corporate governance of infosys
TRANSCRIPT
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 1/22
CORPORATE GOVERNANCE OF INFOSYS
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 2/22
INTRODUCTION:-
Corporate governance broadly refers to the mechanisms, processes and relations by which
corporations are controlled and directed. o!ernance str"ct"res and principles identify the
distrib"tion of ri#hts and responsibilities amon# different participants in the corporation $s"ch as
the board of directors, mana#ers, shareholders, creditors, a"ditors, re#"lators, and other
sta%eholders& and incl"des the r"les and proced"res for ma%in# decisions in corporate affairs.
Corporate #o!ernance incl"des the processes thro"#h which corporations' ob(ecti!es are set and
p"rs"ed in the conte)t of the social, re#"latory and mar%et en!ironment. o!ernance
mechanisms incl"de monitorin# the actions, policies, practices, and decisions of corporations,
their a#ents, and affected sta%eholders. Corporate #o!ernance practices are affected by attempts
to ali#n the interests of sta%eholders. Interest in the corporate #o!ernance practices of modern
corporations, partic"larly in relation to acco"ntability, increased followin# the hi#h-profile
collapses of a n"mber of lar#e corporations d"rin# *++*++*, most of which in!ol!ed
acco"ntin# fra"d and then a#ain after the recent financial crisis in *++/. Corporate scandals of
!ario"s forms ha!e maintained p"blic and political interest in the re#"lation of corporate
#o!ernance. In the U.0., these incl"de 1nron and 2CI Inc. $formerly 3orldCom&. Their demise
is associated with the U.0. federal #o!ernment passin# the 0arbanes-O)ley 4ct in *++*,
intendin# to restore p"blic confidence in corporate #o!ernance. Comparable fail"res in 4"stralia
$5I5, One.Tel& are associated with the e!ent"al passa#e of the C61R7 8 reforms. 0imilar
corporate fail"res in other co"ntries stim"lated increased re#"latory interest $e.#., 7armalat in
Italy&.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 3/22
MEANING AND DEFINATION OF CORPORATE GOVERNANCE:-
Corporate #o!ernance is concerned with holdin# the balance between economic and social #oals
and between indi!id"al and comm"nal #oals.
DEFINATION
Corporate #o!ernance is the set of processes, c"stoms, policies, laws, and instit"tions affectin#
the way a corporation $or company& are directed, administered or controlled .Corporate
#o!ernance also incl"des the relationships amon# the many sta%eholders in!ol!ed and the #oals
for which the corporation is #o!erned.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 4/22
PRINCIPLES OF CORPORATE GOVERNANCE:-
Contemporary disc"ssions of corporate #o!ernance tend to refer to principles raised in three
doc"ments released since 88+: The Cadb"ry Report $U9, 88*&, the 7rinciples of Corporate
o!ernance $O1CD, 888, *++ and *+;&, the 0arbanes-O)ley 4ct of *++* $U0, *++*&. The
Cadb"ry and Or#ani<ation for 1conomic Co-operation and De!elopment $O1CD& reports present
#eneral principles aro"nd which b"sinesses are e)pected to operate to ass"re proper #o!ernance.
The 0arbanes-O)ley 4ct, informally referred to as 0arbo) or 0o), is an attempt by the federal
#o!ernment in the United 0tates to le#islate se!eral of the principles recommended in the
Cadb"ry and O1CD reports.
• Rigt! an" e#$ita%&e treat'ent o( !areo&"er!: Or#ani<ations sho"ld respect the
ri#hts of shareholders and help shareholders to e)ercise those ri#hts. They can help
shareholders e)ercise their ri#hts by openly and effecti!ely comm"nicatin# information
and by enco"ra#in# shareholders to participate in #eneral meetin#s.
• Interests of other sta%eholders: Or#ani<ations sho"ld reco#ni<e that they ha!e le#al,
contract"al, social, and mar%et dri!en obli#ations to non-shareholder sta%eholders,
incl"din# employees, in!estors, creditors, s"ppliers, local comm"nities, c"stomers, and
policy ma%ers.
• Ro&e an" re!pon!i%i&itie! o( te %oar": The board needs s"fficient rele!ant s%ills and
"nderstandin# to re!iew and challen#e mana#ement performance. It also needs ade="ate
si<e and appropriate le!els of independence and commitment.
