Corporate Governance Of Infosys 3x21k

CORPORATE GOVERNANCE OF INFOSYS

INTRODUCTION:Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed. Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and includes the rules and procedures for making decisions in corporate affairs. Corporate governance includes the processes through which corporations' objectives are set and pursued in the context of the social, regulatory and market environment. Governance mechanisms include monitoring the actions, policies, practices, and decisions of corporations, their agents, and affected stakeholders. Corporate governance practices are affected by attempts to align the interests of stakeholders. Interest in the corporate governance practices of modern corporations, particularly in relation to ability, increased following the high-profile collapses of a number of large corporations during 2001–2002, most of which involved ing fraud; and then again after the recent financial crisis in 2008. Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance. In the U.S., these include Enron and MCI Inc. (formerly WorldCom). Their demise is associated with the U.S. federal government ing the Sarbanes-Oxley Act in 2002, intending to restore public confidence in corporate governance. Comparable failures in Australia (HIH, One.Tel) are associated with the eventual age of the CLERP 9 reforms. Similar corporate failures in other countries stimulated increased regulatory interest (e.g., Parmalat in Italy).

MEANING AND DEFINATION OF CORPORATE GOVERNANCE:-

Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals.

DEFINATION Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) are directed, istered or controlled .Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.

PRINCIPLES OF CORPORATE GOVERNANCE:Contemporary discussions of corporate governance tend to refer to principles raised in three documents released since 1990: The Cadbury Report (UK, 1992), the Principles of Corporate Governance (OECD, 1999, 2004 and 2015), the Sarbanes-Oxley Act of 2002 (US, 2002). The Cadbury and Organization for Economic Co-operation and Development (OECD) reports present general principles around which businesses are expected to operate to assure proper governance. The Sarbanes-Oxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal government in the United States to legislate several of the principles recommended in the Cadbury and OECD reports. 

Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings.



Interests of other stakeholders: Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.



Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment.



Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board . Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.



Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a

level of ability. They should also implement procedures to independently and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information. KEY PARTIES INVOLVED IN CORPORATE GOVERNANCE:-

Key parties involved in corporate governance include stakeholders such as the Board of directors, Management and shareholders. External stakeholders such as creditors, auditors, customers, suppliers, government agencies, and the community at large also exert influence. The agency view of the corporation posits that the shareholder forgoes decision rights (control) and entrusts the manager to act in the shareholders' best (t) interests. Partly as a result of this separation between the two investors and managers, corporate governance mechanisms include a system of controls intended to help align managers' incentives with those of shareholders. Agency concerns (risk) are necessarily lower for a controlling shareholder.

Responsibilities of the board of directors:Former Chairman of the Board of General Motors John G. Smale wrote in 1995: "The board is responsible for the successful perpetuation of the corporation. That responsibility cannot be relegated to management." A board of directors is expected to play a key role in corporate governance. The board has responsibility for: CEO selection and succession; providing to management on the organization's strategy; compensating senior executives; monitoring financial health, performance and risk; and ensuring ability of the organization to its investors and authorities. Boards typically have several committees (e.g., Compensation, Nominating and Audit) to perform their work.

The OECD Principles of Corporate Governance (2004) describe the responsibilities of the board; some of these are summarized below: 

Board should be informed and act ethically and in good faith, with due diligence and care, in the best interest of the company and the shareholders.



Review and guide corporate strategy, objective setting, major plans of action, risk policy, capital plans, and annual budgets.



Oversee major acquisitions and divestitures.



Select, compensate, monitor and replace key executives and oversee succession planning.



Align key executive and board remuneration (pay) with the longer-term interests of the company and its shareholders.



Ensure a formal and transparent board member nomination and election process.



Ensure the integrity of the corporations ing and financial reporting systems, including their independent audit.



Ensure appropriate systems of internal control are established.



Oversee the process of disclosure and communications.



Where committees of the board are established, their mandate, composition and working procedures should be well-defined and disclosed.

