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Code of Corporate Governance

The document discusses corporate governance practices at Infosys, one of India's largest software companies. It notes that in the late 1990s, two committees were formed in India to recommend good governance norms. Infosys complied with most of these recommendations, including having an executive chairman separate from the CEO. The document also states that some analysts saw Infosys' practices as exemplary for other Indian companies, as it found ways to increase shareholder wealth while protecting other stakeholders.

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54 views4 pages

Code of Corporate Governance

The document discusses corporate governance practices at Infosys, one of India's largest software companies. It notes that in the late 1990s, two committees were formed in India to recommend good governance norms. Infosys complied with most of these recommendations, including having an executive chairman separate from the CEO. The document also states that some analysts saw Infosys' practices as exemplary for other Indian companies, as it found ways to increase shareholder wealth while protecting other stakeholders.

Uploaded by

mehtakani
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Code of Corporate Governance

In the late 1990s, the Confederation of Indian Industries (CII) published a code of corporate
governance (Refer Exhibit II for the highlights of the report). In 1999, the Securities and
Exchange Board of India (SEBI) appointed a committee under the Chairmanship of Kumar
Mangalam Birla5 to recommend a code of corporate governance...

Corporate Governance-The Infosys Way

Infosys had accepted the recommendation of both


the CII and the Kumar Mangalam Birla
Committee. This section provides an overview of
corporate governance practices followed by
Infosys.

Infosys had an executive chairman and chief


executive officer (CEO) and a managing director,
president and chief operating officer (COO). The
CEO was responsible for corporate strategy, brand
equity, planning, external contacts, acquisitions,
and board matters. The COO was responsible for
all day-to-day operational issues and achievement
of the annual targets in client satisfaction, sales,
profits, quality, productivity, employee
empowerment and employee retention.

The CEO, COO, executive directors and the senior management made periodic presentations to
the board on their targets, responsibilities and performance...

Infosys-A Benchmark for Corporate Governance

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 non-executive 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...

Abstract:

The case, 'Corporate Governance at Infosys'talks


about the corporate governance practices at
Infosys, one of India's largest software companies.
Till late 1990s, corporate governance did not have
much significance in India. In 1999, two
committees (Confederation of Indian Industries,
CII and the Kumar Mangalam Birla Committee)
were set up to recommend good governance
norms. These committees came out with several
recommendations, which were made mandatory
for the companies to adhere to by 2001. Infosys
was one of the first companies in India which had
complied with the recommendations made by the
committees. The case discusses in detail, the
corporate governance practices at Infosys, which
complied with most of the recommendations made
by the committees.

The case is intended for MBA/PGDBM level students as a part of the Business Ethics and
Corporate Governance Curriculum. From the case, students are expected to understand the
corporate governance practices at Infosys. From the case, students can understand how Infosys
became the best managed company in India because of its good governance practices. The case
would also enable the students understand the importance of corporate governance in business.
The objective of the case is to make the students understand that good governance would make a
company more professional.

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting
the way a corporation (or company) is directed, administered or controlled. Corporate
governance also includes the relationships among the many stakeholders involved and the goals
for which the corporation is governed. The principal stakeholders are the shareholders,
management, and the board of directors. Other stakeholders include employees, customers,
creditors, suppliers, regulators, and the community at large.

Corporate governance is a multi-faceted subject.[1] An important theme of corporate governance


is to ensure the accountability of certain individuals in an organization through mechanisms that
try to reduce or eliminate the principal-agent problem. A related but separate thread of
discussions focuses on the impact of a corporate governance system in economic efficiency, with
a strong emphasis on shareholders' welfare. There are yet other aspects to the corporate
governance subject, such as the stakeholder view and the corporate governance models around
the world (see section 9 below).

There has been renewed interest in the corporate governance practices of modern corporations
since 2001, particularly due to the high-profile collapses of a number of large U.S. firms such as
Enron Corporation and MCI Inc. (formerly WorldCom). In 2002, the U.S. federal government
passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance.

Contents
[hide]

 1 Definition
 2 History - United States
o 2.1 Impact of Corporate Governance
o 2.2 Role of Institutional Investors
 3 Parties to corporate governance
 4 Principles
 5 Mechanisms and controls
o 5.1 Internal corporate governance controls
o 5.2 External corporate governance controls
 6 Systemic problems of corporate governance
 7 Role of the accountant
 8 Regulation
o 8.1 Rules versus principles
o 8.2 Enforcement
o 8.3 Action Beyond Obligation
o 8.4 Proposals
 9 Corporate governance models around the world
o 9.1 Anglo-American Model
 10 Codes and guidelines
 11 Ownership structures
 12 Corporate governance and firm performance
o 12.1 Board composition
o 12.2 Remuneration/Compensation
 13 See also
 14 References
 15 Further reading
 16 External links

[edit] Definition

In A Board Culture of Corporate Governance, business author Gabrielle O'Donovan defines


corporate governance as 'an internal system encompassing policies, processes and people, which
serves the needs of shareholders and other stakeholders, by directing and controlling
management activities with good business savvy, objectivity, accountability and integrity. Sound
corporate governance is reliant on external marketplace commitment and legislation, plus a
healthy board culture which safeguards policies and processes'.

O'Donovan goes on to say that 'the perceived quality of a company's corporate governance can
influence its share price as well as the cost of raising capital. Quality is determined by the
financial markets, legislation and other external market forces plus how policies and processes
are implemented and how people are led. External forces are, to a large extent, outside the circle
of control of any board. The internal environment is quite a different matter, and offers
companies the opportunity to differentiate from competitors through their board culture. To date,
too much of corporate governance debate has centred on legislative policy, to deter fraudulent
activities and transparency policy which misleads executives to treat the symptoms and not the
cause.'[2]

It is a system of structuring, operating and controlling a company with a view to achieve long
term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and
complying with the legal and regulatory requirements, apart from meeting environmental and
local community needs.

Report of SEBI committee (India) on Corporate Governance defines corporate governance as the
acceptance by management of the inalienable rights of 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 distinction between
personal & corporate funds in the management of a company.” The definition is drawn from the
Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution.
Corporate Governance is viewed as business ethics and a moral duty. See also Corporate Social
Entrepreneurship regarding employees who are driven by their sense of integrity (moral
conscience) and duty to society. This notion stems from traditional philosophical ideas of virtue
(or self governance) [3]and represents a "bottom-up" approach to corporate governance (agency)
which supports the more obvious "top-down" (systems and processes, i.e. structural) perspective.

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