially relevant defaults in financial obligations to and by us Any issue that involves possible public or product liability claims of a substantial nature Details of joint ventures, acquisitions of companies or collaboration agreements Transactions that involve substantial payments toward goodwill, brand equity or intellectual property Any significant development on the human resources aspect Sale of material nature, of investments, subsidiaries and assets, which are not in the normal course of business Details of foreign exchange exposure and the steps taken by the Management to limit risks of adverse exchange rate movement Non-compliance of any regulatory, statutory or listing requirements, as well as shareholder services such as non-payment of dividend and delays in share transfer.

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Board committees
Currently, the Board has five committees : 1. audit committee 2. compensation committee 3. nominations committee 4. investor grievance committee 5. risk management committee. All committees consist entirely of independent directors. The Board, in consultation with the nominations committee, is responsible for constituting, assigning, co-opting and fixing terms of service for committee members. It delegates these powers to the nominations committee. The Chairperson of the Board, in consultation with the Company Secretary and the committee chairperson, determines the frequency and duration of the committee meetings. Normally, all the committees meet four times a year. Recommendations of the committees are submitted to the entire Board for approval. The quorum for meetings is either two members or one-third of the members of the committee, whichever is higher.

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Management review and responsibility

Formal evaluation of officers The compensation committee of the Board approves the compensation and benefits for all Executive Board Members as well as members of the Executive Council. Another committee, headed by the CEO, reviews, evaluates and decides the annual compensation of our officers from the level of Vice President, excluding members of the Executive Council. The compensation committee of the Board administers the 1998 and the 1999 Stock Option Plans. Board interaction with clients, employees, institutional investors, the government and the press The Chairman, the CEO and the COO, in consultation with the CFO, handle all interactions with investors, the media and various governments. The CEO and the COO manage most of the interactions with clients and employees. Risk management Infosys has an integrated approach to managing risks inherent in various aspects of its business. Shareholders Disclosures regarding the appointment or re-appointment of directors According to the Articles of Association, one-third of the directors retire by rotation and, if eligible, seek re-appointment at the Annual General Meeting of shareholders. As per Article 122 of the Articles of Association, N. R. Narayana Murthy, Prof. Marti G. Subrahmanyam, S. Gopalakrishnan, S. D. Shibulal and T. V. Mohandas Pai will retire in the ensuing Annual General Meeting.

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Investor grievances and share transfer Infosys has a Board-level investor grievance committee to examine and redress shareholders' and investors' complaints. The status on complaints and share transfers is reported to the entire Board. The details of shares transferred and the nature of complaints are provided in the Shareholder information section of the Annual Report. For shares transferred in physical form, the Company provides adequate notice to the seller before registering the transfer of shares.

Details of non-compliance There has been no instance of non-compliance with any legal requirements nor have there been any strictures imposed by any stock exchange, SEBI or SEC, on any matters relating to the capital market over the last three years. Postal ballots For the year ended March 31, 2010, there are no ordinary or special resolutions that need to be passed by our shareholders through a postal ballot. Auditors' certificate on corporate governance As required by Clause 49 of the Listing Agreement, the auditors' certificate is given in the Annexure to the directors' report section in the Annual Report. CEO and CFO certification As required by Clause 49 of the Listing Agreement, the CEO / CFO certification is provided in the CEO and CFO certification section of the Annual Report. Code of Conduct In compliance with Clause 49 of the Listing Agreement, the Company has adopted a Code of Ethics for Principal Executives and Senior Financial Officers. This Code is applicable to all the members of the Board, the Executive Council
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and senior financial officers. This Code is in addition to the Company's Code of Business Conduct, applicable to all the employees of the Company.

Compliance with non-mandatory requirements of Clause 49 of the Listing Agreement Clause 49 of the Listing Agreement mandates us to obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance as stipulated in the Clause, and annex the certificate with the Directors' report, which is sent annually to all our shareholders. We have obtained a certificate to this effect and the same is given as an annexure to the Directors' report. The Clause further states that the non-mandatory requirements may be implemented as per our discretion. However, the disclosures of compliance with mandatory requirements and adoption (and compliance) / non-adoption of the non-mandatory

requirements shall be made in this section of the Annual Report. We comply with the following non-mandatory requirements : The Board Independent directors may have a tenure not exceeding, in the aggregate, a period of nine years on our Board. None of the independent directors on our Board have served for a tenure exceeding nine years from the date when the new Clause 49 became effective. Remuneration committee We have instituted a compensation committee. A detailed note on compensation / remuneration committee is provided in the Annual Report.

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Shareholders' rights The Clause states that a half-yearly declaration of financial performance, including summary of the significant events in the last six months, may be sent to each shareholder. We communicate with investors regularly through e-mail, telephone and face-to-face meetings either in investor conferences, company visits or on road shows. The announcement of quarterly results is followed by media briefings in several television channels, press conferences and earnings conference calls. The earnings calls are webcast live on the internet so that information is available to all at the same time. Further, transcripts of the earnings calls are posted on our website, www.infosys.com, within a week. Highlights of the results are also made available to mobile phone users in India through SMS and WAP. We have also voluntarily furnished eXtensible Business Reporting Language (XBRL) data to the SEC. We are participating in SEC's voluntary program for reporting financial information on EDGAR using XBRL and are one of the few companies in the world to adopt this standard. We adopted IFRS effective fiscal 2009 for our filings with SEC and consequently discontinued publishing financial statements as per U.S. GAAP. Training of Board members All new non-executive directors inducted into the Board are given an orientation. Presentations are made by various executive directors and senior management giving an overview of our operations to familiarize the new nonexecutive directors with the operations. The new non-executive directors are given orientation on our services, group structure and subsidiaries, our constitution, Board procedures and matters reserved for the Board, our major risks and risk management strategy.

