coporate Governance

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1 CORPORATE GOVERNANCE REVIEW OF PRACTICE A study of corporate governance practices in leading corporates in India December 2007 EXECUTIVE SUMMARY The scope and significance of corporate governance in India increased sizeably in the recent period, particularly following the financial sector reforms. As Indian corporates are finding new space in domestic and global markets for business growth, their interaction with the financial markets and investing community too witnessed significant surge. In this process, corporate governance came as an effective instrument for companies to communicate with the various types of stakeholders in general and investors in particular. What began as an industry initiative of CII, corporate governance today became an essential part of the culture that defines better run companies and those held in esteem by the investors and stakeholders. As the rigour of the regulation intensified, governance standards began to be codified and formed an important part of the evaluation and assessment process. Clause 49 of the Listing Agreement of the Stock Exchanges is the key instrument that drives compliance of the corporate governance standards and practices by companies. Stock Exchanges and regulatory authorities which receive the compliance reports of the companies regularly assess the record of performance in this regard and take relevant actions. Securities and Exchange Board of India sending notices to 20 companies amongst which there are five public sector undertakings, is an instance of review processes following the receipt of information and filing of reports on

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Transcript of coporate Governance

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CORPORATE GOVERNANCE REVIEW OF PRACTICE

A study of corporate governance practices in leading corporates in India

December 2007

EXECUTIVE SUMMARY

The scope and significance of corporate governance in India increased sizeably in the

recent period, particularly following the financial sector reforms. As Indian

corporates are finding new space in domestic and global markets for business

growth, their interaction with the financial markets and investing community too

witnessed significant surge. In this process, corporate governance came as an

effective instrument for companies to communicate with the various types of

stakeholders in general and investors in particular.

What began as an industry initiative of CII, corporate governance today became an

essential part of the culture that defines better run companies and those held in

esteem by the investors and stakeholders. As the rigour of the regulation

intensified, governance standards began to be codified and formed an important part

of the evaluation and assessment process. Clause 49 of the Listing Agreement of the

Stock Exchanges is the key instrument that drives compliance of the corporate

governance standards and practices by companies.

Stock Exchanges and regulatory authorities which receive the compliance reports of

the companies regularly assess the record of performance in this regard and take

relevant actions. Securities and Exchange Board of India sending notices to 20

companies amongst which there are five public sector undertakings, is an instance of

review processes following the receipt of information and filing of reports on

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compliance of corporate governance norms. Such measures will make companies

more alert in adhering to the stipulated norms and guidelines.

Notwithstanding the ongoing review process of the regulatory authorities, a scope

exists for reviews and studies by independent agencies, and this study is an instance

of such nature.

The review makes an attempt to capture the essence of the quality of corporate

governance practice in Indian companies. Given the huge mass of companies that

India has, it would be rather difficult to take a large sample, which is a time

consuming exercise and that require considerable resources. Moreover, it would be

useful to know how the leading companies have devised effective ways of improving

governance standards that could serve as benchmarks for the others.

The review thus examined the practice of corporate governance in 42 companies

across 12 sectors that represent the vital sections of the Indian industry. The

information is obtained through corporate governance reports, published in the

annual reports of the companies, feedback obtained through a questionnaire,

consultations with officials of corporates, stock exchanges and regulatory authorities

as also independent professionals and analysts.

The outcome of the study is quite encouraging. India has advanced significantly in

adopting better governance standards and its standing in the world is quite high in

regard to designing effective policies and procedures. Several companies go beyond

the mandatory requirements in fulfilling the corporate governance objectives.

Companies have developed philosophies governing the governance practices that

were introduced in their respective companies and the outcome that is being

expected from these initiatives. Some of the modern governance practices such as

separation of the Chair and the CEO, constitution of boards, representation of

independent directors, meetings of the board and audit committees, discussion on

the corporate governance practices in the annual reports, disclosure through a wide

range of media and company sources etc., have greatly enhanced the image of the

quality of corporate governance in India. India currently is ranked third in Asia for

the overall quality of corporate governance.

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While great progress has been made in improving the governance standards, concerns

about quality of enforcement, companies routinely fulfilling the requirements as a

form of box ticking, deviating from the spirit of some of the important aspects of the

compliance code etc., are a few of the issues that engage the attention of the policy

makers and the regulatory agencies. Similarly, self evaluation processes for the

board and audit committees are not yet formalized in many companies. Family

ownership continues to dominate the corporate landscape thus providing a scope for

inadequate disclosures in regard to subsidiary companies operations and related

party transactions. As mentioned earlier, a beginning is made to review these

practices which would be further supplemented by independent studies and analysis

such as this report.

The next round of reforms in the corporate governance would be in the realm of

strengthening evaluation processes of the functioning of the board and its

subcommittees, in particular the audit committee, as also greater discussion on the

executive compensation policies, ombudsman for reviewing whistle blower policies

etc., As Indian companies assume greater responsibilities in expanding business in

domestic and global markets, compensation issues will become pertinent.

Similarly, gender related issues of representation in the board too might assume

importance. Only 8 percent women represent company board at present at the

global level, with the scope for this ratio to grow being high in the Asia region. Some

initial work in this regard may be evident in the medium term perspective of the

governance reforms.

The study is arranged in the following manner. Chapter I discusses the changes in

the governance standards and key factors driving these changes, particularly the

enormous growth of the financial markets and growing investor base from domestic

and global financial markets. Chapter II presents a broad review of literature on the

corporate governance and the emergence of issues central to good governance;

Chapter II examines the scope of significance of important instruments of corporate

governance; Chapter V discusses practice of corporates in India in regard to the

compliance of corporate governance standards and norms. Since this chapter

discusses the governance practices from the perspectives of the sectors, key

corporate governance practice profiles of individual companies are given separately.

Chapter VI looks at the issues and imperatives for better governance as an ongoing

process.

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In preparation of this study, some of the sources that were used extensively to

present the analysis and perspectives include; Clause 49 Listing Agreement of the

Stock Exchanges; Year Book 2007 of the International Corporate Governance

Network, Blue Ribbon Committee on the Audit Committee (NYSE/NASDAQ) etc.

Acknowledgements of the references used in this study are made wherever

appropriate.

For increasing the reference value of the study, annexures on a number of aspects of

the governance are attached. These include; objectives of the corporate governance

as evolved by different companies in their annual reports, a questionnaire for self

evaluation of the audit committee performance; indexes being developed to promote

good governance; codes of corporate governance in different countries; comparative

practices in corporate governance between India, China, Brazil and Malaysia;

overview of the functions of the audit committees in the sample companies selected;

differences in the US and Indian corporate governance etc.,

This study could serve as a beginning to promote independent assessment of the

governance practices in Indian companies. Scope exists for further studies by

expanding the size of the sample as also coverage of issues. Greater involvement of

the companies in these exercises will lead better outcome in the form of experiences

that could be useful for sharing and learning. It is hoped that similar studies are

undertaken on a continuous basis to keep up the assessment and evaluation of

quality of governance and its standards of compliance.

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CORPORATE GOVERNANCE REVIEW OF PRACTICE

CONTENTS Executive Summary 2 Chapter I Winds of Change 8 Governance standards surge on the back of financial sector development Chapter II Working of the Corporate Governance 20 Growing evidence of the positive effects of corporate governance Chapter III The Essence of Corporate Governance 34 Constituents of governance gain scope and significance Chapter IV India Rises 44 Corporate governance in India reaches global standards Chapter V Instruments of Importance 64 Growing significance of Board and Its Committees Chapter VI India Practice 78 Review of major governance practices in procedures amongst corporates in India Chapter VII Issues and Imperatives 99 Major issues and imperatives in corporate governance

Corporate Governace Practice : Company Profiles 109

Annexures 153

LISTS OF TABLES 1: Equity Prices 2004-06 14

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2: Cumulative Net Foreign Institutional Investment: India 15 3: Share Turnover in Equities Markets: India 15 4 Recent Evolution of the Corporate Governance 36 5: A Decade of Developments in Corporate Governance 46 6: India ranks high among Asia governance league tables 47 7: India manages well despite constraints 47 8: Matching Rules and Regulations 48 9: Comparative Analysis of Clause 49 to SOX 62 10: Sample Companies 80 11: Summary of Corporate Governance Practice 82 12: A Snapshot of Corporate Governance 83 13: Average Number of Directors 84 14: Proportion of Non Executive and Independent Directors when the Chairman is Non Executive 87 15: Proportion of Non Executive and Independent Directors when the Chairman is Executive 89 16: Average number of meetings held 90 17: Shareholding Pattern 92 18: Sector wise Key Indicators of Corporate Governance Practice 93 BOX 1: Working of the Compensation Committee 108

LISTS OF GRAPHS 1: Percentage of Companies with more than 33% Independent Directors 10 2: Percentage of Companies disclosing director remuneration 10 3: Percentage of companies separating the roles of CEO and Chair 10 4: Global IPO Activity 11 5: Composition of Capital Flows ($bn) 12 6: Net Equity and Debt Flows: 1990-2006 13 7: Stock Markets Indices: Emerging Markets 14 8: Foreign Capital Raised by Developing Country Corporations, (left) and Foreign Companies Listed on Major Global Stock Exchanges (Right), 1998-2006 17 9: Percent of Directors who are women 69 10: Distribution of Directors 84 11: Comparative Analysis of Entire Sample Data 85 12: Proportion of Directors in different categories 86 13: Average No. of Directors 86 14: Percentage Companies where the Chairman is Non Executive 87 15: Composition of the Board when the Chairman is Non Executive 88 16: Percentage of Companies where the Chairman is Executive 88 17: Composition of Board when the Chairman is Executive 88 18: Average Meetings 90 19: Shareholding Pattern 91 20: Spaced Devoted to Corporate Governance in Annual Report 93

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Chapter I WINDS OF CHANGE

Governance standards surge on the back of financial sector development

For corporate governance, it is now perhaps the best of the times. Usually, it is

believed that governance takes a back seat in times of growth. However, in the back

of unprecedented economic growth and wealth creation brought by large surge in

financial markets in a major part of the world, huge improvements in the quality of

corporate governance and standards of compliance are evident across a wide

spectrum of mature and emerging markets.

In a recent assessment (September 2007)1 on the implementation standards of

corporate governance on sample of about 1600 companies worldwide, Ethical

Investment Research Services (EIRIS), a UK based leading global provider of

independent research into the social, environmental and governance (ESG)

performance of companies that tracks performance of about 3000 companies across

the world, has brought out some interesting insights. These include;

• 62% of the companies studied have boards containing more than a third of

independent directors.However the proportion of independent directors varies

greatly between countries. Over 90% of companies in North America, UK,

Switzerland, the Netherlands, Norway, Finland and Australia have more than

a third of independent directors, compared with less than 10% in Germany,

Austria and Japan

• Disclosure of directors’ remuneration is consistently high, with 96% of all

companies disclosing this information.

• In half of the countries studied over 90% of companies separate the roles of

chair and chief executive However rates of separation are lower in the US

(30%), Japan (54%) and France (56%).

• These differences are driven by the fact that companies largely adhere to

their relevant national Corporate Governance guidelines

1 The EIRIS Foundation is a UK based charity that supports ethical investment

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• However corporate governance practices are converging. Governance

codes are being revised to improve levels of transparency and independence,

and the proportion of companies adopting western models of board structure

is increasing.

• Significant improvements were evident in respect of gender empowerment

and representation in the boards as also corporate social responsibility and

environment.

• Increasingly, companies view equal opportunities less as a way to avoid

criticism or lawsuits, but more as a means to build reputation and gain

competitive advantage by accessing a broader skill set.

• Around 90% of companies in North America (94%), Europe (88%) and

Australia/New Zealand (87%) have basic or advanced equal opportunities

policies. Conversely, just over 50% of Japanese and less than 25% of

companies in Asia ex-Japan meet these standards. The pattern is slightly

different for equal opportunities management systems. The criterion includes

disclosure of staff demographics in relation to women and ethnic minorities as

well as the presence of flexible working policies. Europe and Australia/New

Zealand both perform well, with around 80% and 70% respectively

demonstrating at least basic systems. Performance amongst Japanese

companies is also strong at 60%, whereas it is weaker amongst US

companies

at 25%. In the US, companies are less inclined to disclose this information,

possibly due to fear of litigation.

• Worldwide, only 8.1% of board members are women. Representation of

women on the board continues to be lowest in Japan at less than 1% and

remains generally low in Mediterranean countries. These low levels are driven

by a mixture of cultural factors including a history of fewer women in formal

employment combined with weak legislative encouragement.

• The highest rate of 33% is seen in Norway where the government has

enforced a quota for a minimum of 40% board members to be women by the

end of 2007. The number of women on the board is set to increase Spain as

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the Spanish government has recently established a quota similar to that

imposed in Norway.

Graph1: Percentage of Companies with more than 33% Independent Directors

Graph2: Percentage of Companies disclosing director remuneration

Graph3: Percentage of companies separating the roles of CEO and Chair

Source: Ethitical Investment Research Service, 2007.

Good corporate governance standards assume significance from the enormous growth

of the capital markets in the recent period as also emerging trends in global

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investing. An important aspect of the world economic growth is the growing

influence of the emerging economies in contribution to the growth. At present, China

and India are contributing to about 45 percent of the world economic growth which

is likely to intensify further in the future.

An important outcome of the rapid economic growth is the great surge in the

financial market activity. Induced by liberalized global cross border financial flows,

financial markets in a large number of countries witnessed exceptional growth in the

recent period.

A global IPO survey by Earnest and Young (E&Y)2 showed that In 2006, amount of new

capital raised by global stock exchanges reached a record US$246 billion in 1729

deals. An interesting aspect of the global capital issuance is the strong share of the

emerging markets. China alone raised about $57 billion with two of the largest ever

share issues belonging to it; namely Industrial Commercial Bank of China and Bank of

China which raised $22 bn and $11 bn respectively from the global financial markets

in 2006. In 2006, India launched 78 Initial Public Offerings valued at $7.2 bn in 2007.

The size of the one single issue of DLF, a real estate company was $2 bn. Emerging

markets in the first five months of the year 2007 raised about $53.7 bn in global

financial markets, which is considered highest ever raised in the first five months of

a year

Graph4: Global IPO Activity

2 Globalisation: Global IPO Trends Report 2007. Earnest & Young

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It is not only issuance of fresh capital that got a big boost, but equally remarkable

was the growth of secondary markets for securities leading to record levels of market

capitalization. During the ten year period 1996-2006, market capitalization in the

North America rose from $8.9 trillion to $23 trillion, in Europe/Middle East/Africa

from $5.1trillion to $16.2 trillion and in the Asia Pacific $ 5 trillion to $11.8 trillion.

Huge levels of capital flows to the equity markets in several emerging markets led to

dramatic rise in securities prices. The flow of net foreign direct investment (FDI) into

developing countries increased from $170bn in 1998 to $325 bn in 2006 and net

portfolio equity flows increased from $6 to $94 bn during the same period. Net debt

flows during this period are rather subdued with net debt flows from official

creditors turning negative. Net portfolio equity flows to China between the year 2000

and 2006 rose from $6.9 bn to $32 bn and in India from $2.3 bn to $8.7 bn. In the

first ten months of 2007 alone, foreign institutional investment flows into India

peaked to about $18bn making it one of the most favored destination for global

portfolio flows.

Graph5: Composition of Capital Flows ($bn)

Graph6: Net Equity and Debt Flows: 1990-2006

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Global capital flows speeded up on the back growing institutional investment.

Institutional investors have been the major source of capital markets growth. During

the period 1995 and 2005, the assets under management of the institutional investors

doubled from $21trn to $53 trn. The shift of home bias of the institutional investors

into emerging markets stepped up the resource flows to the developing countries.

For instance in the United States, in 1994, pension funds invested 41 percent of their

portfolio in domestic equity and 7 percent in international equities, where as by

2005 that share rose to 48 percent in domestic equities and 15 percent in

international equities. The portfolio allocation to bond markets during the same

period reduced from 42 percent to 32 percent. Emerging markets received sizeable

portion of the investments. In the US the dedicated Emerging Market mutual funs

rose from about $27 billion in 2000 to $ 230 billion in 2006.

Table 1: Equity Prices 2004-06 Particulars Average rate of change All Developing Countries 33.3 United States 21.5 Euro Area 12.7 Russa 60 Peru 39.2 Brazil 54.6 Colombia 75.1 India 45 China 17 Argentina 48.5 Mexico 42.5 Indonesia 39.5

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Nigeria 35

Source: Global Development Finance. World Bank

Graph 7: Stock Markets Indices: Emerging Markets

Table2: Cumulative Net Foreign Institutional Investment: India

Year Cumulative Net Investment in US$ million

1992-93 4 1993-94 1638 1994-95 3167 1995-96 5202 1996-97 7634 1997-98 9284 1998-99 8898 1999-00 11237 2000-01 13396 2001-02 15242 2002-03 15804 2003-04 25755 2004-05 35927 2005-06 45259 2006-07 65000# #provisional

Source: Securities and Exchange Board of India

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Table3: Share Turnover in Equities Markets: India

Year National Stock Exchange

Bombay Stock Exchange

1992-93 45696 1993-94 84536 1994-95 1805 67749 1995-96 67287 50064 1996-97 295403 124190 1997-98 370193 207113 1998-99 414474 310750 1999-00 839052 686428 2000-01 133510 1000032 2001-02 513167 307292 2002-03 617989 314073 2003-04 1099534 503053 2004-05 1140072 518715 2005-06 1569558 816074 2006-07 1945285 956185

Source: SEBI

Following the foreign institutional investors, an important and emerging segment of

global investing will be the Soverign Wealth Funds3. According to a recent estimate

of the International Monetary Fund, assets held by Sovereign Wealth Funds include

$5.6 trillion in foreign exchange reserves and upto $3 trillion sovereign wealth

arrangements. IMF projects that the Sovereign Wealth Funds may accumulate

international assets in range of $800-900 bn a year leading to its total assets base in

the range of $12 trillion by 2012.

The value of global financial assets, according to a study4 (2007) by the Mckinsey

Global Institute is about $140 trillion assets. United States, the United Kingdom, the

eurozone and Japan account for the more than 80 percent of the total. Equities

accounted for nearly half of the growth of the financial assets in 2005.

Every aspect of finance is assuming huge size. According to Market Metrics, a

business and market intelligence network, in 2006, global mergers and acquisitions

activity reached an all time high of $3.7 trillion, global direct real estate

investments $600 bn, market value of global non-public 150 companies $7 trillion

etc.,

3 Regional Economic Outlook, October 2007, International Monetary Fund 4 Mapping the Global Capital Market, January 2007, McKinsey Global Institute.

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Corporates from developing economies are making aggressive forays into business

expansion and global reach and in this process are accessing global financial markets

in a big way. World Bank’s Global Development Finance enumerates some significant

facets of the globalization of the developing countries corporations. A few of these

include;

Developing countries companies in 2006, raised $156 bn through international

offerings of corporate debt and equity. $245 billion through syndicated loans and

engaged in cross border mergers and acquisitions involving developing countries

corporation bidding for foreign targets to the tune of $ 100 bn. In 1987 cross border

M&A of developing countries corporations amounted to $400 million. 1 Regional Economic Outlook, October 2007, International Monetary Fund 1 Mapping the Global Capital Market, January 2007, McKinsey Global Institute.

Amongst the World’s top Fortune 500 companies, 40 are from the developing world

and 394 developing country companies traded on the world’s major stock exchanges

accounting for one third of the global overseas cross listings.

Since 20025, 422 emerging market companies have tapped international bond

markets at least once, 537 contracted bank loans and 360 raised capital on the one

of the global major overseas stock exchanges. Private sector companies accounted

for more than 60 percent of total bank borrowing and 75 percent of the new bond

issuance during the period 2002-06.

Graph8: Foreign Capital Raised by Developing Country Corporations, (left) and Foreign Companies Listed on Major Global Stock Exchanges (Right), 1998-2006

5Global Development Finance, 2007, The World Bank

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In 2006, of the 1328 foreign companies listed in the major global stock exchanges,

394 (30%) were from the developing countries. This share was about 13.1% in 1998.

20 emerging countries, with Brazil, China, India, Mexico and Russia with strong

representation, accounted for 95 percent of the total bond issuance, 85 percent of

the total bank borrowing and 95 percent of the total equity offerings by developing

countries. These 20 countries account for 67 percent of the developing world’s

population and source of 78 percent of its Gross Domestic Product. These 20

countries have aggregate stock market capitalization of $5.3 trillion, which accounts

for 88 percent of the total for the developing world. These countries together have

about 12,557 public traded companies that represent 95 percent of all those based in

developing countries. 1Global Development Finance, 2007, The World Bank

In India too, the merger and acquisition activity increased substantially. Where as

foreign acquisitions in India rose from $2.9 billion in 2005 to $28 billion in 2007,

Indian acquisitions abroad rose from $1.5 billion to $18.1 billion during this period. In

addition to technology companies such as Infosys, Wipro and TCS, major Indian

corporates who conducted sizeable cross border mergers by acquiring foreign target

companies included; Tata, Suzlon, Bharat Forge, Ranbaxy, Hindalco, United

Breweries etc., In the first three quarters of the year 2007, Indian companies

announced 150 foreign acquisitions with a total value of $18.1 billion, a four fold

increase of the total value in 2005. A survey of 340 of the world’s largest

manufacturers, by the paris based Capgemini Consulting revealed that India could

challenge China as the leading manufacturing center of the world in the next three

to five years.

Simultaneous with growth and expansion challenges, concerns on stability and

sustainability assume equal importance. A few major messages brought out in the

Global Development Finance (2007) on the globalization of the developing countries

corporations are pertinent in this regard.

o Global borrowing by developing country firms has surged in recent years

o The pace of corporate globalization in the developing world is likely to

intensify in the medium term,

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o Concerns are growing that corporate credit spreads may not fully reflect

credit quality and that corporations may be underestimated global risk

aversion

o Managing these risks requires a comprehensive reponse, from the level of

the firm to the macro economic level

o Good policies reduce the cost of capital

o Greater coherence is needed in international standards for cross border

listings and public offering of securities.

A major challenge to manage the growth and sustain it in the long term is to evolve

efficient processes of governance. It is important to continuously update governance

standards as also enhance the skillssets, competence and capabilities of the

instruments of governance to deal with the rapidly changing world of finance and

infinite opportunities it offers and the challenges it poses.

An aspect of promise is the prospects for better standards across the world with

countries mutually learning from each other on the benchmarks and best practices.

Having built up a strong base for the governance, the real test and challenge will be

on enhancing its scope and significance so that it could continue to sub serve the

growth objective in the long term.

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Chapter II WORKING OF THE

CORPORATE GOVERNANCE Growing evidence of the positive effect of

corporate governance

Early discussion on the governance rose from an analysis by Berle and Means6 (1932) following the Great Crash in the US in 1929, which traced the problem of governance due to the separation of ownership and control. The authors recommended stake holder value over the share holder value as essential for good governance, a premise on which formal securities regulation began in the US with the setting up of the Securities and Exchange Commission (1933). This debate led the governance being associated with the agency problem {Coase, 1937)7, (Jensen and Meckling8, 1976), (Fama and Jensen9,1983) in which the essence is the separation of ownership and control. Agency problem refers to the difficulties financiers have in assuring that their funds are not expropriated or wasted on unattractive projects {Shliefer and Vishny10,1997)) Early work in the corporate law development in the 18th and 19th centuries in Britain, Continental Europe and Russia has focused more on addressing the problem of managerial theft rather than that of shirking or even empire building. Shleifer and Vishny cite studies on vast mangerialist literature that explains how mangers use their effective control rights to pursue projects that benefit them rather than investors which are described as private benefits of control {Grossman and Hart11,1982)} Managers can expropriate shareholders by entrenching themselves and staying in the job even if they are no longer competent or qualified to run the firm. Poor managers who resist being replaced might be the costliest manifestation of the agency problem (Jensen and Ruback12, 1983) Agency theory considered the firm as a nexus of contracts; associating the firm and the entire group of resource contributors (the team of productive inputs) and analyzing the relationship between the principle (shareholders) and the agent (mangers), the conceptual framework which is found

6 Berle A.A. and Means G.C.., The Modern Corporation and the Private Property, New York: MacMillan, 1932 7 Coase, Ronald (1937), The Nature of the Firm, Economica, 4, 386-405 8 Jensen, Micheal and William Meckling (1976), Theory of the Firm, Managerial Behaviour, Agency Costs, and Ownership Structure, Journal of Financial Economics, 3, 305-60 9 Fama, Eugene and Micheal Jensen (1983b), Separation of Ownership and Control, Journal of Law and Economcs, XXVI, 301-25 10 Shleifer, A.,and R.Vishny, 1997, A Survey of Corporate Governance, Journal of Finance, 52, 737-775 11 Grossman, Sanford., and Oliver D. Hart, 1982, Corporate Financial Structure and Managerial Incentives, in John J. McCall, ed.: The Economics of Information and Uncertainty (University of Chicago Press, Chicago, IL 12 Jensen, Michael and Richard Ruback,1983; The Market for Corporate Control: The Scientific Evidence, Journal of Financial Economics, 11, 5-50

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relevant even today. This perspective has lead to a wide range of studies relating to the

board of directors, share holders meetings, remuneration system for managers, the legal

and accounting regulations and takeover etc.,

With the enormous growth of financial markets, the interest on corporate governance

flows beyond the finance and extends to law, economic, politics, sociology and

management science.

Historical developments that impact the overall scope of the corporate governance in

different countries is discussed by Randall K. Morck, Lloyd Steir13 (2005) who observed that

financial disasters tainted French confidence in financial securities early on, and set

corporate governance in that country on a different parity from that of Britain, where a

similar trauma was overcome and forgotten. Similarly historical trends such as imperial

monopoly in China that was evident in the late 19th century, large scale trading networks

belonging to particular communities and ethnic groups and sectarian groups in India,

family and bank controlled pyramidal groups in Germany, Zeibatsu and Keiratsu in Japan

and Chaebols in Korea etc., have influenced the process of growth of corporate

governance in the respective countries. Certain features that are common to all countries

that contributed to the varying types and pace of the corporate governance norms

include; Accidents of history, ideas, families,business groups, trust, law, origins,

evolution, transplants, large outside shareholders, financial development, politics and

entrenchment, etc.

Ownership is a key driver that determines the quality of governance. The first of the studies on the ownership of the global companies by Rafeal La Porta14 shows higher incidence of family ownership in global corporations that runs contrary to the earlier observation of widely held corporations analysed by Berley and Means. The study presents data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify the ultimate controlling shareholders of these firms. The study found that except in economies with very good shareholder protection, relatively few of these firms are widely held. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely held corporations is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in

13 Morck, Randall K, Steier, Llyod, 2005, the Global History of Corporate Governance, an Introduction, NBER Working Paper No 11062, January 2005. 14 La Porta, Rafael, Florencia Lopez-de-Silanes, Andrei Shleifer and Robert Vishny, 1999, Corporate Ownership Around the World, Journal of Finance (54(2), 445-70

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management ownership issues; particularly the predominance of family owned companies

remains an important issue in several emerging economies and forms an important aspect

of the corporate governance reforms.

Franklin Yale and Dougles Gale15 (2002) discuss the term corporate governance that is used

in two distinct ways. In Anglo-Saxon countries like the US and UK good corporate

governance involves firms pursuing the interests of shareholders. In other countries like

Japan, Germany and France it involves pursuing the interests of all stakeholders including

employees and customers as well as shareholders. Anglo-Saxon capitalism has been widely

analyzed but stakeholder capitalism has not. The authors argue that stakeholder

capitalism can often be superior when markets are not perfect and complete.

Paolo Fulghieri and Matti Suominen16 (2005) find that the quality of the corporate

governance system may have a significant impact on the economy’s level of competition

and its degree of industry concentration. Poor corporate governance and low investor

protection may in fact lead to high industry concentration.

Craig Doidge, G. Andrew Karolyi, and René M. Stulz17 (2006) showed that the incentives to

adopt better governance mechanisms at the firm level increase with a country’s financial

and economic development. Further, these incentives increase or decrease with a

country’s investor protection depending on whether firm-level governance mechanisms

and country-level investor protection are substitutes or complements. The study observes

that when economic and financial development is poor, the incentives to improve firm-

level governance are low because outside finance is expensive and the adoption of better

governance mechanisms is expensive.

A cross country study by Vidhi Chhaochharia and Luc Laeven18 (2007) shows that governance provisions adopted by firms beyond those imposed by regulations and common practices among firms in the country have a strong, positive effect on firm valuation. The study showed that, despite the costs associated with improving corporate governance at the firm level, many firms choose to adopt governance provisions beyond what

15 Allen, Franklin, Gale, Douglas, 2002, A Comparative Theory of Corporate Governance, Financial Institutions Center, Wharton University, 2002 16 Fulghieri, Paolo, Suominen, Matti, 2005, Does Bad Corporate Governance Lead to Too Little Competition?, Finance Working Paper No. 74/2005, March 2005, European Corporate Governance Institute. 17 Dodge, Craig, Karolyi, George Andrew, Stulz, Rene M, 2004, Finance Working Paper Ho. 50/2004, European Corporate Governance Institute, Charles A. Dice Center Working Paper No.2004-16 and Fisher College of Business Working Paper No.2006—03-008 18 Chhaochharia, Vidhi, Laeven, Luc, 2007, The Invisible Hand in Corporate Governance, Finance Working Paper No. 165/2007, April 2007

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considered the norm in the country, and these improvements in corporate governance

have a positive effect on firm valuation.

An Empirical analysis by Leora F. Klapper and Inessa Love19 (2002) of the World Bank

showed that better corporate governance is highly correlated with better operating

performance and market valuation. They provide the evidence that firm level corporate

governance provisions matter more in countries with weak legal environments. The results

suggest that firms can partially compensate for ineffective laws and enforcement by

establishing good corporate governance and providing credible and investor protection.

Good corporate governance commands high premium20. A CLSA April 2003 study showed

that over the past five years, high CG stocks (ranked in the 1st quartile) outperformed the

Sensex by 169%. The out-performance was at over 40% even if one excluded the software

stocks. A study by Wolfganag Dorbetz, University of Basel showed that an investment

strategy that bought high-CGR firms and shorted low CGR firms would have earned excess

returns of 12% compared to the DAX 100 during 1998-2000. A Lipper-GMI Mutual Fund

Report showed that Mutual funds that invest in companies with higher CG ratings have

been rewarded with superior returns

According to a Harvard Law School study21, the disregard for shareholder rights caused

lower firm valuations to the extent of 7 percent per annum and large negative abnormal

returns during the 1990-2003 period; A Deutsche Bank research showed that European

companies with improving governing standards outperformed a portfolio of deterioriating

companies by 4.4 per annum. A joint study of the European Corporate Governance Institute

and London Business School showed that the governance focused Hermes UK Focus Fund

outperformed its benchmark by an average 4.8% each year from 1999 through 2004. The

CLSA/ACGA Governance Score for 27 countries confirms that firms with better governance

outperform significantly even in bull markets when governance usually has a lower priority

with investors. All these show positive effects of the good governance A 2002 McKinsey

Survey revealed that investors then were willing to pay a premium of 23% for well governed

companies in India which in the recent time came down to 5 to 10 percent due to overall

improvement in the governance standards.

19 Klapper, Leora F, Love, Inessa, 2002, Corporate Governance, Investor Protection and Performance in Emerging Markets, Policy Research Working Paper 2818, Development Research Group, The World Bank. 20 Corporate Governance Ratings and Audit, a presentation by ICRA, October, 2004 21 Bebchuk, Lucian, Cohen Alma, Ferrell, Alma, 2005, What Matters in Corporate Governance, Discussion Paper No. 491., revised 03/2005, Hardvard Law School, Cambridge, MA

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Christian Leuz, Karl V. Lins, Francis E. Warnock22 (2006), in their study using a set of

foreign holdings by U.S. investors as a proxy for foreign investment that analysed a sample

of 4,411 firms from 29 emerging market and developed economies found that, foreigners

invest significantly less in firms that are poorly governed, i.e., firms that have ownership

structures that are more conducive to outside investor expropriation Interestingly, this

finding is not simply a matter of a country’s economic development but appears to be

directly related to a country’s information rules and legal institutions. The authors argue

that information problems faced by foreign investors play an important role in this result.

Supporting this explanation, they argue that foreign investment is lower in firms that

appear to engage in more earnings management.

An event study by Bernard Black & Vikramaditya Khanna23 (2007) showed that good

corporate governance benefits faster growing firms (esp. mid sized ones) than others and

cross-listed firms get the benefit more than others.

Alexander Dyck, Adair Morse, Luigi Zingales24(2007)examine how external control

mechanisms are most effective in detecting corporate fraud. The authors study in depth

all reported cases of corporate fraud in companies with more than 750 million dollars in

assets between 1996 and 2004 and find that fraud detection does not rely on one single

mechanism, but on a wide range of, often improbable, actors. Only 6% of the frauds are

revealed by the SEC and 14% by the auditors. More important monitors are media (14%),

industry regulators (16%), and employees (19%). Before SOX, only 35% of the cases were

discovered by actors with an explicit mandate. After SOX, the performance of mandated

actors improved, but still account for only slightly more than 50% of the cases.

Gillan and Starks25 (1998) define corporate governance as the system of laws, rules, and

factors that control operations at a company. The paper mentions governance consisting

of two aspects: Internal governance with five major categories the board of directors,

managerial incentives, capital structure, bylaw and charter provisions, internal control

systems where as external governance consisting of law and regulation, capital markets;

analysts, auditors, private sources of external oversight such as rating, media etc.

Extensive research work on each of these aspects has been conducted in the recent times

Extensive development work is being carried out in a large number of countries in making

corporate governance comprehensive and effective. Major reforms in the corporate

22 Leuz, Christian, Lins, Karl V, Warnock, Francis E., 2006, Do Foreigners Invest Less in Poorly Governed Firms, Finance Working Paper No. 43/2004, Revised version: April 2006, European Corporate Governance Institute 23 Black, Bernand S, Khanna, Vikramaditya S., Can Corporate Governance Reforms Increase Firms’ Market Values? Event Study Evidence from India, Havard Law School 24 Dyck, Alexander, Morse, Adair, Zingales, Luigi, 2007, Who Blows the Whistle on Corporate Fraud, 25 Gillan, Stuart L, and Laura T. Starks, 1998, A Survey of Shareholder Activism, Motivation and Empricial Evidence, Contemporary Finance Digest, 2,3, 10-34

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governance in selected countries as sourced from the Year Book 200726 of International

Corporate Governance Network are reproduced below.

European Union27 The EU’s approach to corporate governance matters is principle-based. It seeks to ensure

the adoption of certain key specific standards throughout the EU, while leaving it to

Member States and market participants to determine how to best apply these standards.

The EU corporate governance framework, which consists of a mix of binding and non-

binding rules, has as its cornerstone the ‘comply or explain’ principle. Every listed EU

company is under an obligation to make an annual statement indicating which Code of

corporate governance it applies and declaring whether it complies with all the provisions

of that Code. If that company does not comply with some provision of the Code, it must

state to what extent and give a justification. Alongside the corporate governance

statement, the Commission has adopted two non-binding recommendations on the

remuneration of directors and on the role of independent directors, which contain key

substantive standards. With these measures, the Commission seeks to encourage national

corporate governance codes to converge gradually. The European Corporate Governance

Forum, set up by the Commission and composed of fifteen high level experts, seeks to

reinforce this through exchanges of views on best practices to promote the convergence of

national corporate governance practices within the European Union.

UK28 In June 2007, the EU adopted the Shareholder Rights Directive to create consistent standards across Member States and simplify cross-border investment. It aims to reduce problems associated with cross-border investment which include: a lack of sufficient information on a timely basis; the inability to trade shares ahead of general meetings (share blocking); and inefficient voting procedures and constraints. National governments are required to implement the Directive within two years. Some of the key measures of the Directive are: • Share-blocking is banned. Instead, companies are required to set a

26 Year Book 2007, International Corporate Governance Network 27 The Regulatory Regime: Focus in Europe by Charlie Mccreevy, European Commissioner for the Internal Market and Services, ICGN Year Book 2007. 28 The UK at the Hear of European Developments, Kerrie Waring, Corporate Governance Manager, Institute of Chartered Accountants of England and Wales, ICGN Year Book 2007.

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record date within a 30-day period before the election, giving the vote to whoever holds

shares on that day. • Notice of Annual General Meetings (AGM) must be at least 21 days in

advance, or 14 days for special meetings. • Shareholders must be able to ask questions

related to AGM agenda items. • Shareholders must have the opportunity to vote by post. •

Companies must disclose results on resolutions and this should be published on its website

no more than 15 calendar days after the AGM. In April 2007 the Financial Reporting

Council (FRC) issued a consultation on the ‘Review of the Impact of the Combined Code’.

It will address the effectiveness of the ‘comply or explain’ regime, the impact of the

Combined Code on smaller companies, how it supports board performance and whether

disclosures are considered useful and proportionate in terms of cost to companies

United States29 In the United States, investor protection being governed by the federal and state laws, in

addition to the implementation of the Sarbanes-Oxley corporate governance norms,

different states have brought in several laws. These include; Under Delaware law: (1) any

stockholder can inspect and copy a corporation’s stock ledger, a list of stockholders, and

certain books and records of the corporation; (2) any stockholder can sue for an appraisal

by the chancery court of the fair value of the stockholder’s stock in connection with

certain mergers; and (3) interested director transactions are subject to heightened

approval requirements. Further, the US federal securities laws and the SEC’s rules also

contain provisions aimed at protecting individual shareholders, such as: (1) requiring

heightened disclosure for going private transactions; (2) requiring issuers to send proxy

materials to all shareholders (not just certain shareholders); and (3) mandating significant

disclosures for related-party transactions. Simultaneously rigorous work on further areas of

reforms on the governance are being actively pursued and these include; • improved

quality in compensation disclosure; • advisory votes on executive compensation; • access

to the management proxy for shareholder designated board candidates; • reform of

shareholder communications and proxy voting mechanics; • promotion of global corporate

governance standards and cross-border voting protections; • transparency in stock lending,

empty voting and the governance impact of hedging and derivative trading strategies; •

reduction of regulatory costs; • use of technology in disclosure and communications; •

alleviation of short-term investment and business focus; • maintaining financial market

efficiency and competitiveness.

29 The Regulatory Regime: US Perspective, Roel C. Campos, SEC Commissioner, ICGN Year Book 2007.

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China30 The total market capitalisation at the end of March 2007 was RMB12.36 trillion,

representing about 55% of the country’s GDP last year. From only about a dozen listed

companies in 1990, there were 1459 listed companies by March of 2007. There are now

116 securities firms, with over 100,000 practitioners, and 82 million investor accounts.

From 1991 to 2005, total funds raised by Chinese companies through public offerings

reached RMB 1,159 billion. One of CSRC’s major reforms is the requirement to have

independent directors on the board to overcome the “insider control” problem in many of

China’s listed companies. The CSRC Guidelines on Independent Directors (August 2001)

required that each listed company should have at least one third of the board made up of

independent directors by June 2003. Independent directors are required to serve as chairs

of audit, compensation, and nomination committees and major related-party transactions

of the company have to be approved by independent directors. A recent survey showed

that, as of December 2005, 4,640 independent directors had been appointed at

shareholder meetings for the 1,381 listed companies in China. In most companies now at

least one-third of the board are independent directors and it is evident that they are

playing a more important role in corporate governance. A listed company is required to

publish an audited annual report as well as a semi-annual report. From 2002, listed

companies are also required to publish un-audited quarterly reports. The rules have

recently been revised to simplify and streamline the format of these reports so that they

would be more readable and easily understood by investors. To better protect the rights

and interests of public investors, the CSRC issued The Provisions on Strengthening the

Protection of Rights & Interests of Public Shareholders (December 2004). According to the

Provisions, listed companies’ major business decisions, such as rights issues and issuing

additional new shares, and equity-for-debt plans, should receive a majority of the votes

from holders of tradable-shares present at the general shareholders meeting.

France31 A law passed in July 2005 set things on course by requiring shareholder approval of the

pension schemes of executive directors as well as golden parachutes and retirement

schemes of managing directors. Another positive step was made with the introduction of a

legal requirement for the chairman of the board of directors/ supervisory board to explain

the remuneration policy to shareholders, who generally do not find these explanations

30 Regulatory Issues in China: Progress and Challenges, Daochi Tong, Deputy Director General, Public Offering, China Securities Regulatory Commission, ICGN Year Book 2007. 31 Corporate Governance Progress in France, Josiane Fanguinoveny, Services Director, Governance for Owners, ICGN Year Book 2007.

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satisfactory. 1) The compensation review must be exhaustive, 2) compensation must be

seen by reference to the relevant business lines, 3) performance criteria must correspond

to corporate targets and be simple to determine. Current trends in AGM voting indicate

that shareholders are voting against the following: • Authorities to issue shares without

preferential subscription rights. • Poison pills and other takeover defences. • Allocation of

free shares to employees and stock option plans. • Amendments to the articles of

association relating to the threshold disclosure requirements. • Share buy backs.

Germany32 The survey shows that independent non-executive directors today comprise only 28%

compared to the European average of 54%. Just 27% of the major companies have an

independent chairman. The proportion of independent members of audit and

remuneration committees in Germany is only 26% and 23% respectively. Only 7% of German

supervisory boards are international board members compared to the UK with 31% and

Switzerland with 45%. However, the 8th EU Directive (auditor directive) to be

implemented by June 2008 could lead to a change of this proportion since it requires an

independent chairman for the audit committee.

Russia33 A survey on the corporate governance in Russia by the Russia Institute of Directors brings out the following features. Major areas of where improvement was evident included; • the practice of recording the property title; • board authority to approve material transactions; • regulation of using insider information; • ways of disclosing information to shareholders before the general meeting; • cross-ownership of shares; • dividend payments on common and preferred stock; • the adoption of a corporate governance code. In respect of governance and control, major improvements were evident in ; • bringing external (independent) directors to the boardroom;• the regularity of board meetings; • the establishment of board committees; • having a regulatory framework for the board and the executive body; • the introduction of board members’ remuneration practices; • putting in place the procedures for identifying possible conflicts of interests in the board and amongst top managers; • the establishment of internal control functions. Improvements observed in the disclosure standards include; • information about the company’s strategy; • information about the composition of the company’s governance

32 The Progress of Corporate Governance in Germany-The Quality Question, Christian Stranger Member of the German Government Commission on Corporate Governance, ICGN Year Book 2007 33 Corporate Governance Practices in Russia : A Survey, Igor Belikov, CEO, Russian Institute of Directors, ICGN Year Book 2007.

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and control bodies; • disclosure about general practices of corporate governance.

Weaknesses that persist include; • deficiencies in the procurement of goods and services;

• the involvement of independent appraisers; •the practice of hiring external auditors; •

the existence of an approved dividend policy; • the absence of formal corporate

documents that outline the principles used for the calculation of dividends and the

minimal share of net profit; the formalistic nature of many board committees; •

insufficient attention to the professional development of board members; • the absence of

a clear and understandable procedure of executive and board evaluation; • the loose link

between executive remuneration and the company’s performance; • poorly developed

succession practices and succession planning; • low level of independence and efficiency

in the work of the audit commissions. poor disclosure of beneficiary ownership; • poor

disclosure about individual remuneration of members of the governance and control bodies

and the principles on which such remuneration is based, insufficient use of available

disclosure channels such as the annual report and corporate website.

South Africa34 Some of the key reforms proposed in a recent Bill on the corporate governance include; (a) There should be a uniform accounting standard to ensure that any financial information published by a company is calculated in accordance with generally accepted accounting practice (GAAP), which has to be comparable with the international standards adopted by the International Accounting Standards Board. (b) A companies’ ombud is created which provides a forum for alternative dispute resolution on company issues. (c) The Bill introduces three categories of companies, with the one category, namely a public interest company, having greater responsibility to a wider public and more demanding disclosure and transparency provisions. (d) The Bill creates a capital maintenance regime based on solvency and liquidity requirements which is a shift from a regime based on par value. (e) The chapter on corporate governance provides for the codification of directors’ duties, provisions addressing conflicts of interest and an increase in directors’ liability. (f) The Bill sets out simplified and flexible processes for approval of transactions that will fundamentally alter the structure of a company. The provisions deal with the disposal of substantially all of a company’s assets or an undertaking, a scheme of arrangement or a merger or amalgamation. Minority shareholders are also afforded better protection in line with modern international corporate law. g) Business rescue is being introduced in place of judicial management. Business rescue will be conducted by an independent supervisor

34 South Africa’s Ambitions: Achieving International Standards of Governance, Mervyn King, Chairman of the Global Reporting Initiative, and Chairman, King Committee on Corporate Governance in South Africa. ICGN Year Book 2007.

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and subject to court intervention. The interests of shareholders, creditors and employees

are recognised in the development and approval of a business rescue plan. Notably, the

interests of workers are protected by recognising them as creditors of the company, with a

voting interest to the extent of any unpaid remuneration. (h) The Bill tends to

decriminalise non-compliance and uses a system of administrative enforcement

Middle East35 The first Code of corporate governance was launched in Oman as early as 2002. Egypt has

published two corporate governance Codes, one for listed companies and one for State

Owned Enterprises. Egypt has sought to strengthen its listing rules and is focusing on

implementation by launching the Egyptian Institute of Directors and a series of training

programs being conducted by the Egyptian Banking Institute for bank directors. Bahrain,

Morocco, Qatar, and Tunisia have facilitated the review of their legal and regulatory

framework and are in the process of preparing a corporate governance Code. Jordan is

developing a model corporate governance Code for listed companies. Lebanon has

conducted a bank corporate governance survey and conducted a legal review followed by

the Central Bank issuing a corporate governance regulation. Additionally the Lebanese

corporate governance Task Force has spearheaded the development of a Code of

corporate governance for non-listed companies and is working with Lebanese companies

for voluntary compliance. In the UAE, the Central Bank has drafted corporate governance

guidelines for banks, and the UAE’s Securities and Commodities Authority has issued a

corporate governance Code, setting a national governance standard, for both the Dubai

Financial Markets and the Abu Dhabi Securities Market. Similarly, Saudi Arabia’s Capital

Market Authority launched corporate governance regulations for its listed companies, and

the banking sector is seriously looking at improving corporate governance standards. The

West Bank/Gaza is also in the process of developing a Code of Corporate Governance,

after a series of corporate governance awareness programs organised by business

associations and regulatory authorities.