• Integrit) an" etica& %eavior: Inte#rity sho"ld be a f"ndamental re="irement in
choosin# corporate officers and board members. Or#ani<ations sho"ld de!elop a code of
cond"ct for their directors and e)ec"ti!es that promotes ethical and responsible decision
ma%in#.
• Di!c&o!$re an" tran!parenc): Or#ani<ations sho"ld clarify and ma%e p"blicly %nown
the roles and responsibilities of board and mana#ement to pro!ide sta%eholders with a
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 5/22
le!el of acco"ntability. They sho"ld also implement proced"res to independently !erify
and safe#"ard the inte#rity of the company's financial reportin#. Disclos"re of material
matters concernin# the or#ani<ation sho"ld be timely and balanced to ens"re that all
in!estors ha!e access to clear, fact"al information.
*EY PARTIES INVOLVED IN CORPORATE GOVERNANCE:-
9ey parties in!ol!ed in corporate #o!ernance incl"de sta%eholders s"ch as the
+oar" o( "irector!,
Manage'ent an" !areo&"er!.
1)ternal sta%eholders s"ch as creditors, a"ditors, c"stomers, s"ppliers, #o!ernment a#encies, and
the comm"nity at lar#e also e)ert infl"ence.
The a#ency !iew of the corporation posits that the shareholder for#oes decision ri#hts $control&
and entr"sts the mana#er to act in the shareholders' best $(oint& interests. 7artly as a res"lt of this
separation between the two in!estors and mana#ers, corporate #o!ernance mechanisms incl"de a
system of controls intended to help ali#n mana#ers' incenti!es with those of shareholders.
4#ency concerns $ris%& are necessarily lower for a controllin# shareholder .
Re!pon!i%i&itie! o( te %oar" o( "irector!:-
>ormer Chairman of the ?oard of eneral 2otors @ohn . 0male wrote in 88;: AThe board is
responsible for the s"ccessf"l perpet"ation of the corporation. That responsibility cannot be
rele#ated to mana#ement.A 4 board of directors is e)pected to play a %ey role in corporate
#o!ernance. The board has responsibility for: C1O selection and s"ccession pro!idin# feedbac%
to mana#ement on the or#ani<ation's strate#y compensatin# senior e)ec"ti!es monitorin#
financial health, performance and ris% and ens"rin# acco"ntability of the or#ani<ation to its
in!estors and a"thorities. ?oards typically ha!e se!eral committees $e.#., Compensation,
Nominatin# and 4"dit& to perform their wor%.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 6/22
The O1CD 7rinciples of Corporate o!ernance $*++& describe the responsibilities of the boardsome of these are s"mmari<ed below:
• ?oard members sho"ld be informed and act ethically and in #ood faith, with d"e
dili#ence and care, in the best interest of the company and the shareholders.
• Re!iew and #"ide corporate strate#y, ob(ecti!e settin#, ma(or plans of action, ris% policy,
capital plans, and ann"al b"d#ets.
• O!ersee ma(or ac="isitions and di!estit"res.
• 0elect, compensate, monitor and replace %ey e)ec"ti!es and o!ersee s"ccession plannin#.
• 4li#n %ey e)ec"ti!e and board rem"neration $pay& with the lon#er-term interests of the
company and its shareholders.
• 1ns"re a formal and transparent board member nomination and election process.
• 1ns"re the inte#rity of the corporations acco"ntin# and financial reportin# systems,
incl"din# their independent a"dit.
• 1ns"re appropriate systems of internal control are established.
• O!ersee the process of disclos"re and comm"nications.
• 3here committees of the board are established, their mandate, composition and wor%in#
proced"res sho"ld be well-defined and disclosed.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 7/22
CORPORATE GOVERNANCE: ETERNAL AND INTERNAL ACTORS
The most prominent #ro"p of actors in corporate #o!ernance are the companyBs directors. They
can be either e)ec"ti!e or non-e)ec"ti!e directors $N1Ds& the n"mbers and split of e)ec"ti!es to
N1Ds will partly depend "pon the re#"latory re#ime of the co"ntry. It is #enerally the case that
in!estors and re#"lators prefer there to be more N1Ds, as their independent scr"tiny of the
company, its controls and strate#ies, pro!ide a more rob"st #o!ernance str"ct"re. In a "nitary
board str"ct"re, all directors share le#al responsibility for company acti!ities and all are
acco"ntable to the shareholders. In most co"ntries, all directors are s"b(ect to retirement by
rotation, where they either step down or offer themsel!es for re-election $by the shareholders& for
another.Directors are collecti!ely responsible for the companyBs performance, controls,
compliance and beha!ior. This means that the board of directors m"st disc"ss and a#ree
strate#ies to ma)imi<e the lon#-term ret"rns to the companyBs shareholders. They m"st also
comply f"lly with rele!ant re#"latory re="irements that will incl"de le#al, acco"ntin# and
#o!ernance-framewor%.