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Some of the performance indicators based on which the independent directors are evaluated include : Ability to contribute to and monitor our corporate governance practices Ability to contribute by introducing international best practices to address top-management issues Active participation in long-term strategic planning Commitment to the fulfillment of a director's obligations and fiduciary responsibilities. This includes participation and attendance.

Whistle-blower policy
Infosys have established a mechanism for employees to report concerns about unethical behavior, actual or suspected fraud, or violation of our code of conduct or ethics policy. It also provides for adequate safeguards against victimization of employees who avail of the mechanism, and also allows direct access to the Chairperson of the audit committee in exceptional cases. We further affirm that no employee has been denied access to the audit committee.

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Analysis of Corporate governance policies of Infosys

Compliance Particulars Status Yes/No

I. Board of Directors (A) Composition of Board (B) Directors compensation & disclosures (C) Other provisions as to Yes Board and Committees (D) Code of Conduct Yes Yes

Remarks

Non-executive Yes

Complete details given

Effective

and

strict adherence II. Audit Committee (A) Qualified & Independent Yes Audit Committee All the details of each Auditor is clearly mentioned (B) Meeting of Audit Yes

Committee

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(C)

Powers

of

Audit Yes

As per Clause 49 of agreement listing

Committee

(D) Role of Audit Committee Yes

Clearly defined roles

(E) Review of Information by yes Audit Committee III. Subsidiary Companies Yes

IV. Disclosures (A) Basis of related party Yes transactions (B) Disclosure of Accounting Yes Treatment (C) Board Disclosures Yes

(D) Proceeds from public Yes issues, rights issues, preferential issues etc. (E) Remuneration of Yes Directors

Complete details given regarding the remuneration paid

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(F) Management (G) Shareholders V. CEO/CFO Certification

Yes Yes Yes Provided as per clause Listing agreement 49 of

VI. Report on Corporate Yes Governance VII. Compliance Yes

Provided in the annual report No instance of any compliance non-

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Non-Mandatory requirements Particulars

The Board Remuneration Committe Shareholder Rights Audit qualifications Training of Board Members

Compliance
Yes Yes Yes Yes Yes

Mechanism for evaluating non- Yes executive Board Members Whistle Blower Policy Yes

By analyzing the corporate governance report of Infosys we can clearly see that they adhere to all the mandatory as well as non-mandatory disclosure requirements as stated in the clase 49 of listing agreement. Infosys has a very transparent governance policy which lets the shareholders know the exact scenario of the companys working. Infosys uses its strong disclosure standards as a differentiator and as a way to gain competitive advantage over its competitors. The company produces a very strong annual report, maintains a comprehensive website and presents its financial statements according to multiple accounting
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standards. Infosys has undertaken to disclose its financials and non-financials as if it were a US-incorporated, SECregistered company. ICRA assigned "CGR 1" rating to Infosys corporate governance practices. The rating is the highest on ICRA's Corporate Governance Rating (CGR) scale of CGR1 to CGR 6. They are the first company in India to be assigned the highest CGR by ICRA. This rating reflects their transparent shareholding pattern, sound Board practices, interactive decision-making process, high level of transparency, and disclosures encompassing all important aspects of their operations. This shows why Infosys is one of the best practitioners of corporate governance in India.

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Conclusion
The aspects of good corporate governance must be made credible by strong government and private-sector enforcement mechanisms. Government regulators and law enforcement agencies must have the resources and legal authority to conduct thorough investigations of potential wrongdoing and self-dealing by corporate management. And regulators and law enforcement agencies must aggressively investigate and prosecute managerial and corporate wrongdoing on a constant, ongoing basis, not just when a major scandal arises. Likewise, corporate compliance officers must have the powers they need to ensure that all corporate employees (including senior management) comply with the law and abide by the companys internal corporate governance requirements. Without such

aggressive overlapping enforcement mechanisms, even the best corporate governance standards can be undermined.

The success of corporate governance rests on the awareness on the part of companies of their own responsibilities. While law can control and regularize certain practices, the ultimate responsibility of being ethical and moral remains with the companies.

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Some analysts felt that Infosys corporate governance practices offered many lessons to corporate India. Infosys had shown that increasing shareholder wealth and safeguarding the interests of other stakeholders was not incompatible. Infosys had given its nonexecutive directors the mandate to pass judgement on the efficacy of its business plans. Every non-executive director not only played an active role in decision making, but also led or served on at least one of the three (Nomination, Compensation and Audit) committees. Infosys founders had set very high standards, in a country where malpractices by founders were rampant. The founders only took salaries and dividends and derived no other financial benefits from the company. Adhering to such transparent corporate governance policies Infosys has earned the share holders trust. Whatever the policies they have adopted are not just on paper but it is also in actual implementation. There have been previous cases where corporate governance practices where implemented on paper like in the Satyam Computers. Thus, by setting benchmark in Corporate Governance Practices Infosys is leading the way in corporate India in clean and transparent governance of the company where the investors interest is protected.

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Bibliography Reference Books: Corporate Governance (Modules of Best Practices) The Institute of Company Secretaries of India. Advanced Accounting (Volume - 2) Dr. S. N. Maheshwari Websites:www.infosys.com/investors/corporategovernance www.sebi.gov.in www.google.com

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