CORPORATE GOVERNANCE: EXTERNAL AND INTERNAL ACTORS

The most prominent group of actors in corporate governance are the company’s directors. They can be either executive or non-executive directors (NEDs); the numbers and split of executives to NEDs will partly depend upon the regulatory regime of the country. It is generally the case that investors and regulators prefer there to be more NEDs, as their independent scrutiny of the company, its controls and strategies, provide a more robust governance structure. In a unitary board structure, all directors share legal responsibility for company activities and all are able to the shareholders. In most countries, all directors are subject to retirement by rotation, where they either step down or offer themselves for re-election (by the shareholders) for another.Directors are collectively responsible for the company’s performance, controls, compliance and behavior. This means that the board of directors must discuss and agree strategies to maximize the long-term returns to the company’s shareholders. They must also comply fully with relevant regulatory requirements that will include legal, ing and governance-framework. Company-secretary In most countries, the appointment of a company secretary is a compulsory condition of company registration. This is because the company secretary has important responsibilities in compliance, including the responsibility for the timely filing of s and other legal compliance issues. In addition to this responsibility for compliance with relevant laws and regulatory frameworks, the company secretary often advises directors of their regulatory and legal responsibilities and duties. His or her primary loyalty is always to the company. This means that in any conflict with another member of the company (such as a director), the company secretary must always take the side most likely to benefit the company (rather than any single director).

Technical knowledge is therefore an important part of this role. Because of this, many countries’ company law mandates that for a public company, the post holder must be a member of one of a list of professional ancy or company secretary professional bodies (which includes ACCA). The major roles include: 

maintaining the statutory s (such as the share )



ensuring the timely and accurate filing of audited s and other documents to statutory authorities (eg government companies’ agencies and tax authorities)



providing (eg shareholders) and directors with notice of relevant meetings



organising resolutions for and minutes from major company meetings (like the AGM);

Sub-board-management:Sometimes referred to (ambiguously) as ‘middle’ management, managers below board level are a crucial part of the governance system. It is the employees, led by sub-board management, that implement strategies, meet compliance targets and collect the information and data on which board-level

decisions

are

made.

The effectiveness of sub-board management as part of a governance system is partly based on the extent to which organisational activities are controlled and coordinated. Value-adding synergies arise when specialists work to achieve organisational objectives in their own departments and are coordinated by an effective board of senior managers and directors. There is ample scope for ‘strategic drift’, especially in large organisations, when this vital control and coordination is ineffective. Employee

Representatives

(tradeunion)

The most common way of providing employee representation (to the board) is through a trade

union. Trade unions represent employees in a workplace; hip is voluntary and the influence of the union is usually proportional to the percentage of the workplace that are . Although often assumed to be in an adversarial relationship with management, trade unions can play a very helpful role in corporate governance. The adversarial assumption is probably unhelpful in many situations, as union often share the same objectives for the organisation, and share professional and ethical values with management in carrying out the organisational

strategy.

In of governance, trade unions are able to ‘deliver’ the compliance of a workforce. If a strategy needs a high level of commitment, a union can help to unite the workforce behind the strategy and ensure everybody is committed to it. This can also mean that management and workforce are seen as united by external stakeholders; this can make the achievement of strategies more likely. By collective bargaining over pay and conditions, agreement usually signifies

that

the

workforce

‘buys

in’

to

the

agreed

strategy

or

activity.

A trade union can be a key actor in the checks and balances of power within a corporate governance structure. Where management abuses occur, it is often the trade union that provides the first and most effective reaction against it; this can often work to the advantage of shareholders, especially when the abuse has the ability to affect productivity. Unions are often good at highlighting management abuses such as fraud, waste, incompetence and greed, all of which

are

unhelpful

traits

in

board

.

Linked to the above, trade unions help to maintain and control one of the most valuable assets in an organisation, the employees. Where a helpful and mutually constructive relationship is cultivated between union and employer, then an optimally efficient industrial relations climate exists, thus reinforcing the productivity of human resources in the organisation. In defending ’ interests and negotiating and conditions, the union helps to ensure that the workforce is content and able to work with maximum efficiency and effectiveness.