Co'pan)-!ecretar)
In most co"ntries, the appointment of a company secretary is a comp"lsory condition of
company re#istration. This is beca"se the company secretary has important responsibilities in
compliance, incl"din# the responsibility for the timely filin# of acco"nts and other le#al
compliance iss"es. In addition to this responsibility for compliance with rele!ant laws and
re#"latory framewor%s, the company secretary often ad!ises directors of their re#"latory and
le#al responsibilities and d"ties. 5is or her primary loyalty is always to the company. This means
that in any conflict with another member of the company $s"ch as a director&, the company
secretary m"st always ta%e the side most li%ely to benefit the company $rather than any sin#ledirector&.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 8/22
Technical %nowled#e is therefore an important part of this role. ?eca"se of this, many co"ntriesB
company law mandates that for a p"blic company, the post holder m"st be a member of one of a
list of professional acco"ntancy or company secretary professional bodies $which incl"des
4CC4&.
The ma(or roles incl"de:
• maintainin# the stat"tory re#isters $s"ch as the share re#ister&
• ens"rin# the timely and acc"rate filin# of a"dited acco"nts and other doc"ments to
stat"tory a"thorities $e# #o!ernment companiesB a#encies and ta) a"thorities&
• pro!idin# members $e# shareholders& and directors with notice of rele!ant meetin#s
• or#anisin# resol"tions for and min"tes from ma(or company meetin#s $li%e the 42&
S$%-%oar"-'anage'ent:-
0ometimes referred to $ambi#"o"sly& as middleB mana#ement, mana#ers below board le!el are a
cr"cial part of the #o!ernance system. It is the employees, led by s"b-board mana#ement, that
implement strate#ies, meet compliance tar#ets and collect the information and data on which
board-le!el decisions are made.
The effecti!eness of s"b-board mana#ement as part of a #o!ernance system is partly based on the
e)tent to which or#anisational acti!ities are controlled and coordinated. al"e-addin# syner#ies
arise when specialists wor% to achie!e or#anisational ob(ecti!es in their own departments and are
coordinated by an effecti!e board of senior mana#ers and directors. There is ample scope for strate#ic driftB, especially in lar#e or#anisations, when this !ital control and coordination is
ineffecti!e.
E'p&o)ee Repre!entative! .tra"e$nion/
The most common way of pro!idin# employee representation $to the board& is thro"#h a trade
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 9/22
"nion. Trade "nions represent employees in a wor%place membership is !ol"ntary and the
infl"ence of the "nion is "s"ally proportional to the percenta#e of the wor%place that are
members.
4ltho"#h often ass"med to be in an ad!ersarial relationship with mana#ement, trade "nions can
play a !ery helpf"l role in corporate #o!ernance. The ad!ersarial ass"mption is probably
"nhelpf"l in many sit"ations, as "nion members often share the same ob(ecti!es for the
or#anisation, and share professional and ethical !al"es with mana#ement in carryin# o"t the
or#anisational strate#y.
In terms of #o!ernance, trade "nions are able to deli!erB the compliance of a wor%force. If a
strate#y needs a hi#h le!el of commitment, a "nion can help to "nite the wor%force behind the
strate#y and ens"re e!erybody is committed to it. This can also mean that mana#ement and
wor%force are seen as "nited by e)ternal sta%eholders this can ma%e the achie!ement of
strate#ies more li%ely. ?y collecti!e bar#ainin# o!er pay and conditions, a#reement "s"ally
si#nifies that the wor%force b"ys inB to the a#reed strate#y or acti!ity.
4 trade "nion can be a %ey actor in the chec%s and balances of power within a corporate
#o!ernance str"ct"re. 3here mana#ement ab"ses occ"r, it is often the trade "nion that pro!ides
the first and most effecti!e reaction a#ainst it this can often wor% to the ad!anta#e of
shareholders, especially when the ab"se has the ability to affect prod"cti!ity. Unions are often
#ood at hi#hli#htin# mana#ement ab"ses s"ch as fra"d, waste, incompetence and #reed, all of
which are "nhelpf"l traits in board members.