Corporate governance plays an important role in investment decisions. In Brazil, Sau Paulo Stock Exchange launched a new market segment in 2001, The Novo Mercado where companies listed in this exchange have to comply with international standards and not those applicable to the companies listed in the main board. Institutional investors invested

35 A Dynamic and Changing Environment: Middle East and North Africa, Nsser Saidi, Executive Director, Hawkamah Institute for Corporate Governance and Chief Economist, Dubai International Financial Center. ICGN Year Book 2007.

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teams of people responsible for reviewing corporate governance practices in the

companies in which they are investing.

Morck and Steir (2007) sum up the essence of the evolution of the corporate governance in

different countries “Corporate governance deals with the mechanisms that ensure

investors in corporations get a return on their investments (Shleifer and Vishny, 1997).

Corporate governance varies widely across countries and across firms. Better governance

enables firms to access capital markets on better terms, which is valuable for firms

intending to raise funds. It is therefore expected that firms planning to access capital

markets – especially those with valuable growth opportunities that cannot be financed

internally – to adopt mechanisms that commit them to better governance. With the

availability of data on corporate governance and disclosure practices of individual

companies around the world, provided first by the Center for International Financial

Analysis and Research (CIFAR) and, more recently, by Credit Lyonnais Securities Asia

(CLSA), Standard and Poor’s (S&P), and Institutional Shareholder Services (ISS), several

studies have investigated whether governance and transparency scores are related to firm

characteristics. In general, they find that the quality of governance practices is positively

related to growth opportunities, the need for external financing, and the protection of

investor rights, and this rapidly developing body of literature began with the finding that

the laws that protect investors differ significantly across countries, in part because of

differences in legal origins (see La Porta, Lopez-de-Silanes, Shleifer and Vishny (1998).

Recent literature finds that cross-country differences in laws and their enforcement affect

ownership structure, dividend payout, availability and cost of external finance and market

valuations.'is negatively related to the concentration of ownership. However, until now,

the importance of other country characteristics, such as the financial and economic

development of the country in which a company is domiciled, and how that importance is

affected by financial globalization, has not been investigated. This is surprising since a

number of studies show that other country characteristics besides measures of investor

protection have a significant impact on country-level measures of governance”.

The developments in corporate governance as described above show that;

• Corporate governance is catching up fast as a major instrument of corporate

reform in several countries

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• Good governance emerged as a major incentive for corporate growth and in

pursuing global business aspirations

• Good companies are going beyond the mandatory requirements in adopting best

practices in governance

• Greater interaction and sharing of knowledge is gaining ground across countries in

setting effective governance frameworks

• Disclosure and transparency are emerging as the key determinants of good

governance

• As the financial markets grow and the developing countries corporations

increasingly explore global financial markets for resources and business,

harmonization of the corporate governance increases and intensified

The pace of developments in strengthening corporate governance in different countries

provides an insight on the urgency with which strong governance norms are devised and

implemented all over the world.

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Chapter III THE ESSENSE OF

CORPORATE GOVERNANCE Constituents of governance gain scope and significance

Corporate governance has been defined by scholars and market practioners as per the

perspective with which they were analyzing the subject. The practioner’s point of view

that was powerfully conveyed was that of N.R. Narayana Murthy, Chairman, Committee on

Corporate Governance, Securities and Exchange Board of India, 2003 and he himself a

highly successful and globally acclaimed entrepreneur who built Infosys on the premise

and foundations of a strong corporate governance “The term “corporate governance”, is

susceptible both to broad and narrow definitions. In fact, many of the codes do not even

attempt to articulate what is encompassed by the term. The important point is that

corporate governance is a concept, rather than an individual instrument. It includes

debate on the appropriate management and control structures of a company. Further, it

includes the rules relating to the power relations between owners, the Board of Directors,

management and, last but not least, the stakeholders such as employees, suppliers,

customers and the public at large:”.

From a policy perspective and who chaired the first ever influential and widely discussed

report on the subject, Adrian Cadbury, the author of the Cadbury Report, said “In its

broadest sense, corporate governance is concerned with holding the balance between the

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 interest of the individuals, of corporations and of society. The incentives to

corporations and those who own and manage them to adopt internationally accepted

governance standards is that these standards will assist them to achieve their aims and to

attract investment. The incentive for their adoption by states is that these standards will

strengthen their economies and encourage business probity”.

From a regulatory point of view Arthur Levitt, former chairman of the Securities and

Exchange Commission, United States emphasized the importance of the corporate

governance as “If a country does not have a reputation for strong corporate governance

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practices, capital will flow elsewhere. If investors are not confident with the level of

disclosure, capital will flow elsewhere. If a country opts for a lax accounting and reporting

standards, capital will flow elsewhere. All enterprises in that country- regardless of how

steadfast a particular company’s practices may be-suffer the consequences. Markets exist

by the grace of investors. And it is today’s more empowered investors that will determine

which companies and markets will stand the test of time and endure the weight of greater

competition. It serves us well to remember that no market has a divine right to investors’

capital”.

Organization of Economic Cooperation and Development (OECD) which spearheaded the

design and development of corporate governance principles and guidelines defined it as”

Corporate governance involves a set of relationships between a company’s management,

its board, its shareholders, and other stakeholders. Corporate governance also provides

the structure through which the objectives of the company are set and the means of

attaining those objectives and monitoring performance are determined”

An institutional point of view presented by Ira Millstein, who worked on drafting the OECD

corporate governance guidelines as also the co-chairman of the NYSE-NASDAQ constituted

Blue Ribbon Committee36 (1998) that looked into important aspects of the audit

committees, defined “Corporate governance refers to that blend of law, regulation and

appropriate voluntary private sector practices which enables the corporation to attract

financial and human capital, perform efficiently and thereby perpetuate itself by

generating long term economic value for its stakeholders, while respecting the interests of

stakeholders and society as a whole”.

From an academic perspective based on extensive surveys and studies on the subject,

Shleifer and Vishny (1997) define corporate governance as the ways in which suppliers of

finance to corporations assure themselves of getting a return on their investments;

Zingales (1998) views governance systems as the complex set of constraints that shape the

ex post bargaining over the quasi-rents generated by the firm; Gillan and Stakes (1998)

define corporate governance as the system of laws, rules, and factors that control

operations at a company.

To sum up, the important message of the need for good corporate governance is well articulated by M. Damodaran, Chairman, Securities and Exchange Board, who spearheaded

36 Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of the Corporate Audit Committees. NYSE and NASDAQ, 1998.

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introduction of most significant reforms in the Indian stock markets, including the October 2007 guidelines on the Participatory Notes (PNs) observed “There are those who will tell you that business and ethics cannot stand together. In the short run, it might appear that company pay a price for adhering to values while their competitors get ahead in a shorter time frame, but in the long run people would learn to distinguish, stakeholders learn to ask the right questions and distinguish between the grain and chaff. Those that don’t

subscribe to values will fall by the way side; those that subscribe to values will last the

course and will set benchmarks”.

The roots of the recent developments in the corporate governance could traced to

Treadway Commission (1985), United States which found that inadequate internal controls

lead to financial failures, which later led to the Commission defining three objectives of

the internal controls which are; (a) effectinvess and efficiency of operations (b) reliability

of financial reporting and (c) compliance with laws and regulations and (d) safeguarding of

assets.

The evolution of the corporate governance guidelines is given in the chart below.

Table 4 Recent Evolution of the Corporate Governance

Cadbury Report, United Kingdom 1995

The objective of the Cadbury committee was to investigate how large public companies should adopt corporate governance guidelines with a focus on the procedures of financial report production and the role of the accounting profession. Issues included the role of the board of directors, standard s of financial reporting, accountability of the auditors and directors pay.

Greenbury Report, United Kingdom, 1995

The report dealt with the remuneration of executives and non-executives board members and recommended the setting up of a remuneration committee in each public company to determine remuneration packages for the board members. It also provided suggestions on the disclosure of remuneration and the setting up of remuneration policy and service contracts and compensation.

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Hampel Report, United Kingdom, 1998

Four major issues were discussed with practical guidelines offered; (a) the role of directors (b) directors compensation (c) the role of shareholders (d) accountability and audit.

CII Voluntary Code of Corporate overnance,1998

The first of the voluntarily evolved codes in India.

Kumara Mangalam Birla Committee, India, 1999

The mandatory recommendations of the Kumar Mangalam committee include the constitution of Audit Committee and Remuneration Committee in all listed companies, appointment of one or more independent directors in them, recognition of the leadership role of the Chairman of a company, enforcement of Accounting Standards, the obligation to make more disclosures in annual financial reports, effective use of the power and influence of institutional shareholders, and so on. The Committee also recommended a few provisions, which are non- mandatory.

Sabanes-Oxley Act, 2002 A major initiative of corporate compliance, the Sarbanes-Oxley Act of 2002, is also known as the Public Company Accounting Reform and Investor Protection Act of 2002 is a US federal law that has main features such as ; establishment of the Public Company Accounting Oversight Board (PCAOB), auditors independence, corporate responsibility, enhanced financial disclosures, analyst conflict of interest, commission resources and authority, corporate and criminal fraud accountability, while collar crime penalty enhancement, corporate tax returns and corporate fraud accountability.

Higgs Report, 2003 On non-executive directors. Smith Report, 2003 On Audit Committees. Narayana Murthy Committee, 2002

The key mandatory recommendations focus on strengthening the responsibilities of audit committees; improving the quality of financial disclosures, including those related to related party transactions and proceeds from initial public offerings; requiring corporate executive boards to assess and disclose business risks in the annual reports of companies; introducing responsibilities on boards to adopt formal codes of conduct; the position of nominee directors; and stock holder approval and improved disclosures relating to compensation paid to non-executive directors. Non-mandatory recommendations include moving to a regime where corporate financial statements are not qualified; instituting a system of training of board members; and the evaluation of performance of board members.

Naresh Chandra Committee,2003

The auditor-company relationship, Auditing the auditors Independent directors: Role, remuneration and training.

OECD Principles,2004 The OECD Principles cover five aspects of governance (a) the rights of shareholders (b) the equitable treatment of shareholders (c) the role of stakeholders (d) disclosure and transparency (e) the responsibilities of the board.

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Clause 49 of the Listing Agreement, 2005

A major compliance directive that came into force from the quarter ended June 2005, it has major aspects of compliance by listed companies that include; definition of independent directors; Non-Executive Director’s compensation and disclosures, other provisions as to Board and Committees, Code of Conduct, Composition of Audit Committee, Meeting of Audit Committee, Subsidiary Companies, Disclosures pertaining to (a) basis of related transactions (b) accounting treatment (c) risk management (d) proceeds from public/rights/preferential issues (e) remuneration of directors and management discussion and analysis, CEO/CFO Certification, report on corporate governance, auditors certificate on compliance etc.,

Mature governance is caused by protection of property rights, enforcement of contractual

rights, protection against fraud and unfair practices,, centralized banking laws,

bankruptcy laws, strong and independent judiciary

The quality of corporate governance of a company is a key determinant of its market

performance. Institutional investors have a great hold on the market performance as also

they contribute significantly in inducing companies to adopt best practices. It is in this

regard, the guidelines evolved by CalPERS37, the leading institutional investor in the world

are summarized below.

Core Principles on Corporate Governance

Corporate governance practices should focus board attention on optimizing the company’s operating performance and returns to shareowners.

• Directors should be accountable to shareowners, and management accountable to

directors. To ensure this accountability, directors must be accessible to

shareowner inquiry concerning their key decisions affecting the company’s

strategic direction.

• Information about companies must be readily transparent to permit accurate

market comparisons; this includes disclosure and transparency of objective globally

accepted minimum accounting standard.

• All investors must be treated equitably and upon the principle of one-share/one-

vote.

37 CalPERS, Core Principles of Accountable Governance.

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• Proxy materials should be written in a manner designed to provide shareowners

with the information necessary to make informed voting decisions. Similarly, proxy

materials should be distributed in a manner designed to encourage shareowner

participation. All shareowner votes, whether cast in person or by proxy, should be

formally counted with vote outcomes formally announced.

• Each capital market in which shares are issued and traded should adopt its own

Code of Best Practices; and, where such a code is adopted, companies should

disclose to their shareowners whether they are in compliance.

• Corporate directors and management should have a long-term strategic vision that,

at its core, emphasizes sustained shareowner value. In turn, despite differing

investment strategies and tactics, shareowners should encourage corporate

management to resist short-term behavior by supporting and rewarding long-term

superior returns.

Board Independce and Leadership

• At a minimum, a majority of the board consists of directors who are independent.

Boards should strive to obtain board composition made up of a substantial majority

of independent directors.

• Independent directors meet periodically (at least once a year) alone in an

executive session, without the CEO. The independent board chair or lead (or

presiding) independent director should preside over this meeting.

• Each company should disclose in its annual proxy statement the definition of

“independence” adopted or relied upon by its board.

• With each director nomination recommendation, the board should consider the

issue of continuing director tenure and take steps as may be appropriate to ensure

that the board maintains openness to new ideas and a willingness to critically re-

examine the status quo.

Independent Board

The board should be chaired by an independent director. The CEO and chair roles

should only be combined in very limited circumstances; in these situations, the

board should provide a written statement in the proxy materials discussing why the

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combined role is in the best interest of shareowners, and it should name a lead

independent director to fulfill duties .

• When selecting a new chief executive officer, boards should re-examine the

traditional combination of the “chief executive” and “chair” positions.

• Generally, a company's retiring CEO should not continue to serve as a director on

the board and at the very least be prohibited from sitting on any of the board

committees.

• Corporate insiders are not considered independent and should therefore not

constitute any more than one board seat.

• Certain board committees consist entirely of independent directors. These include

the committees who perform the audit, director nomination, CEO evaluation, and

executive compensation functions.

• The full board is responsible for the oversight function on behalf of shareowners.

Should the board decide to have other committees (e.g. executive committee) in

addition to those required by law, the duties and membership of such committees

should be fully disclosed.

Board Evaluation

• The board has adopted and disclosed a written statement of its own governance

principles, and regularly re-evaluates them.

• The board has adopted and disclosed an annual board, committee, and individual

director evaluation process.

• With each director nomination recommendation, the board considers the mix of

director characteristics, experiences, diverse perspectives and skills that is most

appropriate for the company. The board should address historically under-

represented groups on the board, including women and minorities.

• Companies should submit executive compensation policies to shareowners for non-

binding approval.

• Executive contracts should be fully disclosed, with adequate information to judge

the "drivers" of incentive components of compensation packages.

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• Director compensation should be a combination of cash and stock in the company.

Audit Integrity

• The selection of the independent external auditor should be ratified by

shareowners annually.

• The board, through its independent Audit Committee, should ensure that excessive

non-audit fees are prohibited. To limit the risk of possible conflicts of interest and

independence of the auditor, non-audit services and fees paid to auditors for non-

audit services should both be approved in advance by the Audit Committee and

disclosed in the proxy statement on an annual basis.

Shareholder Rights

• A majority of proxies cast should be able to amend the company's bylaws by

shareowner proposal.

• A majority of shareowners should be able to call special meetings or act by written

consent.

• In an uncontested director election, a majority of proxies cast should be required

to elect a director. In a contested election, a plurality of proxies cast should be

required to elect a director.

• A majority of proxies cast should be able to remove a director with or without

cause. Unless the incumbent director has earlier resigned, the term of the

incumbent director should not exceed 90 days after the date on which the voting

results are determined.

• Shareowners should have the right to sponsor resolutions. A shareowner resolution

that is approved by a majority of proxies cast should be implemented by the board.

• Every company should prohibit greenmail.

• No board should enact nor amend a poison pill except with shareowner approval.

• Every director should be elected annually.

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• Proxies should be kept confidential from the company, except at the express

request of shareowners.

• Broker non-votes should be counted for quorum purposes only.

• Shareowners should have effective access to the director nomination process.

• Shareowners should have the right to cumulate votes.

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Chapter IV INDIA RISES

Corporate governance in India reaches global standards

An assessment by the Institute of International Finance38 (Corporate Governance in India,

An Investor Perspective, February 2006) brings out the following features of governance

practice in India.

• Corporate governance-related requirements in India are largely based on the

recommendations of the Cadbury and Higgs Reports and the Sarbanes-Oxley Act.

SEBI has been proactive in keeping India’s corporate governance rules and

regulations in line with best practices in the world.

• The state of corporate governance in India has improved over the last four years

particularly among large cap Indian companies.

• In many large Indian companies, globalization- and not regulatory requirements-

has served as the impetus for adoption of corporate governance best practices.

• High market premiums that the stock of these (good corporate governance)

companies command has reinforced the belief among Indian investors and, more

importantly, other Indian companies that better corporate governance contributes

to a high stock price and provides access to cheaper capital.

• Improvements in corporate governance in Indian companies seem largely to be

voluntary and driven by globalization

• Companies that wish to access markets for capital or that wish to become leading

global suppliers to corporations in developed markets are becoming increasingly

transparent and more willing to adopt higher corporate governance standards.

38 Institute of International Finance, Inc, Corporate Governance in India, An Investor Perspective, IIF Equity Advisory Group, Task Force Report, February 2006

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These governance changes are having a trickle-down effect on smaller Indian

companies.

• Stock exchanges are viewed as being at the front line of the surveillance function

for compliance with all listing requirements, including those that pertain to

corporate governance.

Corporate governance practice and procedures underwent dramatic changes during the

period 1997-2007. Major economic and financial developments that have during period

such as Asian financial crisis (1997-98), burst of the dotcom bubble (2000), major

corporate failures (Enron, WorldCom), large scale mis-statement of financial information

(Parmalat, Ahold, Alstom), surge in non-performing loans in several countries etc., have

reinforced the need to tighten governance standards and brought into focus the scope and

need for a wide of range of reforms in this regard. These initiatives have begun to pay off

as could be evident from the vast improvement in the governance form and practice Asia

as evident from several studies focused on assessment of the quality of the governance.

From the year 2003 onwards CLSA and Asia Corporate Governance Network39 together

collaborated in bringing performance scores of countries in the Asian region in regard to

corporate governance. The first of the report, CG Watch 2003, had an interesting title,

“Faking It : Board Games in Asia “ perhaps most appropriate at that time in the

background of global meltdown of stock markets brought about by severe inadequacies

and abuses in corporate conduct and disclosure standards. The 2004 report had a more

promising title “Spreading the Word. Changing Rules in Asia “reflecting changing landscape

of the corporate governance brought out in the backdrop of Sarbanes-Oxley and a host of

regulatory reforms that came into being a number of countries. The CG Watch 2005 had

the title “Holy Grail : Quality at Reasonable Price(QARP) showing growing commitment

towards, better corporate governance. The 2007 report had a much more encouraging

theme “On a Wing and a Prayer: Greening of the Governance” that brought out the

significant changes in the corporate governance practice in the Asia region. The 2007

survey assessed the quality of corporate governance in 11 Asian markets that included

Japan for the first time, and provided aggregate data from 582 companies in the region.

Table5: A Decade of Developments in Corporate Governance

39 Allen, Jamie, 2007,.The Benefits of Corporate Governance to Emerging Economies, Asian Corporate Governance Network.

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Country/ Market

1997

2007

Was there an official code of best practice?

Did the idea of the “Independent director” exist?

Did the idea of the audit c’tee exist?

Date of main code (s)

Are independent directors required?

Are audit committees required

China - - - 2002/2005 Yes Yes Hong Kong Yes (but

very short

Yes Yes 1993/2004 Yes Yes

India - - - 1999/2005/ 2007

Yes Yes

Indonesia - - - 2001/2006 Yes Yes Japan - - - (2003)/

2004 Optional Optional

Korea - - - 1999/2003 Yes Yes Malaysia - Yes Yes 2001 Yes Yes Philippines - - - 2002 Yes Yes Singapore - Yes Yes 2001/2005 Yes Yes Taiwan - - - 2002 Yes (certain

firms) Yes (certain firms)

Thailand - - - 1999/2006 Yes Yes Source: ACGA research.

Corporate governance score of all countries in Asia have improved sizeably. India now

ranks third after Singapore and Hong Kong in regard to performance in corporate

governance. The slight decline in the 2007 score is not due to lowering of standards but

due to inclusion of a larger number of parameters for evaluation, that was common to all

the countries. The 2007 study has also included Japan in among the countries assessed.

The “CG Watch 2007” has this to say on the quality of governance standards in India “A

large population (hence low GNI per-capita); economic reform started much later than

China (1991) vs 1978); yet corporate governance reform started early by regional

standards (1998) and the country has some pockets of world-class corporate governance”.

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Table6: India ranks high among Asia governance league tables

Country40 2000 2001 2002 200341 200442 200543 2007 Singapore 75 74 74 77 75 70 65 Hong Kong 71 68 72 73 67 69 67

India 56 54 59 66 62 61 56 Malaysia 32 37 47 55 60 56 49 Taiwan 57 53 58 58 55 52 54 Korea 52 38 47 55 58 50 49

Thailand 28 37 38 46 53 50 47 Philippines 29 33 36 37 50 48 41

China 36 34 39 43 48 44 45 Indonesia 29 32 29 32 40 37 37

Source: “CG Watch”, a joint report by CLSA Asia- Pacific Markets and ACGA.

The credibility of India, in regard to corporate governance, comes into review, in the light of

vast improvements made in the back ground of lower per capita gross national income as also

the absence of a full fledged independent agency for fighting corruption, which indicates that

most of the initiatives were proactive in nature and the processes evolved and practice

standards are mostly voluntary in nature.

Table7: India manages well despite constraints

Country / Market

CG macro quality v/s national income

CG macro quality v/s corruption

“CG Watch 2007” score

GNI per capita ($ :2006)

Is there an independent agency fighting corruption

Hong Kong 67% 28, 460 Yes (for a long time) Singapore 65% 29, 320 Yes (for a long time)

India 56% 820 Marginally Taiwan 54% NA Somewhat Japan 51% 38, 410 Largely Korea 49% 17, 690 Marginally

Malaysia 49% 5, 490 Marginally Thailand 47% 2, 990 No

China 45% 2.010 Marginally Philippines 41% 1, 420 Somewhat (but recently) Indonesia 37% 1, 420 Yes (but recently)

Source: Asian Corporate Governance Association.

40 Ranked in descending order according to 2005 score 41 First year in which ACGA collaborated with CLSA 42 Introduced more rigorous scoring methodology in 2004 43 Enhanced methodology further in 2005

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India now fulfills all the standards regard best practices in corporate governance and

compares quite favorably with all the major countries in the Asia region. Much of the

progress has happened in the last decade that enabled India to make a big leap in the

league tables of best practices.

Table8: Matching Rules and Regulations

Sourc

e:

CLSA

/

ACGA

“CG

Watc

h

2005:

The

Holy

Grail

”.

The

ext

ensi

ve

wor

k

carr

ied

by the policy and regulation in developing an effective framework induced companies to

improve the quality of their governance and enabled them to adopt best practices which

provided an opportunity to scale higher in quality and performance. India is recognized as

a market having best corporate governance standards, though issues of quality of

enforcement, review and effectiveness continue to be raised.

A broad outline of the framework for the corporate governance network in India that

formed a recent assessment of the Institutional Institute of Finance is reproduced below.

The assessment provides the current status of the regulatory framework from the point of

view a global markets perspective.

Legal Framework

Question China HK India Indonesia

SKorea Malaysia

Phil Sing Tai Thai

Is quarterly reporting mandatory

Yes No Yes Yes Yes Yes Yes Yes Yes Yes

Are Auidt committees mandatory?

Yes Yes Yes Yes Some Yes Yes Yes No Yes

Must ownership stakes above 5% be disclosed?

Yes Yes Yes Some Yes Yes Yes Yes Some

Yes

Detailed disclosure of material transactions?

Some Yes Yes Some Yes Yes Yes Yes Yes Yes

Is the national code of CG based largely on International standards?

Yes Yes Yes Some Yes Yes Yes Yes Yes Yes

Is there n national policy to converge with IAS/IFRS?

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

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India’s legal framework for corporate governance is found in the Companies Act of 1956,

most recently amended in 2002, and in Clause 49 of SEBI’s requirements for listed

companies.

Minority Shareholder Protection

The legal structure for corporate governance in India provides for strong minority

shareholder protection compared with other emerging markets. The Companies Act

and SEBI’s listing requirements together account for most of the key minority

shareholder protections.

• Voting Rights

According to Indian rules and regulations, all shareholders have the right to

participate and vote at general meetings. The Companies Act encourages proxy

voting by granting all shareholders the legal right to appoint a proxy.

Until recently, laws in India promoted the “one share, one vote” principle. But

a rule enacted in 2001 by the Ministry of Company Affairs, now permits Indian

companies to issue shares with multiple voting rights or dividends as long as

such shares do not exceed 25 percent of share capital and shareholders

approve the issuance.

Provisions for cumulative voting, particularly in the election of directors,

would be a means to foster stronger minority shareholder protection. But

Indian law does not have specific provisions for cumulative voting.

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• Firm Capital Structure

Laws in India regarding a firm’s capital structure recommend that firm

require shareholder approval or board approval to change their

capital structure through takeovers, mergers, division or spin-

offs, capital increases, dilution of voting and ownership rights,

IPOs and significant share buybacks. To approve a merger, under

SEBI’s regulations a shareholder vote of 75 percent is required.

India’s Companies Act requires that new capital issues first be offered to

existing shareholders in proportion to their shares of paid-up capital. only by a

special resolution can this requirement be waived. This is intended as a

minority shareholder protection mechanism.

• Shareholder Meetings/Other Rights

The Companies Act requires that an Annual General Meeting (AGM) be held

every year, and that a notice convening the meeting be sent to all

shareholders at least 21 days in advance of the meeting. In addition to the

AGM, the Companies Act allows for shareholders controlling 10 percent of

voting rights or paid-up capital to call a special or Extraordinary General

Meeting (EGM).

India’s legal provisions for quorum at the AGM may not sufficiently protect

minority shareholders. The Companies Act only stipulates that 5 people must

be present at the AGM to reach quorum.

To help expedite minority shareholders’ grievances, SEBI’s Clause 49 stipulates

that there must be a board-level shareholder grievance committee to address

such disputes, and that a non-executive director must chair this committee.

The introduction of grievance committees is one mechanism whereby

shareholders can obtain redress outside of India’s inefficient and corrupt court

system.

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Structure and Responsibilities of the Board of Directors

India’s laws and regulations address all issues pertaining to boards of directors.

Scope for improvement lies in requiring the creation of a board level nomination

committee that would be responsible for identifying and recommending new

directors. This would help curb the appointment of friends of

founder/promoters or controlling shareholders as non- executive/independent

directors.

• Board Structure

SEBI’s Clause 49 includes a definition of board independence that says at least

one-third of the board be non-executive and a majority of these be

independent. Clause 49 goes further to require that in cases where the

chairman of the board is an executive, 50 percent of the board be comprised

of independent directors.

Despite the requirement for board independence, the availability of trained

independent directors in India is limited. Qualified directors are often willing

to join only prestigious companies but shy away from joining the boards of

smaller companies that could benefit the most from the guidance of

independent directors. Recognizing the need for qualified independent

directors, efforts are being made by organizations such as the Confederation of

Indian Industries, the Federation of Indian Chambers of Commerce and

Industry, and stock exchanges to train directors.

• Board meetings

SEBI’s Clause 49 states that the board should meet at least four times a year.

The Companies Act requires that 33 percent of board members or two

members, whichever is greater, be present. There is no provision that specifies

whether non-executive or independent members need be present.

• Nomination and election of directors

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The Companies Act mandates that the directors of the Board be approved and

appointed by the company in the Annual General Meeting. In India,

founder/promoters or controlling shareholders generally appoint directors.

There is limited scope for minority shareholders to recommend director

nominees.

Moreover, Indian rules and regulations have no provisions mandating the

creation of a board-level nomination committee.

• Board committees

In India, every board is required to have a shareholder grievance committee,

as discussed above, and an audit committee. Creation of a separate

remuneration committee is a non-mandatory requirement in Clause 49 of the

SEBI Code. In practice, however, boards of some large companies have an

audit, remuneration and nomination committee.

• Disclosure

SEBI’s Insider Trading Regulations, 2002, require every company to appoint a

compliance officer who is responsible for setting policies, procedures, and

monitoring adherence to the rules for the preservation of ‘price sensitive

information’ to prevent insider trading. SEBI has established an insider trading

committee to monitor this activity. The Task Force learned that insider trading

is common in India, but difficult to detect. There is no good legal definition of

insider trading, which hampers surveillance efforts.

Clause 49 also requires that listed companies begin disclosing their corporate

governance practices in the Annual Report to shareholders. Moreover,

companies are required to provide on their website information such as

quarterly results and presentations made to analysts.

Companies that do not have their own website have to send this information to

the stock exchange on which they are listed so that the stock exchange can put

it on its website. All fees and compensation paid to non-executive directors

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are fixed by the board of directors and require prior approval of shareholders

in the Annual General Meeting.

• Other responsibilities

Clause 49 requires listed companies to inform board members about risk

assessments and risk minimization procedures in the company. The audit

committee is also responsible for reviewing all related-party transactions and

internal audit functions of the company.

There are no such provisions in the Indian governance framework that require

companies to have an investor relations program and to provide a policy

statement concerning environmental issues and social responsibility. However,

in practice, some large Indian companies have social responsibility initiatives.

3. Accounting/Auditing

At present, under the non-mandatory requirement of Clause 49, Indian

companies are encouraged to send half-yearly financial reports. Listed

companies are required to provide quarterly compliance reports to regulatory

authorities but the information provided in the half-yearly report and quarterly

reports are not subject to full audit review.

• Standards

The Institute of Chartered Accountants of India (ICAI) is an independent body

regulating the accounting and auditing profession in India. Over the past two

years the ICAI has revised a majority of India’s Accounting Standards to comply

with International Accounting Standards (IAS) and International Financial

Reporting Standards (IFRS).

The Companies Act requires shareholders to appoint an independent auditor at

each Annual General Meeting. It also requires that the independent auditor be

certified by the ICAI. Comprehensive audits are conducted annually in India.

• Audit Committee

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Revisions to Clause 49 incorporate several practices required by the Sarbanes-

Oxley Act in the United States. Audit committees of listed Indian companies

are now required to have a minimum of three directors as members, with at

least two-thirds of the members being independent. In addition, at least one

member of the audit committee should have accounting or related financial

management expertise. Clause 49 also requires audit committees to review the

adequacy of internal control systems.

Clause 49 does not prohibit the contemporaneous provision of audit and non-

audit services from the same entity. It does, however, require the audit

committee to fix audit fees and approve payments to auditors for other

services provided.

Transparency of ownership and control

The Indian corporate governance requires senior management to disclose

potential conflicts of interest only to the Board. Given that most large Indian

companies are family-controlled conglomerates, related-party transactions and

related lending are a concern. Disclosure to shareholders in the Annual Report is

needed. Clause 49 requires listed companies to disclose materially significant

related-party transactions in the Report on Corporate Governance in the Annual

Report to shareholders; however, it does not define the term ‘materially

significant’.

However, there is scope for improvement by making disclosure of related-party

transactions mandatory to shareholders.

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Regulatory Environment

Although SEBI, the capital markets regulator, is an independent body, the weak

enforcement mechanism in the country is a key concern for members of the

India Task Force. Significant government action is needed to improve the

enforcement and surveillance functions of regulators in India.

CLAUSE 49 44

Implementation of corporate governance is mainly through the Clause 49 of the

Listing Agreement that the companies make with the stock exchanges.

Important provisions of the Clause 49 are briefly discussed below.

Objectives of Corporate Governance

• Fairness to all Stakeholders

• Greater transparency through better disclosures

• Greater Accountability of Executive Management to stakeholders.

• Enforcement & Verifiability of various Acts, Regulations,

Recommendations, etc.

• Creating value for the shareholders

• Protecting interests of other stakeholders.

Essentials of Good Governance

• Quality and clarity of norms

• Enforcement systems and structure processes

• Dialogue and discussion and awareness

Factors affecting governance

• Integrity of the Management

• Ability of the board

44 Source : Bombay Stock Exchange

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• Adequacy of the process

• Commitment level of individual board members.

• Quality of corporate reporting

• Participation of stakeholders in the management.

Applicability

• All listed companies including PSUs and excluding Mutual funds.

• All companies that are incorporated under other statutes, so far the

recommendations do not violate their respective statutes and guidelines or

directives issued by the relevant regulatory authorities

Implementation Schedule

• By all entities seeking listing for the first time, at the time of listing.

• having a paid up share capital of Rs 3 crores and above or net worth of Rs 25

crores or more at any time in the history of the company

Board of Diectors

• Fifty percent of the Board of Directors should be non-executive & at least 1/3rd

should be independent, if the Chairman is Non-Executive. Else 50% should be

independent

• No director should be a member in more than 10 committees or act as Chairman of

more than 5 committees across all companies. Committees reckoned are Audit

Committee and Shareholders/ Investors Grievances Committee

• Directors should be judicious mix of experts drawn from different field of

specialization.

• Board should have adequate knowledge of the business of the enterprise.

Definition of Independent Director

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The expression ‘independent director’ shall mean non- executive director of the company

who

• apart from receiving director’s remuneration, does not have any material

pecuniary relationships or transactions with the company, its promoters, its

senior management or its holding company, its subsidiaries and associated

companies;

• is not related to promoters or management at the board level or at one level

below the board; has not been an executive of the company in the immediately

preceding three financial years;

• is not a partner or an executive of the statutory audit firm or the internal audit

firm that is associated with the company, and has not been a partner or an

executive of any such firm for the last three years. This will also apply to legal

firm(s) and consulting firm(s) that have a material association with the entity.

is not a supplier, service provider or customer of the company. This should

include lessor-lessee type relationships also; and

• is not a substantial shareholder of the company, i.e. owning two percent or

more of the block of voting shares.

• Institutional directors on the boards of companies shall be considered as

independent directors whether the institution is an investing institution or a

lending institution

Compensation

• All compensation paid to non-executive directors shall be fixed by the Board of

Directors and shall be approved by shareholders in general meeting

• Limits shall be set for the maximum number of stock options that can be granted in

any financial year and in aggregate. The considerations as regards compensation

paid to an independent director shall be the same as those applied to a non-

executive director

• The company shall publish its compensation philosophy and statement of entitled

compensation in respect of non-executive directors in its annual report.

• Alternatively, this may be put up on the company’s website and reference drawn

thereto in the annual report.

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• Company shall disclose on an annual basis, details of shares held by non-executive

directors, including on an "if-converted" basis. Non-executive directors shall be

required to disclose their stock holding (both own and held by / for other persons

on a beneficial basis) in the listed company in which they are proposed to be

appointed as directors, prior to their appointment. These details should accompany

their notice of appointment

Responsibility of the Independent Director

Independent Director shall however periodically review legal compliance reports

prepared by the company

• steps taken by the company to cure any taint

• In the event of any proceedings against an independent director in connection

with the affairs of the company, defence shall not be permitted on the ground

that the independent director was unaware of this responsibility.

Code of Conduct

• It shall be obligatory for the Board of a company to lay down the code of

conduct for all Board members and senior management of a company. This

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.

• Normally, the term “ Senior Management” would comprise all members of

management one level below the executive directors

Term of Office of Non Executive Director

• Person shall be eligible for the office of non-executive director so long as the term

of office did not exceed nine years in three terms of three years each, running

continuously (Non mandatory requirement).

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Audit Committee:

• Composition

o Minimum 3 members

o all non-executive with majority independent.

• 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 individual’s financial sophistication, including

being or having been a chief executive officer, chief financial officer, or other

senior officer with financial oversight responsibilities.

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 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/ misleading

statement or omit material fact;

• these statements present a true and fair view of the company’s

affairs and

• are in compliance with existing accounting standards, applicable

laws and regulations.

• no transactions entered into by the company were fraudulent, illegal

or violative of the company’s code of conduct.

• Responsible for Establishing and maintaining internal controls

• Evaluating effectiveness of the internal control systems

• Disclosed to the auditors and the Audit Committee, deficiencies in

the design or operation of internal controls

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• Taking steps to rectify these deficiencies.

They have indicated to the auditors and the Audit Committee

• (I) significant changes in internal control/ accounting policies;

• (ii) disclosed changes in accounting policies in the notes to the

financial statements; and

• (iii) instances of significant fraud and the involvement if any, of the

management or an employee having a significant role in the internal

control system.

Subsidiary Companies

• Provisions relating to the composition of the Board of Directors of the holding

company shall be applicable to the composition of the Board of Directors of

subsidiary companies

• At least one independent director on the Board of Directors of the holding

company shall be a director on the Board of Directors of the subsidiary company

• The Audit Committee of the holding company shall review the financial

statements, in particular the investments made by the subsidiary company

• The minutes of the Board meetings of the subsidiary company shall be placed

for review at the Board meeting of the holding company

Related Party Transaction

• A statement of all transactions with related parties including their basis shall

be placed before the Audit Committee for formal approval/ratification.

• If any transaction is not on an arm’s length basis, management shall provide an

explanation to the Audit Committee justifying the same

Risk Management

• It shall put in place 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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• Management shall place a report certified by the compliance officer of the

company, before the entire Board of Directors every quarter documenting the

business risks faced by the company, measures to address and minimize such

risks, and any limitations to the risk taking capacity of the corporation. This

document shall be formally approved by the Board

Disclosures and Reports

• Non-Executive Directors’ pecuniary relationship or transactions with the

company has to be disclosed in the Annual Report.

• Disclosures on the remuneration of the directors

• Management Discussion and Analysis report should form part of directors’

report or in addition thereto it should form part of the annual report to the

shareholders.

Whistle Blower Policy

Internal Policy on access to Audit Committees

• Personnel who observe an unethical or improper practice (not

necessarily a violation of law) shall be able to approach the audit

committee without necessarily informing their supervisors

• This right of access be communicated to all employees through

circulars

Submissions

• Quarterly Compliance Report within 15 days from the end of the quarter.

(Format revised)

• Annual Compliance by the separate section in the Annual report.

• Compliance Certificate from the auditors of the company.

These guidelines make Indian corporate governance norms on par with the global

standards and in particular, the much discussed and debated aspects of the Sarbanes-

Oxley. A comparison of the guidelines of the Clause 49 and SOX, given below is self

explanatory.

Table9: Comparative Analysis of Clause 49 to SOX

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Topic Clause 49 (Listed companies)

US- SOX & Other Laws

Board - Independence (gen.majority) -Internal Control system - Disclosure & Code of Conduct

-Independence - Internal Control System - Disclosure & Code of Conduct

Audit Committee - Independence (2/3) & Financially Literate - Review audit & internal audit

- Independence & Financially Literate - Review audit & Internal audit

Disclosures - Compensation - RPTs - Risk Management & Accounting Standards - Use of Proceeds

- Compensation - RPT’s -Risk Management, etc…not required, but generally provided. - Use of Proceeds

Certifications - CEO & CFO – Financials, Internal Control, Comply with Laws, Changes in Policy

- CEO & CFO – Financials, internal controls, etc…

Compliance - Certificate on this. - Disclosure compliance or not with mandatory and non-mandatory req’ts.

- Similar, but no requirement to disclose if meet non-mandatory req’ts.

CG Reports Quarterly Not required though often provided

Subsidiary - Significant issues report to parent board. - Independent directors.

- Generally required to report important issues as per state corporate law.

Non Mandatory - Training - Whistleblower policy - Evaluate non-executive board - Limits on independence

- Whistleblowers much more prevalent - Training not required, but often provide. - Performance evaluation - Greater discussion on compen. levels

Penalties & Enforcements De-Listing - Large criminal penalties (individuals & companies) - Large civil penalties (public & private).

From the above, it could be seen that;

• India has an effective framework for corporate governance

• The features of corporate governance are comparable to the best in the world.

• Significant improvements took place in the quality of corporate governance

• Regulation has shown keen interest in promoting better governance amongst

companies

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• International investors recognize the reforms in corporate governance; though

expect further reforms in enforcement

• Better governance helped Indian companies to explore global markets in a

significant manner

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Chapter V INSTRUMENTS OF

IMPORTANCE The growing significance of Board and its

Committees in designing and driving the CG agenda

The Board and its committees are the key instruments in driving the scope, significance,

quality of the governance in the companies. A board is defined as a group of individuals

that are elected as, or elected to act as, representatives of the stockholders to establish

corporate management related policies and to make decisions on major company issues.

Such issues include the hiring/firing of executives, dividend policies, options policies and

executive compensation. Every public company must have a Board of Directors. The Board

of Directors should be a fair representation of both management and shareholder's

interests, because too many insiders serving as directors will mean the board will make

decisions more beneficial to management. On the other hand, possessing too many

independent directors may mean management will be left out of the decision-making

process and may cause good managers to leave in frustration.

The board structure can be in the form of unitary board, dual board and mixed board. US

has the unitary board structure so as India. Other countries where unitary board structures

are prevalent included, Australia, Brazil, Canada, Egypt, India, Italy, Japan, Malaysia,

Norway, Philippines, Singapore, South Africa, South Korea, Sweden, Thailand, Turkey,U.S.,

Ukraine, United Kingdom, Zimbabwe.Dual board structure where share holders elect a

supervisory board that in turn appoints and supervises a management board, are more

prevalent in European countries such as Germany, Austria, Belgium, China, Croatia, Czech

Republic, Denmark, Estonia, Georgia, Germany, Holland, Indonesia, Latvia, Mauritius,

Poland, Spain, Taiwan, where as mixed board structures are more evident in countries like

Bulgaria, Finland, France, Switzerland.

In the aftermath of several codes of corporate governance coming into force in several

countries, the Board and its various committees, in particular the role and functions of the

Audit Committee have been extensively implemented and analysed. This chapter

discusses major aspects in regard the board in various aspects of composition, structure,

independence, as also one of the most importance committees of the board, namely the

Audit Committee.

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Recent academic and analytical exercises on the various aspects of the board of directors,

shows that (a) board size and independence have increased since SOX

{(Chhaochharia and Grinstein45, (2005)} (b) Busy boards donot harm shareholder wealth

(Ferris, Jagannathan and Pritchard46, (2003) (c) Board’s ability to monitor is compromised

at firms with several busy directors (Fich and Shivdasani47,2004)

(d) cozy board relationships limit effective monitoring (Larcker, Richardson, Tuna and

Seary48, 2005) (d) financial expertise on boards limits the likelihood of accounting

restatements (Agrawal and Chadha49, 2005) (e) market attaches more credibility to

earnings announcement when boards and audit committees are both independent and

active (Booth, Deli,50 1999) (f) presence of commercial bankers on boards is associated

with the size of loans, whereas on the presence of investment bankers is associated with

more frequent outside financings and larger public debt issues (Guner, Melmendier and

Tate51 (2005) (g) presence of financial experts does not necessarily improve shareholder

value (h) Excess compensation paid to directors is associated with excess CEO

compensation (Brick, Palmon and Wald52)

(i) Excess compensation is associated with poor future performance (j) excess

compensation for directors compromise their independence and leads to overpayment of

CEOs (k) proportion of outside directors, the number of board meetings and the tenure of

the board chair are associated with the incidence of fraud (Chen, Firth, Gao, and Rui53).

The board structure indicates risk elements on the evident of the following trends.

• Chairman not independent upon appointment

• Less than half of the board are non-executives

• Board turnover has been greater than 25% over the previous year or more than

three new people (excluding internal promotions) have joined the board in the

same period 45 Chhaochharia, Vidhi, Yaniv Grinstein, 2005, Corporate Governance and Firm Value: The Impact of 2002 Governance Rules, Working Paper, Cornell University. 46 Ferris, Stephen P., Murali Jagannathan and A.C. Pritchard, 2003, Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments, Journal of Finance, 58, 3, 1087-1112. 47 Fich, Eliezer and Shivdasani Anil,, 2004, Are Busy Boards Effective Monitors? Finance Working Paper No. 55/2004, European Corporate Governance Institute 48 Larcker, David F., Scott A. Richardson, Andrew Seary and A. Irem Tuna, 2005, Back Door Links Between Executives and Executive Compensation, Working Paper, The University of Pennsylvania. 49 Agrawal, Anup and Chedda, Shaiba, 2005, Corporate Governance and Accounting Scandals, Journal of Law and Economics. 50 Booth, James, Deli, Daniel N, 1999, On Executives of Financial Institutions as Outside Directors, Journal of Corporate Finance 5, 227-250. 51 Guner, A. Burak, Ulrike Malmendier,m Geoffrey Tate, 2005, The Impact of Board with Financial Expertise on Corporate Policies, Working Paper, Stanford University. 52 Brick, Ivan E., Oded Palmon and John Wald, CEO Compensation, Director Compensation and Firm Performance, Evidence of Cronyism. 53 Chen, Firth, Gongmeng Gao and Rui, Ownership Structure, Corporate Governance and Fraud: Evidence from China.

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• Fewer than three executive directors

• No senior independent director on the board

• Chairman of the company is chair of the audit committee

• Executives on the audit committee.

• Remuneration risk indicators:

• Any Insight votes against or abstentions on the company’s remuneration report in

the past three years

• Any Insight votes against or abstentions on the company’s share schemes in the

past three years.

Board evaluation forms an important aspect of assessing the performance as also sharing

important aspects that will lead to better functioning of the board. Board performance

review is emerging as an important aspect of strengthening the board structure and

performance. In a recent evaluation of the board performance, The Institute of Chartered

Secretaries and Administrators (ICSA), London brought out some important observations.

These observations published in the Year Book 2007 of the International Corporate

Governance Network are reproduced below.

• People factors are of far greater importance than process factors in getting an

effective board – eg how do the directors work as a team; what are their

interpersonal skills; is there a dominant or bullying chairman or CEO; how effective

is the Senior Independent Director; is the chairman an effective leader; do all

directors contribute; what is the level of commitment (preparedness, engagement,

absenteeism); is the board objective in acting on behalf of the company; is it

robust in taking and sticking to difficult decisions; are decisions reached by the

whole board; do decisions take account of shareholders’ views; are there any

“unmanaged” conflicts of interest; is the composition of the board being refreshed

(succession planning)?

• Backing from the chairman for both the evaluation and the form of the evaluation

is extremely important. If they are doing it for the sake of doing it – for example

because the UK Combined Code requires it – the evaluation process becomes

difficult. The chairman is likely to want to prove that he was right in thinking that

it need not be done, so he may be tempted to try to rubbish the report. Although

difficult to do under those circumstances, the recommendations (obviously if well-

founded) should still have an impact, but it is likely to take longer for the directors

to find their own ways to implement them. • Sometimes there can be a surface

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(occasionally almost belligerent) complacency that the board is performing well –

so why bother with an evaluation? • We encounter occasional complaints that

“doing all this box ticking does not help the bottom line” – but recent scandals

have served only to heighten shareholder concern that the companies in which they

invest are being run soundly.