EXTERNAL ACTORS Shareholders Shareholders and other investors (eg fixed-return bond-holders) are usually considered the most important external actors in corporate governance. In the agency relationship that exists between shareholders and directors, the shareholders are the principals. They have the right to expect agents (directors) to act in their best economic interests and to observe a fiduciary duty towards them. Shareholders incur agency costs in monitoring the activities and actions of agents (directors). These are the costs of monitoring and checking on directors’ behaviour. Examples of agency costs are attending relevant meetings (AGMs and EGMs), studying company results and analysts’ reports, and making direct with companies through investor relations departments. When a shareholder holds shares in many companies, the total agency costs can be prohibitive; shareholders therefore encourage directors’ rewards packages to be aligned with their own interests so that they feel less need to continually monitor directors’ activities. The Paper P1 Study Guide considers two types of shareholder: small investors and institutional investors. Small investors are individuals who hold shares in unit trusts, funds and individual companies. They typically buy, hold or sell small volumes and tend to have fewer sources of information on companies than institutional investors. They also often have narrower and less robust portfolios, which can mean that agency costs are higher, as the individuals themselves study the companies they have invested in for signs of changes in strategy, governance or performance. Institutional investors are by far the biggest investors in companies, and they dominate the share volumes on most of the world’s stock exchanges. Pension funds, insurance companies, unit trust companies and similar financial institutions hold large numbers of shares in individual funds with each fund being managed by a fund manager. Individuals, either directly or through investment products (such as pensions or endowments) buy into investment funds that are then managed, by selectively buying, holding or selling shares and other investments. When the fund grows or reduces in value, the member gains or loses value as a result. Fund managers do have some influence over the companies that they hold shares in, with greater influence obviously being associated with higher proportionate holdings. Fund managers need to be aware of the performance and governance of many companies in their funds, so agency costs can be very large indeed. To reduce these, they make use of information from several sources on the companies and also seek to have directors’ benefit packages aligned with their own interests as much as possible.

Stock exchanges Shares are bought and sold through stock exchanges. Each of the main international stock exchanges keeps an index of the value of shares on that exchange; this is the most frequently quoted ‘number’, referring to the total value of the shares on that exchange. In London, for example, the FTSE All Share (Financial Times Stock Exchange) index is a measure of all of the shares listed in London. In New York, it is the Dow Jones index and in Hong Kong, it is the Hang Seng index. The value of any share on a stock exchange is calculated continuously, based on the demand and supply of that share. Demand for shares is driven by the expected future returns on that share which, in turn, is driven by expected company performance. Information suggesting an increase in performance will tend to increase demand for a given share; anything suggesting a deterioration in performance will cause fewer shares to be demanded. The price of a share rises and falls with supply and demand until the equilibrium price is achieved (when the same number of shares is supplied and demanded). Any change in supply or demand will then move the equilibrium price (ie the share price on the stock exchange). In addition to listing, pricing and transacting share buying and selling, stock exchanges can also have a role in the governance of the companies listed on the exchange. Listing rules are sometimes imposed on listed companies and in many cases, listing rules concern governance arrangements not covered elsewhere by company law. In the UK, for example, it is a stock exchange requirement that listed companies comply with the Combined Code on Corporate Governance: not a legal requirement but a stock exchange requirement. Other listing rules concern reporting behaviour. In a rules-based jurisdiction, the law underpins corporate governance and reduces the need for stock market listing rules. Auditors Most Paper P1 candidates will know about the role of auditors from studying Paper F8. The most obvious role of audit in corporate governance is to report to shareholders that, having audited the company’s s, the s are accurate (‘a true and fair view’ is the term used in some countries). Audit is also a legal requirement in compliance with company law as a condition of company registration and the granting of limited liability. In addition to a normal audit, however, auditors perform a vital service to shareholders in highlighting issues in the governance and reporting of the company. A qualified audit report, while being a serious matter for a company, is also an important signal to markets about the company. Some auditors also offer additional services to clients and these sometimes include social and environmental advice and audit.