6in%ed to the abo!e, trade "nions help to maintain and control one of the most !al"able assets in
an or#anisation, the employees. 3here a helpf"l and m"t"ally constr"cti!e relationship is
c"lti!ated between "nion and employer, then an optimally efficient ind"strial relations climate
e)ists, th"s reinforcin# the prod"cti!ity of h"man reso"rces in the or#anisation. In defendin#
membersB interests and ne#otiatin# terms and conditions, the "nion helps to ens"re that the
wor%force is content and able to wor% with ma)im"m efficiency and effecti!eness.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 10/22
ETERNAL ACTORS
Sareo&"er!
0hareholders and other in!estors $e# fi)ed-ret"rn bond-holders& are "s"ally considered the most
important e)ternal actors in corporate #o!ernance. In the a#ency relationship that e)ists betweenshareholders and directors, the shareholders are the principals. They ha!e the ri#ht to e)pect
a#ents $directors& to act in their best economic interests and to obser!e a fid"ciary d"ty towards
them.
0hareholders inc"r a#ency costs in monitorin# the acti!ities and actions of a#ents $directors&.
These are the costs of monitorin# and chec%in# on directorsB beha!io"r. 1)amples of a#ency
costs are attendin# rele!ant meetin#s $42s and 12s&, st"dyin# company res"lts and
analystsB reports, and ma%in# direct contact with companies thro"#h in!estor relations
departments. 3hen a shareholder holds shares in many companies, the total a#ency costs can be
prohibiti!e shareholders therefore enco"ra#e directorsB rewards pac%a#es to be ali#ned with
their own interests so that they feel less need to contin"ally monitor directorsB acti!ities.
The 7aper 7 Study Guide considers two types of shareholder: small in!estors and instit"tional
in!estors. 0mall in!estors are indi!id"als who hold shares in "nit tr"sts, f"nds and indi!id"al
companies. They typically b"y, hold or sell small !ol"mes and tend to ha!e fewer so"rces of
information on companies than instit"tional in!estors. They also often ha!e narrower and less
rob"st portfolios, which can mean that a#ency costs are hi#her, as the indi!id"als themsel!es
st"dy the companies they ha!e in!ested in for si#ns of chan#es in strate#y, #o!ernance or
performance.
Instit"tional in!estors are by far the bi##est in!estors in companies, and they dominate the share
!ol"mes on most of the worldBs stoc% e)chan#es. 7ension f"nds, ins"rance companies, "nit tr"st
companies and similar financial instit"tions hold lar#e n"mbers of shares in indi!id"al f"nds
with each f"nd bein# mana#ed by a f"nd mana#er. Indi!id"als, either directly or thro"#h
in!estment prod"cts $s"ch as pensions or endowments& b"y into in!estment f"nds that are then
mana#ed, by selecti!ely b"yin#, holdin# or sellin# shares and other in!estments. 3hen the f"nd
#rows or red"ces in !al"e, the member #ains or loses !al"e as a res"lt. >"nd mana#ers do ha!e
some infl"ence o!er the companies that they hold shares in, with #reater infl"ence ob!io"sly
bein# associated with hi#her proportionate holdin#s. >"nd mana#ers need to be aware of the performance and #o!ernance of many companies in their f"nds, so a#ency costs can be !ery
lar#e indeed. To red"ce these, they ma%e "se of information from se!eral so"rces on the
companies and also see% to ha!e directorsB benefit pac%a#es ali#ned with their own interests as
m"ch as possible.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 11/22
Stoc0 e1cange!
0hares are bo"#ht and sold thro"#h stoc% e)chan#es. 1ach of the main international stoc%
e)chan#es %eeps an inde) of the !al"e of shares on that e)chan#e this is the most fre="ently
="oted n"mberB, referrin# to the total !al"e of the shares on that e)chan#e. In 6ondon, fore)ample, the >T01 4ll 0hare $>inancial Times 0toc% 1)chan#e& inde) is a meas"re of all of the
shares listed in 6ondon. In New Eor%, it is the Dow @ones inde) and in 5on# 9on#, it is the
5an# 0en# inde).