• There are often problems getting the optimum level of interaction between non-

executive and executive directors. Lack of contact between meetings and

sometimes a lack of understanding of the role of nonexecutives (particularly in

smaller companies) are both contributors to this. If good interaction is not

achieved then the company fails to gain the most from all concerned.

• There can be a lack of interaction between the nonexecutive directors and the

senior managers outside the board, which makes it difficult for the non-executives

to get a real feel for the business. This can happen where there is a strong culture

against allowing senior management or external advisers to attend board meetings

to present items.

• It was some good succession planning, for example in one company less than nine

months after the current chairman (a former NED) had been appointed, one board

was looking ahead six years to finding a new chairman.

• It was found that some poor succession planning, in another a change of finance

director and the lead audit partner at the same time.

• The volume of business now handled by the main committees, particularly the

audit committee, has resulted in executive directors not involved in those

committees feeling distanced from those matters.

• It is found some excellent use of the nomination committee – one’s remit was

widened to embrace top management development.

• There are also examples of poor use of the nomination committee: a new

executive director appointed from outside the company without reference to the

committee; an executive director switched to an entirely different main board

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portfolio without reference to the committee; the committee was just not

meeting.

• In some companies the executive directors, other than the CEO, do not act as full

directors but as department heads looking to the CEO to take the lead. •

Occasionally, where a small caucus of key directors gets on particularly well, the

NEDs can feel like mushrooms (at least as regards light levels)!

• Many companies struggle, or have struggled, with getting the right level of

information to the board. The optimum amount will vary from board to board

depending on the type of business and the level of trust that has built up.

• Getting the optimum number of board meetings can be a problem – balancing the

needs of the business with the time available from the best directors, particularly

when there are overseas directors. There are instances where presentations are

made to a board and then no time is available for discussion.

• Directors have welcomed the opportunity to stand back and look at how they

work.

Another important aspect that is assuming importance in regard to the board structures in

particular its composition is the representation of women. Gender equality in boards is

assuming significance, though women representation in the boards remains at very low

levels in many countries. Norway made a major breakthrough in this regard by introducing

from January 2003, that enterprises that are subject to statutory audit to prepare an

annual report are required to be specific in that report the state of the gender equality in

that enterprise and what measures have been or planned to be implemented to promote

gender equality. The percentage of women on the boards increased from 6 percent in 2004

to 25 percent by January 2007. and thirty eight percent of the 500 odd public limited

companies in the private sector were able to fulfill the gender requirements in the board.

Special databases have been created to find companies find competent women as board

directors and several activities to promote women participation in the boards such as

arranging training courses to develop women directors are being carried out. Stringent

action is provided for companies not complying with women representation in the board.

The Public Limited Companies Act, the Norwegian law provides for the liquidation and

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dissolution of the company found failing to meet the statutory requirements regarding

women representation in the board.

Graph9: Percent of Directors who are women

Source: EISIR Significant developments are taking place in the realm of the audit committee. DeZoort, F

Todd 54 (2002) observe that an effective audit committee has qualified members with the

authority and resources to protect stakeholder interests by ensuring reliable financial

reporting, internal controls, and risk management through its diligent oversight efforts.

Major aspects that determine the effectiveness of the board include; Composition -

expertise, independence, integrity, objectivity; Authority - responsibilities, influence

(derived from full board of directors, federal law, and exchange listing requirements);

Resources - adequate number of members; access to management, external auditors, and

internal auditors ; Diligence - incentive, motivation, perseverance. Mark L. DeFond,

Rebecca N. Hann, Xuesong Hu55( 2004) examine 3-day cumulative abnormal returns (CARs)

around the announcement of 850 newly appointed outside board members assigned to

audit committees during 1993-2002, a period prior to the implementation of the Sarbanes-

Oxley Act (SOX). Motivated by the SOX requirement that public companies disclose

whether they have a financial expert on their audit committee, the authors tested

whether the market reacts favorably to the appointment of directors with financial

expertise to the audit committee. In addition, because it is controversial whether SOX

should define financial experts narrowly to include primarily accounting financial experts

54 Dezoort, F Todd, Hermanson, Dana Ra, Archambeault, Deborah S.,Scott A, 2002, Audit Committee Effectiveness, Journal of Accounting Literature. 55 Defond, Mark L, Hann, Rebecca N, Hu Xuesong, 2004, Does the Market Value Financial Expertise on Audit Committees of Boards of Directors, Leventhal School of Accounting, University of South California, Los Angeles.

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(as initially proposed), or more broadly to include non-accounting financial experts (as

ultimately passed), the authors separately examined appointments of each type of expert.

The study finds significantly positive CARs around the appointment of accounting financial

experts to the audit committee, but not around the appointment of non-accounting

financial experts or directors without financial expertise. In addition, CARs are only

positive when the newly appointed outside directors are independent (as opposed to

affiliated), and when the appointing firms have relatively strong corporate governance

prior to appointing the new directors. Zulkarnain Muhamad Sori, Mohamad Ali Abdul

Hamid, Siti Shaharatulfazzah Mohd Saad, Jonathan Gerard Evans56 (2007) investigated the

perceptions of senior managers of Malaysian publicly listed companies on issues relating to

audit committee authority and effectiveness. The perceptions were sought on seven

issues, namely audit committee appoints the auditor, audit committee determines and

reviews audit fees, audit committee determines and reviews the auditor’s scope and

duties, and audit committee’s reports, meetings, charter and roles. The majority of

respondents agreed that auditor would be more effective and independent if audit

committee assumed the responsibility to appoint the auditor, determine and review the

audit fees, and determine and review the external auditor’s scope and duties. It is also

found that disclosure of audit committee report, quarterly meeting and disclosure charter

in annual report would enhance the perceptions of users of financial statement concerning

the effectiveness of the committee. A study by the JD Power57 on the effectives of the

audit committees brought out the following aspects;

• More frequent meetings between the audit committee and the external auditor

improve performance ratings by the audit chair. External auditors who meet with

the audit chair seven or more times per year receive the highest ratings. Most audit

committees meet five or more times annually with the external auditor. Compared

to 2003, audit committees of both small and large companies are meeting more

frequently.

• Excluding management from some meetings also increases ratings with the audit

process.

• The majority of companies that meet four to six times annually frequently exclude

management.

56 Sori, Mhumamad Zulkarnain, Hamid, Mohamad Ali Abdul, Saad, Stiti Sharatulfazzah Mohd, Evans, Jonathan Gerard (2007), Audit Committee Authority and Effectiveness: The Perceptions of Malaysian Senior Managers, Euro Journals Publishing Inc, 2007 57 J.D.Power and Associates, 2004.

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• Audit committee chairs who spend between 16 and 20 hours annually attending

audit committee meetings rate the audit experience higher than those spending

fewer than 16 hours. Conversely, ratings begin to drop once the number of hours

attending audit committee meetings exceeds 20.

The Blue Ribbon Committee constituted by the New York Stock Exchange and NASD which

was headed by John Whitehead and Ira Millstein (1998) made following recommendations

for the strengthening of the audit committees.

Membership of the Audit Committee

Members of the audit committee shall be considered independent if they have no relationship to

the corporation that may interfere with the exercise of their independence from management and

the corporation. Examples of such relationships include:

• • a director being employed by the corporation or any of its affiliates for the current year

or any of the past five years;

• • a director accepting any compensation from the corporation or any of its affiliates other

than compensation for board service or benefits under a tax-qualified retirement plan;

• A director being a member of the immediate family of an individual who is, or has been in

any of the past five years, employed by the corporation or any of its affiliates as an

executive officer;

• A director being a partner in, or a controlling shareholder or an executive officer of, any

for-profit business organization to which the corporation made, or from which the

corporation received, payments that are or have been significant to the corporation or

business organization in any of the past five years;

• A director being employed as an executive of another company where any of the

corporation’s executives serves that company’s compensation committee.

• A director who has one or more of these relationships may be appointed to the audit

committee, if the board, under exceptional and limited circumstances, determines that

membership on the committee by the individual is required by the best interests of the

corporation and its shareholders, and the board discloses, in the next annual proxy

statement subsequent to such determination, the nature of the relationship and the reasons

for that determination.

Financial Literacy

• A well-balanced and effective board should, as noted above, have directors with an array of

talent, experience, and expertise which bear on different aspects of the company’s

activities; such diverse contributions are often made by different directors. Because of the

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audit committee’s responsibility for overseeing the corporate accounting and financial

controls and reporting, however, this committee clearly has a more recognizable need for

members with accounting and/or related financial expertise -- where “expertise” signifies

past employment experience in finance or accounting, requisite professional certification in

accounting, or any other comparable experience or background which results in the

individual’s financial sophistication, including being or having been a CEO or other senior

officer with financial oversight responsibilities. While all members of the audit committee

must have the ability to ask probing questions about the corporation’s financial risks and

accounting, the Committee recognizes that a director’s ability to ask and intelligently

evaluate the answers to such questions may not require “expertise” but rather hinges on

intelligence, diligence, a probing mind, and a certain basic “financial literacy.” Such

“literacy” signifies the ability to read and understand fundamental financial statements,

including a company’s balance sheet, income statement, and cash flow statement.

Directors who have limited familiarity with finance can achieve such “literacy” through

company-sponsored training programs. Because of the audit committee’s responsibilities

and the complex nature of the accounting and financial matters reviewed, the committee

merits significant director resources, both in terms of the number of directors dedicated to

the committee and the time each director devotes to committee matters.

Audit Committee Structure and Process

• A key attribute of a good board is its own diligence in defining the board’s role,

responsibilities, structure, and processes. An effective board is self-aware and determines

how best to carry out its important tasks. Likewise, a well-functioning audit committee will

be concerned about and spend a significant amount of time defining the scope of its over-

sight responsibilities and how it discharges its duties. Just as good boards often adopt

formal guidelines on how they should operate; a good audit committee should memorialize

its understanding of its role, responsibilities, and processes in a charter. In focusing its

activities on oversight of the entire reporting process, the committee will be more likely to

recognize those duties better left to management, including the internal auditor, and the

outside auditors. Further, the audit committee should disclose its self-determined role,

structure, and practices. Such transparency is at the heart of good governance, serves to

inform investors, and also acts as a disciplinary measure on the committee. It will

encourage committees to think about their important role, to articulate a clear mission,

and then to establish appropriate practices and follow them. Disclosure will guide the

committee to responsible practices, as sunlight generally does. It is not the Committee’s

intention or belief that such additional disclosure requirements would impose greater

liability on the audit committee or full board under state law. Rather the current standards

for liability under the business judgment rule -- in essence, gross negligence -- would

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continue to apply. While such a “safe harbor” presumably exists in the context of a state-

law fiduciary duty claim, the Committee believes that the SEC should adopt a safe harbor

under the federal securities laws similar to the one now applicable to the executive

compensation committee’s report which appears in the proxy statement. Importantly, the

Committee does not recommend mandating every detail to be included in the guidelines for

every audit committee. There are too many variables amongst the multitude of different

corporations comprising our economy. The Committee recommends that every audit

committee consider the contents of the section of this Report entitled “Guiding Principles

for Audit Committee Best Practices,” which is designed to guide the development of the

substantive content of an audit committee charter. We also encourage audit committees to

refer to the sample charters included in Appendix C and the publications included in the

Bibliography to this Report as a starting point for best practices to be considered.

Ultimately, the market will be the judge of whether each committee’s disclosed guidelines

are adequate.

Audit Committee Relationships with Management, including the Internal Auditor, and with the Outside Auditors

• Management including the internal auditor, the full board including the audit committee,

and the outside auditors, all has a distinct role in corporate accounting and financial

reporting. All of these actors must work together fluidly to effectuate an objective and

responsible system. In this system, management is principally responsible for company

accounting policies and the preparation of the financial statements. The outside auditor is

responsible for auditing and attesting to the company’s financial statements and evaluating

the company’s system of internal controls. The audit committee, as the delegate of the full

board, is responsible for overseeing the entire process. In those companies with an internal

audit function, the internal auditor also plays a significant role in working with

management, the outside auditor, and the audit committee in ensuring the effectiveness of

internal controls and in bringing any weaknesses to the attention of the appropriate

parties. In light of these interrelated functions, it is important to delineate the nature of

the relationships among these actors -- specifically the “direction” of certain reporting

relationships and tiers of accountability among them. In particular, the relationship of the

outside auditor with each of management and the audit committee must be clarified. As

noted in the 1994 POB Report “[i]n most companies today, management selects or

recommends auditors and changes in auditors, negotiates fees, selects accounting

principles, makes estimates, prepares the financial statements and monitors the audit.”

Consequently, the outside auditors typically develop over time close relationships with

management. Indeed, by virtue of their responsibility for everyday operations, senior

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managers need to interact closely with the outside auditors over issues arising in the

financial reporting process. Additionally, the expanding role of outside auditors,

particularly in providing non-audit services, has further entwined the relationship of

management and the outside auditors. It is therefore imperative to the integrity and

effectiveness of the audit committee oversight process that all parties recognize that the

audit committee and full board, as the representatives of shareholders, are the ultimate

entities to which the auditors are accountable. As such, the audit committee has the

responsibility to review regularly the relationship between management and the outside

and internal auditors. Since audit committees are members of the board of directors with

enhanced responsibility for overseeing a company’s financial reporting, they serve, as SEC

Chairman Levitt has noted, as the “primary link” between a board and its outside auditors.

To make this relationship effective, the committee and the outside auditors must develop a

direct, strong and candid relationship. That is to say that the lines of communication and

reporting should facilitate independence from management and encourage the outside

auditors and the internal auditors to speak freely, regularly and on a confidential basis with

the audit committee. Moreover, because the outside auditor is responsible for attesting to

the fair presentation of the financial statements, its reputation for objectivity must not be

compromised. In recognition of this, the Independence Standards Board (ISB) recently

adopted a new Standard mandating that the outside auditor of a public company: (i)

disclose in writing to the company’s audit committee all relationships with the company

that could affect the auditor’s independence; (ii) confirm its view that it is independent of

the company; and (iii) discuss such matters with the audit committee. The Committee

recognizes that this disclosure and discussion is a two-way street: to ensure a useful

examination of the objectivity of the outside auditor, the audit committee must be an

active participant in this process.

Practical Improvements to Audit Committee Oversight

• To facilitate audit committee oversight of the financial reporting process and deepen the

audit committee’s probing of the relevant issues, the Committee believes that both the

outside auditor and the audit committee should have greater affirmative disclosure

requirements – to each other and, when appropriate, to the public.

Enhancing the Outside Auditors’ Communication with the Audit Committee

• The audit committee is dependent on both management and the outside auditors for a full

range of information -- based in both fact and judgments -- regarding the financial

reporting process. Under the current auditing standards, the outside auditor is required to

communicate certain information to the audit committee, including matters such as

disagreements with management, consultations with other accountants, and difficulties

encountered in performing the audit such as unreasonable delays by management or

unavailability of client personnel. In addition, the auditor is required to report to the audit

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committee “reportable conditions,” which are deficiencies that could adversely affect the

company’s ability to produce reliable financial statements. Further, the outside auditor

may be required to report illegal acts detected during the audit to management and the

audit committee. While all this information serves as a concrete basis upon which the audit

committee evaluates a company’s compliance with financial reporting requirements, it may

too often be distilled into a standardized “form” letter. In addition, such information offers

little guidance on the more subjective judgments that arise in the ordinary course of

financial reporting. In preparing a company’s financial statements, judgments are made

concerning estimates, elective accounting principles and new significant transactions. The

Committee believes that many concerns about the “quality” of financial reporting can be

attributed to a failure to question such significant subjective judgments. These judgments

can have a significant impact on how the financial statements are presented, and the

Committee believes that the audit committee should be positioned to adequately assess

their influence on the company’s financial reports.

Instituting Audit Committee Disclosure

• Disclosure and transparency form a cornerstone of corporate governance, enabling

shareholders to make informed decisions about their investments and the performance of

those parties managing company assets and representing their interests. Past groups that

have studied ways to improve the financial reporting process have differed over the value

of requiring audit committees to disclose specified information about their activities. In

recommending implementation of a disclosure requirement, the Treadway Report noted

that this action could “reinforce the audit committee’s awareness and acceptance of their

responsibilities.” By comparison, the 1994 POB Report expressed concern that this

additional disclosure could become “lengthy `boilerplate’ that does not get to the heart of

the underlying issue.” Past experience supports both these views. After the SEC imposed

disclosure requirements on those committees that establish executive compensation, for

instance, there were numerous reports of increased director awareness of the important

role compensation plays in providing the proper incentives for management performance.

However, many of these well-meaning disclosure requirements over time have fallen prey

to well-parsed language that is nearly identical from one filing to the next. Based on these

and other examples and the feedback provided through its hearings and invitation to

comment, the Committee supports a “middle ground” approach between the Treadway

Report’s recommendation for a full fledged report and the 1994 POB Report’s rejection of

imposing a meaningless disclosure requirement. General disclosure about the audit

committee’s review of the entire audit process -- from management’s and the internal

auditor’s accounting practices to the outside auditor’s audit of the company’s financial

statements -- will highlight that the audit committee is in place to assure shareholders that

procedures that promote accountability are integrated into the roles and practices of all

the other relevant players. A formal disclosure by the audit committee as to its view of the

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company’s financial statements that is consistent with the board’s existing duty to sign the

Form 10-K, will serve to raise public awareness of the importance of the audit committee’s

role as well as underscore its importance for audit committee members. The Committee

appreciates the impracticability of having the audit committee do more than rely upon

information it receives, questions, and assesses in making this disclosure.

Mandating Auditor Interim Financial Review

• The Committee acknowledges the pressures on companies to meet or beat Wall Street

earnings projections and the important role of interim reporting to a company’s market

performance. Currently, companies can have their outside auditors limit their review of

such financial statements to the end of the year before the annual report is filed with the

SEC. This practice has led to “adjustments” at year end for inaccuracies not detected

during the preceding three quarters. The Committee believes that increased involvement

by the outside auditors and the audit committee in the interim financial reporting process

should result in more accurate interim reporting. Recognizing the importance of these

reviews, each of the Big Five accounting firms recently required their clients to implement

such procedures as a condition to their audit engagement. An increased level of monitoring

of the interim reporting process can be achieved by requiring regular interim

communications by the outside auditor with financial management and the audit

committee. Of course, the outside auditors’ ability to fulfill such a requirement would be

dependent on the cooperation and availability of financial management and the audit

committee. The Committee fully expects that financial management and the audit

committee would engender the appropriate diligence, initiative and commitment to

participate in such communications.

Board and Audit Committee thus form the key instruments governing the quality of

corporate governance. In this background, it is important that measures involved in these

instruments are devised with greater care and focus so to enable these to make effective

and meaningful contribution to the standards of governance. Though in principle these

instruments are put in place for implementation and compliance, there is much to be done

in regard to improving their overall quality and robustness. International evidence

available on the subject should provide useful insights to corporates in evolving effective

frameworks

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Chapter VI INDIA PRACTICE

A review of governance practices and procedures In major corporates in India

India has been ranked high on several aspects of corporate governance such as shareholder

rights, creditor rights, disclosure requirements, liability standards and quality of

regulation; whereas it displays limitations on aspects such as enforcement, corruption, red

tape, ease of doing business, hiring and firing staff, quality of credit information, contract

enforcement. India’s position in regard to key indicators of standards in governance and

securities law is given in annexure.

The above trends could be better explained by Indian companies winning global accolades

for the corporate governance on one hand and the securities market regulator show

causing some companies, including the public sector, to tone up the governance

parameters on the other. In September 2007. World Council for Corporate Governance, a

UK based organisation, announced global awards in the emerging markets category for

ONGC, NTPC, Jubilant Technologies and GTL. Several others awarded in the national

category included; LIC India (Insurance); Punjab National Bank (Banking); Hindustan

Construction Company (Construction); India Travel House (Hospitality); KPIT Ltd (IT);

Power Finance Corporation (Power); Hindustan Petroleum Company Ltd (Petroleum);

Hindustan Zinc, Ltd (Metal) and Shree Cement (Manufacturing). In a related development,

Infosys Technologies, Kotak Mahindra Bank, Satyam Computer Services and Grasim

Industries were figured in the IR Global Rankings: 2007 announced by the IR Global

Rankings, a global investor relations web company. Around the same time, Securities and

Exchange Board of India, has initiated proceedings against 20 companies for non

compliance of corporate governance, among which five were reported to be the public

sector undertakings.

Practice of corporate governance has progressed in a big way in Indian companies. There

are several companies which made proactive initiatives in introducing good governance

norms and standards even before these became mandatory. For instance, in its corporate

governance report, Wipro, mentions about some of the pioneering efforts made by it in

setting good governance standards such as; instituting stock ownership in 1984,

constitution of sub-committees of the Board of Directors for Audit, compensation and

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benefits in 1986 and preparation of consolidated financial statements in 1983 the first

year in which it established a subsidiary company. Similarly, good governance in Tata

Power is governed by “Leadership with Trust” a principle that has been in practice since

long; where as Tata Motors began Tata Business Excellence Model and the Tata Code of

Conduct. Ranbaxy voluntarily adopted several best practices in good governance in 1999

that included; majority independent directors in the composition of the board,

constitution of board committees for oversight and guidance concerning key decisions and

soundness of decision making processes connected with the functioning of the company,

timely dissemination of information to shareholders and a code of conduct. Infosys not

only complies with Indian governance standards but also Euro shareholders Corporate

Governance Guidelines 2000 and the recommendations of the Conference Board

Commission on Public Trusts and Private Enterprises in the United States. It also adheres

to the UN Global Compact Programme. ACC has instituted a Chair for Business Ethics at

the Management Center for Human Values at the Indian Institute of Management, Kolkata.

The objectives of the corporate governance of the companies included in this paper are

given along with the corporate governance practice profiles of the respective companies.

The governance practices set out by the Reliance Energy beyond the regulatory

requirements include; Values and Commitments, Code of Ethics, Business Policies,

prohibition of insider trading, prevention of sexual harassment, whistle blower policy,

environment policy, risk management, SA 8000 (standard for social accountability), six

sigma, OHSAS 18001 (for establishment of occupational and safety management system)

etc., Some of the innovations in the boardroom practices that were detailed in the

corporate governance report included; Board charter, tenure of independent director,

Interaction of non-executive, including independent directors with the chairman, lead

independent directors, independent director’s interaction with shareholders, meeting of

independent directors without the management, independent director on the risk

management committee, commitment of directors, evaluation of the board etc.,

For the purpose of this study, corporate governance standards as in prevalence and

practice are assessed in respect of 42 companies across 12 sectors. Information for the

study was collected through a wide range of means which included, analysis of the

corporate governance reports of the respective companies, information collected through

a separately designed questionnaire for the study, consultations with the senior officials of

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the board secretariats of the respective companies, consultations with the officials of the

stock exchanges and regulatory authorities etc.

A total of 42 companies are analysed in regard to their corporate governance practices and

these companies belong to the following sectors.

Table 10: Sample Companies

Sector Companies

Automobiles Tata Motor, Bajaj, Hero Honda (3)

Cement ACC, Ultratech, Gujarat Ambuja (4)

Consumer Durables Whirlpool, Videocon (2)

Diversified ITC, L&T (2)

Energy NTPC, Reliance Energy, Tata Power (3)

Financial Services SBI, ICICI Bank, HDFC Bank (3)

FMCG HLL, Nestle, Brittania (3)

Information Technology Infosys, Wipro, Satyam, Mphasis (4)

Metals SAIL, Hindalco, Essar, Tata Steel, Jindal Steel (5)

Petroleum and Mining HPCL, BPCL, ONGC, Indian Oil, RIL (5)

Pharma Dr. Reddy’s. CIPLA, Merck, Ranbaxy, Glaxo (4)

Telecom Bharti, MTNL, VSNL, Reliance Com (4)

The study has also carried out extensive research on the academic perspectives on the

subject of corporate governance as also important literature emanating from global,

regional and national institutions engaged in the subject.

The 42 Companies included in the study are taken from 12 major sectors and these

companies together account for over 80 percent of the stock market capitalization

(October 2007). These companies represent 77 percent of the Sensex and 64 percent of

the Nifty (50) constituents.

A broad overview of the practice of corporate governance in these companies shows that,

excepting maintaining the proportion of the independent directors, a problem that was

found more pertinent amongst the public sector undertakings, companies by and large

have adhered to the compliance standards as prescribed under the Clause 49 of the Stock

Exchange Listing Agreements as also other related guidelines. Some companies even have

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exceeded the mandatory norms by adopting best practices as prevalent in global

corporates.

The summary table given below shows the major aspects of the corporate governance in

respect to the following aspects.

1. Average number of directors in the board

2. Percent of companies where the chairman is non executive

2a.Proportion of non executive directors

2b. Proportion of Independent directors

3. Percent of companies where the chairman is executive

3a. Proportion of non executive directors

3b. Proportion of Independent directors

4. Number of companies in which the chairman is Independent director

5. Number of Board Meetings held

6. Number of Audit Committee Meetings held

7. Number of Investor Grievances Meetings held

8. Share holding pattern

8a. Promoters

8b. FIIs

8c. Individuals

9. Space devoted to Corporate Governance Report.

Aspects taken for assessment no 1 to 8 are self explanatory. For the purpose of this study

a new parameter is taken for assessment that measures the amount of space devoted to

discussion on corporate governance in the annual reports of the companies. This measure

needs to be further examined and validated, but for the purpose of the study is taken to

assess the extent of efforts made by the corporates in discussing various aspects of the

policy and practice of corporate governance in their respective annual reports. This is

computed on the basis of the number of pages devoted to the discussion on the corporate

governance in the total number of pages of the annual report.

Table 11: Summary of Corporate Governance Practice

Directors Total Companies 42 Total Directors 500 Total Number of Non Executive Director 323 Total Number of Independent Directors 228

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Proportion of Independent Directors to Total Directors 45.6 Proportion if Non Executive Directors to Total Directors 64.6 Chairman Total Number of Companies having Executive Chairman 20 Total Number of Companies having Non Executive Chairman 19 Total Number of Companies having Non-exe Independent Chairman 3 Proportion of Companies having Executive Chairman 47.62 Proportion of Companies having Non-Executive Chairman 45.23 Proportion of companies having Non exe Independent Chairman 7.14 Meetings Total Board Meetings held 326 Total Audit Committee Meetings held 262 Total Investor Committee Meetings held 206 Average Boards Meetings held 7.76 Average Audit Committee Meetings held 6.24 Average Investor Grievances Committee Meetings held 4.9 Companies where the Chairman is Non Executive Total number of directors 210 Total Number of non executive directors 146 Total number of Independent director 93 Proportion of non executive directors 69.53 Proportion of independent Directors 44.28 Companies where the Chairman Executive Total number of directors 255 Total Number of non executive directors 162 Total number of Independent director 119 Proportion of non executive directors 63.52 Proportion of independent Directors 46.66 Companies where the Chairman is Non Executive & Independent Total number of directors 35 Total Number of non executive directors 25 Total number of Independent director 16 Proportion of non executive directors 71.42 Proportion of independent Directors 45.71

A brief discussion on each of the aspects examined in respect to the practice of the

corporate governance are discussed below.

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Table 12: A Snapshot of Corporate Governance

Particulars Metals FMCG

Con Dur

Petro Mine Banks Energy IT Pharma

Cem ent

Tel com

Diver sified Auto

Average No of Directors 12.33 9.7 9 12.6 12.33 11 11 10.4 14 12 14.5 14.33 %companies where the

chairman is non executive 83 66 50 na 66.6 33.3 50 80 100 33.3 na 33

Proportion of Non Executive Directors 73 74 50 na 50 67 74 60 67 80 na 81

Proportion of Independent Directors 42 43 33.3 na 61.5 33.3 48 42 33.3 40 na 45

% of companies where the chairman is executive 17 33 50 100 33.3 33.3 50 20 na 67 100 67

proportion of non executive directors 59 83 67 57 36.4 47.6 76 75 na 89 62 72

Proportion of Independent Directors 50 50 33.3 41 36.4 38.1 71 75 na 50 55 50

Number of companies in which the chairman is Independent

Director 60 na na na No of Board Meetings held in

FY07 7.5 5.33 12 11.4 8.33 8.67 6.5 5.4 7.33 7.67 8 6.33 No of Audit Committee

Meetings held 5.33 5 4.5 7.8 8.33 7 6 4.6 6.33 5.33 7.5 8 Number of Investor Grievances

Comm Meetings 1 1.33 2 1.2 8.33 1.33 3 2 8 4.66 18 8

Promoter Shareholding 61.46 54.75 76.34 62.58 27.1 58.63 38.87 40.21 39.14 59.28 34.38 39.39

FII Share holding 12.67 12.2 2.03 13.29 32.02 14.06 23.94 15.79 21.93 13.76 15.58 22.34

Individual share holding 13.57 17.8 9.28 7.52 8.25 9.57 10.95 19.73 19.91 1.99 20.12 14.45 Space devoted to Corporate

Governance Report 7.93 16 11.58 13.37 9.55 11.16 10.63 14.77 16.71 11.26 10.15 11.08 Sectors : Metals; Fast Moving Consumer Goods, Consumer Durables, Petroleum and Mining, Banks, Energy, Information Technology, Pharmaceuticals, Cement, Telecommunications, Diversified and Automobiles

1. Average number of directors in the Board

The 42 companies have together 500 directors giving an average of 11.9 per company. Of

the 500 directors, 64.6 percent are non executive directors and 45.6 percent are

independent directors. The average number of directors range from 9 in the Consumer

Durables to 14.5 in the Diversified industry sector.

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Table 13: Average Number of Directors

Sector Average Number of Directors

Automobiles 14.33

Cement 13

Consumer Durables 9

Diversified 14.5

Energy 11

Banks 12.33

FMCG 9.7

Information Technology 11

Metals 12.33

Petroleum and Mining 12.6

Pharma 10.4

Telecom 12

Graph 10: Distribution of Directors

Distribution of Directors

45.6

64.6

Proportion of IndependentDirectors to Total Directors

Proportion if Non ExectuiveDirectors to Total Directors

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Graph 11: Comparative Analysis of Entire Sample Data

Comparitive Analysis of Entire Sample Data

0

20

40

60

80

Proportion of Non-executive

Directors

64 70 41

Proportion of Independent

Directors

47 45 46

Executive Chairman Non executive Chairman Independent Chairman

Graph 12: Proportion of Directors in different categories

0

1

2

3

4

5

6

7

Non Executive Independent Chairman 0 0 0 0 0 0 0 0 3 0 0 0

Non Executive Chairman 4 2 1 0 2 1 1 1 1 2 3 0

Executive Chairman 2 1 1 5 1 2 2 2 1 2 0 2

Metals FMCG

Consume

r

Durables

Petroleu

m&MiningBanks Energy

Automobi

leTelecom

Pharmace

uticalsIT Cement

Diversifie

d

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Graph 13: Average No. of Directors

Average No of Directors

0

4

8

12

16M

etal

s

FMCG

Con

sum

er D

urab

les

Petr

oleu

m &

Min

ing

Fina

ncia

l Ser

vice

s

Ener

gy

Aut

omob

ile

Tel

ecom

mun

icat

ions

Phar

mac

euti

cals

Info

rmat

ion

Tec

hno

logy

Cem

ent

Dive

rsif

ied

Sectors

2. Percent of companies where the chairman is non executive

2a.Proportion of non executive directors

2b. Proportion of Independent directors

Of the 42 companies, 19 have non executive chairman. In companies where the chairman

is non executive, there are about 210 directors of which 69.53 are non executive directors

and 44.28 percent as independent directors. Proportion of non executive directors and

independent directors in companies where the chairman is non executive is given below.

Graph 14: Percentage Companies where the Chairman is Non Executive

% companies where the chairman is non executive

0

20

40

60

80

100

120

Met

als

FMCG

Cons

umer

Dur

able

s

Petr

oleu

m &

Min

ing

Fina

ncia

l Ser

vice

s

Ener

gy

Auto

mob

ile

Tele

com

mun

icat

ions

Phar

mac

euti

cals

Info

rmat

ion

Tech

nolo

gy

Cem

ent

Dive

rsif

ied

Sectors

%

Graph 15: Composition of the Board when the Chairman is Non Executive

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Composition of the board when the Chairman is Non executive

0

20

40

60

80

100

120

140

Proportion of Independent Directors 42 43 33.3 0 61.5 33.3 45 40 42 48 33.3 0

Proportion of Non Executive Directors 73 74 50 0 50 67 81 80 60 74 67 0

Metals FMCG

Consume

r

Durables

Petroleu

m &

Mining

Financial

ServicesEnergy

Automob

ile

Telecom

municati

ons

Pharmace

uticals

Informati

on

Technolo

CementDiversifie

d

Table 14: Proportion of Non Executive and Independent Directors when the Chairman is Non Executive

Sector Percent of

companies

where the

Chairman is non

executive

Proportion of

Non

Executive

Directors

Proportion of

Independent

Directors

Automobile 33 81 45

Cement 100 67 33.3

Consumer Durables 50 50 33.3

Diversified Executive chairmen

Energy 33.3 67 33.3

Banks 67 50 61.5

FMCG 66 74 43

Information Technology 50 74 48

Metals 83 73 42

Petroleum and Mining Executive Chairmen

Pharma 80 60 42

Telecom 33 80 40

3. Percent of companies where the chairman is executive

3a. Proportion of non executive directors

3b. Proportion of Independent directors

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There are 20 companies in which the chairman is executive. In companies where the

Chairman is executive, there are 255 directors of which 63.42 percent are non executive

and 46.7 percent are independent. The proportion of non executive directors and

independent directors in companies where the Chairman is executive is given below. From

the table below it could be observed that the proportion of independent directors when

the chairman is executive is shot of the mandatory requirements in sectors like energy,

financial services and petroleum in mining. In all these sectors, the company specific data

indicates that public sector undertakings face constraints in filling up the positions of the

non independent directors in the board since they are appointed by the Government.

Graph 16: Percentage of Companies where the Chairman is Executive

% of companies where the chairman is executive

0

20

40

60

80

100

120

Met

als

FMCG

Cons

umer

Dur

able

s

Petr

oleu

m &

Min

ing

Fina

ncia

l Ser

vice

s

Ener

gy

Auto

mob

ile

Tele

com

mun

icat

ions

Phar

mac

euti

cals

Info

rmat

ion

Tech

nolo

gy

Cem

ent

Dive

rsif

ied

Sectors

%

Graph 17: Composition of Board when the Chairman is Executive

Composition of Board when the Chairman is executive

0

20

40

60

80

100

120

140

160

Sectors

%

Proportion of Independent Directors 50 50 33.3 41 36.4 38.1 50 50 75 71 0 55

Proportion of Non Executive Directors 59 83 67 57 36.4 47.6 72 89 75 76 0 62

Metals FMCGConsumer

Durabl

Petroleum & Mining

Financial

ServiceEnergy

Automobile

Telecommunications

Pharmaceutica

ls

Information

Techno

Cement

Diversified

Table 15: Proportion of Non Executive and Independent Directors

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When the Chairman is Executive Sector Percent of

companies

where the

Chairman is non

executive

Proportion of

Non

Executive

Directors

Proportion of

Independent

Directors

Automobile 67 72 50

Cement Non executive

Consumer Durables 50 67 33.3$

Diversified 100 62 55

Energy 67 47.6 38.1Sa

Banks 33 36.4 36.4$b

FMCG 33 83 50

Information Technology 50 76 71

Metals 17 59 50

Petroleum and Mining 100 57 41$c

Pharma 20 75 75

Telecom 67 89 50

$: Videocon Annual Report for the FY06, where in four independent directors are reported in a total of 12. $a. In respect of NTPC, four out of 13 directors are reported as independent. $b. In State Bank of India, 4 out of 11 directors are reported as independent. $c. Number of independent directors reported in the respective annual reports are; 3 out of 10 in respect of BPCL; 4 out of 14 in ONGC; 5 out of 14 in Indian Oil. 4. Number of companies in which the chairman is Independent director

There are 3 companies all belonging to the Pharmaceuticals in which the chairman is non

executive as also independent director. There are 35 directors in companies where the

chairman is non executive and independent of which 71 percent of the directors are non

executive and 46 percent are independent directors.

5. Number of Meetings held

5a. Meetings of the Board

5b. Meetings of the Audit Committee

5c. Meetings of the Investor Grievances Committee

The sample of 42 companies held 326 meetings of the Board and 262 meetings of the Audit

Committee. The average meetings of Board and the Audit Committee works out to 7.76

and 6.24 per company, which is higher than the stipulated number of meetings required to

be held as per the Clause 49 Listing Agreement.

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Graph 18: Average Meetings

Average Meetings

0

5

10

15

20

25M

etal

s

FMCG

Cons

umer

Dur

able

s

Petr

oleu

m &

Min

ing

Bank

s

Ener

gy

Aut

omob

ile

Tele

com

mun

icat

ions

Phar

mac

euti

cals

Info

rmat

ion

Tech

nolo

gy

Cem

ent

Div

ersi

fied

Sectors

Aver

age

Audit CommitteeMeetingsBoard Meetings

Table16: Average number of meetings held

Sector Average Number

of Board

Meetings held

Average

Number of

Audit

Committee

Meetings

Average Number

of Investor

Grievances

Committee

Meetings

Automobile 6.33 8 8

Cement 7.33 6.33 8

Consumer Durables 12 4.5 2

Diversified 8 7.5 18

Energy 8.67 7 1.33

Banks 8.33 8.33 8.33

FMCG 5.33 5 1.33

Information Technology 6.5 6 3

Metals 7.5 5.33 2.33

Petroleum and Mining 11.4 7.8 1.2

Pharma 5.4 4.6 2

Telecom 7.67 12.33 4.66

6. Share holding pattern

8a. Promoters

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8b. FIIs

8c. Individuals

Indian companies are relatively closely held as could be evident from the high percent of

promoter holdings in most of the sectors. Higher levels of promoter holdings is a feature

widely prevalent in the Asian corporates as brought out by several studies in this regard.

Graph 19: Shareholding Pattern

Shareholding Pattern

0

10

20

30

40

50

60

70

80

90

Sectors

Perc

enta

ge

FII Holding (%) 12.67 12.2 0.01 13.29 32.02 14.06 22.34 13.76 15.79 23.94 21.93 15.58

Promoter Group Holding (%) 61.46 54.75 76.34 62.58 27.1 58.63 39.39 59.28 40.21 38.87 39.14 34.38

Metals FMCGConsume

r Durables

Petroleum&Minin

g

Financial Services

EnergyAutomob

ileTelecom

Pharmaceuticals

Information

TechnoloCement

Diversified

The sector wise share holding pattern is as below.

Table 17: Shareholding Pattern

Sector Promoters FIIs Individuals

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Automobile 39.39 22.34 14.45

Cement 39.14 21.93 19.91

Consumer Durables 76.34 2.03 9.28

Diversified 34.38 15.58 20.12

Energy 58,63 14.06 9,57

Financial Services 27.1 32.02 8.25

FMCG 54.75 12.2 17.8

Information Technology 38.87 23.94 10.95

Metals 61.46 12.67 13.57

Petroleum and Mining 62.58 13.29 7.52

Pharma 40.21 15.79 19.73

Telecom 59.28 13.76 1.99

7. Space devoted to Corporate Governance Report

This measure is devised to assess the extent of discussion companies made in their

respective annual reports in regard to the practice of the corporate governance. It is a

tentative indicator that needs to be further examined and validated, but used in this study

provisionally to study the scope and significance of corporate governance reporting in the

annual reports of the companies. Cement, FMCG and Pharma devoted greater amount of

space for corporate governance discussion as proportion of the total aspects included in

the annual report.

Graph 20: Spaced Devoted to Corporate Governance in Annual Report

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Space devoted to Corporate Governance in Annual Reports

02468

1012141618

Met

als

FMCG

Cons

umer

Dur

able

s

Petr

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ing

Bank

s

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Aut

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Tele

com

mun

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Phar

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Tech

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Cem

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Div

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Sectors

%

Major aspects of the corporate governance practice pertaining to the sectors included in this

study are given below. In view of the information was sought on the basis of the

confidentiality, information regarding the corporate governance practice is placed for

sectors. Profiles of corporate governance practices of individual countries is given in a

separate section.

Table18: Sector wise Key Indicators of Corporate Governance Practice AUTOMOBILES Particulars Average No of Directors 14.33 %companies where the chairman is non executive 33 Proportion of Non Executive Directors 81 Proportion of Independent Directors 45 % of companies where the chairman is executive 67 proportion of non executive directors 72 Proportion of Independent Directors 50 Number of companies in which the chairman is Independent Director na No of Board Meetings held in FY07 6.33 No of Audit Committee Meetings held 8 Number of Investor Grievances Comm. Meetings 8 Promoter Shareholding 39.39 FII Share holding 22.34 Individual share holding 14.45 Space devoted to Corporate Governance Report 11.08# #number of pages on CG practice to total number of pages in the Annual Report.

CEMENT

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Particulars Average No of Directors 14 %companies where the chairman is non executive 100 Proportion of Non Executive Directors 67 Proportion of Independent Directors 33.3 % of companies where the chairman is executive na proportion of non executive directors na Proportion of Independent Directors na Number of companies in which the chairman is Independent Director na No of Board Meetings held in FY07 7.33 No of Audit Committee Meetings held 6.33 Number of Investor Grievances Comm. Meetings 8 Promoter Shareholding 39.14 FII Share holding 21.93 Individual share holding 19.91 Space devoted to Corporate Governance Report 16.71

CONSUMER DURABLES Particulars Average No of Directors 9 %companies where the chairman is non executive 50 Proportion of Non Executive Directors 50 Proportion of Independent Directors 33.3 % of companies where the chairman is executive 50 proportion of non executive directors 67 Proportion of Independent Directors 33.3 Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 12 No of Audit Committee Meetings held 4.5 Number of Investor Grievances Comm. Meetings 2 Promoter Shareholding 76.34 FII Share holding 2.03 Individual share holding 9.28 Space devoted to Corporate Governance Report 11.58

DIVERSIFIED INDUSTRIES Particulars Average No of Directors 14.5 %companies where the chairman is non executive na Proportion of Non Executive Directors na Proportion of Independent Directors na % of companies where the chairman is executive 100 proportion of non executive directors 62 Proportion of Independent Directors 55 Number of companies in which the chairman is Independent Director na No of Board Meetings held in FY07 8

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No of Audit Committee Meetings held 7.5 Number of Investor Grievances Comm. Meetings 18 Promoter Shareholding 34.38 FII Share holding 15.58 Individual share holding 20.12 Space devoted to Corporate Governance Report 10.15

ENERGY Particulars Average No of Directors 11 %companies where the chairman is non executive 33.3 Proportion of Non Executive Directors 67 Proportion of Independent Directors 33.3 % of companies where the chairman is executive 33.3 proportion of non executive directors 47.6 Proportion of Independent Directors 38.1 Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 8.67 No of Audit Committee Meetings held 7 Number of Investor Grievances Comm. Meetings 1.33 Promoter Shareholding 58.63 FII Share holding 14.06 Individual share holding 9.57 Space devoted to Corporate Governance Report 11.16

FINANCIAL SERVICES Particulars Average No of Directors 12.33 %companies where the chairman is non executive 66.6 Proportion of Non Executive Directors 50 Proportion of Independent Directors 61.5 % of companies where the chairman is executive 33.3 proportion of non executive directors 36.4 Proportion of Independent Directors 36.4 Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 8.33 No of Audit Committee Meetings held 8.33 Number of Investor Grievances Comm. Meetings 8.33 Promoter Shareholding 27.1 FII Share holding 32.02 Individual share holding 8.25 Space devoted to Corporate Governance Report 9.55

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FMCG Particulars Average No of Directors 9.7 %companies where the chairman is non executive 66 Proportion of Non Executive Directors 74 Proportion of Independent Directors 43 % of companies where the chairman is executive 33 proportion of non executive directors 83 Proportion of Independent Directors 50 Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 5.33 No of Audit Committee Meetings held 5 Number of Investor Grievances Comm. Meetings 1.33 Promoter Shareholding 54.75 FII Share holding 12.2 Individual share holding 17.8 Space devoted to Corporate Governance Report 16

INFORMATION TECHNOLOGY Particulars Average No of Directors 11 %companies where the chairman is non executive 50 Proportion of Non Executive Directors 74 Proportion of Independent Directors 48 % of companies where the chairman is executive 50 proportion of non executive directors 76 Proportion of Independent Directors 71 Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 6.5 No of Audit Committee Meetings held 6 Number of Investor Grievances Comm. Meetings 3 Promoter Shareholding 38.87 FII Share holding 23.94 Individual share holding 10.95 Space devoted to Corporate Governance Report 10.63

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METALS Particulars Average No of Directors 12.33 %companies where the chairman is non executive 83 Proportion of Non Executive Directors 73 Proportion of Independent Directors 42 % of companies where the chairman is executive 17 proportion of non executive directors 59 Proportion of Independent Directors 50 Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 7.5 No of Audit Committee Meetings held 5.33 Number of Investor Grievances Comm. Meetings 2.33 Promoter Shareholding 61.46 FII Share holding 12.67 Individual share holding 13.57 Space devoted to Corporate Governance Report 7.93

PHARMACEUTICALS

Particulars Average No of Directors 10.4 %companies where the chairman is non executive 80 Proportion of Non Executive Directors 60 Proportion of Independent Directors 42 % of companies where the chairman is executive 20 proportion of non executive directors 75 Proportion of Independent Directors 75 Number of companies in which the chairman is Independent Director 60 No of Board Meetings held in FY07 5.4 No of Audit Committee Meetings held 4.6 Number of Investor Grievances Comm. Meetings 2 Promoter Shareholding 40.21 FII Share holding 15.79 Individual share holding 19.73 Space devoted to Corporate Governance Report 14.77

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PETROLEUM AND MINING

Particulars

Petroleum and

Mining Average No of Directors 12.6 %companies where the chairman is non executive na Proportion of Non Executive Directors na Proportion of Independent Directors na % of companies where the chairman is executive 100 proportion of non executive directors 57 Proportion of Independent Directors 41 Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 11.4 No of Audit Committee Meetings held 7.8 Number of Investor Grievances Comm. Meetings 1.2 Promoter Shareholding 62.58 FII Share holding 13.29 Individual share holding 7.52 Space devoted to Corporate Governance Report 13.37

TELECOM

Particulars Telecom Average No of Directors 12 %companies where the chairman is non executive 33.3 Proportion of Non Executive Directors 80 Proportion of Independent Directors 40 % of companies where the chairman is executive 67 proportion of non executive directors 89 Proportion of Independent Directors 50 Number of companies in which the chairman is Independent Director No of Board Meetings held in FY07 7.67 No of Audit Committee Meetings held 5.33 Number of Investor Grievances Comm. Meetings 4.66 Promoter Shareholding 59.28 FII Share holding 13.76 Individual share holding 1.99 Space devoted to Corporate Governance Report 11.26

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Chapter VII ISSUES AND IMPERATIVES Major issues in corporate governance and

measures to improve standards and compliance

India is driving major reforms in improving the corporate governance. In certain aspects it

matches even the mature economies in regard to design of effective policies aimed

towards strengthening of governance and compliance standards. It might be useful

recapitulate a few of the major trends emerging in the Indian corporate sector in regard

to corporate governance as also important issues and imperatives.