Regulators and governments In addition to company law and listing rules, some companies and industrial sectors are subject to further external control by government-appointed regulators or by governments themselves. This usually applies to companies or sectors involved in areas considered strategically or politically important by governments; these include the control of monopolies or the supply of utilities (such as water or energy). In some countries, this also applies to military equipment and medical supplies. When this is the case, regulation typically applies to pricing and supply contracts. In some countries, many large companies are owned, directly or indirectly, wholly or partially, by the host government. Nationalised companies are part of the economic fabric of many developing countries but tend to feature less prominently in more developed countries. It is generally believed that the profit motive, created by the agency relationship in a conventional shareholder–director arrangement, creates and stimulates greater economic efficiency than in nationalised companies. Governments control corporate governance through the imposition of legislation and the enforcement (through a judiciary) of common and statute laws. Although governments usually have a range of political and social objectives in mind when controlling business, they also rely heavily on tax revenues levied on company profits and, where relevant, sales and other transaction taxes. One reason for the deregulation of much economic activity is the need to increase tax revenues and create employment by gaining the economic efficiencies offered by competition and executive reward packages that are aligned to added shareholder value.

ROLE OF PROFESSIONALS A company secretary is often call the conscience of the company so professional bodies must be the conscience of the regulators and to a certain extent society in their areas of expertise – whether these are financial, construction, environmental fields or other areas. Only professional bodies acting with their greatest asset “integrity” as their foundation stone can perform such a role. In Corporate Governance, Role of professionals is as follows, Normally, Role of professionals can be two types; (1) Direct involvement in corporate governance as a member of the board of directors / various committees of the board / Holding the position of a CFO / CEO / Compliance Officer of the company. (2) As a reviewer of the functioning of the company, its board and committees as a part of the certification relating to corporate governance. EXAMPLE : Satyam scandal: Showed corporate governance can be Skin-deep It was dubbed “India’s Enron.” The Rs7,000 crore fraud (it is now over Rs10000crore and rising), the biggest in India’s history, wiped off $2 billion worth shareholders wealth in the week that followed Ramaling Raju’s “riding a tiger not knowing how to get off without being eaten”. It exposed glaring shortcomings of corporate governance, threatening India’s appeal to foreign investors. “This is a lesson for corporate houses. In the new companies Act, we propose to give more powers to independent directors.

WHY CORPORATE GOVERNANCE IS IMPORTANT?

1. Changing Ownership Structure : In recent years, the ownership structure of companies has changed a lot. Public financial institutions, mutual funds, etc. are the single largest shareholder in most of the large companies. So, they have effective control on the management of the companies. They force the management to use corporate governance. That is, they put pressure on the management to become more efficient, transparent, able, etc. The also ask the management to make consumer-friendly policies, to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate governance. 2. Importance of Social Responsibility : Today, social responsibility is given a lot of importance. The Board of Directors have to protect the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate governance. 3. Growing Number of Scams : In recent years, many scams, frauds and corrupt practices have taken place. Misuse and misappropriation of public money are happening everyday in India and worldwide. It is happening in the stock market, banks, financial institutions, companies and government offices. In order to avoid these scams and financial irregularities, many companies have started corporate governance. 4. Indifference on the part of Shareholders : In general, shareholders are inactive in the management of their companies. They only attend the Annual general meeting. Postal ballot is still absent in India. Proxies are not allowed to speak in the meetings. Shareholders associations are not strong. Therefore, directors misuse their power for their own benefits. So, there is a need for corporate governance to protect all the stakeholders of the company. 5. Globalization : Today most big companies are selling their goods in the global market. So, they have to attract foreign investor and foreign customers. They also have to follow foreign rules and regulations. All this requires corporate governance. Without Corporate governance, it is impossible to enter, survive and succeed the global market.