The !al"e of any share on a stoc% e)chan#e is calc"lated contin"o"sly, based on the demand and
s"pply of that share. Demand for shares is dri!en by the e)pected f"t"re ret"rns on that share
which, in t"rn, is dri!en by e)pected company performance. Information s"##estin# an increase
in performance will tend to increase demand for a #i!en share anythin# s"##estin# a
deterioration in performance will ca"se fewer shares to be demanded. The price of a share rises
and falls with s"pply and demand "ntil the e="ilibri"m price is achie!ed $when the same n"mber
of shares is s"pplied and demanded&. 4ny chan#e in s"pply or demand will then mo!e the
e="ilibri"m price $ie the share price on the stoc% e)chan#e&.
In addition to listin#, pricin# and transactin# share b"yin# and sellin#, stoc% e)chan#es can also
ha!e a role in the #o!ernance of the companies listed on the e)chan#e. 6istin# r"les are
sometimes imposed on listed companies and in many cases, listin# r"les concern #o!ernance
arran#ements not co!ered elsewhere by company law. In the U9, for e)ample, it is a stoc%
e)chan#e re="irement that listed companies comply with the Combined Code on Corporate
o!ernance: not a le#al re="irement b"t a stoc% e)chan#e re="irement. Other listin# r"lesconcern reportin# beha!io"r. In a r"les-based ("risdiction, the law "nderpins corporate
#o!ernance and red"ces the need for stoc% mar%et listin# r"les.
A$"itor!
2ost 7aper 7 candidates will %now abo"t the role of a"ditors from st"dyin# 7aper >/. The most
ob!io"s role of a"dit in corporate #o!ernance is to report to shareholders that, ha!in# a"dited the
companyBs acco"nts, the acco"nts are acc"rate $a tr"e and fair !iewB is the term "sed in some
co"ntries&. 4"dit is also a le#al re="irement in compliance with company law as a condition of
company re#istration and the #rantin# of limited liability.
In addition to a normal a"dit, howe!er, a"ditors perform a !ital ser!ice to shareholders in
hi#hli#htin# iss"es in the #o!ernance and reportin# of the company. 4 ="alified a"dit report,
while bein# a serio"s matter for a company, is also an important si#nal to mar%ets abo"t the
company. 0ome a"ditors also offer additional ser!ices to clients and these sometimes incl"de
social and en!ironmental ad!ice and a"dit.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 12/22
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 13/22
ROLE OF PROFESSIONALS
4 company secretary is often call the conscience of the company so professional bodies m"st be
the conscience of the re#"lators and to a certain e)tent society in their areas of e)pertise
whether these are financial, constr"ction, en!ironmental fields or other areas. Only professional bodies actin# with their #reatest asset Finte#rityG as their fo"ndation stone can perform s"ch a
role. In Corporate o!ernance, Role of professionals is as follows, Normally, Role of
professionals can be two types
$& Direct in!ol!ement in corporate #o!ernance as a member of the board of directors H !ario"s
committees of the board H 5oldin# the position of a C>O H C1O H Compliance Officer of the
company.
$*& 4s a re!iewer of the f"nctionin# of the company, its board and committees as a part of the
certification relatin# to corporate #o!ernance.
EAMPLE :
0atyam scandal: 0howed corporate #o!ernance can be 0%in-deep It was d"bbed FIndiaBs 1nron.G
The Rs,+++ crore fra"d $it is now o!er Rs++++crore and risin#&, the bi##est in IndiaBs history,
wiped off J* billion worth shareholders wealth in the wee% that followed Ramalin# Ra("Bs
Fridin# a ti#er not %nowin# how to #et off witho"t bein# eatenG. It e)posed #larin# shortcomin#sof corporate #o!ernance, threatenin# IndiaBs appeal to forei#n in!estors. FThis is a lesson for
corporate ho"ses. In the new companies 4ct, we propose to #i!e more powers to independent
directors.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 14/22
23Y CORPORATE GOVERNANCE IS IMPORTANT4
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 15/22
. Canging O5ner!ip Str$ct$re : In recent years, the ownership str"ct"re of companies
has chan#ed a lot. 7"blic financial instit"tions, m"t"al f"nds, etc. are the sin#le lar#est
shareholder in most of the lar#e companies. 0o, they ha!e effecti!e control on the
mana#ement of the companies. They force the mana#ement to "se corporate #o!ernance.
That is, they p"t press"re on the mana#ement to become more efficient, transparent,
acco"ntable, etc. The also as% the mana#ement to ma%e cons"mer-friendly policies, to
protect all social #ro"ps and to protect the en!ironment. 0o, the chan#in# ownership
str"ct"re has res"lted in corporate #o!ernance.