Separation of Chairman and CEO

Separation of Chairman and CEO are increasingly recognized as a best practice that the

companies should absorb. Several companies now have separate Chairman and the CEOs.

In the sample of 42 companies that this study has analysed in regard to corporate

governance practices, more than half of them have chairman separate from the chief

executive officer and this trend is rising in several companies.

An Independent Board

Given the importance of independence of the board, the scope of non executive directors

and independent directors assume great significance. This study revealed that about 65

percent of the directors are non executive and about 46 percent are independent

directors. There are three companies in which the chairman is non executive as also

independent. There is a growing trend of making the board structure more independent.

Companies with foreign shareholding in the pharmaceutical industry have non executive

and independent directors as chairmen.

Lead Independent Directors

Big corporations are now designating lead independent directors who will coordinate the

work of the independent directors as also review the progress of the company and set its

business agenda. The role of the Lead Independent Director in one of the top Indian

companies is defined as below:

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• To preside over the meetings of Independent Directors

• To ensure that there is adequate and timely flow of information to Independent

Directors

• To liaise between the Chairman and Managing Director, the Management and

Independent Directors

• To preside over meetings of the Board and Shareholders when the Chairman and

Managing Director is not present or where he is an interested party

• To perform such other duties as may be delegated to the Lead Independent

Director by the Board/Independent Directors.

It can be seen that companies are beginning to give more weightage to the scope and

functions of the independent directors and in this process identifying a Lead Independent

Director, who could be a catalyst in deriving the best from this process.

Some companies have more than one Lead Independent Directors with different directors

looking at different aspects of the governance and growth of the companies. For instance,

in one company, one Independent Director each is vested with the responsibilities of the

driving agenda for the Board, improving board processes, corporate strategy, financial and

internal controls, risk management and compliance and one independent director

identified as the Chief Ombudsman for the Whistle Blower Policy of the company.

Independent Directors

Independent Directors are the major instrument of the corporate governance in the

modern corporates. Many companies, excepting a few public sector have complied with

the requirement in regard to proportion of the representation of the independent

directors in the boards. Though big corporates find good quality independent directors

with relative ease, the same is emerging as a major challenge for the mid and small cap

companies who appear to be facing sizeable problem in finding right number of directors

with right qualities and qualifications. At present, nominee directors are treated as

independent directors, but SEBI is proposing not to consider nominee directors as

independent directors, in which case, the challenge becomes much tougher for a host of

companies. In view of the representation of independent directors becoming a prominent

aspect of the corporate governance, it is important that companies take this aspect with

greater focus and seriousness.

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In March 2007, the Union Cabinet of the central government gave its approval to the

guidelines on Corporate Governance for Central Public Sector Enterprises (CPSEs) as per

which, the board of directors of a company shall have an optimum combination of

executive and non executive directors with not less than 50 percent comprising non

executive directors. On implementation, it would improve the compliance standards of

the public sector enterprises.

Board Committees

Companies are taking keen interest in constituting various subcommittees of the board in

addition to the strengthening of the board. In addition to the mandated ones such as the

audit committee and investor grievances committee and remuneration committee etc.,

companies are found to set up a wide range of sub committees as per their specific

requirements. Names of the few sub committees in the corporate analysed in the study

include; project appraisal committee, ethics committee, human resources policy

committee, investment committee, safety, health and environment committee, planning

and projects committee, contracts committee, projects evaluation committee,

establishment committee, financial management committee, marketing strategy

committee, technology committee, rural sector business committee, risk management

committee, directors committee, asset-liability management committee, special

committee for monitoring large value frauds, board management committee, credit

approval committee, customer service committee, management controls committee,

science committee, banking and organization committee, intellectual property rights

committee,

Meetings

Companies have shown good progress in respect of the number of meetings of the Board

and the Audit Committee held in a year. The number of meetings held are normally higher

than the mandatory requirement in most of the companies.

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Periodic Evaluation of the Performance

Good governance requires periodic evaluation of the performance of the Board and Audit

Committees by an internal process or an external agency. Though big corporations take

elaborate care and processes in identification and selection of the members of the board,

not all companies have a well defined process of performance evaluation. Infosys has put

in place, where in an annual performance evaluation exercise; each non executive board

member has to make a presentation to the Board on the major contribution made by him

leading to an assessment that will determine the further scope of the members

participation in the board. Such structured processes are not evident in a large number of

companies.

Related Party Transactions

OECD defines related party transactions as those that involve between a parent company

and subsidiary, employees, an enterprise and its principal owners, management or

members of their immediate families; and affiliates (OECD Principles, IAS 24(9); FASB

Statement No.57). Related party transactions can take various forms including; transfer

pricing, asset stripping, i9nter company loans and guarantees; sale of receivables to

special purpose vehicle; leasing or licensing agreement between a parent and a subsidiary.

In view of the extensive family holding of Indian companies, doubts exist on the accuracy

and authenticity of the declarations and statements made to the board on the related

party transactions. Officials of the board secretariats of several companies expressed the

scope for further refinement and reforms in the information pertaining to related party

transactions.

Annual Reports

Annual Reports are important documents for assessing and analyzing the company

performance in regard to corporate governance standards and compliance. There is vast

improvement in the quality of content in the Annual Reports, but scope exists for

presenting the data in a manner that is easy to locate and understand. Even in respect of

the corporate governance reports, though the number of aspects on which information is

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required to be given is uniform, companies present information in different formats

making it rather cumbersome for the readers who look at the documents of a number of

companies.

Corporate Governance Reports

Corporate Governance Reports are important part of the Annual Reports. Many companies

in addition to giving the compliance on various parameters also some times discuss the

philosophy and objectives of the corporate governance thus setting the background for the

spirit and letter of governance that is reported.

Corporate Social Responsibility

It is also found that several leading Indian companies undertake corporate social

responsibility, which they report in the annual reports in a separate section. It is

interesting to note several companies taking interest in corporate social responsibility.

Statement of the Policies

Most of the disclosures that are found in the companies annual reports are mandatory in

nature. Many companies tend to fulfill the regulatory or compliance norms rather than

taking a proactive initiative in discussing and disclosing pertinent policies and procedures

on a wide range of issues that the company deals with it.

For the purpose of an illustration a global major corporate, in its corporate governance

discussed and disclosed the following, which is not usually evident in Indian companies,

unless those like Infosys or Wipro which have global investor base or operations.

a. Board Reserves one full day per year to discuss strategic questions

b. Average duration of the Board Meetings

c. Average attendance at the Board Meeting

d. Working of the Compensation Committee.

e. Information Policy

f. Specific guidelines/ policy in regard to 1. Dealing with the people, 2.

Relationships with suppliers and customers, 3. Legal compliance, 4. Gender

equality and empowerment, 5. Health and safety, 6. Environment and public good,

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7. Conflict of interest 8. Protection of confidential information, 9. Use of company

facilities, 10. Leading by example and 11. Buying and selling of company stock.

Promoter Holding

A recent report of the Moody’s quoted in the media showed that 17 of the 30 companies in

the Sensex are family controlled. The report observed that family controlled companies

face corporate governance challenges in the future. Family controlled companies came up

for criticism during the economic and financial crises in the South East Asia, wherein

problems accentuated because of lesser disclosure standards prevalent in family owned

firms.

Directors Training

Companies are found to disclose the importance of training for their directors and mention

the same in the corporate governance reports. While some companies explain the specific

nature of training that is usually imparted to the directors, some make a broad reference

to it. There is however no mention of the specific time spent by the directors on training.

Whistle Blower Policy

Being a non mandatory disclosure, companies mention about the Whistle Blower policy in

place, but no record of any specific activity or incidence in this regard. Some companies

put an independent director to look into the implementation of the policy

Shortcomings in Compliance

Though the design of the corporate governance framework in India is considered matching

that of the advanced countries, on aspects of enforcement and quality of supervision,

scope exists for significant improvement. Some of the observations cited in a recent

paper58 that surveyed the corporate governance in India include; though legal system

provides one of the highest levels of investor protection in the world, the reality is very

different with slow, over-burdened courts and widespread corruption; ownership is still

concentrated and family business groups continue to be the dominant business model in

58 Chakrabarti, Rajesh, Megginson, William L, Yadav Pradeep K, Corporate Governance in India, forthcoming, Journal of Applied Corporate Finance.

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India; there is evidence of pyramiding and tunneling among Indian business groups and

signs of widespread earnings management in many firms , much of the country’s extensive

SME sector is mired in relationship based informal control and governance mechanisms.

Some of these short comings impact the disclosure standards as well. According to the

information provided by the Ministry of Corporate Affairs, almost 30000 companies came

under its scanner default in filing of annual returns for the year ended March 2006. As

mentioned earlier in this report, Securities and Exchange Board of India has initiated

adjudication proceedings against 20 companies for non compliance with the corporate

governance of which five belong to the public sector. In a statement to the Parliament,

Finance Ministry informed that 13 of the Group A companies of the Bombay Stock

Exchange have not complied with the Clause 49 stipulations. Seven of the Nifty 50

companies were found short of fulfilling corporate governance norms. At the same time,

it is important to note that things are improving at a good pace and governance

environment could see significant improvements in the near future. It is also pertinent to

note that India is not an exception to these shortcomings as these are quite general to

Asia as also several other countries.

Emerging Challenges

While corporates have been quite successful in placing effective processes that will ensure

compliance with the listing norms, several challenges exist in the governance landscape.

Though the Chairman and CEO are separated in several companies, quite often it is found

that a family member who is a non executive director is chairman and another family

member is the CEO. Such arrangements meet the compliance requirements in letter but

not in spirit. Similarly, in some it was found that meetings of several committees are

clubbed together to save on time. Though time is an important element that needs to

conserved with great care, the focus of the discussion should not be lost in trying to save

time, which might lead to a situation where committees are called in a routine manner to

fulfil the regulatory requirement. Significant improvements are required in respect to the

reporting of subsidiary company operations as also related party transactions, a general

feeling that is commonly shared by most of the practicing community on the corporate

governance. Evaluation of the performance of the Board and the sub committees in

particular the Audit Committee needs to be further strengthened and streamlined. In view

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of the sizeable representation of the public sector enterprises in the stock market

capitalization, it becomes important to speed up the process of placing required number

of independent directors in these companies. These companies being big in size and having

significant growth, it is important that a short coming on the proportion of independent

directors should not place them in a disadvantageous position in regard to compliance

standards. Companies should endeavour to extend the range of disclosures beyond the

mandatory norms to areas such as management processes, corporate social responsibility

etc., The next round of reforms might focus on the compensation and remuneration

committees since they will assume greater significance in the background of enormous

growth of the companies and their operations extending beyond the national boundaries

entailing greater challenges for management. Some companies feel that the next round of

major discussion and disclosures will center around compensation disclosure analysis which

discusses the parameters governing the compensation for the executive directors as also

designing effective structure for executive compensation.

Looking Ahead

Corporate governance both in respect of policy and practice made quantum leap in India.

On the policy side, India has one of the best frameworks for corporate governance. On the

practice side, there is great improvement in the standards of reporting, disclosure and

compliance of companies. Given more than one hundred thousand companies registered,

of which about 5000 are listed, monitoring corporate governance in Indian companies is an

intensely challenging task.

Notwithstanding the size of numbers, improvements are evident in various aspects of

governance. This study which examined 42 companies on the governance aspects finds

that companies have complied with most of the norms of the listing agreement and some

have gone beyond in fulfilling a few more better standards.

Indian economy is experiencing unprecedented growth and receiving intense interest of

the international investing community. Indian companies can derive great benefits from

this extremely conducive environment by strengthening the company performance as also

its governance standards. International investing is increasingly governed by quality

governance as evidenced from a number of studies and it becomes imperative for Indian

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companies to sustain the pace of reforms in corporate governance. While Clause 49 deals

with what is mandatory, good companies can go extra mile in devising effective ways of

governance that could lead to efficient markets.

Good governance is required for business growth, expansion and in pursuing global

aspirations. It is also important to bring in qualitative improvement in the corporate

environment in India that will induce other also to adopt best practices. Good corporate

governance in big companies will be a guiding force for mid and small companies to devise

effective governance frameworks that will result in further strengthening of the

governance environment. The society at large as well as the stakeholders of the

companies will the biggest beneficiaries of this outcome.

Box1: Working of the Compensation Committee The company uses several benchmarks in determining the value and the design of the various elements. The major peer group considered for the purpose of competitive practice is made up of some 15 mainly European parented fast-moving consumer goods companies. The Company’s base salaries as well as bonus and long term incentive targets generally today are at the median values of this comparator group; longer term the companies desires to be within the third quartile. Variations from this benchmark can exist as a result of special position requirements or particular experience or seniority of the incumbent. The benchmark for pension benefits is the group of the leading Swiss companies, both in the industrial and financial services sectors. Compensation benefits consist of; Base Salary: reviewed annually based upon the individual contribution and with the objective to keep it competitive against our chosen peer group Short-Term Bonus; annual bonus which is a percentage of a base salary. The objectives are set at the beginning of each year and they include collective as well as individual objectives. Collective objectives are the Nestle Group’s operational objectives such as RIG, EBIT, Capex and others. Individual objectives are determined for each member of the Executive Board. In case all objectives are reached in full, the bonus payout will correspond with the targeted level. In case of overachievement f the objectives, the payout can reach a maximum of 150 percent of the target. There is no guaranteed minimum bonus payout. Longer Term Incentives. Each year, members of the Executive Board are eligible to receive Long-Term incentives in the form of stock options under the Management Stock Option Plan (MSOP) and restricted share units under the Restricted /stock Unit Plan (RSUP). A target value is set at the time of the grant and the respective number of options and restricted stock units is then allocated to each member of the Executive Board. Grants under both plans vest following a waiting period of three years after the grant. The exercise price for the stock options corresponds to the average price of the last ten trading days preceding the grant date. Upon vesting, the options have an exercise period of four years before they expire, and the restricted stock units are made available to participants in the form of Nestle S.A shares. Other Benefits Nestle limits other benefits to a minimum. Typical elements are a car allowance (there are no company cars provide to the members of the Executives Board) and a minimal contribution towards

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the health insurance premiums, as offered to other employees. Those Executive Board members who have been transferred from other Nestle locations can receive benefits in line with the Nestle Corporate Expatriation Policy. There are no contractual provisions concerning severance payments for members of the Executive Board. Pension Benefits Executive Board members domiciled in Switzerland are affiliated to the Nestle Pension Plan in Switzerland as all other employees. The Plan is designed as a defined contribution plan with a retirement pension objective expressed as a percentage of the base salary. This means that the pensionable earnings include the base salary, but not the variable compensation. Any part of the base salary which exceeds the ceiling prescribed y the Swiss Pension Law is covered directly by the Company. Source: Nestle India

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CORPORATE GOVERNACE PROFILES OF COMPANY PRACTICE

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company ACC Limited 2 Registered Address Cement House, 121, Maharshi Karve Road, Mumbai – 400 020 3 Contacts Tel : +91 22 66654291/66654360

Fax: +91 22 66317458 Email:[email protected] Website: www.acclimited.com

4 Chairman N S Sekhsaria 5 Dy. Chairman Paul Hugentobler 6 Managing Director N L Narula 7 Company Secretary A Anjeneyan

FINANCIALS (Rs. In Mn) (Audited 01 Jan 06 to 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1875 29552 64531 58035 59350 17547 Gross Profit Depreciation Profit

Before Tax Profit After Tax

Net Profit EPs

17027 -2543 14484 10608 12318 66 MARKET STATISTICS

MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 202890 1315 680 16.4

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 35.15 24.28 29.55 CG COMPLIANCE BOARD MEETINGS CG Report included in the Annual Report of the Company

Yes No of Directors 15

Is the Chairman Non Executive Yes COMMITTEE MEETINGS Number of Non Executive Directors in the Board

12 Board 6 meetings

Number of Non Executive Directors who are Independent

5 Audit Committee 4 meetings

Term of the Chairman/CEO NA Investor Grievance Committee 5 meetings ACC is respected for its professional management and good business practices in the Indian corporate world. Integrity, emphasis on product quality and transparency in its dealings with all stakeholders are its core values. ACC believes that good governance generates goodwill among business partners, customers and investors, earns respect from society and brings about a consistent sustainable growth for the Company and generates competitive returns for the investors. Towards its objectives of achieving good corporate governance, it has endowed a Chair for Business Ethics at the Management Centre for Human Values, Indian Institute of Management, Kolkata.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Ambuja Cements Ltd 2 Registered Address 106, Maker Chambers III, Nariman Point, Mumbai 400 021, India 3 Contacts Tel: +91 022 6659 7300

Fax:+91 022 2284 6270 Email:[email protected] Website:www.gujaratambuja.com

4 Chairman Suresh Neotia 5 Chief Executive Officer 6 Managing Director Anil Singhvi 7 Company Secretary B L Taparia

FINANCIALS (Rs. In Mn) (Audited 01 Jul 05 – 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 3034

31872

70105 62683

63820

22468

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

21677

-3261

18416

15033

15033

10

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 219340 154 100 10.5

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 31.19 34 11.52 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 15 COMMITTEE MEETINGS

Is the Chairman Non Executive

Yes Board 9 meetings

Number of Non Executive Directors in the Board

5 Audit Committee 7 meetings

Number of Non Executive Directors who are Independent

5 Investor Grievance Committee 17 meetings

Term of the Chairman/CEO

NA BOARD SECRETARIAT

The company believes in transparency, empowerment, accountability, safety of people and environment, motivation, respect for law and fair business practices with all its stakeholders. These practices being followed since inception have helped the company in its sustained growth.

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Bajaj Auto Limited 2 Registered Address Mumbai Pune Road, Akurdi Pune 411 035 3 Contacts Tel: +91 020 27472851 Extn. (6063), 27406063/27401380

Fax: +91 020 27407380 Email:[email protected]/[email protected] Website: www.bajajauto.com

4 Chairman Rahul Bajaj 5 Chief Executive Officer 6 Managing Director Rajiv Bajaj 7 Company Secretary J Sridhar

FINANCIALS (Rs. In Mn) (Audited 01 Apr 05 – 31 Mar 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1012

46696 87484 76679 81064 17947

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

17944 -1910 16034 11243 11233 111 MARKET STATISTICS

MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 253150 3172 2063 19.9

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 29.79 19.42 23.18 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 16

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

11 Board 6 meetings

Number of Non Executive Directors who are Independent

8 Audit Committee 4 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 17 meetings

The commitment of Bajaj Auto Limited (‘Bajaj Auto’, ‘BAL’ or ‘the Company’) to the highest standards of good corporate governance practices predates SEBI and clause 49 of the Listing Agreements. Transparency, fairness, disclosure and accountability are central to the working of the Company and its Board of Directors.

BOARD SECRETARIAT

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Bharat Petroleum Corporation Limited 2 Registered Address Bharat Bhavan, 4 & 6,Currimbhoy Road

Ballard Estate, Mumbai- 400 001 3 Contacts Tel.+91 22-22713001-04/ 22713435/3437

Fax +91 22 22642112/22161793/ 22713688 Email [email protected], [email protected] Website:www.bharatpetroleum.com

4 Chairman Ashok Sinha, CMD 5 Chief Executive Officer 6 Managing Director Ashok Sinha 7 Company Secretary N Viswakumar

FINANCIALS (Rs. In Mn) (Unaudited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 3615

109895

1088357

982049

988711

49781

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

44610

-10988

33622

23502

23502

59

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 125390 448 287 4.3

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 54.93 13.12 12.51 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 10

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

5 Board 10 meetings

Number of Non Executive Directors who are Independent

3 Audit Committee 9 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee One meeting

Bharat Petroleum Corporation Ltd’s corporate philosophy on Corporate Governance has been to ensure fairness to the stakeholders through transparency, full disclosures, empowerment of employees and collective decision making.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Cipla Limited 2 Registered Address Shares Department, Cipla Ltd. Mumbai Central,

Mumbai 400 008, India 3 Contacts Tel +91 22 2308 2891/91 22 2302 5272/72/2309 5521

Fax +91 22 2307 0013/ 91 22 2300 8101 [email protected] Website www.cipla.com

4 Chairman Dr. Y K Hamied 5 Chief Executive Officer 6 Managing Directors M K Hamied, Amar Lulla 7 Company Secretary Mital Sanghvi

FINANCIALS (Rs. In Mn) (Unaudited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1555 - 36671 35721 36613 9119 Gross Profit Depreciation Profit

Before Tax Profit After Tax

Net Profit EPs

9049 -1041 8008 6608 6608 9 MARKET STATISTICS

MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio(%) 143260 275 160 22.8

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 39.36 16.81 25.34 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 9

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

6 Board 4 meetings

Number of Non Executive Directors who are Independent

6 Audit Committee 4 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 4 meetings

The Company is committed to good corporate governance. The Company respects the rights of its shareholders to secure information on the performance of the Company and it is its endeavor to maximize the long term value to the shareholders of the Company.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Dr Reddys Laboratories Ltd 2 Registered Address 7-1-27, Ameerpet, Hyderabad 500 016, Andhra Pradesh, India 3 Contacts Tel +91 40 23731946/23734504

Fax +91 40 23731955/66511525 [email protected]/[email protected] Website www.drreddys.com

4 Chairman Dr. K Anji Reddy 5 Chief Executive Officer G V Prasad, VP & CEO 6 Managing Director Satish Reddy, MD & COO 7 Company Secretary V Viswanath

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 840

39133 65126

64346

66418

17716

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

16190

-3791

12399

9655

9655

61

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 102830 840 580 12.2

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 25.18 27.49 13.63 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 8

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

6 Board 4 meetings

Number of Non Executive Directors who are Independent

6 Audit Committee 4 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 3 meetings

Dr.Reddy’s philosophy of corporate governance stems out from its belief that timely disclosures, transparent accounting policies, and a strong and independent Board go a long way in preserving shareholders trust while maximizing long-term corporate values.

BOARD SECRETARIAT

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Essar Steel Limited 2 Registered Address Essar House, 11 Keshavrao Khadye Marg,

Mahalaxmi, Mumbai - 400 034, Maharashtra, India 3 Contacts Tel.+91 022 66601100

Fax +91 022 66602748 [email protected]/[email protected] Website.www.essar.com

4 Chairman Shashi Ruia 5 Chief Executive Officer 6 Managing Director 7 Company Secretary N. B. Vyas

FINANCIALS (Rs. In Mn) (Unaudited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 11398

32677

90025

81964 82156

19571

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

13347

-6311

7037

4567

4339

4

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 61690 71 41 -

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 87.08 2.03 6.72 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes

No of Directors 12

Is the Chairman Non Executive

Yes

COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

10 Board 5 meetings

Number of Non Executive Directors who are Independent

5 Audit Committee 6 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee -

Essar Steel Limited believes that good Corporate Governance is essential to achieve long term corporate goals and to enhance stakeholders’ value. The Company’s philosophy on Corporate Governance envisages attainment of high level transparency, accountability and integrity in the functioning of the Company and the conduct of its business, its relationship with employees, stakeholders, creditors, customers and institutional and other lenders. The company places due emphasis on regulatory compliance.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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Particulars Practice 1 Name of the Company GlaxoSmithKline Pharmaceuticals Limited 2 Registered Address Dr Annie Besant Road, Mumbai 400 030, India 3 Contacts Tel.+91-022-2495 9595

Fax +91-022-2495 9494 [email protected] Website.www.gsk-ndia.com

4 Chairman D S Parekh 5 Chief Executive Officer 6 Managing Director Dr. H B Joshipura 7 Company Secretary A A Nadkarni

FINANCIALS (Rs. In Mn) (Audited 01 Jan 06 – 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 847

11100

16776

15529

16488

5718

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

5718

-158

5560

3617

5455

64

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 27630 694 500 17.2

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 50.67 14.64 18.28 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 12

Is the Chairman Non Executive

Independent COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

9 Board 5 meetings

Number of Non Executive Directors who are Independent

5 Audit Committee 7 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee One meeting

The Company’s philosophy of Corporate Governance is aimed at assisting the management of the Company in the efficient conduct of its business and in meeting its obligations to stakeholders, and is guided by a strong emphasis on transparency, accountability and integrity. For several years, the Company has adopted a codified Corporate Governance Charter, which is in line with the best practice, as well as meets all the relevant legal and regulatory requirements.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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Particulars Practice 1 Name of the Company HDFC Bank Limited 2 Registered Address HDFC Bank House, Senapati Bapat Marg, Lower Parel,

Mumbai 400 013 3 Contacts Tel: +91 22 56521000

Fax:+91 22 24960737 Email: [email protected] Website: www.hdfcbank.com

4 Chairman Jagdish Capoor 5 Chief Executive Officer 6 Managing Director Adiya Puri 7 Company Secretary Sanjay Dongre

Executive Vice President (Legal) & Company Secretary FINANCIALS (Rs. In Mn) (Unaudited 1 Apr 06 – 31 Mar 07)

Equity Reserves Int. Earned Total Income Operating Profit 3194

61510

68872 - 84645

28113

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

- - 28113

11435

11435

37

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 546000 1660 890 41.1

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 21.56 30.73 12.38 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 9

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

8 Board 8 meetings

Number of Non Executive Directors who are Independent

4

Audit Committee 9 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 13 meetings

HDFC encompasses the simple tenets of integrity, transparency and fairness in whatever it does. Each relationship that HDFC has, be its borrowers, depositors, agents, shareholders or other stakeholders is highly valued by the organisation. Across the organisation, HDFC has always followed an open-door policy. This not only ensures transparency, but also enables rapport building and gives employees an opportunity to freely address issues of concern.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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Particulars Practice 1 Name of the Company Hero Honda Motors Limited 2 Registered Address 34, Community Centre, Basant Lok, Vasant Vihar

New Delhi – 110057, India 3 Contacts Tel: +91 11 26142451, 26144121

Fax:+91 11 2615 3913 Email: [email protected] Website:www.herohonda.com

4 Chairman Brijmohan Lall 5 Chief Executive Officer Pawan Munjal, MD & CEO 6 Managing Director Toshiaki Nakagawa, Jt. MD 7 Company Secretary llamC Kamboj

General Manager Legal & Company Secretary FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07)

Equity Reserves Gross Sales Net Sales Total Income Operating Profit 399

24301

115420

99000

100898

13629

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

13859 -1398

12461

8579

8579

43

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 148660 809 565 18.6

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 54.95 27.76 8.69 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 16

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

12 Board 5 meetings

Number of Non Executive Directors who are Independent

8 Audit Committee 8 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 4 meetings

Hero Honda’s philosophy of corporate governance stems from its belief that the company’s business strategy and plans should be consistent with the welfare of all its stakeholders, including shareholders. Corporate governance rests upon the four pillars of transparency, full disclosure, independent monitoring and fairness to all, especially to minority shareholders.

BOARD SECRETARIAT

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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Particulars Practice 1 Name of the Company Hindalco Industries Limited 2 Registered Address Century Bhavan, 3rd floor, Dr A B Road, Worli

Mumbai 400 030, India 3 Contacts Tel. +91- 22-6662 6626

Fax +91- 22-2436 2516 / 2422 7586 [email protected] Website.www.hindalco.com

4 Chairman Kumar Mangalam Birla 5 Chief Executive Officer 6 Managing Director D Bhattacharya 7 Company Secretary Anil Malik

FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1043

123137

- 183130

186831 43851

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

41427

-6381

35046 25643

25643

26

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 238550 208 125 9.3

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 27 18.55 16.45 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 10

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

9 Board 8 meetings

Number of Non Executive Directors who are Independent

6 Audit Committee 4 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee One meeting

The Aditya Birla Group is committed to the adoption of best governance practices and its adherence in the true spirit, at all times. The governance philosophy rests on the following five basic tenets; Board accountability to the Company and shareholders, strategic guidance and effective monitoring by the Board, protection of minority interests and rights, equitable treatment of all shareholders and superior transparency and timely disclosure.

BOARD SECRETARIAT

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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Particulars Practice 1 Name of the Company Hindustan Petroleum Corporation Ltd 2 Registered Address Petroleum House.17, Jamshedji Tata Road

Mumbai - 400 020 3 Contacts Tel.+91 022 25963838/2286 3900/22026151

Fax +91 022 25946969/22872992 [email protected]/[email protected] Website.www.hindustanpetroleum.com

4 Chairman Arun Balakrishnan, CMD 5 Chief Executive Officer 6 Managing Director 7 Company Secretary N R Narayanan

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 3390

92278 1024900

939695

946806

34031

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

29433

-7782 21651

16740

16740 76

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 80560 337 223 3.9

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 51.01 23.25 NA CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 12

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

8 Board 13 meetings

Number of Non Executive Directors who are Independent

6 Audit Committee 7 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 4 meetings

HPCL lays special emphasis on conducting its affairs within the framework policies, internal and external regulations and in a transparent manner. Being a Government Company its activities are subject to review by several external authorities like the Comptroller & Auditor General of India (CAG), the Central Vigilance Commission (CVC), parliamentary Committees etc.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Hindustan Unilever Ltd 2 Registered Address Hindustan Unilever House,165/166, Backbay Reclamation,

Mumbai – 400020, Maharashtra, India 3 Contacts Tel.+91-022-39830000/39832567/2385

Fax +91-022-22871970 [email protected]/[email protected] Website.www.hll.com

4 Chairman Harish Manwani 5 Chief Executive Officer Douglas Baillie CEO & MD 6 Managing Director S Ravidranath MD (Foods) 7 Company Secretary Ashok K Gupta

FINANCIALS (Rs. In Mn) (Audited 01 Jan 06 – 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 2207

25021

- 121034

124579

20026

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

19918

-1302

18617

15397

18554

8

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 485140 255 166 25.3

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 51.43 12.88 17.46 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 10

Is the Chairman Non Executive

Yes

COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

5 Board 7 meetings

Number of Non Executive Directors who are Independent

5 Audit Committee 6 meetings

Term of the Chairman/CEO

NA/5 Investor Grievance Committee 2 meetings

At Hindustan Unilever Limited, good governance is an ongoing process, thereby ensuring truth, transparency, accountability and responsibility in all dealings with employees, shareholders, consumers and the community at large. At Hindustan Unilever, corporate governance in its widest sense, almost like a trusteeship; it is a philosophy to be professed, a value to be imbibed and an ideology to be ingrained in corporate culture.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

Page 118: coporate Governance

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company ICICI Bank Ltd 2 Registered Address Race Course Circle, Alkapuri, Vadodara 390 007, Gujarat 3 Contacts Tel +91 022-2653 24318/339923-27/+91 265 323418/339923-27

Fax +91 022 2653 239926/265 339926/2339926 Email [email protected] Website www.icicibank.com

4 Chairman N Vaghul 5 Chief Executive Officer K V Kamath, CEO & MD 6 Managing Director 7 Company Secretary Jyotin Mehta, GM & Co. Secretary

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Int. Earned - Total Income Operating Profit 8993

234139 250013 413638

56749

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

56749

26334

26334

31

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 1389010 1265 751 39.5

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals - 45.49 6.41 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 17

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

5 Board 8 meetings

Number of Non Executive Directors who are Independent

12 Audit Committee 6 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 12 meetings

ICICI Bank’s corporate governance philosophy encompasses not only regulatory and legal requirements, such as the terms of listing agreements with stock exchanges, but also several voluntary practices aimed at a high level of business ethics, effective supervision and enhancement of value for all stakeholders.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Indian Oil Corporation Limited 2 Registered Address Registered Office, IndianOil Bhavan, G-9, Ali Yavar Jung Marg,

Bandra East, Mumbai 400 051 3 Contacts Tel:+91 22 26427363

Fax:+91 22 26447528 Email:[email protected]/[email protected] Website:www.iocl.co.in

4 Chairman Sarthak Behuria 5 Chief Executive Officer 6 Managing Director 7 Company Secretary Raju Ranganathan

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 11680 353519 1859676

2026927

144463

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

127033

-29703

97330

63006

81794

66

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 534360 531 370 7.4

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 82 1.93 2.72 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 14

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

7 Board 13 meetings

Number of Non Executive Directors who are Independent

5 Audit Committee 11 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 2 meetings

Indian Oil believes that good Corporate Governance practices ensure efficient conduct of the affairs of the Company and also help in maximizing value for all its stakeholders. The Company endeavors to uphold the principles and practices of Corporate Governance to ensure transparency, integrity and accountability in its functioning, which are vital to achieve its Vision of becoming a major diversified, transnational, integrated energy company.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Infosys Technologies Ltd 2 Registered Address Plot No.44 97A, Electronics City, Hosur Road, Bangalore 560 100 3 Contacts Tel +91 080 28520261/41167750

Fax+91 080 28520362 Email Parvatheesam kanchinadham/[email protected] Website www.infosys.com

4 Chairman N R Narayana Murthy, Chairman & Chief Mentor 5 Chief Executive Officer Nandan M Nilekani, CEO & MD 6 Managing Director S Gopalakrishnan, President, COO, Jt, MD and Head – Customer

Service Technology 7 Company Secretary Parvatheesam Kanchinadham, Company Secretary

and Compliance Officer FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07)

Equity Reserves Gross Sales Net Sales Total Income Operating Profit 2860 109690

138930

142650 47630

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

47630

-5140

42490

38610

38670

69

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 1064230 2439 1745 24.7

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 16.54 32.55 19.48 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 15

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

9 Board 7 meetings

Number of Non Executive Directors who are Independent

8 Audit Committee 4 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 4 meetings

Our 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.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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Particulars Practice 1 Name of the Company ITC Limited 2 Registered Address Virginia House, 37, Jawaharlal Nehru Road,

Kolkatta 700 071, India 3 Contacts Tel +91 033 22889371/22880034/6426

Fax +91 033 22882358 Email [email protected]/[email protected] Website www.itcportal.com

4 Chairman Yogesh Chander Deveshwar 5 Chief Executive Officer 6 Managing Director 7 Company Secretary Biswa Behari Chatterjee, Exe.VP & Co. Secretary

FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 3762 101356 128737

132345

44471

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

44428

-3938

40491

27743

27743

7

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 686540 195 140 23.5

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 37.05 12.9 15.85 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 12

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

9 Board 5 meetings

Number of Non Executive Directors who are Independent

7 Audit Committee 9 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 33 meetings

Since large corporations employ a vast quantum of societal resources, ITC believes that the governance process should ensure that these resources are utilized in a manner that meets stakeholders’ aspirations and societal expectations. This belief is reflected in the Company’s deep commitment to contribute to the “triple bottom line”, namely the development, nurture and regeneration of the nation’s economic, social and environmental capital.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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Particulars Practice 1 Name of the Company Larsen & Toubro Ltd 2 Registered Address L&T House, N. M. Marg, Ballard Estate, Mumbai 400 001, India. 3 Contacts Tel.+91 022 67525856

Fax.+91 022 67525858 [email protected] Website.www.larsentoubro.com

4 Chairman A M Naik, CMD 5 Chief Executive Officer 6 Managing Director 7 Company Secretary N Hariharan

FINANCIALS (Rs. In Mn) (Audited 1 Apr 05 – 31 Mar 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 275

45833

149938

147631

151986

15032

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

14281

-1145

13137

9424

10121

76

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 1213730 4300 1260 68.6

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 31.71 18.26 24.39 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 17

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

9 Board 11 meetings

Number of Non Executive Directors who are Independent

9 Audit Committee 6 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 3 meetings

The Company's philosophy on Corporate Governance is built on a rich legacy of fair and transparent governance and disclosure practices, many of which were in existence even before they were mandated by legislation. The Company's essential character revolves round values based on transparency, integrity, professionalism and accountability.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Merck Limited 2 Registered Address Merck Ltd., Shivsagar Estate, Dr. Annie Besant Road, Worli 400 018 3 Contacts Tel +91 022 66609000/24954590

Fax +91 24950307/36046 Email - Website www.merck.com/merck.co.in

4 Chairman S N Talwar 5 Chief Executive Officer 6 Managing Director Dr. M Dziki 7 Company Secretary H U Shenoy

FINANCIALS (Rs. In Mn) (Audited 01 Jan 06 – 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 169

3762

3613

3295

3607

1106

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

1106

-64

1042

679

1334

79

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 6530 500 372 10.4

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 51 1.5 22.43 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 9

Is the Chairman Non Executive

Yes and Independent

COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

5 Board 6 meetings

Number of Non Executive Directors who are Independent

3 Audit Committee 4 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee One meeting

BOARD SECRETARIAT Merck is committed to the adoption of the best governance practices and their adherence in the true spirit, at all times. The Company’s philosophy on Corporate Governance is to ensure that the systems and procedures which monitor compliance with laws, rules and regulations are in place in each area of its operations and the relevant information regarding the Company and its operations is disclosed, disseminated and easily available to all its stakeholders.

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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Particulars Practice 1 Name of the Company Mphasis Limited 2 Registered Address Bagmane Technology Park, Byrasandra, C V Raman Nagar,

Bangalore 560 093 3 Contacts Tel +91 80 40040404/4042 6000

Fax +91 80 40049999/25346760 Email [email protected] Website www.mphasis.com

4 Chairman Jaithirth Rao 5 Vice Chairman Jeroen Tas 6 Managing Director Deepak Jayant Patel 7 Company Secretary A Sivaram Nair

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 17606

17471

1908

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

1983

1983

1801

1801

9

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 61950 340 210 39.7

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 50.59 11.47 8.34 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 12

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

11 Board 10 meetings

Number of Non Executive Directors who are Independent

5 Audit Committee 6 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee -

Mphasis’ Corporate Governance is directed at the enhancement of shareholder value, keeping in mind the interests of the other stake holders, viz., clients, employees, investors, regulatory bodies, etc. The functions of the Board of Directors of the Company are well defined. Mphasis is committed to good corporate governance and has bench marked itself against global best practices.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company National Thermal Power Corporation Ltd 2 Registered Address NTPC Bhawan, SCOPE Complex, 7-Institutional Area, Lodhi Road,

New Delhi – 110003 3 Contacts Tel +91 011 24360100/24360071

Fax +91 011 24361018/24360210 Email [email protected] Website www.ntpc.co.in

4 Chairman T Sankaralingam, CMD 5 Chief Executive Officer 6 Managing Director 7 Company Secretary A K Rastogi

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 82455

404670

338757

366518

129485

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

110612

-20998

89614

68983

68983

8

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio(%) 1923260 240 127 25

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 89.5 7.05 7.05 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 13

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

6 Board 14 meetings

Number of Non Executive Directors who are Independent

4 Audit Committee 5 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 2 meetings

NTPC believes in the philosophy that corporate governance is a key element in improving efficiency and growth as well as enhancing investor confidence and accordingly the Corporate Governance philosophy has been scripted as “As a good corporate citizen, the Company is committed to sound corporate practices based on conscience, openness, fairness, professionalism and accountability in building confidence of its various stakeholders in it thereby paving the way for its long term success.”

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Nestle India Ltd 2 Registered Address Nestle India Ltd., M-54 Connaught Circus, New Delhi 110 001 3 Contacts Tel.+91 0124 238 93 00

Fax +91 0124 238 94 11 [email protected] Website.www.nestle.com/nestle.in

4 Chairman Martial G Rolland, CMD 5 Chief Executive Officer 6 Managing Director 7 Company Secretary B. Murli

FINANCIALS (Rs. In Mn) (01 Jan 05 – 31 Dec 05) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 964

2577

26439

24769

25006

5458

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

5456

-568

4887

3069

3096

32

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 131670 1395 876 37.7

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 61.85 9.07 17.29 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 6

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

5 Board 5 meetings

Number of Non Executive Directors who are Independent

3 Audit Committee 5 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 4 meetings

Nestlé India Limited, as a part of Nestlé Group, Switzerland has over the years followed best practice of Corporate Governance by adhering to practices laid down by Nestlé Group. The two most significant documents from Nestlé Group, which define the standard of behavior of Nestlé India, are “Nestlé Corporate Business Principles” and “The Nestlé Management and Leadership Principles”.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Oil & Natural Gas Corporation Ltd 2 Registered Address Jeevan Bharati Bldg., Tower II, 124 Indira Chowk, New Delhi 110

001 3 Contacts Tel .+91 11 23301000/10156/23721756

Fax +91 11 2331 6413 [email protected] Website.www.ongcindia.com

4 Chairman R S Sharma,CMD 5 Chief Executive Officer 6 Managing Director 7 Company Secretary S C Setia

FINANCIALS (Rs. In Mn) (Audited 1 Apr 05 – 31 Mar 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 14259

519174

482009

479229

502779

297008

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

296539

-84573

211966

137902

144308

101

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 2649240 1253 750 16.4

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 74 8.67 2 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 14

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

6 Board 12 meetings

Number of Non Executive Directors who are Independent

4 Audit Committee 7 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 4 meetings

The company views corporate governance in its widest sense almost like a trusteeship, a philosophy to be progressed, a value to be imbibed and an ideology to be ingrained into the corporate culture. It has been practicing corporate governance principles m The primary objective is to create and adhere to a corporate culture of conscience and consciousness, transparency and openness, fairness, accountability, propriety, equity, sustainable value creation, ethical practices, thereby creating an outperforming organization.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Ranbaxy Laboratories Limited 2 Registered Address Plot No. 90, Sector 32, Gurgaon - 122001 (Haryana), India 3 Contacts Tel.+91 0124-4135000

Fax+91 0124-4106490 [email protected] Website.www.ranbaxy.com

4 Chairman Tejindra Khanna 5 Chief Mentor & Exe VC Dr. Brian W Tempest 6 Managing Director Mahinder Mohan Singh, CEO & MD 7 Company Secretary S K Patawari

FINANCIALS (Rs. In Mn) (Unaudited 01 Jan 06 – 31 Dec 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1863

- 39736

39254

40050

6390

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

5809

-1118

4692

4091

3865

10

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 157790 459 306 22.1

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 34.86 18.49 18.97 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 14

Is the Chairman Non Executive

Yes and Independent

COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

11 Board 8 meetings

Number of Non Executive Directors who are Independent

8 Audit Committee 4 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 10 meetings

Ranbaxy has always believed in a "Sound" Code of Corporate Governance, as a tool for highest standards of management and business integrity and as a result started implementing a series of voluntary initiatives as early as 1999. Some of these measures included: - Composition of the Board of Directors (eg. Majority Independent Directors). - Constitution of various Board Committees for oversight and guidance concerning key decisions and soundness of decision making processes connected with the functioning of the Company. - Timely dissemination of information to shareholders. - Code of Conduct.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Reliance Energy Ltd 2 Registered Address Reliance Energy Centre, Santacruz (East), Mumbai 400 055 3 Contacts Tel. +91 22 3009 9999

Fax +91 22 3009 9763 [email protected]/[email protected] Website.www.rel.co.in

4 Chairman Anil D Ambani 5 Chief Executive Officer 6 Managing Director 7 Company Secretary Ramesh Shenoy

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 2286 8608

68316

77745

14760

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

11630

-3032

8598

8360

8360

39

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 393490 1959 448 43.2

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 53.38 16.16 5.94 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 8

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

4 Board 5 meetings

Number of Non Executive Directors who are Independent

4 Audit Committee 5 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 5 meetings

In our commitment to practice sound governance principles, Reliance Energy is guided by the following core principles: 1. Transparency -To maintain the highest standards of transparency. 2. Disclosures -To ensure timely dissemination of all price sensitive information 3. Accountability -To demonstrate highest levels of personal responsibility 4. Compliances -To comply with all the laws and regulations 5. Ethical conduct - To conduct the affairs of the company in an ethical manner. 6. Stakeholders’ interests -To promote the interests of all stakeholders

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Reliance Industries Limited 2 Registered Address 3rd Floor, Maker Chambers - IV, 222 Nariman Point,

Mumbai – 400 021 3 Contacts Tel.+91 22 2278 5000

Fax +91 22 22042268/2278 5111 [email protected] Website.www.ril.com

4 Chairman Mukesh D Ambani, CMD 5 Chief Executive Officer 6 Managing Director 7 Company Secretary Vinod M Ambani

FINANCIALS (Rs. In Mn) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 13940

1204310

1137700

1144210

207780

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

195460

-48990

146470

120750

120750

83

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 4110410 2844 1181 30

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 50.98 19.49 12.87 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 13

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

10 Board 9 meetings

Number of Non Executive Directors who are Independent

8 Audit Committee 5 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 3 meetings

In addition to complying with the statutory requirements, effective governance systems and practices inter alia towards transparency, disclosures, internal controls and promotion of ethics at work-place have been institutionalized. Reliance recognizes that good Corporate Governance is a continuing exercise and reiterates its commitment to pursue highest standards of Corporate Governance in the overall interest of all the stakeholders.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Satyam Computer Services Limited 2 Registered Address Mayfair Centre, 1st Floor, 1-8, 303/36, S P Road,

Secunderabad 500 003 3 Contacts Tel.+91 40 27813166/0058/3065 4343 /4211

Fax +91 40 30654343/ 27897769 [email protected] Website.www.satyam.com

4 Chairman B Ramalinga Raju 5 Chief Executive Officer 6 Managing Director B Rama Raju 7 Company Secretary G Jayaraman, Sr. VP Corp.Gov & Co. Secry

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1334

55658

64851

66684

17210

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

17051

-1484

15566

14046

14046

21

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 322750 525 402 21.3

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 8.78 46.6 8.43 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 10

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

7 Board 4 meetings

Number of Non Executive Directors who are Independent

6 Audit Committee 8 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee One meeting

Corporate Governance assumes a great deal of importance in the business life of Satyam. The driving forces of Corporate Governance at Satyam are its core values – Associate Delight, Investor Delight, Customer Delight and the Pursuit of Excellence. The Company’s goal is to find creative and productive ways of delighting its stakeholders, i.e., Investors, Customers, Associates and Society, thereby fulfilling the role of a responsible corporate representative committed to best practices.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company State Bank of India 2 Registered Address State Bank Bhawan, 8th floor, Madame Cama Road,

Mumbai-400 021 3 Contacts Tel +91 22 2202 2426

Fax +91 22 22047556 [email protected] Website. www.statebankofindia.com

4 Chairman O P Bhatt 5 Chief Executive Officer T S Bhattarcharya, MD & GE (CB) 6 Managing Director S K Bhattacharya, MD & CC & RO 7 Company Secretary Mrinal Shankar, DGM(Accounts & Compliance Department

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 5263 416919 572378 683768

143923

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

143923

66198

66198

121

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 1114620 2180 845 15.3

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 59.73 19.83 5.96 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 11

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

4 Board 9 meetings

Number of Non Executive Directors who are Independent

4 Audit Committee 10 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 4 meetings

The objectives can be summarized as: • To enhance shareholder value. • To protect the interests of shareholders and other stakeholders including customers, employees and society at large. • To ensure transparency and integrity in communication and to make available full, accurate and clear information to all concerned. • To ensure accountability for performance and to achieve excellence at all levels. • To provide corporate leadership of highest standard for others to emulate

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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133

CORPORATE GOVERNANCE PRACTICE Particulars Practice 1 Name of the Company Steel Authority of India Limited 2 Registered Address Ispat Bhawan, Lodi Road, New Delhi - 110 003 3 Contacts Tel.+91 11-24368104/211/25075459/24367481-86

Fax +91 11-243 67015 [email protected]/[email protected] Website.www.sail.co.in

4 Chairman S K Roongta 5 Chief Executive Officer 6 Managing Director 7 Company Secretary Devinder Kumar, Secretary

FINANCIALS (Rs. In Mn) (Unaudited 1 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 41304

133422

406292

353429

361942

110845

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

107402

-12382

95019

62616

62616

15

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio(%) 1142260 279 79 18

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 85.82 6.15

2

CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 22

Is the Chairman separate from CEO

Yes COMMITTEE MEETINGS

Is the Chairman Non Executive

No Board 10 meetings

Number of Non Executive Directors in the Board

13 Audit Committee 7 meetings

Number of Non Executive Directors who are Independent

11 Investor Grievance Committee -

Term of the Chairman/CEO

NA BOARD SECRETARIAT

The Corporate Governance philosophy of SAIL is to ensure transparency, disclosures and reporting that complies fully with laws, regulations and guidelines, and to promote ethical conduct throughout the organization, with the primary objective of enhancing shareholders value, while being a responsible corporate citizen. The Company is committed to conforming to the highest standards of corporate governance in the country.