6. Takeovers and Mergers: Today, there are many takeovers and mergers in the business world. Corporate governance is required to protect the interest of all the parties during takeovers and mergers. CORPORATE GOVERNANCE IN INDIA

Introduction:One of the major economic developments of this decade has been the recent take-off of India,with growth rates averaging in excess of 8% for the past four years, a stock market that has risen over three-fold in as many years and a steady inflow of foreign investment. In 2006, total equity issuance reached $19.2 billion in India, up 22%, while merger and acquisition volume was a record $27.8 billion,up 38%, driven by a 371% increase in outbound acquisition--exceeding for the first time inbound deal volumes. Debt issuance reached an all-time high of $13.7 billion, up 28% from a year earlier. Indian companies were also among the world's most active issuers of depositary receipts in the first half of 2006, ing for one in three new issues globally, according to the Bank of New York. And, in each of the years 2005 and 2006, the number of trades on the National Stock Exchange of India, one of the two major Indian Stock Exchanges, was third highest in the world, just behind NASDAQ and the New York Stock Exchange, and several times greater than the number of trades on the London Stock Exchange or Euronext

Corporate Governance in India – A Historical Background The historical development of Indian corporate laws has been marked by many interesting contrasts. At independence, India inherited one of the world’s poorest economies but one which had a factory sector ing for a tenth of the national product. The country also inherited four functioning stock markets (predating the Tokyo Stock Exchange) with clearly defined rules governing listing, trading and settlements, a well-developed equity culture (if only among the urban rich), and a banking system replete with well-developed lending norms and recovery procedures. In of corporate laws and financial system, therefore, India emerged far better

endowed than most other colonies. The 1956 Companies Act built on this foundation, as did other laws governing the functioning of t-stock companies and protection of investors’ rights.Early corporate developments in India were marked by the managing agency system. This contributed to the birth of dispersed equity ownership but also gave rise to the practice of management enjoying control rights disproportionately greater than their stock ownership. The turn towards socialism in the decades after independence, marked by the 1951 Industries (Development and Regulation) Act and the 1956 Industrial Policy Resolution, put in place a regime and a culture of licensing, protection, and widespread red-tape that bred corruption and stilted the growth of the corporate sector. The situation worsened in subsequent decades and corruption, nepotism, and inefficiency became the hallmarks of the Indian corporate sector. Exorbitant tax rates encouraged creative ing practices and gave firms incentives to develop complicated emolument structures with large “under-the-table” compensation at senior levels. In the absence of a stock market capable of raising equity capital efficiently, three central (federal) government development finance institutions (the Industrial Finance Corporation of India, the Industrial Development Bank of India and the Industrial Credit and Investment Corporation of India),together with about thirty other state-government owned development finance institutions, became the main providers of long-term credit to companies. Along with the central government owned and managed mutual fund, the Unit Trust of India, these institutions also held (and still hold) large blocks of shares in the companies to which they lent, and invariably had representations on their boards in the form of nominee directors, though they traditionally played very ive roles in the boardroom.

Recent Developments in Corporate Governance in India Liberalization of the Indian economy began in 1991. Since then, we have witnessed wideranging changes in both laws and regulations, and a major positive transformation of the corporate sector and the corporate governance landscape. Perhaps the single most important development in the field of corporate governance and investor protection in India has been the establishment of the Securities and Exchange Board of India in 1992 and its gradual and growing empowerment since then. Established primarily to regulate and monitor stock trading, it has played a crucial role in establishing the basic minimum ground rules of corporate conduct in the country. Concerns about corporate governance in India were, however, largely triggered by a