*. I'portance o( Socia& Re!pon!i%i&it) : Today, social responsibility is #i!en a lot of
importance. The ?oard of Directors ha!e to protect the ri#hts of the c"stomers,
employees, shareholders, s"ppliers, local comm"nities, etc. This is possible only if they"se corporate #o!ernance.
K. Gro5ing N$'%er o( Sca'! : In recent years, many scams, fra"ds and corr"pt practices
ha!e ta%en place. 2is"se and misappropriation of p"blic money are happenin# e!eryday
in India and worldwide. It is happenin# in the stoc% mar%et, ban%s, financial instit"tions,
companies and #o!ernment offices. In order to a!oid these scams and financial
irre#"larities, many companies ha!e started corporate #o!ernance.
. In"i((erence on te part o( Sareo&"er! : In #eneral, shareholders are inacti!e in the
mana#ement of their companies. They only attend the 4nn"al #eneral meetin#. 7ostal
ballot is still absent in India. 7ro)ies are not allowed to spea% in the meetin#s.
0hareholders associations are not stron#. Therefore, directors mis"se their power for their
own benefits. 0o, there is a need for corporate #o!ernance to protect all the sta%eholders
of the company.
;. G&o%a&i6ation : Today most bi# companies are sellin# their #oods in the #lobal mar%et.
0o, they ha!e to attract forei#n in!estor and forei#n c"stomers. They also ha!e to follow
forei#n r"les and re#"lations. 4ll this re="ires corporate #o!ernance. 3itho"t Corporate
#o!ernance, it is impossible to enter, s"r!i!e and s"cceed the #lobal mar%et.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 16/22
L. Ta0eover! an" Merger!: Today, there are many ta%eo!ers and mer#ers in the b"siness
world. Corporate #o!ernance is re="ired to protect the interest of all the parties d"rin#
ta%eo!ers and mer#ers.
CORPORATE GOVERNANCE IN INDIA
Intro"$ction:-
One of the ma(or economic de!elopments of this decade has been the recent ta%e-off of
India,with #rowth rates a!era#in# in e)cess of /M for the past fo"r years, a stoc% mar%et that has
risen o!er three-fold in as many years and a steady inflow of forei#n in!estment. In *++L, totale="ity iss"ance reached J8.* billion in India, "p **M, while mer#er and ac="isition !ol"me was
a record J*./ billion,"p K/M, dri!en by a KM increase in o"tbo"nd ac="isition--e)ceedin# for
the first time inbo"nd deal !ol"mes. Debt iss"ance reached an all-time hi#h of JK. billion, "p
*/M from a year earlier. Indian companies were also amon# the world's most acti!e iss"ers of
depositary receipts in the first half of *++L, acco"ntin# for one in three new iss"es #lobally,
accordin# to the ?an% of New Eor%. 4nd, in each of the years *++; and *++L, the n"mber of
trades on the National 0toc% 1)chan#e of India, one of the two ma(or Indian 0toc% 1)chan#es,
was third hi#hest in the world, ("st behind N40D4 and the New Eor% 0toc% 1)chan#e, and
se!eral times #reater than the n"mber of trades on the 6ondon 0toc% 1)chan#e or 1"rone)t
Corporate Governance in In"ia 7 A 3i!torica& +ac0gro$n"
The historical de!elopment of Indian corporate laws has been mar%ed by many interestin#
contrasts. 4t independence, India inherited one of the worldBs poorest economies b"t one which
had a factory sector acco"ntin# for a tenth of the national prod"ct. The co"ntry also inherited
fo"r f"nctionin# stoc% mar%ets $predatin# the To%yo 0toc% 1)chan#e& with clearly defined r"les
#o!ernin# listin#, tradin# and settlements, a well-de!eloped e="ity c"lt"re $if only amon# the
"rban rich&, and a ban%in# system replete with well-de!eloped lendin# norms and reco!ery
proced"res. In terms of corporate laws and financial system, therefore, India emer#ed far better
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 17/22
endowed than most other colonies. The 8;L Companies 4ct b"ilt on this fo"ndation, as did
other laws #o!ernin# the f"nctionin# of (oint-stoc% companies and protection of in!estorsB
ri#hts.1arly corporate de!elopments in India were mar%ed by the mana#in# a#ency system. This
contrib"ted to the birth of dispersed e="ity ownership b"t also #a!e rise to the practice of
mana#ement en(oyin# control ri#hts disproportionately #reater than their stoc% ownership. The
t"rn towards socialism in the decades after independence, mar%ed by the 8; Ind"stries
$De!elopment and Re#"lation& 4ct and the 8;L Ind"strial 7olicy Resol"tion, p"t in place a
re#ime and a c"lt"re of licensin#, protection, and widespread red-tape that bred corr"ption and
stilted the #rowth of the corporate sector. The sit"ation worsened in s"bse="ent decades and
corr"ption, nepotism, and inefficiency became the hallmar%s of the Indian corporate sector.