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

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CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Sterlite Industries India Ltd 2 Registered Address SIPCOT Industrial Complex, Madurai By Pass Road,

T V Puram P.O.,Tuticorin -628 002, Tami Nadu, India 3 Contacts Tel. +91- 461-5512262/6612591

Fax.+91- 461-2340306/2240203 [email protected] Website.www.sterlite-industries.com

4 Chairman Anil Agarwal (Non Executive Chairman) 5 Executive Vice Chairman Navin Agarwal 6 Chief Executive Officer Kuldip Kumar Kaura 7 Company Secretary

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1117

261930

243868

250685

101406

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

97615

-8039

89576

65459

63887

79

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 678670 1009 415 14.6

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 79.25 7.38 7.32 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 9

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

6 Board 6 meetings

Number of Non Executive Directors who are Independent

3 Audit Committee 4 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 2 meetings

The company believes in conducting its affairs in a fair and transparent manner and in maintaining the highest ethical standards in its dealings with all its constituents. It is committed to following good corporate governance practices. The company’s mission is to constantly review its systems and procedures to achieve the highest level of corporate governance in the overall interest of all the stakeholders.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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135

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Tata Motors Limited 2 Registered Address Bombay House,24 Sir Homi Mody Street, Mumbai 400 001 3 Contacts Tel.+91 022-66658282

Fax +91 022 66657799 [email protected] Website.www.tatamotors.com

4 Chairman Ratan N Tata 5 Chief Executive Officer 6 Managing Director Ravi Kant 7 Company Secretary H K Sethna

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 3854

73103

369878

324264

325796

41835

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

37777

-6881

30896

22064

22049

56

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 310930 975 616 13.6

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 33.43 19.84 11.5 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes

No of Directors 11

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

9 Board 8 meetings

Number of Non Executive Directors who are Independent

5 Audit Committee 12 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 3 meetings

As part of the Tata group, the Company’s philosophy on Corporate Governance is founded upon a rich legacy of fair, ethical and transparent governance practices, many of which were in place even before they were mandated by adopting highest standards of professionalism, honesty, integrity and ethical behavior. Through the Governance mechanism in the Company, the Board along with its Committees endeavors to strike the right balance with its various stakeholders.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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136

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Tata Power Company Ltd 2 Registered Address Bombay House, 24, Homi Mody Street,

Fort, Mumbai - 400 001, India 3 Contacts Tel.+91 022 6665 8282

Fax.+91 022 6665 8801 [email protected] Website.www.tatapower.com

4 Chairman R N Tata 5 Chief Executive Officer 6 Managing Director P R Menon 7 Company Secretary B J Shroff

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1979

52124

64773

67443

13582

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

10749

-4148

6601

7592

7592

37

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 234070 1400 483 30.6

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 33 18.96 21 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 12

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

8 Board 7 meetings

Number of Non Executive Directors who are Independent

4 Audit Committee 11 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 2 meetings

Tata Power has been practicing good governance practices even before they were mandated. “Leadership with Trust” is the principle of operation of the

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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137

Company. The Business Excellence Brand Promotion (BEBP) process includes the Tata Business Excellence Model and the Tata Code of Conduct, which form guidelines for “Leadership with Trust”. The Company has adopted all these processes formally right from inception and continuously works on them to improve business performance and enhance stakeholder trust.

CORPORATE GOVERNANCE PRACTICE Particulars Practice 1 Name of the Company Tata Steel Ltd 2 Registered Address Bombay House, 24, Homi Mody Street,Fort, Mumbai 400 001 3 Contacts Tel.+91 022 6665 8282/7289

Fax.+91 022 6665 7724 / 6665 7725 [email protected] Website.www.tatasteel.com

4 Chairman R N Tata 5 Chief Executive Officer 6 Managing Director B Muthuraman 7 Company Secretary J C Bham

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 5800

138941

274373

252133

256514

78882

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

74770

-10110

64661

43186

41656

73

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio(%) 598560 970 353 5.2

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 30.52 17.42 25.32 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 11

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

8 Board 11 Meetings

Number of Non Executive Directors who are Independent

5 Audit Committee 6 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee -

Tata Steel believes in adopting the best practices in the areas of

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

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138

Corporate Governance. Even in a fiercely competitive business environment, the Management and Employees of the Company are committed to uphold the core values of transparency, integrity, honesty and accountability which are fundamental to the Tata Group. The Company retains focus on its resources, strengths and strategies for creation and safeguarding of shareholders’ wealth and at the same time protects the interests of all its shareholders.

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE Particulars Practice 1 Name of the Company Ultratech Cement Ltd 2 Registered Address "B" Wing, 2nd floor, Ahura Centre, Mahakali Caves Road, Andheri

(East), Mumbai 400 093 3 Contacts Tel.+91 022 66917800

Fax.+91 022 66928109 [email protected] Website.www.ultratechcement.com

4 Chairman Kumar Mangalam Birla 5 Chief Executive Officer 6 Managing Director S Misra 7 Company Secretary S K Chatterjee

FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1245

16393 49108

49108

49723

14793

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

13924

-2263

11662

7823

7823

63

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio(%) 128250 1205 662 14.4

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 51.08 7.5 16.23 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 12

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

11 Board 7 meetings

Number of Non Executive Directors who are Independent

4 Audit Committee 8 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 2 meetings

The Aditya Birla Group is committed BOARD SECRETARIAT

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139

to the adoption of best governance practices and their adherence in spirit. The governance philosophy rests on five basic tenets viz., Board accountability to the Company and shareholders, strategic guidance and effective monitoring by the Board, protection of minority interests and rights, equitable treatment of all shareholders as well as superior transparency and timely disclosure. The Aditya Birla Group Values - Integrity; Commitment; Passion; Seamlessness and Speed also reflect this philosophy.

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Videocon Industries Ltd. 2 Registered Address 14 Kms Stone, Aurangabad-Paithan Road, Chitegaon, Tq. Paithan,

Dist. Aurangabad - 431 105 (India) 3 Contacts Tel.+91 02431-251501, 02, 03, 04

Fax.- [email protected]/[email protected] Website.www.videoconworld.com

4 Chairman Venugopal N Dhoot, CMD 5 Chief Executive Officer 6 Managing Director 7 Company Secretary Vinod Kumar Bohra

FINANCIALS (Rs. In Mn) (Audited 1 Oct 05 – 30 Sep 06) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 2208

38476

75803 77458

12492

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

-3356 9137

8185

8188

37

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio(%) 81320 503 336 9.7

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 70.34 4.05 2.71 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 12

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

8 Board 17 meetings

Number of Non Executive Directors who are Independent

4 Audit Committee 5 meetings

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140

Term of the Chairman/CEO

NA Investor Grievance Committee -

Videocon believes that sound corporate governance is critical to enhance and retain investor’s trust. The Company’s philosophy on Corporate Governance is based on: Transparency & maintaining high disclosure levels, Accountability, Equity, Compliance with the laws in all the Countries in which the Company operates and Sustainability. The objective is to institutionalize Corporate Governance practices that go beyond adherence to the extant regulatory framework.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Videsh Sanchar Nigam Ltd (VSNL) 2 Registered Address Videsh Sanchar Bhavan, Mahatma Gandhi Road, Fort

Mumbai 400 001 3 Contacts Tel.+91-022-66504357

Fax- Email. [email protected] Website. www.vsnl.in

4 Chairman Subodh Bhargava 5 Chief Executive Officer Srinath Narasimham, MD & CEO 6 Managing Director 7 Company Secretary Satish Ranade

FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 2850

86112

88566

12990

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

11554

-7830

3724

930

17

0.54

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 167440 600 342 34.5

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 76.23 2.83 2.56 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 11

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

10 Board 9 Meetings

Number of Non Executive Directors who are Independent

4 Audit Committee 9 Meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 4 Meetings

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141

The Company believes that total business risk elimination is never possible but can be minimized by consistently developing and following the best practices of Corporate Governance. The Company is installing new state-of-the art systems including integrated financial accounting and budgeting systems and through a systematic process of training and development has increased the quality of its personnel. Fairness in words, actions and deeds with all stakeholders are the pillars of corporate governance philosophy of the Company.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Whirlpool of India Limited 2 Registered Address Plot No.A – 4, MIDC Ranjangaon, Taluka Shirur,

District Pune 419204, India 3 Contacts Tel.+91-0129-2232381, 2234071-73, 2234046-49

Fax.+91-0129-2233283 [email protected] Website.www.whirlpool.com

4 Chairman Mark Hu 5 Chief Executive Officer 6 Managing Director Arvind Uppal 7 Company Secretary Ravi Sabharwal

FINANCIALS (Rs. In Mn) (Audited 1 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 1269

132

16222

14806

14968

634

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

471

-344

127

130

-53

-2

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio(%) 4910 52 23 203.7

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 82.33 0.01 15.86 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 6

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

3 Board 7 meetings

Number of Non Executive Directors who are Independent

2 Audit Committee 4 meetings

Term of the NA Investor Grievance Committee 4 meetings

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142

Chairman/CEO Whirlpool’s philosophy Corporate

governance is based on the foundation of enduring Values. Over the years, the core Values of the company have not changed. These Values are the guidelines in all transactions and relations. That is the Spirit of Whirlpool and they call it the Spirit of Winning…. On to Leadership…. Sustainable and profitable. It tries to stretch and achieve that which seems beyond our grasp..

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Wipro Limited 2 Registered Address Doddakanneli, Sarjapur Road, Bangalore 560 035 3 Contacts Tel.+91 080 28440011

Fax.+91 080 28440214/28440256 Email- Website.www.wipro.com

4 Chairman Azim H Premji 5 Chief Executive Officer 6 Managing Director 7 Company Secretary V Ramachandran

FINANCIALS (Rs. In Mn) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 2918

90250

136796

139527

35432

Gross Profit Depreciation Profit Before Tax

Profit After Tax

Net Profit EPs

35360

-3598

31762

28421

28421

20

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 743810 690 425 23.5

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 79.58 5.14 7.58 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes

No of Directors 7

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

6 Board 5 meetings

Number of Non Executive Directors who are Independent

6 Audit Committee 6 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee

4 meetings

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Wipro was the pioneers/early adopters of some of the key governance practices in India. It instituted stock ownership in 1984, constituted in 1986, the sub-committees of the Board of Directors for Audit, and Compensation and benefits. On the disclosure front, it presented consolidated financial statements in 1983, the first year in which we established subsidiary company for carrying on our business, and followed it up with reporting on Segmental Business Results. Corporate Governance in Wipro has four layers, namely, 1.Governance by Shareholders, 2. Governance by Board of Directors, 3. Governance by Sub-committee of Board of Directors, and 4. Governance of the management process.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Britannia Industries Limited 2 Registered Address 5/1A, Hungerford Street, Kolkata - 700 017, West Bengal. 3 Contacts Tel.+91 033 2287 2439/ 2287 2057

Fax.+91 033 2287 2501 [email protected]/[email protected], Website.www.britannia.co.in

4 Chairman Nusli N Wadia 5 Chief Executive Officer 6 Managing Director Vanita Bali 7 Company Secretary V. Madan

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 239 2900 23841 22663 22951 1595 Gross Profit Depreciation Profit

Before Tax Profit After Tax

Net Profit EPs

1478 -260 1218 1105 1051 43.97 MARKET STATISTICS

MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 36520 1780 1030 25.9

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 50.96 14.64 18.67 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 13

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

12 Board 4 meetings

Number of Non Executive Directors who are Independent

5 Audit Committee 4 meetings

Term of the Chairman/CEO

NA/5 Investor Grievance Committee 24 meetings

BOARD SECRETARIAT

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Our Company considers good corporate governance a pre-requisite for meeting the needs and aspirations of its holders and other stakeholders in the company and firmly believes it can be achieved by maintaining transparency in its dealings, integrity and strict regulatory compliance. And with this view the corporate governance report contains relevant disclosure about the Board, Board committees as also on the financial and stock performance.

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Bharati Airtel Limited 2 Registered Address Qutab Ambience, H-5/12, Mehrauli Road, New Delhi 110 030 3 Contacts Tel. +91 11 41666000-07

Fax. +91 11 41666011-12 [email protected] Website.www.bharatiairtel.in

4 Chairman Sunil Bharti Mittal 5 Chief Executive Officer Manoj Kohli (CEO & President) 6 Managing Director Sunil Bharati Mittal 7 Company Secretary Vijaya Sampath, Group Gen. Counsel & Co. Secretary

FINANCIALS (Rs. In Mn) (Audited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 184202 185321 75526 Gross Profit Depreciation Profit

Before Tax Profit After Tax

Net Profit EPs

73037 -26191 46846 41165 41102 - MARKET STATISTICS

MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 1887560 1149 527 40.5

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 45.36 25.41 0.69 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 18

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

16 Board 4 meetings

Number of Non Executive Directors who are Independent

9 Audit Committee 4 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee 10 meetings

BOARD SECRETARIAT

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Corporate governance refers to a combination of law, regulation, compliances and adoption of certain mandatory practices voluntarily by the board and company that enables an organization to perform efficiently and ethically, generate long term wealth and value for all its stakeholders and respect the interests of society as a whole, besides attracting the best talent and raise capital and funding optimally.

Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Mahanagar Telephone Nigam Ltd. (MTNL) 2 Registered Address Jeevan Bharti Building, Tower 1, 12th Floor, 124 Connaught Circus,

New Delhi 110 001 3 Contacts Tel.+91 11 23742212/3326

Fax.+9111 23314243 [email protected] Website.www.mtnl.net.in

4 Chairman R S P Sinha, CMD 5 Chief Executive Officer 6 Managing Director 7 Company Secretary S C Ahuja

FINANCIALS (Rs. In Mn) (Unaudited 01 Apr 06 – 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit - 49234 55307 14908 Gross Profit Depreciation Profit

Before Tax Profit After Tax

Net Profit EPs

14887 -6803 8085 5274 6431 10.21 MARKET STATISTICS

MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio (%) 121500 194 124 19.5

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 56.25 13.04 2.71 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes No of Directors 7

Is the Chairman Non Executive

No COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

4 Board 10 meetings

Number of Non Executive Directors who are Independent

1 Audit Committee 3 meetings

Term of the Chairman/CEO

NA Investor Grievance Committee -

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The company's philosophy on

corporate governance en-compasses achieving the balance between shareholders interest and corporate goals through the efficient conduct of its business and meeting its stakeholder’s obligation in a manner that is guided by transparency, accountability and integrity.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

CORPORATE GOVERNANCE PRACTICE

Particulars Practice 1 Name of the Company Jindal Steel & Power Ltd. 2 Registered Address 28, Najafgarh Road, New Delhi 110 015 3 Contacts Tel. +91 113058 9739-40

Fax +91 11 3058 9755 Email. – Website.www.jindalstreelpower.com

4 Chairperson Savitri Jindal 5 Chief Executive Officer Naveen Jindal Er. Vice Chairman & MD 6 Managing Director Vikrant Gujral Vice Chairman & CEO 7 Company Secretary S Ananthakrishnan

FINANCIALS (Rs. In Mn) (Audited 31 Mar 07) Equity Reserves Gross Sales Net Sales Total Income Operating Profit 154 35198 35488 14314 Gross Profit Depreciation Profit

Before Tax Profit After Tax

Net Profit EPs

-3365 9448 7030 7030

MARKET STATISTICS MarketCap (Rs. In Mn) Price High (Rs.) Price Low (Rs.) PE Ratio(%) 273650 9220 1780 34.2

SHARE HOLDING PATTERN (%) Promoters FIIs Individuals 59.084 24.49 10.04 CG COMPLIANCE BOARD CG Report included in the Annual Report of the Company

Yes

No of Directors 10

Is the Chairman Non Executive

Yes COMMITTEE MEETINGS

Number of Non Executive Directors in the Board

5 Board 5 meetings

Number of Non Executive Directors who are Independent

3 Audit Committee 5 meetings

Term of the Chairman/CEO

NA/5 Investor Grievance Committee 4 Meetings

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Corporate Governance in Jindal Steel is adopted as a value system for ensuring efficient working and proper conduct of the business and affairs of the Company with a view to put the available resources at optimum use, increase operational efficiency and enhance shareholders’ wealth. Company’s Corporate Governance Philosophy is equity, fairplay, judicious utilization of resources, responsiveness towards stakeholders such as shareholders, lenders, customers, vendors, employees, society’s needs, empowerment of human resource, preserving natural heritage, strengthening administrative structure, its systems, policies and procedures.

BOARD SECRETARIAT Does the company has a Chief Compliance Officer

Yes

Is the Chief Compliance Officer same as the Company Secretary

Yes

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ANNEXURES

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List of Annexures

Pariculars Page No. 1. Objectives of Corporate Governance 154

2. Corporate Governance Assessment and Policy Recommendations for India 163

3. Questionnaire for Performance Evaluation of the Audit Committees 167

4. Ownership of Global Corporations 172

5. Total Value of listed corporate assets under family control 173

6. Indexes based on Corporate Governance 174

7. Index of Corporate Governance Codes in Various Countries 177

8. Best Practices in Practice Country Comparisons- 183

India China, Brazil and Malaysia

9. Overview of the Functions of Audit Committees in Selected Companies 191

10. Differences between US and Indian Corporate Governance 223

11. Evolution of Corporate Governance 224

12. Indices of Regulation of Securities Markets 226

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Annexure- 1 Objectives of Corporate Governance

SAIL The Corporate Governance philosophy of SAIL is to ensure transparency, disclosures and reporting that complies fully with laws, regulations and guidelines, and to promote ethical conduct throughout the organization, with the primary objective of enhancing shareholders value, while being a responsible corporate citizen. The Company is committed to conforming to the highest standards of corporate governance in the country. It recognizes that the Board is accountable to all shareholders and that each member of the Board owes his/her first duty for protecting and furthering the interest of the Company. Tata Steel Tata Steel believes in adopting the best practices in the areas of Corporate Governance. Even in a fiercely competitive business environment, the Management and Employees of the Company are committed to uphold the core values of transparency, integrity, honesty and accountability which are fundamental to the Tata Group. The Company retains focus on its resources, strengths and strategies for creation and safeguarding of shareholders’ wealth and at the same time protects the interests of all its shareholders.

Hindalco The Aditya Birla Group is committed to the adoption of best governance practices and its adherence in the true spirit, at all times. Its governance practices stems from an inherent desire to improve and innovate and reflects the culture of trusteeship that is deeply ingrained in value system and forms part of the strategic thought process. The governance philosophy rests on the following five basic tenets;

• Board accountability to the Company and shareholders, • strategic guidance and effective monitoring by the Board, • protection of minority interests and rights, • equitable treatment of all shareholders and • Superior transparency and timely disclosure.

Jindal Steel Corporate Governance in Jindal Steel is adopted as a value system for ensuring efficient working and proper conduct of the business and affairs of the Company with a view to put the available resources at optimum use, increase operational efficiency and enhance shareholders’ wealth. Company’s Corporate Governance Philosophy is equity, fairplay, judicious utilization of resources, responsiveness towards stakeholders such as shareholders, lenders, customers, vendors, employees, society’s needs, empowerment of human resource, preserving natural heritage, strengthening administrative structure, its systems, policies and procedures. This is continuous process which evolves over a period of time and undergoes changes to suit the changing times and needs of the business, society and the state. Essar Steel Essar Steel Limited believes that good Corporate Governance is essential to achieve long term corporate goals and to enhance stakeholders’ value. The Company’s philosophy on Corporate Governance envisages attainment of high level transparency, accountability and integrity in the functioning of the Company and the conduct of its business, its relationship with employees, stakeholders, creditors, customers and institutional and other lenders. The company places due emphasis on regulatory compliance.

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Sterlite The company believes in conducting its affairs in a fair and transparent manner and in maintaining the highest ethical standards in its dealings with all its constituents. It is committed to following good corporate governance practices. The company’s mission is to constantly review its systems and procedures to achieve the highest level of corporate governance in the overall interest of all the stakeholders. HLL At Hindustan Unilever Limited, good governance is an ongoing process, thereby ensuring truth, transparency, accountability and responsibility in all dealings with employees, shareholders, consumers and the community at large. At Hindustan Unilever, corporate governance in its widest sense, almost like a trusteeship; it is a philosophy to be professed, a value to be imbibed and an ideology to be ingrained in corporate culture. Corporate governance goes much beyond mere compliance; it is not a simple matter of creating checks and balances (although we also engage in that!). It is in fact a continuous process of realizing the Company's objectives with a view to make the most of every opportunity. It involves leveraging its resources and aligning its activities to consumer need, shareholder benefit and employee growth. Thereby the company succeeds in delighting its stakeholders while minimizing risks. The primary objective is to create and adhere to a corporate culture of conscientiousness and consciousness, transparency and openness. The Company aims to develop capabilities and identify opportunities that best serve the goal of value creation, thereby creating an outstanding organization. Nestle Nestlé India Limited, as a part of Nestlé Group, Switzerland has over the years followed best practice of Corporate Governance by adhering to practices laid down by Nestlé Group. The two most significant documents from Nestlé Group, which define the standard of behaviour of Nestlé India, are “Nestlé Corporate Business Principles” and “The Nestlé Management and Leadership Principles”. Nestlé India’s business objective and that of its management and employees is to manufacture and market the Company’s products in such a way as to create value that can be sustained over the long term for consumers, shareholders, employees, business partners and the national economy. Nestlé India is conscious of the fact that the success of a corporation is a reflection of the professionalism, conduct and ethical values of its management and employees. In addition to compliance with regulatory requirements, Nestlé India endeavors to ensure that highest standards of ethical and responsible conduct are met throughout the organization. Britannia Company considers good corporate governance a pre-requisite for meeting the needs and aspirations of its holders and other stakeholders in the company and firmly believes it can be achieved by maintaining transparency in its dealings, integrity and strict regulatory compliance. And with this view the corporate governance report contains relevant disclosure about the Board, Board committees as also on the financial and stock performance. Whirlpool Whirlpool’s philosophy on Corporate Governance is based on the foundation of enduring Values. Over the years, the core Values of the company have not changed. These Values are the guidelines in all transactions and relations. That is the Spirit of Whirlpool and they call it the Spirit of Winning…. On to Leadership…. Sustainable and profitable. It tries to stretch and achieve that which seems beyond our grasp. It envisages attainment of the highest levels of transparency, accountability and equity in all facets of its operations and its interaction with its stakeholders including Shareholders, Employees, Lenders and the Government. Whirlpool believes in implementing the philosophy of corporate governance in letter and spirit.

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Videocon Videocon believes that sound corporate governance is critical to enhance and retain investor’s trust. The Company’s philosophy on Corporate Governance is based on: 1. Transparency & maintaining high disclosure levels. 2. Accountability. 3. Equity. 4. Compliance with the laws in all the Countries in which the Company operates. 5. Sustainability. The objective is to institutionalize Corporate Governance practices that go beyond adherence to the extant regulatory framework. In fact, our corporate structure, business and disclosure practices are aligned to our Corporate Governance philosophy. HPCL HPCL lays special emphasis on conducting its affairs within the framework policies, internal and external regulations and in a transparent manner. Being a Government Company its activities are subject to review by several external authorities like the Comptroller & Auditor General of India (CAG), the Central Vigilance Commission (CVC), parliamentary Committees etc. At the apex level is the HPCL Board of Directors (The Board). The Board has constituted several sub-committees, such as the Committee of Functional Directors (CFD), the Audit Committee, the Investment Committee, the HR Committee, the Investor Grievance Committee, etc. BPCL Bharat Petroleum Corporation Ltd’s corporate philosophy on Corporate Governance has been to ensure fairness to the stakeholders through transparency, full disclosures, empowerment of employees and collective decision making. Indian Oil Indian Oil believes that good Corporate Governance practices ensure efficient conduct of the affairs of the Company and also help in maximizing value for all its stakeholders. The Company endeavors to uphold the principles and practices of Corporate Governance to ensure transparency, integrity and accountability in its functioning, which are vital to achieve its Vision of becoming a major diversified, transnational, integrated energy company. With the adoption of the following policies, the Company has further enhanced its Governance structure: (a) Code of Conduct for Directors and senior management personnel, (b) Code of Conduct for prevention of insider trading and (c) Policy on risk assessment and minimizing procedures. Reliance Oil Over the years, governance processes and systems have been strengthened at Reliance. In addition to complying with the statutory requirements, effective governance systems and practices inter alia towards transparency, disclosures, internal controls and promotion of ethics at work-place have been institutionalized. Reliance recognizes that good Corporate Governance is a continuing exercise and reiterates its commitment to pursue highest standards of Corporate Governance in the overall interest of all the stakeholders. For implementing the Corporate Governance practices, Reliance has a well defined policy framework consisting of the following: • Reliance’s values and commitments policy • Reliance’s code of ethics • Reliance’s business policies • Reliance’s policy for prohibition of insider trading • A detailed programme of ethics management

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State Bank of India State Bank of India is committed to the best practices in the area of corporate governance, in letter and in spirit. The Bank believes that good corporate governance is much more than complying with legal and regulatory requirements. Good governance facilitates effective management and control of business, maintaining a high level of business ethics and optimizing the value for all its stakeholders. The objectives can be summarized as: • To enhance shareholder value. • To protect the interests of shareholders and other stakeholders including customers,

employees and society at large. • To ensure transparency and integrity in communication and to make available full, accurate

and clear information to all concerned. • To ensure accountability for performance and to achieve excellence at all levels. • To provide corporate leadership of highest standard for others to emulate ICICI ICICI Bank’s corporate governance philosophy encompasses not only regulatory and legal requirements, such as the terms of listing agreements with stock exchanges, but also several voluntary practices aimed at a high level of business ethics, effective supervision and enhancement of value for all stakeholders. HDFC HDFC encompasses the simple tenets of integrity, transparency and fairness in whatever it does. Each relationship that HDFC has, be its borrowers, depositors, agents, shareholders or other stakeholders is highly valued by the organisation. Across the organisation, HDFC has always followed an open-door policy. This not only ensures transparency, but also enables rapport building and gives employees an opportunity to freely address issues of concern. The Board of Directors fully supports and endorses corporate governance practices in accordance with the provisions of Clause 49 of the listing agreements. The Corporation has complied with the mandatory requirements of the said Clause and listed below is the status with regard to the same. NTPC NTPC believes in the philosophy that corporate governance is a key element in improving efficiency and growth as well as enhancing investor confidence and accordingly the Corporate Governance philosophy has been scripted as under: “As a good corporate citizen, the Company is committed to sound corporate practices based on conscience, openness, fairness, professionalism and accountability in building confidence of its various stakeholders in it thereby paving the way for its long term success.” Tata Power Tata Power has been practicing good governance practices even before they were mandated. “Leadership with Trust” is the principle of operation of the Company. The Business Excellence Brand Promotion (BEBP) process includes the Tata Business Excellence Model and the Tata Code of Conduct, which form guidelines for “Leadership with Trust”. The Company has adopted all these processes formally right from inception and continuously works on them to improve business performance and enhance stakeholder trust. The Company will continue to focus its energies and resources in creating and safeguarding of shareholders’ wealth, and at the same time, protect the interests of all its stakeholders. Reliance Energy In our commitment to practice sound governance principles, Reliance Energy is guided by the following core principles.: 1. Transparency To maintain the highest standards of transparency in all aspects of our interactions and dealings. 2. Disclosures To ensure timely dissemination of all price sensitive information and matters of interest to our stakeholders. 3. Accountability To demonstrate highest levels of personal responsibility and continually affirm that employees are responsible to themselves for the pursuit of excellence. 4. Compliances

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To comply with all the laws and regulations as applicable to the company. 5. Ethical conduct To conduct the affairs of the company in an ethical manner. 6. Stakeholders’ interests To promote the interests of all stakeholders including of customers, shareholders, employees, lenders, vendors, governments and the community. Tata Motors As part of the Tata group, the Company’s philosophy on Corporate Governance is founded upon a rich legacy of fair, ethical and transparent governance practices, many of which were in place even before they were mandated by adopting highest standards of professionalism, honesty, integrity and ethical behavior. Through the Governance mechanism in the Company, the Board along with its Committees endeavors to strike the right balance with its various stakeholders. The Corporate Governance philosophy has been further strengthened with the implementation, a few years ago, by the Company of the Tata Business Excellence Model, the Tata Code of Conduct applicable to the Company, its directors and employees. The Company is in full compliance with the requirements of Corporate Governance under Clause 49 of the Listing Agreement with the Indian Stock Exchanges. With the listing of the Company’s Depositary Programme on the New York Stock Exchange, the Company is also compliant with US regulations as applicable to Foreign Private Issuers (non-US listed companies) which cast upon the Board of Directors and the Audit Committee, onerous responsibilities to improve the Company’s operating efficiencies. Risk management and internal control functions have been geared up to meet the progressive governance standards. Bajaj Auto The commitment of Bajaj Auto Limited (‘Bajaj Auto’, ‘BAL’ or ‘the Company’) to the highest standards of good corporate governance practices predates SEBI and clause 49 of the Listing Agreements. Transparency, fairness, disclosure and accountability are central to the working of the Company and its Board of Directors. Hero Honda Hero Honda’s philosophy of corporate governance stems from its belief that the company’s business strategy and plans should be consistent with the welfare of all its stakeholders, including shareholders. Corporate governance rests upon the four pillars of transparency, full disclosure, independent monitoring and fairness to all, especially to minority shareholders. Dr.Reddy Dr.Reddy’s philosophy of corporate governance stems out from its belief that timely disclosures, transparent accounting policies, and a strong and independent Board go a long way in preserving shareholders trust while maximizing long-term corporate values. Keeping in view the Company’s size and complexity in operations, Dr. Reddy’s corporate governance framework is based on the following main principles: • Appropriate composition and size of the Board, with each Director bringing in key expertise in different areas. • Proactive flow of information to the members of the Board and Board Committees to enable effective discharge of their fiduciary duties. • Ethical business conduct by the management and employees. • Full-fl edged systems and processes for internal controls on all operations, risk management and financial reporting; • Timely and accurate disclosure of all material operational and financial information to the stakeholders. Cipla The Company is committed to good corporate governance. The Company respects the rights of its shareholders to secure information on the performance of the Company and it is its endeavor to maximize the long term value to the shareholders of the Company.

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Merck Merck is committed to the adoption of the best governance practices and their adherence in the true spirit, at all times. The Company’s philosophy on Corporate Governance is to ensure that the systems and procedures which monitor compliance with laws, rules and regulations are in place in each area of its operations and the relevant information regarding the Company and its operations is disclosed, disseminated and easily available to all its stakeholders. Ranbaxy Ranbaxy has always believed in such a "Sound" Code of Corporate Governance, as a tool for highest standards of management and business integrity and as a result started implementing a series of voluntary initiatives as early as 1999. Some of these measures included: - Composition of the Board of Directors (eg. Majority Independent Directors). - Constitution of various Board Committees for oversight and guidance concerning key

decisions and soundness of decision making processes connected with the functioning of the Company.

- Timely dissemination of information to shareholders. - Code of Conduct. GlaxoSmithkline The Company’s philosophy of Corporate Governance is aimed at assisting the management of the Company in the efficient conduct of its business and in meeting its obligations to stakeholders, and is guided by a strong emphasis on transparency, accountability and integrity. For several years, the Company has adopted a codified Corporate Governance Charter, which is in line with the best practice, as well as meets all the relevant legal and regulatory requirements. All Directors and employees are bound by Codes of Conduct that sets out the fundamental standards to be followed in all actions carried out on behalf of the Company. Infosys Over the years, the Board has developed corporate governance guidelines to help fulfill corporate responsibility to various stakeholders. This ensures that the Board will have the necessary authority and practices in place, to review and evaluate our operations when required. Further, it allows the Board to make decisions that are independent of the Management. Our 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 the Company operates. • Have a simple and transparent corporate structure driven solely by business needs. • Management is the trustee of the shareholders’ capital and not the owner. Wipro Wipro was the pioneers/early adopters of some of the key governance practices in India. It instituted stock ownership in 1984, constituted in 1986, the sub-committees of the Board of Directors for Audit, and Compensation and benefits. On the disclosure front, it presented consolidated financial statements in 1983, the first year in which we established subsidiary company for carrying on our business, and followed it up with reporting on Segmental Business Results. Corporate Governance in Wipro has four layers, namely, 1. Governance by Shareholders, 2. Governance by Board of Directors, 3. Governance by Sub-committee of Board of Directors, and 4. Governance of the management process Satyam

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Corporate Governance assumes a great deal of importance in the business life of Satyam. The driving forces of Corporate Governance at Satyam are its core values – Associate Delight, Investor Delight, Customer Delight and the Pursuit of Excellence. The Company’s goal is to find creative and productive ways of delighting its stakeholders, i.e., Investors, Customers, Associates and Society, thereby fulfilling the role of a responsible corporate representative committed to best practices. Mphasis MphasiS’ Corporate Governance is directed at the enhancement of shareholder value, keeping in mind the interests of the other stake holders, viz., clients, employees, investors, regulatory bodies, etc. The functions of the Board of Directors of the Company are well defined. The Company has taken various steps including setting up of various sub-committees of the Board to oversee the functions of the Management. MphasiS is committed to good corporate governance and has bench marked itself against global best practices. ACC ACC is respected for its professional management and good business practices in the Indian corporate world. Integrity, emphasis on product quality and transparency in its dealings with all stakeholders are its core values. ACC believes that good governance generates goodwill among business partners, customers and investors, earns respect from society and brings about a consistent sustainable growth for the Company and generates competitive returns for the investors. Towards its objectives of achieving good corporate governance, it has endowed a Chair for Business Ethics at the Management Centre for Human Values, Indian Institute of Management, Kolkata. Ultratech The Aditya Birla Group is committed to the adoption of best governance practices and their adherence in spirit. The governance philosophy rests on five basic tenets viz., Board accountability to the Company and shareholders, strategic guidance and effective monitoring by the Board, protection of minority interests and rights, equitable treatment of all shareholders as well as superior transparency and timely disclosure. The Aditya Birla Group Values - Integrity; Commitment; Passion; Seamlessness and Speed also reflect this philosophy. Gujarat Ambuja The company believes in transparency, empowerment, accountability, safety of people and environment, motivation, respect for law and fair business practices with all its stakeholders. These practices being followed since inception have helped the company in its sustained growth. ITC ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth-generating capacity. Since large corporations employ a vast quantum of societal resources, ITC believes that the governance process should ensure that these resources are utilized in a manner that meets stakeholders’ aspirations and societal expectations. This belief is reflected in the Company’s deep commitment to contribute to the “triple bottom line”, namely the development, nurture and regeneration of the nation’s economic, social and environmental capital. ITC's Corporate Governance structure, systems and processes are based on two core principles: (i) Management must have the executive freedom to drive the enterprise forward without undue restraints, and (ii) This freedom of management should be exercised within a framework of effective accountability. L&T The Company's philosophy on Corporate Governance is built on a rich legacy of fair and transparent governance and disclosure practices, many of which were in existence even before they were mandated by legislation. The Company's essential character revolves round values based on transparency, integrity, professionalism and accountability. At the highest level, the Company continuously endeavours to improve upon these aspects and adopts innovative approaches for leveraging resources, converting opportunities into achievements through proper empowerment and motivation, fostering a healthy growth and development of human resources. Bharti Airtel

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Corporate governance refers to a combination of law, regulation, compliances and adoption of certain mandatory practices voluntarily by the board and company that enables an organization to perform efficiently and ethically, generate long term wealth and value for all its stakeholders and respect the interests of society as a whole, besides attracting the best talent and raise capital and funding optimally. The principals of corporate governance practices in Bharti Airtel Ltd. are based on the following broad principals: • Transparency in disclosure and communication of relevant financial and operational

information in timely manner; • Accountability, supported by robust internal processes of management oversight and

control for monitoring of performance and evaluation of risk; • Integrity and ethics in our dealings with all stakeholders; • Balancing the enforcement and protection of the rights of all stakeholders, thus creating

wealth and value in the long term; • Independence of directors in reviewing and approving corporate strategy, major business

plans and activities as well as senior management appointments; • Well-defined corporate structure that establishes checks and balances and delegates

decision making to appropriate levels in the organization. VSNL VSNL has evolved from the only ILD player in India to a multi-national corporation having its presence felt across the globe. Today, VSNL being one of the leaders in the global ILD market, the challenge lies in designing a model addressing the specific and unique needs of geographies and yet strengthening and aligning the overall business objectives and goals. The Company believes that total business risk elimination is never possible but can be minimized by consistently developing and following the best practices of Corporate Governance. To this end, the Company focuses on developing and implementing higher standards of accountability to enable optimum returns to all stakeholders. The Company is installing new state-of-the art systems including integrated financial accounting and budgeting systems and through a systematic process of training and development has increased the quality of its personnel. Fairness in words, actions and deeds with all stakeholders are the pillars of corporate governance philosophy of the Company. Corporate Governance in substance rather than form is what the Company believes in and actively implements. To ensure this, a high level Corporate Governance Council has been formed to ensure that the best practices of Corporate Governance are adopted. MTNL The company's philosophy on corporate governance encompasses achieving the balance between shareholders interest and corporate goals through the efficient conduct of its business and meeting its stakeholder’s obligation in a manner that is guided by transparency, accountability and integrity. ONGC The company views corporate governance in its widest sense almost like a trusteeship, a philosophy to be progressed, a value to be imbibed and an ideology to be ingrained into the corporate culture. It has been practicing corporate governance principles much before it became mandatory. They maintain that to be successful it must maintain global standards of corporate conduct towards it stakeholders. It views to translate opportunities into reality. The primary objective is to create and adhere to a corporate culture of conscience and consciousness, transparency and openness, fairness, accountability, propriety, equity, sustainable value creation, ethical practices, thereby creating an outperforming organization. To that end, your company has always focused on good corporate governance which is the key driver of sustainable corporate growth and long term value creation.

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Annexure- 2 Corporate Governance Assessment and Policy Recommendations for India

World Bank, 2004 I. The Rights of Shareholders 1. Basic shareholder rights : OBSERVED • Shares traded through a stock exchange are held in dematerialized form in the two depositories: National Securities Depository and Central Depository Services. • Registration in a depository is proof of ownership. • Companies must maintain a register of shareholders or outsource this function to a share transfer agent. • Shares traded through stock exchanges are transferred through book entry at the depositories. • Cash settlement occurs at designated clearing banks of stock exchange clearing houses. Clearance/settlement occurs in DVP2 on T+2. • Novation exists at National Stock Exchange (NSE), but not Stock Exchange, Mumbai (BSE). • Guarantee funds have largely eliminated settlement risk. Central Bank plans to introduce real time gross settlement in 2004. • Annual and half yearly accounts are mailed to shareholders; quarterly accounts are published in newspapers and posted on web pages of issuers and stock exchanges. • Companies must file memorandum, articles of association and periodic financial information with a Registrar of Companies (ROC). Investors can access this information for nominal fee (about USD 1). • Usually, directors are proposed by board and elected by shareholders. Shareholders can propose candidates up to fourteen days before AGM [annual general meeting], but shareholders seldom use this right. • Board proposes dividend, and AGM approves it. Policy Recommendations: N.A 2. Rights to participate in fundamental decisions: OBSERVED • Certain fundamental corporate decisions are the exclusive power of AGM and require 75 percent majority: • changing registered office; • authorizing capital increases; • waiving pre-emptive rights; buying back shares; • amending articles of association; • delisting; • acquisitions, disposals, mergers and takeovers; • changes to company business or objectives; • making loans and investments beyond limits prescribed under CA Section 372A, • authorizing board to: sell or lease major assets; borrow money in excess of paid-up capital and free reserves, and (iii) Appoint sole selling agents and apply to the court for the winding up of company. Policy Recommendations: The provision dealing with the selling or leasing of major assets should be further refined to avoid any abuse. 3. Shareholders’ AGM rights: OBSERVED • AGM mandatory, according to Companies Act (CA). • 21 day AGM notice (meeting place, time, agenda) sent to all shareholders. • In case of special business, agenda must set out material facts, including nature of concern or interest of any director or manager. • Some companies reportedly hold AGMs in remote locations. • Quorum is five shareholders. If quorum is not met after half an hour, meeting is dissolved if called by shareholders, or postponed for one week if called by board. • Shareholders may vote in person or proxy. • CA allows postal voting for fundamental situations. • Any shareholder may apply to Company Law Board (CLB) to call AGM. • Shareholders with 10 percent of paid-up voting capital can call EGM [exceptional general

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meeting]. • Shareholders can vote by show of hands or demand poll, if they own at least 10 percent of voting rights. Policy Recommendations: N.A 4. Disproportionate control disclosure: LARGELY OBSERVED • No nominee accounts. • Shareholder agreements need not be disclosed to company/shareholders. • Prevalence of complex cross-holdings across family or business groups still fails to provide a fully transparent picture for shareholders. Policy Recommendations: Shareholder agreements should be disclosed 5. Markets for corporate control should be allowed to function: OBSERVED • SEBI [Securities and Exchange Board of India] Takeover Code has been successfully tested in 25 + hostile bids. •Takeover Code requires anyone whose holdings cross 15 percent threshold to make offer for at least 20 percent more of shares. Policy Recommendations: N.A 6. Cost/benefit to voting: MATERIALLY NOT OBSERVED • Pension funds seldom exercise voting rights; instead exert influence through nominee directors on the board of their portfolio companies. Policy Recommendations: - Regulators should consider introducing an obligation that institutional investors acting in a fiduciary capacity adopt and disclose their corporate governance and voting policy. - Regulators should also disclose to the public how they manage material conflicts of interest that may affect the exercise of their corporate governance rights. - Shareholder activism among retail investors should be encouraged. II. Equitable Treatment of Shareholders 1. All shareholders should be treated equally: PARTIALLY OBSERVED • Shareholders can apply [to] the CLB, SEBI or the company “Grievance Committee” for redress. Derivative and class action suits exist. • Doubts persist about the effectiveness of legal remedies in practice. Policy Recommendations: - Depository receipt contracts should provide owners with same rights to vote as are accorded to holders of underlying shares. - Consider strengthening regulators’ enforcement power to offset backlog and delays of court procedures. 2. Prohibit insider trading PARTIALLY OBSERVED • Insider trading is a criminal offense, but enforcement is problematic. • Senior management must disclose to board potential conflicts of interest. • Directors must disclose share dealings beyond certain threshold. Policy Recommendations: - Implement SEBI’s initiative of a unique client code for each investor. - There should be greater cooperation between NSE and BSE on surveillance. - Publish share trading by directors and senior management in the newspaper. - Successfully prosecute one insider trading case to enhance perception of market integrity. 3. Board/Mgrs. disclose interests PARTIALLY OBSERVED • Reportedly, misuse of corporate assets and abuse in related party transactions remain problems. Policy Recommendations: - While audit committees should pre-vet related party transactions, ultimate responsibility of judging whether a related party transaction is in the best interest of the company should

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remain with the board. III. Role of Stake holders in Corporate Governance 1. Stakeholder rights respected OBSERVED • Board is required to discuss material issues regarding stakeholders. Policy Recommendations: N.A 2. Redress for violation of rights PARTIALLY OBSERVED • Redress can be sought through civil and high courts; however, there are long delays and backlogs. Policy Recommendations: 3. Performance enhancement: OBSERVED • SEBI has issued detailed guidelines on the issue of stock options. Policy Recommendations: Closely follow the international debate on good practices regarding the treatment of stock options. 4. Access to information: OBSERVED • Relevant information is posted on company and stock exchange websites, but quality of info varies among companies. Policy Recommendations: N.A IV. Disclosure and Transparency 1. Disclosure standards: LARGELY OBSERVED • Companies must send annual report to shareholders, stock exchanges, DCA [Department of company Affairs] and ROC; content regulated by statute. • Disclosure does not extend to level of ultimate beneficiary and structure of business groups. • Quality of financial reporting improving, but stock exchanges lack sufficient resources to ensure compliance and rely heavily on auditors. Policy Recommendations: SEBI and stock exchanges need to cooperate more closely to effectively monitor and enforce compliance with listing agreement. Steps must be taken to clarify division of responsibilities among stock exchanges, SEBI and DCA to avoid unintentional regulatory overlap and potential conflicts. 2. Standards of accounting & audit LARGELY OBSERVED • Quality of financial disclosure determined by DCA, SEBI and ICAI [Institute of Chartered Accountants of India]. • ICAI says India conforms with ISA [International Standards of Auditing]. • Judicial delays diminish deterrence factor of some penalties. Policy Recommendations: Significantly enhance fines to act as credible deterrents. 3. Independent audit annually PARTIALLY OBSERVED • Auditors can provide consulting services to the company they audit up to the level of the audit fee, and fees disclosed in the annual report. • Disciplinary proceedings can be lengthy. Policy Recommendations: - Recommendations of Naresh Chandra Committee on Corporate Audit and Governance are included in pending legislation, which should go forward. - Consider different options to subject auditors to an auditor oversight body that operates in the public interest and that is not under the control of the auditing profession. 4. Fair & timely dissemination: OBSERVED • Dissemination channels include direct mailing, company websites, the stock exchange, and press announcements. • Printing/distribution of annual report to all shareholders and necessity of publishing accounts of all subsidiaries add greatly to issuer costs

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Policy Recommendations: Give shareholders option to decline full annual report in lieu of summary, whose content would be regulated by SEBI. V. Responsibilities of the Board 1. Acts with due diligence, care: LARGELY OBSERVED • Unitary board structure. • Basic fiduciary duties are not spelled out in legislation, but embedded in sparse existing jurisprudence. Policy Recommendations: - The fiduciary obligations should be clearly spelled out in the legal or regulatory framework. - Have same standards of care for executive and independent directors, with few exceptions. - Provide directors with access to training. 2. Treat all shareholders fairly: LARGELY OBSERVED • Board members have a fiduciary obligation to treat shareholders fairly. • Shareholders can appeal to SEBI or the courts At least 2/3 of board rotational. Policy Recommendations: - Have DFIs [development finance institutions] nominate expert independent directors on their behalf. - Maximum term of independent directors should be capped. 3. Ensure compliance w/ law: OBSERVED • The company secretary ensures the board complies with its statutory duties and obligations. Policy Recommendations: N.A 4. The board should fulfill certain key functions: LARGELY OBSERVED • There is no rule vesting the responsibility of overseeing the process of disclosure and communication with the board. Small companies practice “box-ticking.” Policy Recommendations: - Consider consulting shareholders with regard to general compensation policy for senior management, rather than individual packages. - The department in charge of corporate communication should have a direct reporting line to the board. - Clearly-defined board procedures are needed to allow board to effectively exercise its oversight function on risk management. 5. The board should be able to exercise objective judgment: PARTIALLY OBSERVED • Audit and remuneration committees are common. • Audit committee has three members, all non-executive and a majority of them independent. • Director may have membership on 15 boards and ten committees and may chair five committees. Policy Recommendations: - Given that multiple board memberships by one person can interfere with performance of directors, companies and shareholders should consider desirability of such a situation. - Consider special training and certification program for audit committee members. - Adequate across-the-board compensation for independent directors will help increase supply of high quality candidates and ensure sufficient time is devoted to their responsibilities. - Compliance with the audit committee requirement should be monitored closely by regulators. 6. Access to information: OBSERVED • Clause 49 mandates information to be placed before the board; it is sufficient to inform directors about firm’s financial/non-financial situation. Policy Recommendations: N.A

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Annexure - 3 Audit Committee

Questionnaire for Performance Evaluation Self assessment of the audit committee is an important aspect of the corporate governance practice. A typical check list of the self evaluation process as designed by the audit firm Deloitte & Touche is given below for the purpose of illustration and general guidance. When completing the performance evaluation, the following process may be employed:

• Select a coordinator and establish a timeline for the evaluation process. • Audit committee members should complete the form as a self evaluation. The audit

committee should also identify those individuals who interact with the audit committee members and who can provide feedback.