spate of crises in the early 1990’s—particularly the Harshad Mehta stock market scam of 1992-followed by incidents of companies allotting preferential shares to their promoters at deeply discounted prices, as well as those of companies simply disappearing with investors’ money. These concerns about corporate governance stemming from the corporate scandals, coupled with a perceived need of opening up the corporate sector to the forces of competition and globalization, gave rise to several investigations into ways to fix the corporate governance situation in India. One of the first such endeavors was the Confederation of Indian Industry Code for Desirable Corporate Governance, developed by a committee chaired by Rahul Bajaj, a leading industrial magnate. The committee was formed in 1996 and submitted its code in April 1998. Later the SEBI constituted two committees to look into the issue of corporate governance-the first chaired by Kumar Mangalam Birla, another leading industrial magnate, and the second by Narayana Murthy, one of the major architects of the Indian IT outsourcing success story. The first Committee submitted its report in early 2000, and the second three years later. These two committees have been instrumental in bringing about far reaching changes in corporate governance in India through the formulation of Clause 49 of Listing Agreements Concurrent with these initiatives by the SEBI, the Department of Company Affairs and the Ministry of Finance of the Government of India also began contemplating improvements in corporate governance. These efforts included the establishment of a study group to operationalize the Birla Committee recommendations in 2000, the Naresh Chandra Committee on Corporate Audit and Governance in 2002, and the Expert Committee on Corporate Law (J.J. Irani Committee) in late 2004. All of these efforts were aimed at reforming the existing Companies Act of 1956 that still forms the backbone of corporate law in India

CORPORATE GOVERNANCE OF INFOSYS

ABOUT THE COMPANY:Infosys Limited (formerly Infosys Technologies Limited) is an Indian multinational corporation that provides business consulting, information technology, software engineering and outsourcing services. It is headquartered in Bangalore, Karnataka. Infosys is the second-largest India-based IT services company by 2014 revenues, and the fifth largest employer of H-1B visa professionals in the United States in FY 2013. On 15 February 2015, its market capitalization was ₹ 263,735 crores ($42.51 billion), making it India's sixth largest publicly traded company. Infosys was co-founded in 1981 by CEO Narayan Murthy, Nandan Nilekani, N. S. Raghavan, S. Gopalakrishnan, S. D. Shibulal, K. Dinesh and Ashok Arora after they resigned from Patni Computer Systems. The company was incorporated as "Infosys Consultants Pvt Ltd." with a capital of ₹10,000 or US$1,250 (about $3,254 in 2016) in Model Colony, Pune as the ed office.[12] It signed its first client, Data Basics Corporation, in New York.[13] In 1983, the company's corporate headquarters was relocated from Pune to Bangalore It provides software development, maintenance and independent validation services to companies in banking, finance, insurance, manufacturing and other domains.[29] One of its known products is Finacle which is a universal banking solution with various modules for retail and corporate banking  Infosys was ranked 15th largest IT services provider in the world by HfS Research in its 2013 ranking.  Infosys was ranked 19th on the world's most innovative companies list by Forbes.[60]  Infosys was in the list of top twenty green companies in Newsweek's Green Rankings for 2012.  The company has been voted India's most ired company in The Wall Street Journal Asia 200

SERVICES OFFERED BY INFOSYS:Application Development and Maintenance:Infosys Application Development services help you address evolving business and technology challenges by defining, deg, and building applications tailored to meet your business requirements. We deliver high quality, flexible applications that are easy to maintain, modular to facilitate enhancements, and are reliable, secure, and easy to deploy using the Infosys Global Delivery Model. It is based on industry-standard process quality frameworks (such as CMMi, CMM) and uses rigorous methodologies and the expertise of our Centers of Excellence to mitigate risk and deliver cost and time-to-market benefits. Service offerings are targeted towards the principle outcomes of increased advocacy, higher end productivity, and rapid adoption with a primary focus to help you boost your ability to harvest increased business value from your investments. -Experience Infosys Experience (UX) services help you build applications that embody three key design outcomes – easy to use, useful, and engaging.Dedicated UX Center of Excellence provides a complete ecosystem of UX professionals and is focused on delivering UX design services to our clients. Application Maintenance Infosys application maintenance services help you get the best out of your existing IT applications. The services span offshore-ability analysis, maintainability analysis, maintenance, and enhancement, and are delivered using the Global Delivery Model. We use structured knowledge management tools and other IP developed by our Maintenance Center of Excellence to enhance the life of your systems, ensure that they evolve with your business, reduce system downtime, and help you focus on strategic initiatives by minimizing the time spent on routine activities.