1)orbitant ta) rates enco"ra#ed creati!e acco"ntin# practices and #a!e firms incenti!es to
de!elop complicated emol"ment str"ct"res with lar#e F"nder-the-tableG compensation at senior
le!els. In the absence of a stoc% mar%et capable of raisin# e="ity capital efficiently, three central
$federal& #o!ernment de!elopment finance instit"tions $the Ind"strial >inance Corporation of
India, the Ind"strial De!elopment ?an% of India and the Ind"strial Credit and In!estment
Corporation of India&,to#ether with abo"t thirty other state-#o!ernment owned de!elopment
finance instit"tions, became the main pro!iders of lon#-term credit to companies. 4lon# with the
central #o!ernment owned and mana#ed m"t"al f"nd, the Unit Tr"st of India, these instit"tions
also held $and still hold& lar#e bloc%s of shares in the companies to which they lent, and
in!ariably had representations on their boards in the form of nominee directors, tho"#h they
traditionally played !ery passi!e roles in the boardroom.
Recent Deve&op'ent! in Corporate Governance in In"ia
6iberali<ation of the Indian economy be#an in 88. 0ince then, we ha!e witnessed wide-
ran#in# chan#es in both laws and re#"lations, and a ma(or positi!e transformation of the
corporate sector and the corporate #o!ernance landscape. 7erhaps the sin#le most important
de!elopment in the field of corporate #o!ernance and in!estor protection in India has been the
establishment of the 0ec"rities and 1)chan#e ?oard of India in 88* and its #rad"al and #rowin#
empowerment since then. 1stablished primarily to re#"late and monitor stoc% tradin#, it has
played a cr"cial role in establishin# the basic minim"m #ro"nd r"les of corporate cond"ct in the
co"ntry. Concerns abo"t corporate #o!ernance in India were, howe!er, lar#ely tri##ered by a
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 18/22
spate of crises in the early 88+Bspartic"larly the 5arshad 2ehta stoc% mar%et scam of 88*--
followed by incidents of companies allottin# preferential shares to their promoters at deeply
disco"nted prices, as well as those of companies simply disappearin# with in!estorsB money.
These concerns abo"t corporate #o!ernance stemmin# from the corporate scandals, co"pled with
a percei!ed need of openin# "p the corporate sector to the forces of competition and
#lobali<ation, #a!e rise to se!eral in!esti#ations into ways to fi) the corporate #o!ernance
sit"ation in India. One of the first s"ch endea!ors was the Confederation of Indian Ind"stry Code
for Desirable Corporate o!ernance, de!eloped by a committee chaired by Rah"l ?a(a(, a
leadin# ind"strial ma#nate. The committee was formed in 88L and s"bmitted its code in 4pril
88/. 6ater the 01?I constit"ted two committees to loo% into the iss"e of corporate #o!ernance--
the first chaired by 9"mar 2an#alam ?irla, another leadin# ind"strial ma#nate, and the second
by Narayana 2"rthy, one of the ma(or architects of the Indian IT o"tso"rcin# s"ccess story. The
first Committee s"bmitted its report in early *+++, and the second three years later. These two
committees ha!e been instr"mental in brin#in# abo"t far reachin# chan#es in corporate
#o!ernance in India thro"#h the form"lation of Cla"se 8 of 6istin# 4#reements Conc"rrent
with these initiati!es by the 01?I, the Department of Company 4ffairs and the 2inistry of
>inance of the o!ernment of India also be#an contemplatin# impro!ements in corporate
#o!ernance. These efforts incl"ded the establishment of a st"dy #ro"p to operationali<e the ?irla
Committee recommendations in *+++, the Naresh Chandra Committee on Corporate 4"dit and
o!ernance in *++*, and the 1)pert Committee on Corporate 6aw $@.@. Irani Committee& in late
*++. 4ll of these efforts were aimed at reformin# the e)istin# Companies 4ct of 8;L that still
forms the bac%bone of corporate law in India
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 19/22
CORPORATE GOVERNANCE OF INFOSYS
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 20/22
A+O8T T3E COMPANY:-
In(o!)! Li'ite" $formerly In(o!)! Tecno&ogie! Li'ite"& is an Indian m"ltinational
corporation that pro!ides b"siness cons"ltin#, information technolo#y, software en#ineerin# and
o"tso"rcin# ser!ices. It is head="artered in ?an#alore, 9arnata%a.