• Select the appropriate rating that most closely reflects the audit committee’s performance related to each practice.

• Provide completed evaluations to the evaluation coordinator for consolidation into a summarize document.

For each of the following statements, select a number between 1 and 5, with 1 indicating that you strongly disagree, and 5 indicating that you strongly agree with the statement. Select 0 if you do not have enough knowledge or information to rank the organization’s audit committee on a particular statement. 0 1 2 3 4 5 5 strongly agree: 1 strongly disagree Composition and Quality 1. Potential audit committee members are identified with explicit consideration being given to the candidate’s qualifications for serving on the audit committee. 2. Sources acting independent of management (e.g. independent board members assisted by an outside search firm) have been utilized to identify qualified audit committee members. 3. Audit committee members have the appropriate qualifications to meet the objectives of the audit committee’s charter, including appropriate financial literacy. 4. Audit committee members have differing perspectives due to a diversity of experiences and backgrounds. 5. The audit committee demonstrates integrity, credibility, trustworthiness, willingness to actively participate, ability to constructively handle conflict, interpersonal skills, and proactiveness. 6. The audit committee demonstrates appropriate industry knowledge. 7. Members of the audit committee meet all applicable independence requirements. 8. The audit committee reviews its charter annually to determine whether its responsibilities are adequately described and recommends any changes to the board for approval. 9. The audit committee monitors compliance with corporate governance regulations and guidelines. 10. The audit committee has participated in a continuing education program to enhance its members’ understanding of relevant auditing, accounting, regulatory, and industry issues. 11. New audit committee members are provided with an orientation program to educate them on the company, their responsibilities, and the company’s financial reporting and accounting practices. 12. The leadership of the audit committee chair is effective 13. The audit committee, in conjunction with the nominating committee (or its equivalent) as appropriate, creates a succession/rotation plan for audit committee members, including the audit committee chair Understanding the Business, including Risks

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14. The audit committee considers the pressures on management that may impact the quality of financial reporting (e.g. earnings targets, compensation plans, and performance measures). 15. The audit committee considers the significant risks faced by the company. Examples include (but are not limited to): • Regulatory and legal requirements • Concentrations (e.g. suppliers and customers) • Market and competitive trends • Financing/liquidity needs • Financial exposures • Business continuity • Company reputation • Financial strategy execution 16. The audit committee understands and approves the process implemented by management to effectively identify, assess, and respond to the organization’s key risks. 17. The audit committee understands and approves management’s fraud risk assessment and has an understanding of identified fraud risks. 18. Management provides the audit committee with reports that include benchmarking information (comparing the company’s financial performance and ratios with industry competitors/peers) with explanations for areas that differ significantly. Process and Procedures 19. The audit committee reports its proceedings and recommendations to the board after each committee meeting. 20. The audit committee dedicates appropriate time and resources to execute its responsibilities. 21. The audit committee participates in the development of a calendar to ensure that responsibilities are met. 22. Audit committee members have the option to influence their meeting agendas in order to address emerging issues. 23. Audit committee meetings are conducted in an effective manner, with time being spent primarily on significant issues. 24. The audit committee chair encourages input on the meeting agenda from the committee, management, the internal auditor, the independent auditor, and the other board of directors. 25. The audit committee sets clear expectations and provides feedback to the full board concerning the competency of the organization’s CFO and senior financial management. 26. The audit committee has input into the succession planning process for the CFO. 27. The agenda and related information (e.g. prior meeting minutes, press releases, financial statements, etc.) are circulated in advance of meetings to allow audit committee members sufficient time to study and understand the information. 28. The written materials provided to audit committee members are appropriately balanced (i.e. relevant and concise). 29. The audit committee meetings are held at least quarterly. 30. The audit committee maintains adequate minutes of each meeting. 31. The audit committee, together with the compensation committee, regularly reviews management incentive plans to consider whether the incentive process is appropriate. 32. The audit committee meets periodically with the company’s disclosure committee (committee responsible for reviewing the company’s disclosure procedures). 33. The audit committee respects the line between oversight and management of the financial reporting process. 34. Audit committee members come to meetings well prepared.

Communication and Information 35. The level of openness between the audit committee and relevant parties (other board members, management, internal audit, and external audit) is appropriate. 36. For matters that require specialized expertise, the audit committee engages external parties as appropriate.

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37. The audit committee receives and analyzes information from management on significant industry trends, analyst estimates and variations from budget. 38. Audit committee members periodically visit company locations to conduct on-site meetings with key members of management. Oversight of Financial Reporting Process, Including Internal Controls The audit committee considers the quality and appropriateness of financial accounting and reporting. 40. The audit committee considers the transparency of disclosures. 41. The audit committee reviews the company’s significant accounting policies. 42. The audit committee has a process for the review of significant issues prior to quarterly and annual earnings releases (e.g. with management and the independent auditors). 43. The audit committee understands and approves the process used by management to identify and disclose related-party transactions. 44. The audit committee has a process to review earnings releases (including pro forma or non-GAAP information, and other financial information or earnings guidance). management’s discussion and analysis), proxies and other filings, as appropriate, before issuance and provides comments to management and independent auditors as applicable. 46. The audit committee reviews the processes related to financial statement certifications made by the CEO and CFO. 47. The audit committee receives sufficient information to assess and understand management’s process to evaluate the organization’s system of internal controls (e.g. financial reporting and disclosure controls,operation controls, and compliance controls). 48. The audit committee oversees the organization’s external financial reporting and internal control over financial reporting. 49. The audit committee understands and gives appropriate consideration to the internal control testing conducted by management, the internal auditors, and independent auditors to assess t he process of detecting internal control issues or fraud. 50. The audit committee believes that management’s scope of internal control testing adequately supports its internal control assessment (as required by Section 404 of the Sarbanes-Oxley Act). 51. If management’s assessment of internal controls resulted in the identification of significant deficiencies or material weaknesses, plans to address these issues are reviewed, evaluated and monitored by the audit committee. 52. The audit committee makes inquiries of the appropriate parties (independent auditor, internal auditor and management) on the depth of experience and sufficiency of the company’s accounting and finance staff. 53. The audit committee reviews the management recommendation letters written by the auditors (external and internal) and monitors the process to determine that all significant matters raised are addressed. 54. The audit committee ensures that management takes action to achieve resolution when there are instances of repeat comments from auditors, particularly for those related to internal controls. 55. Adjustments to the financial statements that resulted from the audit process are reviewed by the audit committee, regardless of whether they were recorded by management. 56. The audit committee is consulted when management is seeking a second opinion on an accounting or auditing matter. Oversight and Audit Functions The audit committee understands the coordination of work between the auditors (external and internal). 58. The audit committee regularly reviews the adequacy of the internal audit function (e.g. the charter, audit plan, budget, compliance, and number, quality and continuity of staff). 59. The audit committee oversees the role of the internal audit director from selection to termination (e.g. appointment, evaluation, compensation and retention). 60. The audit committee provides feedback to the internal audit director at least annually. 61. The internal audit reporting lines established with the audit committee promote an atmosphere where significant issues that might involve management will be brought to the attention of the audit committee.

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62. The audit committee appropriately considers internal audit reports, management’s responses, and improvement actions. 63. The audit committee oversees the role of the independent auditors from selection to termination (e.g. appointment, oversight, evaluation, retention, and pre-approval of services). 64. The audit committee considers the external audit plan and provides recommendations as appropriate. 65. The audit committee reviews the appropriateness of the audit fees paid to the independent auditor. 66. The audit committee comprehensively reviews management’s representation letters to the independent auditors (including making inquiries about any difficulties obtaining the representations). 67. The audit committee has an effective process to evaluate the independent auditor’s qualifications and performance. 68. The audit committee pre-approves all services (audit and non-audit) provided by the independent auditor. 69. The audit committee considers the scope of non-audit services provided by the independent auditor in determining the auditor’s independence. 70. The audit committee reviews other professional services that relate to financial reporting (e.g. consulting, legal and tax strategy services) provided by outside consultants. 71. The audit committee monitors the process to determine that the independent auditor’s partners are rotated in accordance with applicable rules. 72. The audit committee has private executive sessions with management, internal audit and external audit, which result in candid discussion of pertinent issues. Overall Ethhics and Compliance Culture Audit committee members are notified of communications received from agencies (e.g. governmental or regulatory) relating to areas of alleged violations or areas of non-compliance. 74. The audit committee oversees management’s procedures for enforcing the company’s code of conduct. 75. The audit committee determines that there is a senior level person designated as specifically responsible for knowing and understanding relevant legal and regulatory requirements. 76. The audit committee oversees the process in place to address: - the risks of noncompliance with applicable regulations - conflicts of interest - violations of the code of ethical conduct. 77. The audit committee oversees the organization’s whistleblower process and reviews the log of incoming calls. 78. The audit committee oversees procedures designed to prohibit retaliation against whistleblowers. Monitoring Activities 79. An annual performance evaluation of the audit committee is conducted and the findings are presented to the full board. 80. Matters identified from the audit committee self-assessment that require follow-through are resolved. 81. The company provides the audit committee with sufficient funding to fulfill its objectives. Overall Assessment 82. What is your overall evaluation of the performance of the audit committee? (Scale of 1 to 5, 5 being the highest):0 1 2 3 4 5

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Annexure – 4 Ownership of Global Corporations

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Annexure – 5 Total Value of Listed Corporate Assets Under Family Control

Country/ Economy

No. of corporations

surveyed

Share of total market

capitalization (%)

Per cent family

owned (20 per cent + control)

State-owned

(Per cent)

Total Value of listed corporate

assets that families control

(%) Top 5

families Top 10 families

Hong Kong, China

330 78 66.7 1.4 26.2 32.1

Indonesia 178 89 71.5 8.2 40.7 57.7 Malaysia 238 74 67.2 13.4 17.3 24.8 Philippines 120 82 44.6 2.1 42.8 52.5 Singapore 221 96 55.4 23.5 19.5 26.6 Republic of Korea

345 76 48.4 1.6 29.7 26.8

Taiwan Province of China

141 66 48.2 2.8 14.5 18.4

Thailand 167 64 61.6 8.0 32.2 46.2 Source : Finance Asia, Vol5; Issue 4, February 2001, page 27, quoted in a paper by Cheung, Stephen Y.L., and Chan Bob Y, 2004, Corporate Governance in Asia, Asia Pacific Development Journal, Vol 11, No.

2, December 2004

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Annexure – 6 Indexes based on Corporate Governance

The World Bank’s corporate governance assessments reveal growing awareness around the world of the importance of corporate governance. Almost all the countries assessed are undertaking reforms to bring their legal and regulatory frame-works into compliance with the Organization for Economic Co-operation and Development’s (OECD) principles of corporate governance. Quantifying the risk of corporate governance across international markets has also posed a challenge for investors trying to deal with the issue. Setting up of corporate governance indexes and exchanges would be such a reform. This not only provides natural incentive to companies complying with good corporate governance but also provides a platform for small and medium sized enterprises. Below mentioned are some of the major indexes observing corporate governance as the threshold for its listings: Novo Mercado In 2001, BOVESPA, the Sau Paulo Stock Exchange launched Novo Mercado, a separate listing segment for companies that adhere to good corporate governance. It accounts for almost 15% of the number of companies traded in Brazil, and contributes 43% of the market capitalization, and has out-performed the general market index by more than 100% since June, 2001. It is a special listing segment that demands timely compliance to the set of rules and laws that are more than what is required by any other listings. The establishment of Novo Mercado promotes socially responsible business community and fosters growth in the Brazilian market. The stock exchange is reserved only for well governed companies and organizations promoting interests of minority shareholders and adoption of ethics and values in the business community. Listing in Nova Mercado requires the following: • Public share offerings have to use mechanisms to favor capital dispersion and broader retail

access. • Maintenance of a minimum free float, equivalent to 25% of the capital. • Same conditions provided to majority shareholders in the disposal of the Company’s Control will

have to be extended to all shareholders. • Establishment of a two-year unified mandate for the entire Board of Directors, which must have

five members at least, of which at least 20% (twenty percent) shall be Independent Members. • Disclosure of annual balance sheet, according to standards of the US GAAP or IFRS. • Improvements in quarterly reports, such as the requirement of consolidated financial

statements and special audit revision. • Obligation to hold a tender offer by the economic value criteria, in case of delisting or

cancellation of registration as publicly-held company. • Compliance with disclosure rules in trades involving securities issued by the company in the

name of controlling shareholders. • Some of these obligations must be approved at the General Shareholders Meetings and included

in the corporate bylaws These listing regulation help increase shareholder's rights and enhance the quality of information commonly disclosed by companies. Additionally, the Market Arbitration Panel for conflict resolution between investors and companies offers a safer, faster and specialized alternative to investors. Apart from this, BOVESPA has also designed Special Corporate Governance Levels; Level 1 and Level 2, based on the conduct of companies, managers and controlling shareholders considered as important for valuation of shares and other assets issued by the company.

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FTSE ISS Corporate Governance Index FTSE is an independent company owned by The Financial Times and the London Stock Exchange. FTSE indices are used extensively by investors world-wide such as consultants, asset owners, asset managers, investment banks, stock exchanges and Brokers. The FTSE ISS Corporate Governance Index is a collaboration of FTSE and Institutional Shareholder Services (ISS), the premier corporate governance ratings agency. The FTSE ISS Corporate Governance Index is a series based on the companies which have good corporate governance record. It comprises of six regional and country equity indices covering 24 developed countries as defined by the FTSE Global Equity Index Series. The underlying idea is to assist investors by rating the performance of the companies on the basis of its corporate governance practices. The index is primarily managed and constantly reviewed by the FTSE Index Board. The Advisory committee supports the Index by determining the listing criteria. FTSE ISS Corporate Governance Rating is mainly derived on the basis of the below mentioned five governance themes: - Board structure and independence: The composition and processes of the board and the

structure of key standing committee are examined. - Equity Structure: This involves evaluation of the company’s capital structure and existing anti

takeover devices. - Compensation system for executive and non executive directors: This involves evaluation of the

existing rewarding schemes and practices for directors. - Independence and integrity of the audit process: This evaluates the composition of the audit

committee and the audit process. - Executive and non-executive stock ownership: The balance between the ownership and

shareholder interests is measured. The FTSE ISS Corporate Governance Indices includes the following: - FTSE ISS Developed Corporate Governance Index - FTSE ISS Europe Corporate Governance Index - FTSE ISS Euro Corporate Governance Index - FTSE ISS Japan Corporate Governance Index - FTSE ISS UK Corporate Governance Index - FTSE ISS US Corporate Governance Index Governance Metrics International Governance Metrics International (GMI) is an independent rating and research agency founded in April 2002. It analyzes the corporate governance practices of publicly traded companies. It prepares exhaustive reports and rates the company’s overall governance profile on the basis of its Board Accountability, Financial Disclosure and Internal controls, Shareholder rights, Executive compensation, Market for control and Ownership Base and Corporate Behavior and CSR Issues. All companies on the GMI list are re-rated and reviewed on a quarterly basis GMI Ratings are extensively used by corporations, law and accounting firms, proxy solicitors, insurance underwriters, central banks, regulatory agencies and other institutional investors and fund managers. Apart from rating and research, GMI is also engaged in providing advisory services on corporate governance issues to a diverse client base including stock exchanges, regulatory bodies and other institutional investors. Conclusion

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Corporate Governance indexes are helping the investors seeking devices that fulfill their demand for good governance. It was even revealed in a study that investors are ready to pay 18% more for shares of a well governed company. Moreover, well managed and governed companies are outpacing other companies in getting investments especially after scams like ENRON. However, the value for good governance is never immediate. But it definitely ensures long term profitability.

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Annexure – 7 Index of Corporate Codes

In Various Countries Country Corporate Governance Codes Argentina - Código de Mejores Prácticas de Gobierno de las Organizaciones

para la República Argentina - January 2004 Australia - Revised Corporate Governance Principles and Recommendations 2

August 2007 - Principles of Good Corporate Governance and Best Practice Recommendations March 2003 - Corporate Governance: A guide for fund managers and corporations 1 December 2002 - Horwath 2002 Corporate Governance Report 2002 - Corporate Governance: A Guide for Investment Managers and Corporations July 1999 - Corporate Governance - Volume One: in Principle June 1997 - Corporate Governance - Volume Two: In Practice June 1997 - AIMA Guide & Statement of Recommended Practice (Corporate Governance Statements by Major ASX Listed Companies) June 1995 - Bosch Report 1995

Austria - Austrian Code of Corporate Governance (as amended in January 2006) January 2006 - Austrian Code of Corporate Governance (as amended on 22 February 2005) 22 February 2005 - Austrian Code of Corporate Governance November 2002

Bangladesh - The Code of Corporate Governance for Bangladesh March 2004 Belgium - Code Buysse: Corporate governance for non-listed companies 21

September 2005 - Belgian Corporate Governance Code 9 December 2004 - Draft Belgian Corporate Governance Code 18 June 2004 - Director's Charter January 2000 - Guidelines on Corporate Governance Reporting 18 November 1999 - Corporate governance for Belgian listed companies (The Cardon Report) December 1998 - Corporate Governance - Recommendations January 1998

Brazil - Code of Best Practice of Corporate Governance 30 March 2004 - Recomendações sobre Governança Corporativa June 2002 - Code of Best Practice of Corporate Governance 8 May 1999

Bulgaria - Bulgarian National Code For Corporate Governance 10 October 2007

Canada - Corporate Governance: Guide to Good Disclosure (January 2006) January 2006 - Corporate Governance: A guide to good disclosure December 2003 - Corporate Governance Policy–Proposed New Disclosure Requirement and Amended Guidelines 26 March 2002 - Beyond Compliance: Building a Governance Culture (Saucier Report) November 2001 - Five Years to the Dey June 1999 - Building on Strength: Improving Governance and Accountability in Canada's Voluntary Sector February 1999 - Where Were The Directors? Guidelines for Improved Corporate Governance in Canada (The Toronto Report) December 1994

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China - Provisional Code of Corporate Governance for Securities

Companies 15 January 2004 - The Code of Corporate Governance for Listed Companies in China 7 January 2001

Commonwealth - CACG Guidelines: Principles for Corporate Governance in the Commonwealth November 1999

Comparative studies - Comparative Study of Corporate Governance Codes relevant to the European Union and its Member States 27 March 2002 - International Comparison of Board "Best Practices" - Investor Viewpoints 2001 - International Comparison of Corporate Governance: Guidelines and Codes of Best Practice in Developed Markets 2001 - International Comparison of Corporate Governance: Guidelines and Codes of Best Practice in Developing and Emerging Markets 2000

Cyprus - Cyprus Corporate Governance Code (2nd edition, March 2006) March 2006 - Addendum of the Corporate Governance Code November 2003 - Corporate Governance Code 24 September 2002

Czech Republic - Corporate Governance Code based on the OECD Principles (2004) June 2004 - Revised Corporate Governance Code (Based on OECD Principles 2001) February 2001

Denmark - Revised Recommendations for Corporate Governance in Denmark 15 August 2005 - Report on Corporate Governance in Denmark December 2003 - The Nørby Committee’s report on Corporate Governance in Denmark 6 December 2001 - Guidelines on Good Management of a Listed Company (Corporate Governance) 29 February 2000

Estonia - Corporate Governance Recommendations 1 January 2006 Finland - Improving Corporate Governance of Unlisted Companies January

2006 - Corporate Governance Recommendations for Listed Companies December 2003

France - Recommandations sur le gouvernement d'entreprise March 2004 - The Corporate Governance of Listed Corporations October 2003 - Promoting Better Corporate Governance In Listed Companies 23 September 2002 - Vienot II Report July 1999 - Recommendations on Corporate Governance 9 June 1998 - Vienot I Report June 1995

Germany - German Corporate Governance Code as amended 14 June 2007 14 June 2007 - Amendment to the German Corporate Governance Code - The Cromme Code (June 2006) 12 June 2006 - Amendment to the German Corporate Governance Code - The Cromme Code (June 2005) 2 June 2005 - Corporate Governance Code for Asset Management Companies 27 April 2005 - Amendment to the German Corporate Governance Code - The Cromme Code (May 2003) 21 May 2003 - The German Corporate Governance Code (The Cromme Code) 26 February 2002 - Baums Commission Report (Bericht der Regierungskommission Corporate Governance) 10 July 2001 - German Code of Corporate Governance (GCCG) 6 June 2000 - Corporate Governance Rules for German Quoted Companies January 2000

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- DSW Guidelines June 1998 - Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG) 5 March 1998

Greece - Principles of Corporate Governance 24 July 2001 - Principles on Corporate Governance in Greece: Recommendations for its Competitive Transformation October 1999

Hong Kong - Hong Kong Code on Corporate Governance 19 November 2004 - Model Code for Securities Transactions by Directors of Listed Companies: Basic Principles June 2001 - Corporate Governance Disclosure in Annual Reports March 2001 - Code of Best Practice February 1999

Hungary - Corporate Governance Recommendations February 2002 Iceland - Guidelines on Corporate Governance 16 March 2004 India - Report of the Kumar Mangalam Birla Committee on Corporate

Governance February 2000 - Draft Report of the Kumar Mangalam Committee on Corporate Governance September 1999 - Desirable Corporate Governance in India - A Code April 1998

Indonesia - Code of Good Corporate Governance 2006 January 2007 - Code for Good Corporate Governance April 2001 - Code for Good Corporate Governance March 2000

Ireland - Corporate Governance Code (Codice di Autodisciplina) 14 March 2006 - Handbook on Corporate Governance Reports February 2004 - Corporate Governance Code (il Codice di Autodisciplina delle società quotate rivisitato) July 2002 - Report & Code of Conduct (The Preda Code) October 1999 - Testo Unico sulle disponsizioni in materia di intermediazione February 1998

Jamaica - Code on Corporate Governance (Final) 25 October 2006 - Code of Corporate Governance (Second draft) 6 October 2005 - Proposed Code on Corporate Governance 20 January 2005

Japan - Principles of Corporate Governance for Listed Companies 16 April 2004 - Revised Corporate Governance Principles 26 October 2001 - Report of the Pension Fund Corporate Governance Research Committee, Action Guidelines for Exercising Voting Rights June 1998 - Corporate Governance Principles: A Japanese view 30 October 1997 - Urgent Recommendations Concerning Corporate Governance September 1997

Kenya - Principles for Corporate Governance in Kenya 2002 - Sample Code of Best Practice for Corporate Governance 2002

Latin America - Latin American Corporate Governance White Paper 2003 Latvia - Principles of Corporate Governance and Recommendations on their

Implementation 27 December 2005 Lebanon - Corporate Governance Code for Small and Medium Enterprises

(SMEs) 13 June 2006 Lithuania - Corporate Governance Code for the Companies listed on the

National Stock Exchange of Lithuania 23 April 2003 Luxembourg - The Ten Principles of Corporate Governance of the Luxembourg

Stock Exchange April 2006 Macedonia - White Paper on Corporate Governance in South-Eastern Europe

June 2003 Malaysia - Malaysian Code on Corporate Governance (Revised 2007) 1 October

2007 - Malaysian Code on Corporate Governance March 2000

Malta - Principles of Good Corporate Governance: Revised Code for Issuers of Listed Securities 3 November 2005

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- Principles of Good Corporate Governance for Public Interest Companies 3 November 2005 - Principles of Good Corporate Governance 1 October 2001

Mexico - Código de Mejores Prácticas Corporativas July 1999 New Zealand - Corporate Governance in New Zealand: Principles and Guidelines -

A Handbook for Directors, Executives and Advisers 16 March 2004 - Corporate Governance in New Zealand: Principles and Guidelines 16 February 2004 - Corporate Governance Principles 6 November 2003 - Corporate Governance in New Zealand: Consultation on Issues and Principles Background Reference 5 September 2003 - Corporate Governance in New Zealand: Consultation on Issues and Principles Questionnaire 3 September 2003

Nigeria - Code of Corporate Governance for Banks in Nigeria Post Consolidation 1 March 2006

Norway - The Norwegian Code of Practice for Corporate Governance 28 November 2006 - The Norwegian Code of Practice for Corporate Governance (Revised 2005) 8 December 2005 - The Norwegian Code of Practice for Corporate Governance 7 December 2004

OECD - OECD Guidelines on Corporate Governance of State-Owned Enterprises September 2005 - Draft Guidelines on Corporate Governance of State-owned Enterprises 20 December 2004 - OECD Principles of Corporate Governance 22 April 2004 - Draft Revised Text: OECD Principles of Corporate Governance January 2004 - OECD Principles of Corporate Governance May 1999

Pakistan - Code of Corporate Governance (Revised) 28 March 2002 - Stock Exchange Code of Corporate Governance 4 March 2002

pan-Europe - Euroshareholders Corporate Governance Guidelines 2000 February 2002 - EASD Principles and Recommendations May 2000 - Corporate Governance Guidelines 2000 February 2000 - Sound business standards and corporate practices: A set of guidelines September 1997 - Corporate Governance in Europe June 1995

Peru - Principios de Buen Gobierno para las Sociedades Peruanas July 2002 - Perú: Código de Buen Gobierno Corporativo para Empresas Emisoras de Valores November 2001

Poland - Best Practices in Public Companies 2005 29 October 2004 - Best Practices in Public Companies in 2002 4 July 2002 - The Corporate Governance Code for Polish Listed Companies (The Gdańsk Code) 15 June 2002

Portugal - Proposal on the Corporate Governance Code 3 April 2007 - White Book on Corporate Governance in Portugal February 2006 - Recommendations on Corporate Governance November 2003 - CMVM Regulation Nº 11/2003: Corporate Governance 2003 - CMVM Regulation No 07/2001: Corporate Governance December 2001 - Recommendations on Corporate Governance November 1999

Romania - Corporate Governance Code in Romania 24 June 2000 Russia - The Russian Code of Corporate Conduct 4 April 2002 Singapore - Code of Corporate Governance 2005 14 July 2005

- Proposed Revisions to the Code of Corporate Governance December 2004 - Code of Corporate Governance 21 March 2001

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Slovakia - Corporate Governance Code (Based on the OECD Principles) September 2002

Slovenia - Corporate Governance Code (Amended 5 February 2007) 5 February 2007 - Corporate Governance Code 14 December 2005 - Corporate Governance Code 18 March 2004

South Africa - King Report on Corporate Governance for South Africa - 2002 (King II Report) March 2002 - King I Report 24 November 1994

South Korea - Code of Best Practice for Corporate Governance September 1999 Spain - Code of Ethics for Companies April 2006

- Draft Unified Code of Recommendations for the Good Governance 16 January 2006 - IC-A: Principles of Good Corporate Governance December 2004 - Decálogo del Directivo May 2004 - The Aldama report 8 January 2003 - Código de Buen Gobierno 26 February 1998 - Círculo de Empresarios October 1996

Sri Lanka - Draft rules on Corporate Governance for Listed Companies July 2006

Sweden - Swedish Code of Corporate Governance Report of the Code Group 16 December 2004 - Swedish Code of Corporate Governance A Proposal by the Code Group 21 April 2004 - The NBK Recommendations February 2003 - Corporate Governance Policy 26 October 2001

Switzerland - Governance in Family Firms December 2006 - Swiss Code of Best Practice for Corporate Governance: 25 June 2002 - Corporate Governance Directive 1 June 2002

Taiwan - Taiwan Corporate Governance Best-Practice Principles 2002 2002 Thailand - The Principles of Good Corporate Governance For Listed

Companies 2006 March 2006 - Code of Best Practice for Directors of Listed Companies October 2002 - Best Practice Guidelines for Audit Committee 23 June 1999 - The SET Code of Best Practice for Directors of Listed Companies 19 January 1998

The Netherlands - SCGOP Handbook of Corporate Governance 2004 2004 - The Dutch corporate governance code (the Tabaksblat Code) 9 December 2003 - Draft Corporate Governance Code 1 July 2003 - SCGOP Handbook of Corporate Governance August 2001 - Government Governance; Corporate governance in the public sector, why and how? 2 November 2000 - Peters Report & Recommendations, Corporate Governance in the Netherlands 27 July 1997

The Philippines - ICD Code of Proper Practices for Directors 30 March 2000 The World - ICGN Statement on Global Corporate Governance Principles 8 July

2005 - Enhancing Corporate Governance for Banking Organisations September 1999 - ICGN Statement on Global Corporate Governance Principles 9 July 1999

Trinidad and Tobago - Corporate Governance Guideline May 2006 Turkey - Corporate Governance Principles June 2003 Ukraine - Ukrainian Corporate Governance Principles 3 June 2003 United Kingdom - The Combined Code on Corporate Governance June 2006

- Good practice suggestions from the Higgs Report June 2006

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- Internal Control: Revised Guidance for Directors on the Combined Code October 2005 - Pension Scheme Governance - fit for the 21st century: A Discussion Paper from the NAPF July 2005 - Good Governance: The Code of Governance for the Voluntary and Community Sector June 2005 - Corporate Governance: A Practical Guide 24 August 2004 - The Combined Code on Corporate Governance 23 July 2003 - Audit Committees - Combined Code Guidance (the Smith Report) January 2003 - The Higgs Report: Review of the role and effectiveness of non-executive directors January 2003 - The Responsibilities of Institutional Shareholders and Agents - Statement of Principles 21 October 2002 - The Hermes Principles 21 October 2002 - Review of the role and effectiveness of non-executive directors (Consultation Paper) 7 July 2002 - Code of Good Practice January 2001 - The Combined Code: Principles of Good Governance and Code of Best Practice May 2000 - Hermes Statement on International Voting Principles 13 December 1999 - The KPMG Review Internal Control: A Practical Guide October 1999 - Internal Control : Guidance for Directors on the Combined Code (Turnbull Report) September 1999 - Hampel Report (Final) January 1998 - Greenbury Report (Study Group on Directors' Remuneration) 15 July 1995 - Cadbury Report (The Financial Aspects of Corporate Governance) 1 December 1992

USA - Asset Manager Code of Professional Conduct November 2004 - Final NYSE Corporate Governance Rules 3 November 2003 - Restoring Trust - The Breeden Report on Corporate Governance for the future of MCI, Inc. August 2003 - Commission on Public Trust and Private Enterprise Findings and Recommendations: Part 2: Corporate Governance 9 January 2003 - Corporate Governance Rule Proposals 1 August 2002 - Principles of Corporate Governance May 2002 - Core Policies, General Principles, Positions & Explanatory Notes 25 March 2002 - Principles of Corporate Governance: Analysis & Recommendations 2002 - Report of the NACD Blue Ribbon Commission on Director Professionalism 2001 - TIAA-CREF Policy Statement on Corporate Governance March 2000 - Global Corporate Governance Principles 1999 - Statement on Corporate Governance September 1997

Annexure – 8 Best Practices in Practice

Country Comparisons India China, Brazil and Malaysia

Best Practice 1.Proxy voting: Firms are encouraged to allow proxy voting India: Shareholders can appoint a proxy. A proxy can demand a poll and cast his vote but

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cannot speak at the meeting. The notice convening the meeting must state that shareholders can appoint a proxy China: Proxy voting is allowed. (Code, CL) Malaysia: A member of a company entitled to attend and vote at a meeting of the company, or at a meeting of any class of members of the company, shall be entitled to appoint another person or persons as his proxy to attend and vote instead of the member at the meeting. A proxy appointed to attend and vote instead of a member shall also have the same right as the member to speak at the meeting, but unless the articles otherwise provide: (a) a proxy shall not be entitled to vote except on a poll; (b) a member shall not be entitled to appoint a person who is not a member as his proxy unless that person is an advocate, an approved company auditor or a person approved by the Registrar in a particular case; (c) a member shall not be entitled to appoint more than two proxies to attend and vote at the same meeting; and (d) where a member appoints two proxies the appointments shall be invalid unless he specifies the proportions of his holdings to be represented by each proxy. A proxy shall be entitled to vote on a show of hands on any question at any general meeting.(LR Section 7.20) Where a member of the company is an authorized nominee as defined under the Securities Industry Act 1991, it may appoint at least one proxy in respect of each securities account it holds with ordinary shares of the company standing to the credit of the said securities account. (LR Section 7.22) Brazil: Proxy voting is allowed (CL Arts. 118, 126). 2. One share one vote principle: “One share on vote” should be a threshold requirement for new issues. India: All shares are equal within one class. Shares with different voting rights or dividend can be issued as long as shareholders approve the issue and such shares do not exceed 25% of total share capital. (Companies Rule 2001 – issue of share capital with different voting rights or dividends) China: At shareholders’ meetings, each share that a shareholder holds is entitled to one vote (CL). A company has no voting rights on its own shares it holds. (CL) Malaysia: On a poll each member shall have one vote in respect of each share held by him and where all or part of the share capital consists of stock or units of stock each member shall have one vote in respect of the stock or units of stock held by him which is or are or were originally equivalent to one share. (CA Section 147) Brazil: Each common share carries the right to one vote in a meeting. Although restrictions on total number of votes of each shareholder are permitted (CL Art. 110). For companies founded pre-October 31, 2001, 2/3rds of capital could be non-voting; and post that date, or to older companies going public, only 50% (CL Art. 15). CVM: With respect to certain key decisions no voting restrictions should apply and each share should carry the right to one vote (III.1). All companies should comply with the 50% maximum; those already above should not issue any more non-voting shares (III.7). Bovespa: With respect to certain key decisions no voting restrictions should apply and each share should carry the right to one vote (Level 2). All shares must be voting (Novo Mercado). IBGC Companies should consider having voting stock only (1.01). 3. Meeting notice and Agenda: Meeting notice and agenda should be sent to shareholders within a reasonable amount of time prior to meetings India: Companies are required to hold an Annual General Meeting (AGM) every year. (Sec. 166 of CA). Notice for such meeting should be sent to shareholders 21 days in advance. (Sec. 171 of CA) China: Meeting notice should be given to each shareholder 20 days in advance. Meeting notice for a temporary shareholders’ meeting should be given to each shareholder 15 days in advance. (CL). Malaysia: The notices convening meetings shall specify the place, day and hour of the meeting,

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and shall be given to all shareholders at least 14 days before the meeting or at least 21 days before the meeting where any special resolution is to be proposed or where it is an annual general meeting. Any notice of a meeting called to consider special business shall be accompanied by a statement regarding the effect of any proposed resolution in respect of such special business. At least 14 days’ notice or 21 days’ notice in the case where any special resolution is proposed or where it is the annual general meeting, of every such meeting shall be given by advertisement in at least 1 nationally circulated Bahasa Malaysia or English daily newspaper and in writing to each stock exchange upon which the company is listed. (LR Section 7.17) Brazil: Law: Meeting notice of publicly held companies should be given to each shareholder 15 days in advance for a meeting and 8 days in advance for an adjourned meeting. The CVM may, upon request by a shareholder in a publicly held company, increase notice time by 15 days (CL Art. 124). CVM: Where complex issues are involved, notice should be at least 30 days in advance. If a company has a foreign depositary receipts program, notice should be at least 40 days in advance (I.2). Bovespa: Agenda should be included at the time of meeting notice (Level 1 and above). IBGC Shareholders should be notified of regular annual meeting by the last day of the fiscal year (1.04.02). 4. Special Meetings: Minority shareholders should be able to call special meetings with some minimum threshold of the outstanding shares India: Shareholder controlling 10% of voting rights or paid-up capital can call for a special or Extraordinary General Meeting (EGM). (Sec.169 of CA) China: Shareholders holding at least 10% of a company’s stocks can make a request for an interim shareholders’ meeting also know as a ‘temporary meeting.’ (CL) Malaysia: Two or more members holding not less than one-tenth of the issued share capital or, if the company has not a share capital, not less than five per centum in number of the members of the company or such lesser number as is provided by the articles may call a meeting of the company. (CA Section 145) Brazil: Law: Shareholders holding at least 5% of the company’s capital can call a meeting plus matters to be discussed if they have previously requested a meeting but the meeting was not called (CL Art. 123). 5. Treatment of foreign shareholders: Foreign shareholders should be treated equally with domestic shareholders India: Foreign Institutional Investors (FIIs) must register with SEBI to participate in the market. Investments and returns are freely repatriable, except in the case of 22 specified items which attract the condition of dividend balancing and/or where the approval is subject to specific conditions such as lock in period on original investment, dividend cap, foreign exchanging neutrality, etc China: Shares are categorized based on ownership. Foreign owners (except for a QFII or a strategic investor under the Strategic Investment Measures) cannot buy class A shares. Malaysia: Every company shall have at least two directors, who each has his principal or only place of residence within Malaysia. (CA Section 122) Brazil: N.A 6. Conflicts between shareholders: Mechanisms Should be designed whereby a majority of minority shareholders can trigger an arbitration procedure to resolve conflicts between minority and controlling shareholders India: Companies are required to create a ‘Shareholders/Investors Grievance Committee’ under the chairmanship of a non-executive director to look into the redressing of shareholder and investor complaints like transfer of shares, non-receipt of balance sheet, non receipt of declared dividends etc. (SEBI Code, Clause 49) China: If the procedure for convening or the method of voting at a shareholders’ meeting, shareholders’ general meeting or meeting of the board of directors violates laws, administrative regulations, or the company’s articles of association, or if the substance of a

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resolution breaches the company’s articles of association, a shareholder may, within 60 days, request that the People's Court revoke such board or shareholder resolution that violates their rights. (CL) Malaysia: No provision Brazil: Law: The by-laws of the company may establish that disputes between shareholders be submitted to an arbitration panel (CL Art. 109). Bovespa: Must submit disputes by shareholders to arbitration panel (Level 2 and above). 7. Quorum: Should not be set too high or too low. Suggested level would be about 30% and should include some independent non-majority-owning shareholders India: Quorum is set at five persons for a public company and two for other companies. (Sec. 174 of CA) China: No provisions Malaysia: Two members of the company, personally present shall be a quorum. (CA Section 147). Brazil: Law: Shareholders representing 25% voting capital (for meetings to amend by-laws, 2/3rds), adjourned meeting, none (CL Arts 125, 135). Certain types of extraordinary resolutions require a majority of representing 50% of voting shares is required (CL Art. 136). 8. Definition of independence: Cannot have a business or personal relationship with the management or company, and cannot be a controlling shareholder such that independence, or appearance of independence, is jeopardized India: An independent director is a non-executive director who: (i)aside from director’s remuneration, does not have any material pecuniary relationship or transactions with the company, its promoters, management or subsidiaries which may affect the independence of judgment, (ii) is not related to the promoter or a person in management on the board or one level below the board, (iii) has not been an executive for the past three years, (iv) is not or has not been a partner in the past three years of a statutory or internal audit firm or a firm providing consulting services to the company, (v) is not a material supplier, service provider or customer or a lessor or lessee of the company which may affect independence of the director, (vi) is not a substantial (owning 2% or more of voting rights) shareholder of the company. (SEBI Code, Clause 49) All pecuniary relationship/transactions of non-executive directors should be disclosed in the annual report. (SEBI Code, Clause 49) China: Cannot have any posts in the company or its affiliated enterprises, cannot maintain (both business and social) relationship with the company and its major shareholders that might undermine objective judgment, cannot be a shareholder who holds more than 1% of the outstanding shares of the company or is among the top 10 largest shareholders of the company, and cannot hold a position in a unit that holds more than 5% of outstanding shares or ranks as one of the 5 largest shareholders of the company. There is a one-year look back period on these requirements. (Guideline) Malaysia: Without limiting the generality of the foregoing, an independent director is one who - is not an executive director of the company or related company - has not been within the last 2 years an officer of the Corporation - is not a major shareholder in the company - is not a relative of any executive director, officer or major shareholder of the company - is not acting as a nominee or representative of any executive director or major shareholder of said company - has not been engaged as a professional adviser by the said company under such circumstances as prescribed by the Exchange or is not presently a partner, director or major shareholder, as the case may be, of a firm or corporation which provides professional advisory services to the said company under such circumstances as prescribed by the Exchange - has not engaged in any transaction with the said Company under such circumstances as prescribed by the Exchange is not presently a partner, director, or major shareholder, as the case may be, of a firm or company which has engaged in any transaction with the said company under such circumstances as prescribed by the Exchange.

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(LR Section Definitions) Brazil: IBGC: No ties at all with company except for some shares, not a supplier, not a relative of company director or manager (2.16). 9. Share of independent directors: At least one-third of the board should be non-executive, a majority of whom should be independent India: The number of independent directors is dependent on whether the Chairman is an executive or non-executive director. In the case of a non-executive chairman, at least one-third of the board should be comprised of independent directors and in the case of an executive chairman; at least half of the board should be comprised of independent directors. (SEBI Code, Clause 49) China: By end-June 2003, at least 1/3 of the board members were required to be independent directors (Code) Malaysia: An applicant must ensure that at least 2 directors or 1/3rd of the board of directors of the applicant, whichever is higher, are independent directors. (LR Section 3.14). The board should include a balance of executive directors and non-executive directors (including independent non-executives) such that no individual or small group of individuals can dominate the board’s decision making. (Code Part 1.A.II) To be effective, independent non-executive directors need to make up a least one third of the membership of the board. (Code Part 2.AA.III) Brazil: Law: A maximum of 1/3 of board members may serve as members of the executive board, but no restrictions regarding company officers who are not executive board members (CL Art. 143). CVM: “As many board members as possible” should be independent” (II.1). IBGC : “Most” directors should be independent (2.10) 10. Frequency and record of meetings: For large companies, board meetings every quarter, audit committee meetings every 6 months. Minutes of meetings should become part of public record India: The Board shall meet at least four times a year, with a minimum time gap of three months between any two meetings. (SEBI Code, Clause 49) China: The board should hold meetings at least twice a year. A shareholder representing one-tenth or more of the voting rights or one-third or more of directors or supervisory board members may call for a temporary meeting of the board of directors. (CL) Minutes/records of meetings should be properly maintained. Malaysia: The board should meet regularly, with due notice of issues to be discussed and should record its conclusions in discharging its duties and responsibilities. (Code Part 2.AA.XIV). The Committee considered that stipulating a minimum figure for bard meetings to be unpractical. However, it is difficult to imagine how a board is in control of the company if it meets less than four times. We recommend instead that the directors should be required to disclose the number of board meetings held a year and the details of the attendance of each individual director to enable shareholders to evaluate the commitment of a particular director to the affairs of the company. (Code Section 4.44) Every company shall cause – (a) minutes of all proceedings of general meetings and of meetings of its directors and of its managers, if any, to be entered in books kept for that purpose within fourteen days of the date upon which the relevant meeting was held; and (b) those minutes to be signed by the chairman of the meeting at which the proceedings were had or by the chairman of the next succeeding meeting. (CA Section 156) The books containing the minutes of proceedings of any general meeting shall be kept by the company at the registered office of the company, and shall be open to the inspection of any member without charge. (CA Section 157) Brazil: Law: At least one shareholder meeting must be held within first quarter following end of financial year. Minutes of meetings that contain resolutions designed to affect 3rd parties become part of public record (CL Arts. 132, 142). 11. Nomination and Election of directors: Should be done by nomination committee chaired by an independent director. Minority shareholders should have mechanism for putting forward directors at Annual General Meeting (AGM) and Extraordinary General Meeting

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(EGM). India: No specific provision mandating the creation of a board-level nominating committee. The directors of the Board are appointed by the company in the Annual General Meeting. (Sec.255 of CA) At the time of appointment of a new director or the re-appointment of a director, shareholders must be provided with a brief résumé of the director, nature of his expertise in specific functional areas and names of companies in which the person also holds other directorships. (SEBI Code, Clause 49) China: Should be done by nomination committee chaired by an independent director. (Code) Shareholders who independently or jointly hold more than 1% of the shares issued by the company may nominate independent directors at the shareholders’ meeting. (Guideline) Malaysia: The actual decision as to who shall be nominated should be the responsibility of the full board after considering the recommendations of a nominating committee that is composed exclusively of non-executive directors, the majority of whom are independent. The committee should consider candidates proposed by the CEO and, within the bounds of practicability, by any other senior executive, director or shareholder (Code Part 2.AA.VIII). Brazil: Law Directors are elected by a majority of voting capital. Separate director elections for minority shareholders representing at least 15% of shares with voting rights, 10% of preferred shares with restricted/no voting rights, at any meeting (CL Art. 141). 12. Term limits for independent directors : For large companies, re-election should be every 3 years with specified term limits India: Unless the Articles of a Company provide for the retirement of all directors at every AGM, not less than one-third directors have to be appointed by the company at the AGM (Sec 255 of CA) China: Each term should not exceed 3 years (CL). Re-election is allowed but the consecutive term should not exceed 6 years (Guideline) Malaysia: An election of directors shall take place each year. All directors shall retire from office once at least in each 3 years, but shall be eligible for re-election. (LR Section 7.28). All directors should be required to submit themselves for re-election at regular intervals and at least every three years. (Code, Part 1.A.V.) Brazil: Law: Each term should not exceed 3 years, with re-election permitted (CL Art. 140). CVM: Terms should be 1 year, and concurrent, with possibility of reelection. (II.1). IBGC: Each term should be short, preferably for no longer than a year (2.11). 13. Board Committees: The board should set up 3 essential committees: nomination, compensation and audit. India: Every board is required to have an audit committee and a shareholder grievance committee. The board of directors is required to consider the CEO’s remuneration. Creation of a separate remuneration committee is a non mandatory requirement in Clause 49 of SEBI’s listing requirements. In practice, however, most boards of large companies have an audit, remuneration and nomination committee. China: The board may establish specialized committees on: corporate strategy, nomination, remuneration/appraisal, and audit. Committees should be chaired by an independent director and independent directors should constitute the majority of each committee. (Guideline) Malaysia: Boards should appoint remuneration committees, consisting wholly or mainly of non-executive directors, to recommend to the board the remuneration of the executive directors in all its forms, drawing from outside advice as necessary. (Code Part 2.AA.XXIV) The board of every company should appoint a committee of directors composed exclusively of non executive directors, a majority of whom are independent, with the responsibility for proposing new nominees for the board and for assessing directors on an on-going basis. (Code Part 2.AA.VIII) The board should establish an audit committee of at least three directors, a majority of whom are independent. The Chairman of the audit committee should be an independent non-executive director. (Code Part 2.BB.I) Brazil: Law: There must be a statutory audit committee. (CL Art. 161). CVM: The Board should establish a committee on relations with auditors (II.2). IBGC: There should be nomination, compensation, and audit committees (2.04).

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14. Formal Evaluation of Board members: For large companies, nomination committee must review directors ahead of formal re-election at AGM India: N A China: Evaluation of directors should be conducted by the board or its remuneration/appraisal committee. Evaluation of independent directors should be conducted through a combination of self-review and peer review. (Code) Malaysia: The board should implement a process to be carried out by the nominating committee annually for assessing the effectiveness of the board as a whole, the committees of the board and for assessing the contribution of each individual director. (Code Part 2.AA.X.) Brazil: IBGC: There should be a formal appraisal each year of the Board and its members (2.09). 15. Immediate disclosure of information that affects share prices, including major asset sale or pledges: Any material information that could affect share prices should be disclosed through stock exchange. Material information includes acquisition/disposal of assets, board changes, related-party deals, ownership changes, directors’ shareholdings, etc India: Every company is required to appoint a compliance officer who is responsible for setting policies, procedures, monitoring adherence to the rules for the preservation of ‘price sensitive information’ to prevent insider trading. (SEBI Insider Trading Regulation, 2002) There should be a separate section on Corporate Governance in the annual report to shareholders. Non-compliance with any mandatory requirements and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted. (SEBI Code, Clause 49). China: In addition to disclosing mandatory information, a company shall also disclose voluntarily and in a timely manner all other information that may have a material effect on the decisions of shareholders and stakeholders, and shall ensure equal access to information for all shareholders. (Code) Malaysia: A listed issuer must adhere to the following 6 specific policies concerning disclosure, which are as follows: - immediate disclosure of material information; - thorough public dissemination; - clarification, confirmation, or denial of rumors or reports; - response to unusual market activity; - unwarranted promotional disclosure activity; and insider trading. (LR Section 9.02) Information is considered material if it is reasonable expected to have a material effect on the price, value or market activity of any of the listed issuer’s securities; or the decision of a holder of securities of the listed issuer or an investor determining his choice of action. (LR Section 9.03) Immediate disclosure is required for, among others: - the entry into a joint venture agreement of merger; - the acquisition or loss of a contract, franchise or distribution rights; - a change in management; - the commencement of or the involvement in litigation and any material development arising there from; - the commencement of arbitration proceedings or proceedings involving alternative dispute resolution methods; - the purchase or sale of an asset; - a change in capital investment plans; - the making of a tender offer for another company’s securities; - the occurrence of an event of default on interest and/or principal payments in respect of loans; - a change in general business direction; - a change of intellectual property rights; - the entry into a memorandum of understanding; or - the entry into any call or put option or financial futures contract. (LR Section 9.04) Brazil: NA

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16. Procedures for information release: Through local exchanges, and as best practice, through company website India: Information such as quarterly results and presentations made by companies to analysts shall be put on the company’s website, or shall be sent in such a form as to enable the stock exchange on which the company is listed to put it on its website. (SEBI Code, Clause 49) China: Disclosed information by a listed company shall be easily comprehensible. Companies shall ensure economical, convenient, and speedy access to information through various means, such as the Internet. (Code) Malaysia: Any public disclosure of material information must be made by an announcement first to the Exchange or simultaneously to the Exchange, the press and newswire services. (LR Section 9.08) Brazil: NA 17. Remuneration of directors: Should be disclosed in annual report. All major compensation schemes, including stock options, should be fully disclosed and subject to shareholder approval India: All fees/compensation paid to non-executive directors are fixed by the Board of Directors and require previous approval of shareholders in the Annual General Meeting. The shareholder’s resolution should specify the limits for the maximum number of stock options that can be granted to non-executive directors in any financial year and in aggregate. (SEBI Code, Clause 49) China: The board should report, at shareholders’ meetings, the performance evaluation and compensation of directors and disclose such information. (Code) A company shall regularly disclose to its shareholders information about remunerations obtained by the directors, supervisors, and senior managers from the company. (CL) Malaysia: The remuneration of directors of the listed issuer for the financial year must be included in the annual report in the following manner: - the aggregate remuneration of directors with categorization into appropriate components distinguishing between executive and non-executive directs and - the number of directors whose remuneration falls in each successive band of RM50,000 distinguishing between executive and non-executive directors. (LR Appendix 9C) The company’s annual report should contain details of the remuneration of each director. (Code, Part 1.B.III) Brazil: Law: All remuneration of any type, including benefits and allowances, to be determined by shareholder meeting (CL Art. 152). 18. Investor Relations: Should have an investor relations program. India: No specific provisions China: The secretary of the board of directors is responsible for providing/explaining publicly-disclosed information to investors. (Code) Malaysia: The Board of Directors is responsible for developing and implementing an investor relations program or shareholder communications policy for the company. (Code Part 2.AA.I) Brazil: Law: There must be an officer of relations with investors, who is responsible for the disclosure of periodic and relevant information to the CVM(CVM Inst. 202). IBGC: There should be a company spokesman, who can be the manager of investor relations (2.20). 19. National/ International GAAP: Identify accounting standard used. Comply with local practices and use consolidated accounting (annually) for all subsidiaries in which sizable ownership exists India: India materially conforms to the International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA). (ICAI and Companies Act) China: Companies should establish an accounting system in accordance with the relevant national statutes, regulations, and the stipulations of the finance authority under the State Council. (CL) Malaysia: The Malaysian Accounting Standard Board (MASB), along with the Financial Reporting Foundation (FRF), is responsible for the accounting framework in Malaysia and complies with IAS and requires consolidated accounting to be used for financial statements. Brazil: Law: Generally accepted accounting principles (CL Art. 177). Consolidated accounting

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required when more than 30% of the company’s net worth is represented by controlled companies (CL Art. 249). CVM: Either IAS or US GAAP standards. (VI.6). Bovespa: Same (Level 2 and above). 20. Audit Committee: For large firms, must be chaired by qualified independent director with a financial background India: The audit committee shall have minimum three directors as members, with two-thirds of the members being independent. (SEBI Code, Clause 49) All members of the audit committee should be financially literate and at least one member shall have accounting or related financial management expertise. (SEBI Code, Clause 49) China: Must be chaired by an independent director. The majority of the committee members should be independent directors. (Code) At least one independent director on the committee must be an accounting professional. (Code) Malaysia: An applicant must establish an audit committee comprising a majority of independent directors. (LR Section 3.15) At least one member of the audit committee must: - be a member of the Malaysian Institute of Accountants; - or have at least 3 years’ working experience and either - have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act 1967 or - be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act 1967; or - fulfills such other requirements as prescribed by the Exchange. (LR 15.10) The members of an audit committee shall elect a chairman from among their number who shall be an independent director. (LR Section 15.11) The board should establish an audit committee of at least three directors, a majority of whom are independent. The Chairman of the audit committee should be an independent non-executive director. (Code Part 2.BB.I) Brazil: Law: Statutory audit board limited to persons with no position in competing company, no conflicts with the company, no member of an administrative body or employee of the company or controlled company in the same group, or any spouse or relative (up to the third degree) of the company. Members must have a university degree or 3 years’ experience as a member of the administration or audit board of a company (CL Arts. 147, 162) Source: Institutional of International Finance. CVC: Good Practice Code;Bovespa: Listing Rules;IBGC: Best Practices Code;TOM: Malaysia Code on Takeovers and Mergers’: Bursa Malaysia Securities Berhad Listing Requirements; SEBI: Securities and Exchange Commission of India

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Annexure – 9

Overview of the Functions of the Audit Committees in Selected Companies

ACC Limited The Audit Committee acts as a link between the statutory and internal auditors and the Board of Directors. It addresses itself to matters pertaining to adequacy of internal controls, reliability of financial statements/other management information, adequacy of provisions for liabilities, and whether the audit tests are appropriate and scientifically carried out and that they were aligned with the realities of the business, adequacy of disclosures, compliance with all relevant statutes and other facets of Company’s operations that are of vital concern to the Company. In particular, the role of the Audit Committee includes the following: • review of Management discussion and analysis of financial condition and results o operations; • statement of significant related party transactions; • reviewing with the statutory and internal auditors the adequacy of internal controls and steps

to be taken for strengthening the areas of weaknesses in internal controls.; • review the appointment, terms of remuneration and removal of the Chief Internal Auditor; • review the Company’s financial reporting process and the disclosure of its financial information

to ensure that the financial statements are correct, sufficient and credible.; • recommending the appointment, reappointment and removal of the Statutory Auditors, fixing

of audit fees and approval for payment of fees for any other services rendered by the Auditors; • reviewing with the management, the quarterly/annual financial statements before submission

to the Board for approval, with particular reference to:- a. matters required to be included in the Director’s Responsibility Statement which forms

a part of the Directors’ Report pursuant to Clause (2AA) of Section 217 of the Companies Act, 1956,

b. changes, if any, in accounting policies and practices and reasons for the same, c. major accounting entries involving estimates based on the exercise of judgments by

management, d. significant adjustments made in the financial statements arising out of audit findings, e. compliance with listing and other legal requirements relating to financial statements, f. disclosure of any related party transactions, g. qualifications in the draft audit report.

• reviewing the operations and financial statements of Subsidiary Companies; • reviewing, with the management, performance of statutory and internal auditors, adequacy of

internal audit function 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 thereon; • reviewing the findings of any internal investigations by the internal auditors and management’s

response on 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;

• 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;

• look into the reasons for substantial defaults in payment to depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors;

• review any other area which may be specified under the Listing Agreement, Companies Act, other statutes, rules and regulations as amended from time to time;

• to carry out any other function as mentioned in the terms of reference of the Committee

In fulfilling the above role, the Audit Committee has powers to investigate any activity within its terms of reference, to seek information from employees and to obtain outside legal and professional advice.

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Bajaj Auto Bajaj Auto set up its audit committee in 1987. Since then, the company has been reviewing and making appropriate changes in the composition and working of the committee from time to time to bring about greater effectiveness, and comply with various requirements under the Companies Act, 1956 and clause 49 of the listing agreement. The Company Secretary acted as the secretary to the audit committee. The terms of reference of the audit committee are extensive and go beyond what is mandated in clause 49 of the listing agreement and section 292A of The Companies Act, 1956. Subsidiary companies During the year, the audit committee reviewed the financial statements (in particular, the investments made) of each unlisted Indian subsidiary company – Bajaj Auto Holdings Ltd. (BAHL), Bajaj Allianz General Insurance Company Ltd. (BAGICL) and Bajaj Allianz Life Insurance Company Ltd. (BALICL). Minutes of the board meetings of these subsidiary companies were regularly placed before the board of Bajaj Auto. So too was a statement of the significant transactions and arrangements entered into by these subsidiary companies. Disclosures A summary statement of transactions with related parties was placed periodically before the audit committee during the year. Suitable disclosures have been made in the financial statements, together with the management’s explanation in the event of any treatment being different from that prescribed in accounting standards. At its meeting of 16 July 2005, the board laid down procedures to inform it of the Company’s risk assessment and �inalization procedures. These would be periodically reviewed to ensure that management identifies and controls risk through a properly defined framework. There were no public issues, right issues, preferential issues etc. during the year. Bharat Petroleum BPC took the initiative to introduce Corporate Governance in the organization during the year 1996 itself, by constituting the Audit Compliance Committee. The said Committee was reconstituted and renamed as the Audit Committee in the year 2000 and the role, powers and functions of the Audit Committee were specified and approved by the Board. The terms of reference of the Audit Committee cover all matters specified in Clause 49 of the Listing Agreement with Stock Exchanges. The role and responsibilities of the Committee include the following:- 1. Overseeing the company’s financial reporting process and the disclosure of its financial

information to ensure that the financial statements are correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the

replacement or removal of the Statutory Auditor and the fixation of audit fees. 3. Approval of payment to Statutory Auditors for any other services rendered by them. 4. Reviewing, with the management, the Annual Financial Statements before submission to the

Board for approval, with particular reference to:

a. Matters required, to be included in the Director’s Responsibility Statement and in the Board’s report in terms of Clause (2AA) of Section 217 of the Companies Act, 1956

b. Changes, if any, in accounting policies and practices and reasons for the same c. Major accounting entries involving estimates based on the exercise of judgment by

management d. Significant adjustments made in the financial statements arising out of audit findings e. Compliance with listing and other legal requirements relating to financial statements f. Disclosure of any related party transactions g. Qualifications in the draft audit report 5. Reviewing, with the management, the Quarterly Financial Statements before submission to the Board for approval 6. Reviewing, with the management, the performance of the Statutory and Internal Auditors and

adequacy of the internal control systems. 7. Reviewing the adequacy of the 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.

8. Discussing with the Internal Auditors any significant findings and follow up thereon.

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9. 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.

10. Discussing with the 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.

11. Looking into the reasons for substantial defaults in the payments to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors.

12 Defining the significant related party transactions 13. Carrying out any other function as mentioned in the terms of reference of the Audit

Committee. Britannia The role and terms of reference of the Audit Committee were revised and enlarged by the Board on 31st May 2006, which is in accordance with amended Clause 49 of the Listing Agreement and Section 292A of the Companies Act, 1956.The Audit Committee also reviews the management discussion and analysis, statement of related party transactions, management letters and the response thereto by the management. Internal Control Systems and Adequacy The Company has an adequate system of internal controls which ensures proper safeguarding of assets, maintaining proper accounting records and reliable financial information. An external independent firm carries out the internal audit of the Company’s operations and reports its findings to the Audit Committee on a regular basis. Internal Audit also evaluates the functioning and quality of internal controls and provides assurance of its adequacy and effectiveness through periodic reporting. The Company has a code of business conduct for all employees and a clearly articulated and internalized delegation of financial authority. These authority levels are periodically reviewed by management and modifications, if any, are surfaced to the Audit Committee and Board for approval. The Audit Committee also reviews the risk management framework that was established last year.

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Cipla Limited The Audit Committee was constituted on 4th September 2000 in compliance with the requirements of Clause 49 of the Listing Agreement. The Committee discharges such duties and functions generally indicated in Clause 49 of the Listing Agreement with the Stock Exchanges and such other functions as may be specifically delegated to the Committee by the Board from time to time. GlaxoSmithKline Pharmaceuticals Ltd The terms of reference of this Committee are wide enough to cover the matters specified for audit committees under Clause 49 of the Listing Agreements, as well as in Section 292A of the Companies Act, 1956, and are as follows: a) Oversight of the Company’s financial reporting process and the disclosure of its financial

information to ensure that the financial statements are correct, sufficient and credible; b) to review with Management the financial statements at the end of a quarter, half year and the

annual financial statements before submission to the Board for approval, focusing particularly on:

6. matters required to be included in the Director’s Responsibility

Statement which form part of the Board’s report in terms of clause (2AA) of Section 217of the Companies Act, 1956;

(ii) changes, if any, in accounting policies and practices and reasons for the same; (iii) major accounting entries involving estimates based on the exercise of judgment by

management; (iv) significant adjustments made in the financial statements arising out of audit findings;

7. compliance with listing and other legal requirements relating to financial statements;

(vi) disclosure of any related party transactions; and (vii) qualifications in the draft audit report. c) to consider the appointment or re-appointment of the statutory auditors, the audit fee, any

questions of resignation or dismissal and payment to statutory auditors for any other services rendered by them;

d) to discuss with the statutory auditors before the audit commences, about the nature and scope of the audit as well as post-audit discussion to ascertain any area of concern (in absence of management wherever necessary);

e) reviewing with management the performance of statutory and internal auditors, adequacy of the internal control systems and discuss the same periodically with the statutory auditors, prior to the Board making its statement thereon;

f) 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;

g) discussion with internal auditors on any significant findings and follow up thereon; h) reviewing the findings of any internal investigation 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;

i) to look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors;

j) to review the functioning of the Whistle Blower mechanism, in case the same is existing; k) to review the external auditors’ audit reports and presentations and management’s response

thereto; l) to ensure co-ordination between the internal and external auditors, and to request internal

audit to undertake specific audit projects, having informed management of their intentions; m) to consider any material breaches or exposure to breaches of regulatory requirements or of

ethical codes of practice to which the Company subscribes, or of any related codes, policies and procedures, which could have a material effect on the financial position or contingent liabilities of the Company;

n) to review policies and procedures with respect to directors’ and officers’ expense accounts, including their use of corporate assets, and consider the results of any review of these areas by the internal auditors or the external auditors;

o) to consider other topics, as defined by the Board;

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p) to review the following information:

8. Management discussion and analysis of financial condition and results of operations;

ii) Statement of significant related party transactions (as defined by the audit committee), submitted by management;

iii) Management letters/letters of internal control weaknesses issued by the statutory auditors; iv) Internal audit reports relating to internal control weaknesses; and

9. The appointment, removal and terms of remuneration of the Chief Internal Auditor.

HDFC Bank Limited The terms of reference of the Audit Committee are in accordance with Clause 49 of the Listing Agreement entered into with the Stock Exchanges in India, and interalia includes the following: a) Overseeing the Bank’s financial reporting process and ensuring correct, adequate and credible

disclosure of financial information; b) Recommending appointment and removal of external auditors and fixing of their fees; c) Reviewing with management the annual financial statements before submission to the Board

with special emphasis on accounting policies and practices, compliance with accounting standards and other legal requirements concerning financial statements;

d) Reviewing the adequacy of the Audit and Compliance functions, including their policies, procedures, techniques and other regulatory requirements; and

e) Any other terms of reference as may be included from time to time in clause 49 of the listing agreement. The Board has also adopted a charter for the audit committee in connection with certain United States regulatory standards as the Bank’s securities are also listed on New York Stock Exchange

Hero Honda Motors Ltd The genesis of Hero Hondas committee can be traced back to the Audit Sub committee, constituted in 1987. Since then it has been dealing with matters prescribed by the Board of Directors on a case by case basis. In general, the primary role/objective of the Audit Committee is to review the financial statements of the Company, strengthen internal controls and look into all transactions having monetary implications on the functioning of the Company. The nomenclature, constitution and terms of reference of the Committee were revised on January 16, 2001 and an Audit Committee was set up as per the provisions of the Section 292A of the Companies Act, 1956 and Clause 49 f the Listing Agreement of the Stock Exchanges. The members of the Committee have adequate knowledge in the filed of finance, accounting and law. The role and terms of reference of the Audit Committee includes the following. • Overseeing the Company’s financial reporting process and disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible. • Recommending the appointment, re-appointment, replacement and removal of the statutory auditor, fixation of audit fees and approving payments for any other services. • Reviewing with the management the annual financial statements with primary focus on matters required to be included in the Directors’ Responsibility Statement, changes, if any in accounting policies and practices and reasons thereof, compliance with accounting standards and guidelines of stock exchanges, major accounting entries, qualifications in draft audit reports, related party transactions and the going concern assumption. • Reviewing with the management, the quarterly financial statements before submission to the board for approval. • Compliance with Stock Exchanges and legal requirements concerning financial statements. • Reviewing the adequacy of internal control systems and the internal audit function and reviewing the company’s financial and risk management policies. • 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 system of a material nature and reporting the matter to the Board. • Reviewing reports furnished by the internal auditors, discussion with internal auditors on any significant findings and ensuring suitable follow up thereon.

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• Discussing with external auditors before the audit commences of the nature and scope of audit. Also post audit discussion to ascertain any area of a concern. • Directors overseas traveling expenses. • Review of foreign exchange exposure. Hindalco Industries Ltd The Company has an Audit Committee at the Board level which acts as a link between the management, the statutory and internal auditors and the Board of Directors and oversees the financial reporting process. The Audit Committee is endowed with the following powers: 1. To investigate any activity within its terms of reference. 2. To seek information from any employee. 3. To obtain outside legal or other professional advice. 4. To secure attendance of outsiders with relevant expertise, if it considers necessary. The role of the audit committee includes the following: 1. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. 4. Reviewing, with the management, the annual financial statements before submission to the board for approval with particular reference to:

a. Matters required, to be included in the Director’s Responsibility Statement to be included in the Board’s report in terms of clause (2AA) of section 217 of the Companies Act, 1956. b. Changes, if any, in accounting policies and practices and reasons for the same c. Major accounting entries involving estimates based on the exercise of judgment by management. d. Significant adjustments made in the financial statements arising out of audit findings. e. Compliance with listing and other legal requirements relating to financial statements. f. Disclosure of any related party transactions. g. Qualifications in the draft audit report.

5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval. 6. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems. 7. 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. 8. Discussion with internal auditors any significant findings and follow up there on. 9. 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. 10. 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. 11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditor, if any. 12. To review the functioning of the Whistle Blower mechanism, in case the same is existing. 13. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee. The Audit Committee reviews the following information: 1. Management discussion and analysis of financial condition and results of operations; 2. Statement of significant related party transactions (as defined by the audit committee), submitted by management; 3. Management letters / letters of internal control weaknesses issued by the statutory auditors; 4. Internal audit reports relating to internal control weaknesses; and 5. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee.

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Hindustan Petroleum Corporation Ltd The terms of reference of the Audit Committee are as provided under the Companies Act, 1956 and other applicable regulations. The scope of the Audit Committee includes the following: • Reviewing with the Management the annual financial statements before submission to the Board. • Reviewing with the Management, Statutory Auditors and Internal Auditors, the adequacy of internal control systems. • Reviewing the adequacy of internal audit function, 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 on any significant findings and follow up thereon. • 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. • Reviewing the Company’s financial and risk management policies. ICICI Bank Ltd The Audit Committee provides direction to the audit function and monitors the quality of internal and statutory audit. The responsibilities of the Audit Committee include the following: • overseeing the financial reporting process to ensure fairness, sufficiency and credibility of

financial statements, • recommendation of appointment and removal of central and branch statutory auditors and

chief internal auditor and fixation of their remuneration, • approval of payment to statutory auditors for other services rendered by them, • review of functioning of Whistle Blower Policy, • review of the quarterly and annual financial statements before submission to Board, • review of the adequacy of internal control systems and the internal audit function, • review of compliance with the inspection and audit reports and reports of statutory auditors, • review of the findings of internal investigations, • review of statement of significant related party transactions, • review of management letters/letter of internal control weaknesses issued by statutory

auditors, • discussion on the scope of audit with external auditors and examination of reasons for

substantial defaults, if any, in payment to stakeholders. The Committee provides direction to the internal audit function and monitors the quality of internal and statutory audit. The Committee is also empowered to appoint/oversee the work of any registered public accounting firm, establish procedures for receipt and treatment of complaints received regarding accounting and auditing matters, engage independent counsel as also provide for appropriate funding for compensation to be paid to any firm/advisors. Indian Oil Corporation Ltd The Audit Committee has been constituted in line with the provisions of Clause-49 of the Listing Agreement and also meets the requirements of Section 292A of the Companies Act, 1956. The members of the Audit Committee have requisite financial and management expertise. The terms of reference of the Audit Committee cover all matters specified under Clause-49 of the Listing Agreement of the Stock Exchanges, which inter alia includes the following: • Overseeing the Company’s financial reporting process and disclosure of financial information to

ensure that the financial statements are correct, sufficient and credible; • Reviewing with the management the annual financial statements before submission to the

Board; • Reviewing with the management and statutory and internal auditors, the adequacy of internal

control systems; • Discussing with internal auditors any significant findings and follow-up on such issues; • Discussion with statutory auditors, before the audit commences, on the nature and scope of

audit, as well as having post-audit discussion to ascertain any area of concern; • Reviewing the Company’s financial and risk management policies. Infosys Technologies Ltd

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Primary objective of the audit committee The primary objective of the audit committee (the committee) of Infosys Technologies Limited is to monitor and provide effective supervision of the management’s financial reporting process with a view to ensure accurate, timely and proper disclosures, and transparency, integrity and quality of financial reporting. The committee oversees the work carried out in the financial reporting process by the management, the internal auditors and the independent auditor, and notes the processes and safeguards employed by each. Responsibilities of the audit committee • Provide an open avenue of communication between the independent auditor, internal auditor,

and the Board of Directors (BoD). • Meet at least four times every year, or more frequently as circumstances require. The audit

committee may ask members of the management or others to attend meetings and provide pertinent information as necessary.

• Confirm and assure the independence of the independent auditor and objectivity of the internal auditor.

• Appoint, compensate and oversee the work of the independent auditor (including resolving disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work.

• Review and pre-approve all related party transactions in the Company. For this purpose, the committee may designate a member who shall be responsible for pre-approving related party transactions

• Review with the independent auditor the co-ordination of audit efforts to assure completeness of coverage, reduction of redundant efforts, and the effective use of all audit resources.

• Consider and review the following with the independent auditor and the management:

10. The adequacy of internal controls including computerized information system controls and security, and

(ii) Related findings and recommendations of the independent auditor and internal auditor, together with the management’s Responses

• Consider and, if deemed fit, pre-approve all non-auditing services to be provided by the

independent auditor to the Company. For the purpose of this clause, “non-auditing services” shall mean any professional services provided to the Company by the independent auditor, other than those provided to the Company in connection with an audit or a review of the financial statements of the Company and includes (but is not limited to): Bookkeeping or other services related to the accounting records of financial statements of the Company Financial information system design and implementation Appraisal or valuation services, fairness opinions, or contribution-in-kind reports

• Review and discuss with the management and the independent auditor, the annual audited financial statements and quarterly audited / Unaudited financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, prior to filing the Company’s Annual Report on Form 20-F and quarterly results on Form 6-K, respectively, with the SEC.

• Direct the Company’s independent auditor to review before filing with the SEC, the Company’s interim financial statements included in quarterly reports on Form 6-K, using professional standards and procedures for conducting such reviews.

• Coduct a post-audit review of the financial statements and audit findings, including any significant suggestions for improvements provided to the Management by the independent auditor.

• Review before release, the unedited quarterly operating results in the Company’s quarterly earnings release.

• Oversee compliance with the requirements of the SEC and SEBI, as the case may be, for disclosure of auditors’ services and audit committee members, member qualifications and activities.

• Review, approve and monitor the code of ethics that the Company plans for its senior financial officers.

• Review management’s monitoring of compliance with the Company’s standards of business conduct and with the Foreign Corrupt Practices Act.

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• Review, in conjunction with the counsel, any legal matters that could have a significant impact on the Company’s financial statements.

• Oversee and review, at least annually, the Company’s risk management policies, including its investment policies.

• Review the Company’s compliance with employee benefit plans. • Oversee and review the Company’s policies regarding information technology and management

information systems. • If necessary, institute special investigations with full access to all books, records, facilities and

personnel of the Company. • As appropriate, obtain advice and assistance from outside legal, accounting or other advisors. • Review its own charter, structure, processes and membership requirements. • Provide a report in the Company’s proxy statement in accordance with the rules and regulations

of the SEC. • Establish procedures for receiving, retaining and treating complaints received by the Company

regarding accounting, internal accounting controls or auditing matters and procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

• Consider and review the following with the Management, internal auditor and the independent auditor: S

(i) Significant findings during the year, including the status of previous audit recommendations A

(ii) Any difficulties encountered during audit work including any restrictions on the scope of activities or access to required information, and

(iii) Any changes required in the planned scope of the internal audit plan

• Report periodically to the BoD on significant results of the foregoing activities. Composition of the audit committee The committee shall consist solely of ‘independent’ directors

11. NASDAQ Rule 4200 and ii) the rules of the Securities and Exchange Commission) of the Company and shall be comprised of a minimum of three directors.

Each member will be able to read and understand fundamental financial statements, in accordance with the NASDAQ National Market Audit Committee requirements. They should be diligent, knowledgeable, dedicated, interested in the job and willing to devote a substantial amount of time and energy to the responsibilities of the committee, in addition to BoD responsibilities. At least one of the members shall be a “Financial Expert” as defined in Section 407 of the Sarbanes-Oxley Act. The members of the committee shall be elected by the BoD and shall continue until their successors are duly elected. The duties and responsibilities of a member are in addition to those applicable to a member of the BoD. In recognition of the time burden associated with the service and, with a view to bringing in fresh insight, the committee may consider limiting the term of the audit committee service, by automatic rotation or by other means. One of the members shall be elected as the chairperson, either by the full BoD or by the members themselves, by majority vote. Relationship with independent and internal auditors • The committee has the ultimate authority and responsibility to select, evaluate, and, where

appropriate, replace the independent auditor in accordance with the law. All possible measures must be taken by the committee to ensure the objectivity and independence of the independent auditor. These include:

(i) Reviewing the independent auditors’ proposed audit scope, approach and independence

(ii) Obtaining from the independent auditor periodic formal written statements delineating all relationships between the auditor and the Company consistent with applicable regulatory requirements and presenting this statement to the BoD

(iii) Actively engaging in dialogue with the auditors with respect to any disclosed relationships or services that may impact their objectivity and independence and /

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or recommend that the full BoD take appropriate action to ensure their independence

(iv) Encouraging the independent auditor to have open and frank discussions on their judgments about the quality, not just the acceptability, of the Company’s accounting principles as applied in its financial reporting. This includes such issues as the clarity of the Company’s financial disclosures, and degree of aggressiveness or conservatism of the Company’s accounting principles and underlying estimates, and other significant decisions made by the management in preparing the financial disclosure and audited by them.

(v) Carrying out the attest function in conformity with U.S. GAAS, to perform an interim financial review as required under Statement of Auditing Standards 71 of the American Institute of Certified Public Accountants and also discuss with the committee or its chairman, and an appropriate representative of Financial Management and Accounting, in person or by telephone conference call, the matters described in SAS 61, Communications with the Committee as amended by SAS 90 Audit Committee Communication prior to the Company’s filing of its Form 6-K (and preferably prior to any public announcement of financial results), including significant adjustments, management judgment and accounting estimates, significant new accounting policies, and disagreements with management, and Reviewing reports submitted to the audit committee by the independent auditor in accordance with the applicable SEC requirements.

• The internal auditors of the Company are in the best position to evaluate and report on the

adequacy and effectiveness of the internal controls. Keeping in view the need for the internal auditors’ independence from the management to remain objective, a formal mechanism should be created to facilitate confidential exchanges between the internal auditors and the committee, regardless of irregularities or problems. The work carried out by each of these auditors needs to be assessed and reviewed with the independent auditor and appropriate recommendations made to the BoD.

Disclosure requirements • The committee charter should be published in the Annual Report once every three years and

also whenever any significant amendment is made to the charter. • The committee shall disclose in the Company’s Annual Report whether or not, with respect to

the concerned fiscal year: The management has reviewed the audited financial statements with the committee, including a discussion of the quality of the accounting principles as applied, and significant judgments affecting the Company’s financial statements The independent auditors have discussed with the committee their judgments of the quality of those principles as applied and judgments referred to above under the circumstances. The members of the committee have discussed among themselves, without the management or the independent auditor being present, the information disclosed to the committee as described above The committee, in reliance on the review and discussions conducted with the management and the independent auditor pursuant to the requirements above, believes that the Company’s financial statements are fairly presented in conformity with Generally Accepted Accounting Principles (GAAP) in all material respects, and The committee has satisfied its responsibilities in compliance with its charter.

• The committee shall secure compliance that the BoD has affirmed to the NASD / Amex Stock Exchange on the following matters, as required in terms of the relevant NASD / Amex rules:

(ii) Composition of the committee and independence of committee members (iii) Disclosures relating to non-independent members Financial literacy and financial

expertise of members, and (iv) Review of the committee charter.

• The committee shall report to shareholders as required by the relevant rules of the U.S. Securities and Exchange Commission (SEC).

Meetings and reports • The committee shall meet at least four times a year.

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• The committee will meet separately with the CEO and the CFO of the Company at such times as are appropriate to review the financial affairs of the Company. The audit committee will meet separately with the independent auditors and internal auditor of the Company, at such times as it deems appropriate (but not less than quarterly) to fulfill the responsibilities of the audit committee under this charter.

• In addition to preparing the report in the Company’s proxy statement in accordance with the rules and regulations of the SEC, the committee will summarize its examinations and recommendations to the Board of Directors as may be appropriate, consistent with the committee’s charter.

Delegation of authority The committee may delegate to one or more designated embers of the committee the authority to pre-approve audit and permissible non-audit services, provided such re-approval decision is presented to the full audit committee at its scheduled meetings. Definitions • Independent member To be ‘independent’, members should have no relationship with the Company that may interfere with the exercise of their independence from the management and the Company. The following are not considered independent:

6. A director who is employed by the Company or any of its affiliates for the current year or in the past five years

(ii) A director who has been a former partner or employee of the independent auditor who worked on the Company’s audit engagement in the current year or in the past five years. (iii) A director who accepts any compensation from the Company or any of its affiliates in excess of $60,000 during the previous fiscal year, other than compensation for Board service, benefits under a tax-qualified retirement plan, or non-discretionary compensation in the current year or in the past five years (Iv) A director who is a member of the immediate family of an individual who is, or has been, in the past three years, employed by the Company or any of its affiliates as an executive officer. “Immediate family” includes a person’s spouse, parents, children, siblings, mother-in-law, father-inlaw, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who resides in such person’s home.

7. A director who is a partner in, or a controlling shareholder or an executive officer of, any for-profit business organization to which the Company made, or from which the Company received, payments (other than those arising solely from investments in the Company’s securities) that exceed 5% of the Company’s or business organization’s consolidated gross revenues for that year, or $200,000, whichever is more, in the past five years

(vi) A director who is employed as an executive of another entity such that any of the Company’s executives serve on that entity’s compensation committee for the current year or in the past five years, and

8. A shareholder owning or controlling 20% or more of the Company’s voting securities

• Financial expert For purposes of this Item, an “audit committee financial expert” is an individual with the following attributes:

9. An understanding of generally accepted accounting principles and financial statements

(ii) The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves (iii) Experience in preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience in actively supervising one or more persons engaged in such activities; (iv) An understanding of internal control over financial reporting, and

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(v) An understanding of audit committee functions. The individual shall have acquired such attributes through:

10. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions

(ii) Experience in actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions

11. Experience in overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements, or

12. Other relevant experience. Audit committee attendance during fiscal 2007 Four audit committee meetings were held during the year. These were held on April 13, 2006; July 11, 2006; October 10, 2006 and January 10, 2007. During the year, the audit committee held two conference calls on April 4, 2006 and July 7, 2006. 1.3 Audit committee report for the year ended March 31, 2007 Each member of the committee is an independent director, according to the definition laid down in the audit committee charter, and Clause 49 of the Listing Agreement with the relevant Indian stock exchanges. The management is responsible for the Company’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company’s financial statements in accordance with the generally accepted auditing standards, and for issuing a report thereon. The committee’s responsibility is to monitor these processes. The committee is also responsible for overseeing the processes related to the financial reporting and information dissemination. This is to ensure that the financial statements are true, fair, sufficient and credible. In addition, the committee recommends to the Board the appointment of the Company’s internal and independent auditors. In this context, the committee discussed with the Company’s auditors, the overall scope and plans for the independent audit. The management represented to the committee that the Company’s financial statements were prepared in accordance with Generally Accepted Accounting Principles. The committee discussed with the auditors, in the absence of the management (whenever necessary), the Company’s audited financial statements including the auditors’ judgments about the quality, not just the applicability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The committee also discussed with the auditors other matters required by the Statement on Auditing Standards No.1 (SAS 61) – Communication with Audit Committees as amended and the Sarbanes Oxley Act of 2002. Relying on the review and discussions conducted with the management and the independent auditors, the audit committee believes that the Company’s financial statements are fairly presented in conformity with Generally Accepted Accounting Principles in all material aspects. The committee has also reviewed the internal controls put in place to ensure that the accounts of the Company are properly maintained and that the accounting transactions are in accordance with prevailing laws and regulations. In conducting such reviews, the committee found no material discrepancy or weakness in the internal control systems of the Company. The committee also reviewed the financial and risk management policies of the Company and expressed its satisfaction with the same. The company’s auditors provided to the committee the written disclosures required by Independence Standards Board Standard No. 1 – ‘Independence Discussions with Audit Committees’, based on which the committee discussed the auditors’ independence with both the management and the auditors. After review, the committee expressed its satisfaction on the independence of both the internal and the statutory auditors. Moreover, the committee considered whether any non-audit services provided by the auditors’ firm could impair the auditors’ independence, and concluded that there were no such services provided. The committee secured compliance on the affirmation of the Board of Directors to the NASDAQ stock exchange, under the relevant rules of the exchange on composition of the committee and independence of the committee members, disclosures relating to non-independent members, financial literacy and financial expertise of members, and a review of the audit charter. Based on the committee’s discussion with the management and the auditors and the committee’s review of the representations of the management and the report of the auditors to the committee, the committee has recommended the following to the Board of Directors:

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1. The audited financial statements prepared as per Indian GAAP of Infosys Technologies Limited for the year ended March 31, 2007, be accepted by the Board as a true and fair statement of the financial status of the Company 2. The audited consolidated financial statements prepared as per Indian GAAP of Infosys Technologies Limited and its subsidiaries for the year ended March 31, 2007 be accepted by the Board as a true and fair statement of the financial status of the group, and 3. The audited financial statements prepared as per U.S. GAAP, and to be included in the Company’s Annual Report on Form 20-F, for the fiscal year ended March 31, 2007 be filed with the U.S. Securities and Exchange Commission. The committee has recommended to the Board the re-appointment and fees of BSR & Co., Chartered Accountants, as the statutory auditors of the Company for the fiscal year ending March 31, 2008, and that the necessary resolutions for appointing them as auditors be placed before the shareholders. The committee has also recommended to the Board, the appointment of KPMG, India, as independent auditors of the Company for the U.S. GAAP financial statements, for the financial year ending March 31, 2008.The committee recommended the appointment of internal auditors to review various operations of the Company, and determined and approved the fees payable to them. The committee has also issued a letter in line with recommendation No. 9 of the Blue Ribbon Committee on audit committee effectiveness, which is to be provided in the Financial statements prepared in accordance with U.S. GAAP section of the Annual Report on Form 20-F. In conclusion, the committee is sufficiently satisfied that it has complied with its responsibilities as outlined in the Audit committee charter. ITC Limited The Audit Committee of the Board, inter alia, provides reassurance to the Board on the existence of an effective internal control environment that ensures: • efficiency and effectiveness of operations, both domestic and overseas; • safeguarding of assets and adequacy of provisions for all liabilities; • reliability of financial and other management information and adequacy of disclosures; • compliance with all relevant statutes.

The Audit Committee is empowered, pursuant to its terms of reference, inter alia, to: • investigate any activity within its terms of reference and to seek any information it requires

from any employee; • obtain legal or other independent professional advice and to secure the attendance of outsiders

with relevant experience and expertise, when considered necessary. The role of the Committee includes the following: (a) Overseeing the Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible; (b) Recommending the appointment and removal of external auditors, fixation of audit fee and approval of payment of fees for any other services rendered by the auditors; I Reviewing with the management the financial statements before submission to the Board, focusing primarily on: – Any changes in accounting policies and practic

13. – Major accounting entries based on exercise of judgement by manageme

14. – Qualifications in draft audit repor 15. – Significant adjustments arising out of aud 16. – The going concern assumpti 17. – Compliance with Accounting Standards

– Compliance with Stock Exchange and legal requirements concerning financial statements – Related party transactions; (d) Reviewing with the management, external and internal auditors, the adequacy of internal control systems and the Company’s statement on the same prior to endorsement by the Board; (e) Reviewing the adequacy of the internal audit function, 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; Larsen & Toubro Ltd

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The Audit Committee is responsible for • Overseeing the Company’s financial reporting process and disclosure of its financial information • Recommending the appointment of the Statutory Auditors and fixation of their remuneration • Reviewing and discussing with the Statutory Auditors and the Internal Auditor about internal control systems • Reviewing the adequacy and independence of the Internal Audit function, and observations of the Internal Auditor • Reviewing major accounting policies and practices and adoption of applicable Accounting Standards • Reviewing major accounting entries involving exercise of judgment by the management • Disclosure of contingent liabilities • Reviewing, if necessary, the findings of any internal investigations by the Internal Auditors and reporting the matter to the Board • Reviewing the risk management mechanisms of the Company • Reviewing of compliance with Listing Agreement and various other legal requirements concerning financial statements and related party transactions • Reviewing the Quarterly and Half yearly financial results and the Annual financial statements before they are submitted to the Board of Directors • Reviewing the operations, new initiatives and performance of the business divisions • Looking into the reasons for substantial defaults in payments to depositors, debenture holders, shareholders (in case of nonpayment of declared dividends) and creditors, if any. Mphasis Ltd The primary functions of the Audit Committee, as per its Charter, are to provide assistance to the Board of Directors in fulfilling their oversight responsibility to the shareholders, potential shareholders, the investment community and others relating to: • overseeing processes ensuring the integrity of the Company’s financial statements; • overseeing processes for the management of enterprise risks; • overseeing processes for compliance with laws and regulations: • overseeing process by which anonymous complaints pertaining to financial or commercial matters are received and acted upon (whistleblower mechanism); • enquiring into reasons for default in honouring obligations to creditors and members; • reviewing the process for entering into related party transactions and related disclosures; and • satisfying itself regarding the conformance of CEO’s remuneration, expense reimbursements and use of Company assets with terms of his employment and Company’s rules and policies. Nestle India Ltd The Audit Committee consists of a Vice Chairman, who chairs the Committee, and a minimum of two other members of the Board, excluding the Chairman/CEO. At least one member must be a financial expert. The powers and duties of the Audit Committee are established in the Audit Committee Charter, which is approved by the Board. In discharging its responsibilities, it has unrestricted access to the Company’s management, books and records. It is free to appoint outside counsel. The Audit Committee supports the Board of Directors in its supervision of financial control through a direct link to KPMG (external auditors) and the Nestlé Group Audit (corporate internal auditors). The Audit Committee’s main duties include the following: • to discuss Nestlé’s internal accounting procedures • to make recommendations to the Board of Directors regarding the nomination of external

auditors to be appointed by the shareholders • to discuss the audit procedures, including the proposed scope and the results of the audit t • to keep itself regularly informed on important findings of the audits and of their progress • to oversee the quality of the internal and external auditing • to present the conclusions on the approval of the Financial Statements to the Board of

Directors. The Audit Committee regularly reports to the Board on its findings and proposes appropriate actions. The responsibility for approving the annual Financial Statements remains with the Board of Directors. National Thermal Power Corporation Ltd The constitution, quorum, scope, etc. of the Audit Committee is in line with the Navratna Guidelines, the Companies Act, 1956 and provisions of Listing Agreement.