Infosys is the second-lar#est India-based IT ser!ices company by *+ re!en"es, and the fifth
lar#est employer of 5-? !isa professionals in the United 0tates in >E *+K. On ; >ebr"ary
*+;, its mar%et capitali<ation was *LK,K; crores $J*.; billion&, ma%in# it India's si)th₹
lar#est p"blicly traded company.
Infosys was co-fo"nded in 8/ by C1O Narayan 2"rthy, Nandan Nile%ani, N. 0. Ra#ha!an, 0.
opala%rishnan, 0. D. 0hib"lal, 9. Dinesh and 4sho% 4rora after they resi#ned from 7atni
Comp"ter 0ystems. The company was incorporated as AInfosys Cons"ltants 7!t 6td.A with a
capital of +,+++ or U0J,*;+ $abo"t JK,*; in *+L& in 2odel Colony,₹ 7"ne as the re#istered
office.P*Q It si#ned its first client, Data ?asics Corporation, in New Eor% .PKQ In 8/K, the
company's corporate head="arters was relocated from 7"ne to ?an#alore
It pro!ides software de!elopment, maintenance and independent !alidation ser!ices to
companies in ban%in#, finance, ins"rance, man"fact"rin# and other domains.P*8Q
One of its %nown prod"cts is >inacle which is a "ni!ersal ban%in# sol"tion with !ario"s mod"les
for retail and corporate ban%in#
Infosys was ran%ed ;th lar#est IT ser!ices pro!ider in the world by 5f0 Research in its
*+K ran%in#. Infosys was ran%ed 8th on the world's most inno!ati!e companies list by >orbes.PL+Q
Infosys was in the list of top twenty #reen companies in Newswee% 's reen Ran%in#s for
*+*. The company has been !oted India's most admired company in The 3all 0treet @o"rnal
4sia *++
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 21/22
SERVICES OFFERED +Y INFOSYS:-
App&ication Deve&op'ent an" Maintenance:-
Infosys 4pplication De!elopment ser!ices help yo" address e!ol!in# b"siness and technolo#y
challen#es by definin#, desi#nin#, and b"ildin# applications tailored to meet yo"r b"siness
re="irements. 3e deli!er hi#h ="ality, fle)ible applications that are easy to maintain, mod"lar to
facilitate enhancements, and are reliable, sec"re, and easy to deploy "sin# the Infosys lobal
Deli!ery 2odel. It is based on ind"stry-standard process ="ality framewor%s $s"ch as C22i,
C22& and "ses ri#oro"s methodolo#ies and the e)pertise of o"r Centers of 1)cellence to
miti#ate ris% and deli!er cost and time-to-mar%et benefits.
0er!ice offerin#s are tar#eted towards the principle o"tcomes of increased ad!ocacy, hi#her end-
"ser prod"cti!ity, and rapid adoption with a primary foc"s to help yo" boost yo"r ability to
har!est increased b"siness !al"e from yo"r in!estments.
User-1)perience
Infosys User 1)perience $U& ser!ices help yo" b"ild applications that embody three %ey desi#n
o"tcomes easy to "se, "sef"l, and en#a#in#.Dedicated U Center of 1)cellence pro!ides a
complete ecosystem of U professionals and is foc"sed on deli!erin# U desi#n ser!ices to o"r
clients.
App&ication Maintenance
Infosys application maintenance ser!ices help yo" #et the best o"t of yo"r e)istin# IT
applications. The ser!ices span offshore-ability analysis, maintainability analysis, maintenance,
and enhancement, and are deli!ered "sin# the lobal Deli!ery 2odel. 3e "se str"ct"red
%nowled#e mana#ement tools and other I7 de!eloped by o"r 2aintenance Center of 1)cellence
to enhance the life of yo"r systems, ens"re that they e!ol!e with yo"r b"siness, red"ce system
downtime, and help yo" foc"s on strate#ic initiati!es by minimi<in# the time spent on ro"tine
acti!ities.
7/25/2019 Corporate Governance of Infosys
http://slidepdf.com/reader/full/corporate-governance-of-infosys 22/22