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Scope of Audit Committee 1. Discussion with Auditors periodically about internal control systems and the scope of audit including observations of the auditors. 2. Reviewing, with the management, the quarterly and half-yearly financial statements before submission to the Board for approval. 3. Ensure Compliance of Internal Control Systems. 4. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 5. Noting appointment and removal of external auditors. Recommending the fixation of audit fee of external auditors and also approval for payment for any other services. 6. Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to: a. Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s report in terms of clause (2AA) of section 217 of the Companies Act, 1956; b. Changes, if any, in accounting policies and practices and reasons for the same; c. Major accounting entries involving estimates based on the exercise of judgment by management; d. Significant adjustments made in the financial statements arising out of audit findings; e. Compliance with listing and other legal requirements relating to financial statements; f. Disclosure of any related party transactions; g. Qualifications in the draft audit report. 7. Reviewing, with the management, performance of statutory and internal auditors, the adequacy of internal control systems and suggestion for improvement of the same. 8. Reviewing the adequacy of internal audit function, 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. 9. Discussion with internal auditors any significant findings and follow up there on. Review of internal audit observations outstanding for more than two years. 10. 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. 11. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as ell as have post-audit discussion to ascertain any area of concern. 12. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors. 13. Review of Observations of C&AG including status of Government Audit paras. 14. To review the functioning of the Whistle Blower mechanism. 15. Investigation into any matter in relation to the items specified above or referred to it by the Board. Ranbaxy Laboratories Ltd The Audit Committee has been constituted as per (Promoter) 292 A of the Companies Act, 1956, and the guidelines set out in the Listing Agreements with the Stock Exchanges. The terms of reference inclu–e - • Overseeing financial reporting processes. • Reviewing periodic financial results, financial statements and adequacy of internal control systems. • Approving internal audit plans and reviewing efficacy of the function. • Discussion and review of periodic audit reports and • Discussions with external auditors about the scope of audit including the observations of the auditors. Reliance Energy Ltd The audit committee of Reliance Energy was set up way back in May 1986. Currently, the committee consists of all the four independent directors of the company. All the directors have good knowledge of finance, accounts and company law. The chairman of the committee, a chartered accountant, was formerly the executive director (finance) of Life Insurance Corporation of India and has accounting and related financial management expertise. The committee held five meetings during the year. The audit committee also advises the management on the areas where internal audit can be improved. The minutes of the meetings of the audit committee are placed

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before the board. The terms of reference of the audit committee are in accordance with all the items listed in clause 49 (II) (D) and (E) of the listing agreement as follows: i Overseeing of the company’s financial reporting process and the disclosure of its financial

information to ensure that the financial information is correct, sufficient and credible. ii Recommending the appointment, reappointment and replacement/removal of statutory auditor

and fixation of audit fee iii Approve payment for any other services by statutory auditors iv Reviewing with management the annual financial statements before submission to the board,

focusing primarily on; a. Matters required, to be included in the director’s responsibility statement included in the

report of the board of directors b. Any changes in accounting policies and practices c. Major accounting entries based on exercise of judgment by management d. Qualifications in draft statutory audit report. e. Significant adjustments arising out of audit. f. Compliance with listing and other legal requirements concerning financial statements g. Any related party transactions v Reviewing with the management the quarterly financial statements before submission to the

board for approval. vi Reviewing with the management, external and internal auditors, the adequacy of internal

control systems. vii Reviewing the adequacy of internal audit function, 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.

viii Discussion with internal auditors any significant findings and follow up thereon. ix 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.

x Discussion with statutory auditors before the audit commences about nature and scope of audit as well as post-audit discussion to ascertain any area of concern.

xi To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors.

xii To review the functioning of the Whistle Blower mechanism, in case the same is existing. xiii Carrying out any other function as is mentioned in the terms of reference of the audit

committee. xiv Review the following information: a Management discussion and analysis of financial condition and results of operations; b Internal audit reports relating to internal control weaknesses; c Management letters / letters of internal control weaknesses issued by statutory / internal

auditors; d Statement of significant related party transactions; and e The appointment, removal and terms of remuneration of the Chief internal auditor shall

be subject to review by the Audit Committee.

18. Audit Committee has the following poweri) to investigate any activity within its terms of reference.

ii) to seek any information from any employee. iii)to obtain outside legal and professional advice. iv)to secure attendance of outsiders with relevant expertise, Steel Authority of India Ltd The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial reports; the Company’s systems of internal controls regarding finance, accounting and legal compliance that management and the Board have established; and the Company’s auditing, accounting and financial reporting process generally. The Audit Committee reviews reports of the Internal Auditors, meets Statutory Auditors and discusses their findings, suggestions and other related matters and reviews major accounting policies followed by the Company. The Audit Committee reviews with management, the quarterly and annual financial statements before their submission to the Board. With the revision in Terms of

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Reference of the Audit Committee, it has started reviewing 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 etc. Internal Control Systems The Company has an adequate system of internal controls for achieving the following business objectives of the Company: • Efficiency of operations. • Protection of resources. • Accuracy and promptness of financial reporting. • Compliance with laid down policies and procedures. • Compliance with laws and regulations. In MEL, Internal Audit Department reviews, evaluates and appraises the various systems; procedures/policies lay down by the Company and suggest meaningful and useful improvements. It helps management to accomplish its objectives by bringing a systematic and disciplined approach to improve the effectiveness of management towards good corporate governance. The Internal Audit is subjected to overall control environment supervised by Board Level Audit Committee, providing independence to the Internal Audit function, emphasizing transparency in the systems and internal controls. Annual Audit Plans are based on identification of key-risk areas with thrust on system/process so as to achieve cost reduction in overall operation of the Company. The Internal Audit system is supplemented by well-documented policies, guidelines and procedures and regular reviews are being carried out by our Internal Audit Department. The reports containing major IA observations are periodically submitted to the management and Audit Committee of the MEL Board. State Bank of India The Audit Committee of the Board (ACB) was constituted on 27th July 1994 and last re-constituted on the 1st October 2006. The ACB functions as per RBI guidelines and complies with the provisions of Clause 49 of the Listing Agreement to the extent that they do not violate the directives/guidelines issued by RBI. Composition & Attendance during 2006-07 In terms of Reserve Bank of India guidelines, the ACB has six members of the Board of Directors, including two whole time Directors, two official Directors (nominees of GOI and RBI), and two non-official, non-executive Directors, both of whom are Chartered Accountants. Meetings of the ACB are chaired by a non-executive Director. The quorum requirements as per RBI guidelines are complied with meticulously. Details of composition and attendance during the year are as under. Table-9 gives the attendance at each meeting. Functions of ACB

(a) ACB provides direction as also oversees the operation of the total audit function in the Bank, which implies t�inalizationion, operationalisation and quality control of internal audit and inspection within the Bank, and follow-up on the statutory/external audit of the Bank and inspection by RBI.

(b) ACB reviews the internal inspection/audit functions in the Bank – the system, its quality and effectiveness in terms of follow-up. It reviews the inspection reports of specialized and extra large branches and all branches with unsatisfactory ratings. It also, especially, focuses on the follow-up of:

• Inter-branch adjustment accounts •Unreconciled long outstanding entries in inter-bank accounts and nostro/vostro accounts

• Arrears in balancing of books at various branches • Frauds • All other major areas of housekeepinI(c) It obtains and reviews half-yearly reports from the

Compliance Department in the Bank. (d) ACB follows up on all the issues raised in the Long Form Audit Reports of the Statutory

Auditors. It interacts with the external auditors befor�inalizationsation of the quarterly/half yearly/ annual financial accounts and reports.

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During the year, ten meetings of ACB (Table 9) were held to review the various matters connected with the internal control, systems and procedures and other aspects as required in terms of RBI guidelines. A formal ‘Audit Charter’ or ‘Terms of Reference’ laid down by the Central Board, incorporating the requirements under Clause-49 in addition to those under RBI guidelines, is in place. Sterlite Industries (India) Limited The Company had constituted an Audit Committee in accordance with the requirements of Section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreement entered with the stock exchanges. The terms of reference/powers stipulated by the Board to the Audit Committee, as contained under Clause 49 of the Listing Agreement are as follows: A. The Audit Committee shall have the following powers– 1. To investigate any activity within its terms of reference. 2. To seek information from any employee. 3. To obtain outside legal or other professional advice. 4. To secure attendance of outsiders with relevant expertise, if it considers necessary. B. The role of the Audit Committee shall include the following:

1. Oversight of the Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, reappointment and, if required, the replacement or removal of Statutory Auditors and fixation of audit fees. 3. Approval of payment to Statutory Auditors for any other services rendered by the Statutory Auditors. 4. 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 Directors’ report in terms of sub-section (2AA) of Section 217 of the Companies Act, 1956.

• Changes, if any, in accounting policies and practices and reasons for the same. • 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 related party transactions. • Qualifications in draft audit report. 5. Reviewing with the management, the quarterly financial statements, before submission to the Board for approval. 6. Reviewing with the management the performance of Statutory and Internal auditors and adequacy of internal control systems. 7. 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. 8. Discussion with Internal auditors any significant findings and follow up thereon. 9. 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. 10. 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. 11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. 12.To review the functioning of the Whistle Blower Mechanism. 13. Carrying out such other function as may be specifically referred to the Committee by the Board of Directors and/or other Committees of Directors of the Company 14. To review the following information: The management discussion and analysis of financial condition and results of operations;

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• 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 • The appointment, removal and terms of remuneration of internal audi.

19. 15. Reviewing the financial statements and in particular the investments made by the unlisted subsidiaries of the Company.

Tata Motors Ltd The Audit Committee of Directors comprises of 3 independent Directors, all of whom are financially literate and have relevant finance and/or audit exposure. The quorum of the Committee is two members or one-third of its members, whichever is higher. The composition of the Audit Committee and attendance at its meetings is as follows: The Committee meetings are held at the Company’s Corporate Headquarters or at its plant locations and are usually attended by the Managing Director, the Executive Director, the Chief Internal Auditor, the Statutory Auditor and the Cost Auditor. The Business and Operation Heads are invited to the meetings, as required. The Company Secretary acts as the Secretary of the Audit Committee. The Internal Audit unction headed by the Chief Internal Auditor, reports to the Audit Committee to ensure its independence. The Committee relies on the expertise and knowledge of management, the internal auditors and the independent Statutory Auditor in carrying out its oversight responsibilities. It also uses external expertise, if required. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements including consolidated statements, accounting and financial reporting principles. Management is also responsible for internal control over financial reporting and all procedures are designed to ensure compliance with accounting standards, applicable laws and regulations as well as for objectively reviewing and evaluating the adequacy, effectiveness and quality of the Company’s system of internal control. Deloitte Haskins & Sells (Deloitte), the Company’s independent Statutory Auditor, is responsible for performing an independent audit of the Financial Statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in India. The Committee functions according to its Charter that defines its powers, scope and role in accordance with the Companies Act 1956, listing requirements and US regulations applicable to the Company and is reviewed from time to time. Whilst, the full Charter is available on the Company’s website, given below is a gist of the scope of the Audit Commie:

20. a. Reviewing the quarterly financial statements before submission to the Board, focusing primarily on:

• Any changes in accounting policies and practices and reasons for the change; • Major accounting entries involving estimates based on exercise of judgment by

Management; • Qualifications in draft audit report; • Significant adjustments arising out of audit; • Compliance with accounting standards; • Analysis of the effects of alternative GAAP methods on the financial statements; • Compliance with listing and other legal requirements concerning financial statements • Disclosure of related party transactions; • Review Reports on the Management Discussion and Analysis of financial condition, results of

Operations and the Directors’ Responsibility Statement; • Overseeing the Company’s financial reporting process and the disclosure of its financial

information, including earnings press release, to ensure that the financial statements are correct, sufficient and credible;

• Disclosures made under the CEO and CFO certification to the Board and investors. b. Reviewing with the management, external auditor and internal auditor, adequacy of internal control systems and recommending improvements to the management. c. Recommending the appointment/removal of the statutory auditor, fixing audit fees and approving non-audit/ consulting services provided by the statutory auditors’ firms to the Company and its subsidiaries; evaluating auditors’ performance, qualifications and independence.

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d. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, coverage and frequency of internal audit, appointment, removal, performance and terms of remuneration of the chief internal auditor. e. Discussing with the internal auditor and senior management significant internal audit findings and follow-up thereon. f. Reviewing the findings of any internal investigation by the internal auditor into matters involving suspected fraud or irregularity or a failure of internal control systems of a material nature and report the matter to the Board. g. Discussing with the external auditor before the audit commences, the nature and scope of audit, as well as conduct post-audit discussions to ascertain any area of concern. h. Reviewing the Company’s financial and risk management policies. i. Reviewing the effectiveness of the system for monitoring compliance with laws and regulations. j. Initiating investigations into the reasons for substantial defaults in payments to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors. k. Reviewing the functioning of the Whistle-Blower mechanism which is an extension of the Tata Code of Conduct. l. Reviewing the financial statements and investments made by subsidiary companies. The Committee has also adopted a policy for Approval of Services to be rendered by the independent statutory Auditor and its affiliates to the Company and its subsidiaries for ensuring auditor’s independence and objectivity. The said policy as also the Whistle Blower policy have also been extended to the Company’s subsidiaries. During the year, the Committee reviewed audit reports that highlighted over 580 control improvements covering operational, financial and compliance areas. Key Management personnel presented their risk mitigation plan to the Committee. It also reviewed the internal control system in subsidiary companies, status on compliance of its obligations under the Charter and confirmed that it fulfilled its duties and responsibilities. The Committee through self-assessment evaluated its performance as well as the performance of the Statutory Auditors. The Chairman of the Audit Committee briefs the Board members about the significant discussions at Audit Committee meetings. Tata Steel Ltd The Company had constituted an Audit Committee in the year 1986. The scope of the activities of the Audit Committee is as set out in Clause 49 of the Listing Agreements with the Stock Exchanges read with Section 292A of the Companies Act, 1956. The terms of reference of the Audit Committee are broadly as follows: a) To review compliance with internal control systems; b) To review the findings of the Internal Auditor relating to various functions of the Company; c) To hold periodic discussions with the Statutory Auditors and Internal Auditors of the Company concerning the accounts of the Company, internal control systems, scope of audit and observations of the Auditors/ Internal Auditors; d) To review the quarterly, half-yearly and annual financial results of the Company before submission to the Board; e) To make recommendations to the Board on any matter relating to the financial management of the Company, including Statutory & Internal Audit Reports; f) Recommending the appointment of statutory auditors and branch auditors and fixation of their remuneration. Whistle Blower Policy The Audit Committee at its meeting held on 25th October, 2005, approved framing of a Whistle Blower Policy that provides a formal mechanism for all employees of the Company to approach the Ethics Counsellor/ Chairman of the Audit Committee of the Company and make protective disclosures about the unethical behaviour, actual or suspected fraud or violation of the Company’s Code of Conduct. The Whistle Blower Policy is an extension of the Tata Code of Conduct, which requires every employee to promptly report to the Management any actual or possible violation of the Code or an event he becomes aware of that could affect the business or reputation of the Company. The disclosures reported are addressed in the manner and within the time frames prescribed in the Policy. Under the Policy, each employee of the Company has an assured access to the Ethics Counsellor/Chairman of the Audit Committee.

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Tata Power Company Ltd The terms of reference, role and scope are in line with those prescribed by Clause 49 of the Listing Agreement with the Stock Exchanges. The Company also complies with the provisions of Section 292A of the Companies Act, 1956 pertaining to Audit Committee and its functioning. At its meeting held on 29th March 2001, the Board delegated the following powers to the Audit Committee:

• To investigate any activity within its terms of reference. • To seek information from any employee. • To obtain outside legal or other professional advice. • To secure attendance of outsiders with relevant expertise, if it considers necessary.

The role of the Audit Committee has been redefined as under: 1. Oversight of the Company’s financial reporting process and the disclosure of its financial

information, to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the

replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of payment to statutory auditors for any other services rendered by the statutory

auditors. 4. Reviewing, with the management, the annual financial statements before submission to the

Board for approval, with particular reference to: a) Matters required to be included in the Director’s Responsibility Statement to be

included in the Board’s report in terms of Clause (2AA) of Section 217 of the Companies Act, 1956

b) Changes, if any, in accounting policies and practices and reasons for the same c) Major accounting entries involving estimates based on the exercise of judgement by

management d) Significant adjustments made in the financial statements arising out of audit findings e) Compliance with listing and other legal requirements relating to financial statements f) Disclosure of any related party transactions g) Qualifications in the draft audit report.

5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval.

6. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems.

7. 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.

8. Discussion with internal auditors any significant findings and follow-up there on. 9. 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.

10. Discussion with the 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.

11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors.

12. To review the functioning of the Whistle Blower mechanism, in case the same is existing. 13. Carrying out any other function as is mentioned in the terms of reference of the Audit

Committee. Ultratech Cement Ltd The Company has an Audit Committee at the Board level which acts as a link between the Management, the Statutory and Internal Auditors and the Board of Directors and oversees the financial reporting process. The primary objective of the Committee is to monitor and provide effective supervision of the Management’s financial reporting process. The terms of reference/ power of the Audit Committee are in accordance with Clause 49 of the Listing Agreement. The Audit Committee has the following powers: - To investigate any activity within its terms of reference.

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- To seek information from any employee. - To obtain outside legal or other professional advice. - To secure attendance of outsiders with relevant expertise, if it considers necessary. The role of the Audit Committee includes the following:

1. Oversight of your Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.

2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the Statutory Auditors and the fixation of audit fees.

3. Approval of payment to Statutory Auditors for any other services rendered by them. 4. Reviewing, with the Management, the annual financial statements before submission to the

Board for approval, with particular reference to: a. Matters required to be included in the Director’s Responsibility Statement to be

included in the Board’s Report in terms of clause (2AA) of section 217 of the Companies Act, 1956.

b. Changes, if any, in accounting policies and practices and reasons for the same. c. Major accounting entries involving estimates based on the exercise of judgment by

Management. d. Significant adjustments made in the financial statements arising out of audit findings. e. Compliance with listing and other legal requirements relating to financial statements. f. Disclosure of any related party transactions. g. Qualifications in the draft audit report.

5. Reviewing, with the Management, the quarterly financial statements before submission to the Board for approval.

6. Reviewing, with the Management, performance of Statutory and Internal Auditors, adequacy of the internal control systems.

7. 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.

8. Discussion with Internal Auditors any significant findings and follow up there on. 9. 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.

10. Discussion with Statutory Auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any areas of concern.

11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors, if any.

The Audit Committee reviews the following information: 1. Management Discussion and Analysis of financial condition and results of operations.

2. Statement of significant related party transactions (as defined by the Audit Committee), submitted by Management.

3. Management letters / letters of internal control weaknesses issued by the Statutory Auditors, if any.

4. Internal audit reports relating to internal control weaknesses; and 5. The appointment, removal and terms of remuneration of the Chief Internal Auditor. During the year, the Committee has reviewed the internal controls put in place to ensure that the accounts of your Company are properly maintained and that the accounting transactions are in accordance with prevailing laws and regulations. In conducting such reviews, the Committee found no material discrepancy or weakness in the internal control system of your Company. The Committee has also been mandated to periodically review the procedures laid down by your Company for assessing and managing risks. Videocon Industries Ltd. During the year under review, the Audit Committee was reconstituted on 8th December 2005. Scope of Audit Committee: The terms of reference are broadly as under:

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a. Overall assessment of the Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.

b. Recommending the appointment of external auditor, fixation of audit fee and also approval for payment for any other services rendered by the Auditors.

c. Reviewing with management the annual financial statements before submission to the board, focusing primarily on:

Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s report in terms of Clause (2AA) of section 217 of the Companies Act, 1956.

• Changes, if any, in accounting policies and practices. • Major accounting entries based on exercise of judgment by management. • Observations if any, in draft audit report. • Significant changes/amendments, if any, arising out of audit. • The going concern assumption. • Compliance with accounting standards. • Qualification in the draft audit report. • Compliance with stock exchange and legal requirements concerning financial statements. • Any related party transactions i.e. transactions of the company of material nature, with

promoters or the management, their subsidiaries or relatives etc., that may have potential conflict with the interests of company at large.

d. Review of Quarterly / Half Yearly unaudited financial results before submission to the Auditors and the Board.

e. Reviewing with the management, external and internal auditors, the adequacy of internal control systems.

f. Reviewing the adequacy of internal audit function, 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.

g. Discussion with internal auditors any significant findings and follow up there on. h. Reviewing the findings, if any, 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.

i. Discussions with external auditors before the audit commences nature and scope of audit as well as have post-audit discussion to ascertain any area of concern.

j. Reviewing the company’s financial and risk management policies. k. To look into the reasons for substantial defaults, if any, in the payment to the depositors,

debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. l. Financial Statements and Investments made by Subsidiaries m. To review the functioning of Whistle Blower Mechanism, if any The Audit Committee also reviews: • Management discussion and analysis of financial conditions and results of operations. • Statement of significant related party transactions, if any. • Management Letters/Letters of internal control weaknesses issued by the Statutory Auditors;

Internal Audit Reports relating to internal control weaknesses; and • The appointment, removal and terms of remuneration of the Chief Internal Auditor. Dr Reddys Laboratories Ltd The management is responsible for the Company’s internal controls and the financial reporting process while the statutory auditors are responsible for performing independent audits of the Company’s financial statements in accordance with generally accepted auditing practices and for issuing reports based on such audits. The Board of Directors has entrusted the Audit Committee to supervise these processes and thus ensure accurate and timely disclosures that maintain the transparency, integrity and quality of financial control and reporting. The primary responsibilities of the Audit Committee are to: • Supervise the financial reporting process; • Review the financial results before placing them to the Board along with related disclosures and

filing requirements; • Review the adequacy of internal controls in the Company, including the plan, scope and

performance of the internal audit function;

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• Discuss with management the Company’s major policies with respect to risk assessment and risk management;

• Hold discussions with statutory auditors on the nature and scope of audits, and any views that they have about the financial control and reporting processes;

• Ensure compliance with accounting standards, and with listing requirements with respect to the financial statements;

• Recommend the appointment and removal of external auditors and their fees; • Review the independence of auditors; • Ensure that adequate safeguards have been taken for legal compliance both for the Company

and its other Indian as well as foreign subsidiaries; • Review related party transactions; and Review the functioning of Whistle Blower mechanism. • Implementation of the applicable provisions of the Sarbanes Oxley Act, 2002.

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Essar Steel Ltd The Company has an Audit Committee with scope of activities as set out in the amended clause 49 of the Listing Agreement with the Stock Exchanges read with Section 292A of the Companies Act, 1956. The broad terms of reference of the Audit Committee are as under: a) To hold periodic discussions with the Statutory Auditors and Internal Auditors of the Company

concerning the accounts of the Company, internal control systems, scope of audit and observations of the Auditors/Internal Auditors;

b) To review the quarterly, half-yearly and annual financial results of the Company before submission to the Board;

c) To make recommendations to the Board on any matter relating to the financial management of the Company, including the Audit Report;

d) Overseeing the Company’s financial process and disclosure of financial information to ensure that the financial statement is correct.

e) Recommending the appointment and removal of external auditor, fixation of audit fee and approval for payment of any services.

f) Approval of payment to statutory auditors for any other services rendered by the statutory auditors. g) Reviewing with the management performance of statutory and internal auditors, and adequacy of internal control system. h) Reviewing the adequacy of internal audit function. i) Discussing with internal auditors any significant finding and follow up on such issues. j) 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 system of a material nature and reporting the matter to the Board.

k) Discussing with external auditors before the audit commences on the nature and scope of audit, as well as having post-audit discussion to ascertain any area of concern.

l) Reviewing the Company’s financial and risk management policies; and m) Examining reasons for substantial default in the payment to depositors, debenture holders, shareholders and creditors, if any. Hero Honda Motors Ltd Audit Committee Recommendation During the year there was no such recommendation of the Audit Committee which was not accepted by the Board. Hence, there is no need for the disclosure of the same in this Report. Merck & Co., India Committees of the Board There are currently six standing committees of the Board: Audit Committee – oversees the Company’s financial reporting process and internal controls. This committee is directly responsible for the appointment, engagement and oversight of the independent public accountants and has sole authority to approve audit engagement fees and terms as well as significant non-audit engagements with independent public accountants. Committee on Corporate Governance – considers and makes recommendations on matters related to the practices, policies and procedures of the Board. This committee has sole authority to retain and terminate director search firms and to approve retention fees and terms. Compensation and Benefits Committee – makes recommendations on organization, succession, the election of officers, consultantships and similar matters, and consults on matters concerning executive compensation and on pension, savings and welfare benefit plans. This committee has sole authority to retain and terminate compensation consultants who advise on director or executive compensation and sole authority to approve retention fees and terms. Finance Committee – considers and makes recommendations on matters related to the financial affairs and policies of the Company. Committee on Public Policy and Social Responsibility – advises the Board and management on Company policies and practices that pertain to the Company’s responsibilities as a global corporate citizen, its obligations as a pharmaceutical company, and its commitment to high standards of ethics and integrity.

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Research Committee – considers and makes recommendations on matters related to the C’mpany's strategies and operations for the research and development of pharmaceutical products and vaccines. It is the Board’s philosophy that matters of significance should be considered and, where appropriate, acted on by the full Board. The Board’s committees should function to perform the duties reserved to them by statute, regulation or charter, and to identify and focus issues for discussion by the full Board. At least annually, their respective members shall evaluate the effectiveness of the Audit Committee, Committee on Corporate Governance, and Compensation and Benefits Committee. The Committee on Corporate Governance recommends the composition of the Board’s committees in consultation with the Chairman of the Board, or if there is no Chairman of the Board, with the Lead Director of the Board. Committee assignments are subject to the approval of a majority of the full Board. Committee assignments should reflect the expertise and interests of Board members, with the goal of ensuring that Committee members have the requisite background and expertise to participate fully on the committees on which they serve. There is not mandatory rotation of Board members among committees. Continued Service on Board After Change in Career; Retirement of Directors (a) In the event that a director changes his or her primary position, the director will advise the

Chairman of the Board of such change, or if there is no Chairman of the Board, the Lead Director of the Board, who will then consult with the Committee on Corporate Governance regarding the director’s continued service on the Board. The Committee will review each situation on an individual basis, taking into consideration the background, expertise and expected continued contribution of the director.

(b) It is expected that a director shall not hold office beyond the next succeeding annual meeting after attaining the age of 72.

(c) It is expected that a director who also is an employee of the Company will not be a candidate for reelection following termination of regular full-time employment.

Other Service The Board recognizes that individuals should limit the number of boards on which they serve so that they can give proper attention to each board responsibility. However, the philosophy of the Board is not to set an invariant limit on the number of boards on which a director may serve. In the event that a director wishes to join the board of another company, it is expected that the director will advise the Chairman of the Board, or if there is no Chairman of the Board, the Lead Director of the Board, of his or her intention. The Chairman of the Board or Lead Director of the Board, as the case may be, will then consult with the Committee on Corporate Governance regarding whether the new commitment will allow the director to continue to fulfill his or her obligations to the Company. It is expected that a director will refrain from serving as a director, officer, employee or consultant with any competitive business during service with the Company and for three years or for a reasonable period of time, as determined by the Board of Directors, after service with the Company ends. Compensation of Directors The Committee on Corporate Governance should regularly review the compensation that is provided to the directors of the Company and make recommendations to the Board regarding any appropriate modifications. The Compensation and Benefits Committee shall be responsible for engaging consultants and experts to assist with this process if necessary. Compensation provided to directors should remunerate the directors fairly for their service to the Board. It should also support the Company’s goal of attracting and retaining the most qualified persons to the Board. Directors’ compensation should include stock-based components to align the interests of the directors with those of the stockholders of the Company. The Board has determined that the Company’s compensation goals are met by a compensation package that includes meeting fees, retainer arrangements, deferred compensation opportunities, and stock options. In addition, directors joining the Board prior to January 1, 1996 are eligible to receive a retirement benefit; this benefit is not available to directors joining the Board after December 31, 1995. As with all independent directors of the Company, directors who serve on the Audit Committee may not be paid remuneration by the Company other than the compensation provided to all directors of the Company. Directors who are current employees of the Company do not receive any additional compensation for their services as directors.

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Stock Ownership Guidelines On joining the Board, each director must own at least one share of stock, with a target ownership level of 5,000 shares to be achieved by each director within five years of joining the Board or as soon thereafter as practicable. Shares held in the Merck Common Stock account under the Plan for Deferred Payment of Directors’ Compensation will be included in the target goal. Upon the request of a director, the Committee on Corporate Governance will consider if modification of the target ownership level is appropriate in view of a director’s personal circumstances. Chairmanship of Meetings In the absence of the Chairman of the Board, or if there is no Chairman of the Board, in the absence of the Lead Director of the Board, the senior independent director present shall preside at all meetings of the stockholders and the Board of Directors. Director Orientation and Continuing Education The Committee on Corporate Governance shall oversee the education and acculturation of new directors through an orientation program developed by management that exposes the director to the Company’s business and strategies, allows for formal and informal interaction with members of management, and facilitates the building of relationships with other Board members. The Committee on Corporate Governance and management shall identify and communicate external and internal training and educational opportunities for continuing directors in areas of importance to the Company. Incumbent Director Resignation Policy Under the C’mpany's Restated Certificate of Incorporation, in the case of an uncontested election of directors (that is, the number of nominees for any election of directors does not exceed the number of directors to be elected), a nominee for election as a director shall be elected to the Board of Directors if the number of votes cast for such n’minee's election exceeds the number of votes cast against such n’minee's election. If an incumbent director who was a nominee for reelection is not reelected in an uncontested election of directors, the incumbent director shall tender his or her resignation promptly following certification of the stockholder vote for consideration by the Committee on Corporate Governance and the Board in accordance with the following procedures.

The Committee on Corporate Governance shall promptly consider such tendered resignation and recommend to the Board the action to be taken with respect to such tendered resignation. The recommendation of the Committee may be, among other things

21. (i) accept the resignation; 22. (ii)reject the resignation but address what the Committee believes to

be the underlying reasons for the failure of the incumbent director to be re-elected(iii) reject the resignation. If the Committee recommends that the Board accept the tendered resignation, the Committee shall also recommend to the Board whether to fill the vacancy resulting from the resignation or to reduce the size of the Board.

In considering a tendered resignation, the Committee on Corporate Governance is authorized to consider all factors it deems relevant to the best interest of the Company, including

(i) what the Committee believes to be the underlying reasons for the failure of the incumbent director to be re-elected, including whether these reasons relate to the incumbent di’ector's performance as a director; whether these reasons relate to the Company or another company; and whether these reasons are curable and alternatives for effecting any cure;

(ii) the tenure and qualifications of the incumbent director; (iii) the incumbent di’ector's past and expected future contributions to the Company; (iv) the other Policies of the Board; and (v) the overall composition of the Board, including whether accepting the resignation would

cause the Company to fail to meet any applicable requirements of the Securities and Exchange Commission, the New York Stock Exchange or any other regulatory or self-regulatory requirements.

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The Board will act on the recommendation of the Committee on Corporate Governance no later than 90 days following certification of the stockholder vote for the stockh’lders' meeting at which the incumbent director was not reelected. In considering the Com’ittee's recommendation, the Board is authorized to consider the information and factors considered by the Committee and any additional information and factors as the Board deems relevant to the best interests of the Company. Following the’Board's decision, the Company will promptly file a Current Report on Form 8-K or issue a press release describing the’Board's decision and providing an explanation of the process by which the decision was reached and, if applicable, the reasons for rejecting the tendered resignation. Any incumbent director who tenders his or her resignation pursuant to this Policy in connection with an election of directors will not participate in the Committee on Corporate Gove’nance's or the’Board's consideration of his or her tendered resignation or, except as provided below, in the consideration of any other resignation tendered pursuant to this Policy in connection with that election of directors; provided that any incumbent director may provide to the Committee and/or the Board any information or a statement he or she deems relevant to the Com’ittee's and/or the’Board's consideration of his or her tendered resignation. In the event that a majority of the members of the Committee on Corporate Governance are required to tender their resignation pursuant to this Policy in connection with an election of directors, then, if the number of independent directors who are not required to tender their resignation in connection with an election of directors is three or greater, the Board shall appoint a committee, which shall be comprised of those independent directors selected by the independent directors from amongst themselves, for the purpose of considering the tendered resignations in accordance with the factors described above, and that committee shall make the recommendation contemplated to be made by the Committee on Corporate Governance to the Board under this Policy. Notwithstanding the foregoing, in the event that the number of independent directors who are not required to tender their resignation pursuant to this Policy in connection with an election of directors is less than three, a committee comprised of all independent directors, which shall be appointed by the Board, shall consider and act upon the tendered resignations in accordance with the factors described above; provided that each independent director required to tender his or her resignation pursuant to this Policy shall recuse himself or herself from consideration of his or her resignation. This Policy will be summarized or included in each proxy statement relating to election of directors of the Company.

Reliance Energy Ltd The Audit Committee has the following po:

23. i. to investigate any activity within its terms of reference. 24. ii. to seek any information from any empliii. to obtain

outside legal and professional ad 25. iv. to secure attendance of outsiders with relevant expertise,

Oil & Natural Gas Corporation Ltd The role of the Audit & Ethics Committee includes the following:

a. Overseeing financial reporting processes and the disclosure of financial information, to ensure that the financial statements are correct, sufficient and credible;

b. Recommending to the Board, audit fees payable to Statutory Auditors appointed by C&AG and approving payments for any other services;

c. Reviewing with management the periodic financial statements/results before submission to the Board, focusing primarily on :

• matters required to be included in the Directors’ Responsibility statement; • any changes in accounting policies and practices; • major accounting entries based on exercise of judgement by the management; • qualifications in draft audit report; • significant adjustments arising out of the audit; • the going concern assumption;

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• compliance with accounting standards; • compliance with listing agreement and legal requirements concerning financial

statements; • any related party transactions i.e. transactions of the company of material nature,

with promoters or the management, their subsidiaries or relatives etc. that may have potential conflict with the interest of the company at large;

d. Reviewing with the management, Statutory Auditors, Govt. Audit and internal audit reports, adequacy of internal control systems and recommending improvements to the management;

e. Reviewing the adequacy of internal and function, approving internal audit plans and efficacy of the functions including the structure of the internal audit department, staffing, reporting structure, coverage and frequency of internal audits;

f. Discussion with internal auditors on any significant findings and follow – up thereon; g. Reviewing the findings of any internal investigations by the internal auditors into the

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;

h. Discussion with the Statutory Auditors before the audit commences, the nature and scope of audit, as well as post – audit discussion including their observations to ascertain any area of concern;

i. Reviewing the Company’s financial and risk management policies; j. Reviewing Quarterly Compliance Report confirming adherence to all the applicable laws,

rules guidelines, instructions and internal instructions/manuals including Corporate Governance principles;

k. Reviewing the management discussion and analysis of financial condition and results of operations, statement of significant related party transactions, management letters/letter of internal control weaknesses issued by the statutory auditors, internal audit.

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Whirlpool of India Ltd The functioning and terms of reference of the Audit Committee including the role, powers and duties, quorum for meeting and frequency of meetings, have been devised keeping in view the requirements of section 292A of the Companies Act, 1956 and the Listing Agreement with the Bombay Stock Exchange Ltd. The Company has a multi disciplinary Internal Audit Team which submits its report directly to the Audit Committee on a quarterly basis. The Chairman of the Audit Committee attended the last Annual General Meeting held on August 25, 2006 to answer shareholders queries. The Audit Committee is responsible

26. (i) Effective supervision of the financial reporting process, ensuring financial, accounting and operating controls and compliance with established policies and procedures.

27. (ii) Evaluating the adequacy of internal controls and its effective(iii) Reviewing the financial results of the Company for each quarter/ year before the same are placed at the Board meeting for appr

28. (iv) Providing an avenue for effective communication between the Internal Audit, the Statutory Auditors and the Board of Directors.

Satyam Computer Services Ltd The Audit committee consists of 100% independent and non-executive directors and provides assistance to the Board of directors in fulfilling its oversight responsibilities. The functions of Audit committee include: 1. Oversight of the company’s financial reporting process and the disclosure of its financial

information to ensure that the financial statements are correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the

replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of engagement of and payment to statutory auditors for any other non-audit services

rendered by the statutory auditors. 4. Reviewing with the management, the quarterly financial statements before submission to the

Board for approval. 5. Reviewing with the management, performance of statutory and internal auditors, and adequacy

of the internal control systems. 6. 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.

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Annexure 10

Differences between US and Indian Corporate Governance The NYSE Corporate Governance Standards stipulate that companies must have a majority of independent directors, where as in accordance with the listing agreements of the Indian stock exchanges, it must be an optimum combination of executive and non-executive directors with not less than 50% of the directors being non-executive directors. If the Chairman of the Board is not an executive director, at least one third of the directors should be independent. If the Chairman is an executive director, at least half of the board of the directors of the company should comprise of independent directors. In case of controlled companies (in which more than 50 percent of the voting power is held by an individual, a group of another company), it is not required to have a majority independent board as per NYSE code, where as there no such exemption available to the listed companies in India. Provisions of Clause 49 are applicable to all the listed companies who have entered into listing agreement with the Indian stock exchanges. In the NYSE code, non-management directors must meet at regularly scheduled executive sessions without management, which is not a requirement in India. A listed company according to the NYSE Governance standards, should have a nominating/corporate governance committee composed entirely of independent directors in addition to the Audit Committee, where as in India, constitution of Nomination Committee is non mandatory and need not comprise of independent directors. The nominating/corporate governance committee as per the NYSE governance standards, must have a written charter that addresses certain specific committee purposes and responsibilities and provides for an annual performance evaluation of the committee. In India, since constitution of nomination committee is non-mandatory does not require a charter for such committee and the performance evaluation of the non-executive directors could be done by a peer group comprising the entire Board of Directors, excluding the director being evaluated. In the US, companies must have a compensation committee composed entirely of independent directors and it should have written charter that addresses certain specific purposes and responsibilities of the committee and provides for an annual performance evaluation of the committee. In India listed companies may constitute a compensation/remuneration committee consisting of at least three directors, alal of whom should be non-executive directors an independent chairman in order to avoid conflict of interest. These are non-mandatory requirements. The listing requirements in India do not require that the compensation committee have a charter. The annual corporate governance report of the companies generally provides details of the remuneration including brief details of its agreed terms of reference. In US companies, the audit committee must have a written charter that addresses certain specific purposes and responsibilities of the committee, provides for an annual performance evaluation of the committee and sets forth certain minimum duties and responsibilities. In India as per the listing agreement, companies need to have a qualified and independent audit committee and stipulates the powers and role of audit committee. The audit committee needs to have all its members as non-executive directors with at least 2/3 of the members to be independent. All members should be financially literate and at least one member shall have accounting or related financial management expertise. The chairman of the audit committee shall be an independent director. There is no requirement of a written charter. Each listed company in the US, having an internal audit function which is required to provide the management and audit committee with ongoing assessments of the company’s risk management processes and system of internal control. A company may choose to outsource this function to a third party service provider other than its independent auditor. As per Clause 49 fo the listing agreement in India, there is no mandatory requirement of having an internal audit function, however, it is advisable to have being a necessary tool for internal control. Clause 49 defines the role of the audit committee shall inter alia include; “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”. According to NYSE standards, companies must adopt and disclose corporate governance guidelines and companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or executive officers. As per Clause 49 of Indian Listing Agreement, the company needs to adopt of code of conduct/ethics for all the Board of Directors and to all senior management one level below the Board. Annual Report should disclose compliance with the Code by the Board Members and Senior Management. In NYSE standards, CEO of each listed company has to certify on an annual basis that he or she is now aware of any violation by the company of the

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NYSE corporate governance listing standards. This certification as well as that the CEO/CFO certification required under SOX Act of 2002 must be disclosed in the company’s annual report to shareholders. Further, CEO of each listed company must promptly notify the NYSE in writing after any executive officer of the listed company becomes aware of any material non-compliance with any applicable provisions of this section. In respect of Indian companies, in addition to the CEO/CFO certification on the true and fair view of financial statements and compliance, are required to submit a quarterly compliance report to the Indian stock exchanges where their shares are listed. A separate section on the corporate governance will form the annual report of the company that gives details of adoption of an compliance with the mandatory clauses and non mandatory clauses. The company has to obtain a certificate issued by the auditors or practicing company secretaries regarding compliance of conditions of corporate governance and annex the same with the director’s report to be sent annually to the shareholders of the company and concerned stock exchanges.

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Annexure 11

Evolution of Corporate Governance 1950s - The Era of Excessive Managerial Power: In the 1950s, two factors combined to bestow enormous power on corporate executives. Market oligopolies created large companies - such as General Motors, General Electric, and IBM that were largely insulated from international competition, while the separation of ownership and control gave managers great leeway to do what they pleased. Critics viewed companies as running "without any discernible controls," and assuming power that could "rival the sovereignty of the state itself."

Response – The Trustbusters Managerial power was curbed by antitrust policy and heightened pressure from international rivals. Most big mergers during this era were barred by the Justice Dept. or the courts, but competition in manufacturing did more to diminish managerial power than all the antitrust decisions of the era.

1960s and 1970s -- The Age of Conglomerates With business conditions conducive to growth, companies morphed into modern-day conglomerates. For a time, they were viewed as a solution to the "separation" problem. Central managers in headquarters would monitor operating managers in far-flung divisions, allocating capital where returns were highest. But ultimately, inefficiencies began to creep into these vast organizations, creating the enemy of profits: Corporate bloat.

Response -- The Hostile Takeover The conglomerate created an opportunity for the market to do what powerful managers wouldn't: Bust up the bloated bureaucracies and sell off the parts. The hostile takeover was celebrated in the 1987 film Wall Street, in which Michael Douglas plays corporate raider Gordon Gekko.

1980s - The Rise of Insider Trading With the explosion in hostile takeovers, insider trading suddenly held out the potential for vast riches. Managers and Wall Street cronies who got wind of a buyout could easily buy up stock before the deal was announced and sell it immediately after at a huge profit. Michael Milken and Ivan Boesky became poster boys for the excesses of the era

Response -- The Stock Option Boom It was about this time that stock options burst on the scene and quickly gained in popularity thanks to favorable accounting treatment and tax laws. To shareholders tired of seeing managers get rich destroying their companies, options promised a solution to the "separation" problem once and for all. By turning managers into owners, options would be an incentive to create shareholder value, not destroy it. At least that was the hope.

1990s -- CEO Pay: Nowhere to Go but Up It didn't quite work out that way. Encouraged by favorable accounting, boards granted options with abandon. And the longest bull market in history converted them into almost unimaginable wealth for top executives. Instead of an incentive to create shareholder value, in many cases they were an incentive to fudge the numbers. In the immediate aftermath of the 1990s, earnings restatements increased dramatically.

Response -- Shareholder Activism As executive pay ballooned, shareholder efforts to rein it in increased, accelerating after investment portfolios evaporated following the market collapse in 2000. At the same time, activists began attacking managerial power on other fronts - pushing for better disclosure, independent boards, and splitting the roles of chairman and CEO

2000s -- The Age of Scandal The collapse of Enron and massive accounting fraud at WorldCom ushered in an age of scandal that would forever tarnish the image of the CEO. A massive regulatory push to curb CEO power -- including the Sarbanes-Oxley Reform Act of 2002 - was met with equal but opposite pushback from the business community.

Response -- The Downsized CEO Directors, auditors, and lawyers emerge from the scuffle with far more power than they had - and CEOs with far less. Emboldened boards topple Fannie Mae's Franklin Raines, Boeing's Harry Stonecipher, Disney's Michael Eisner, Hewlett-Packard's Carly Fiorina, and AIG's Hank Greenberg.

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Annexure 12 Indices of Regulation of Securities Markets

Company Symbol Disclosure requirements

Liability standard

Supervisor characteristics

Rule - making power

Investigative powers

Orders Criminal Sections

Public enforcement

English Legal Origin Australia AUS 0.75 0.66 0.67 1.00 1.00 1.00 0.83 0.90 Canada CAN 0.92 1.00 0.67 0.50 1.00 1.00 0.83 0.80 Hong Kong HKG 0.92 0.66 0.33 1.00 1.00 1.00 1.00 0.87 India IND 0.92 0.66 0.33 0.50 1.00 0.67 0.83 0.67 Ireland IRL 0.67 0.44 0.00 1.00 0.00 0.00 0.83 0.37 Israel ISR 0.67 0.66 0.67 0.00 1.00 1.00 0.50 0.63 Kenya KEN 0.50 0.44 0.33 1.00 0.50 1.00 0.67 0.70 Malaysia MYS 0.92 0.66 0.33 0.50 1.00 1.00 1.00 0.77 New Zealand NZL 0.67 0.44 0.33 0.00 1.00 0.00 0.33 0.33 Nigeria NGA 0.67 0.39 0.67 0.50 0.00 0.00 0.50 0.33 Pakistan PAK 0.58 0.39 0.67 1.00 1.00 0.17 0.08 0.58 Singapore SGP 1.00 0.66 0.33 1.00 1.00 1.00 1.00 0.87 South Africa ZAF 0.83 0.66 0.33 0.00 0.50 0.00 0.42 0.25 Sri Lanka LKA 0.75 0.39 0.33 1.00 0.50 0.00 0.33 0.43 Thailand THA 0.92 0.22 0.67 1.00 1.00 0.33 0.58 0.72 USA USA 1.00 1.00 1.00 1.00 1.00 1.00 0.30 0.90 United Kingdom GBR 0.83 0.66 0.00 1.00 1.00 1.00 0.42 0.68 Zimbabwe ZWE 0.50 0.44 1.00 0.00 0.00 0.08 1.00 0.42 Mean 0.78 0.58 0.48 0.67 0.75 0.57 0.65 0.62 Company Symbol Disclosure

requirements Liability standard

Supervisor characteristics

Rule - making power

Investigative powers

Orders Criminal Sections

Public enforcement

French Legal Origin Argentina ARG 0.50 0.22 0.67 1.00 1.00 0.08 0.17 0.58 Belgium BEL 0.42 0.44 0.00 0.00 0.25 0.00 0.50 0.15 Brazil BRA 0.25 0.33 0.33 1.00 0.50 0.75 0.33 0.58 Chile CHL 0.58 0.33 0.33 1.00 0.75 0.42 0.50 0.60 Colombia COL 0.42 0.11 0.33 1.00 0.75 0.33 0.50 0.58 Ecuador ECU 0.00 0.11 1.00 1.00 0.25 0.08 0.42 0.55 Egypt EGY 0.50 0.22 0.67 0.00 0.25 0.17 0.42 0.30 France FRA 0.75 0.22 1.00 0.50 1.00 1.00 0.33 0.77 Greece GRC 0.33 0.50 0.67 0.00 0.25 0.17 0.50 0.32 Indonesia IDN 0.50 0.66 0.33 1.00 1.00 0.25 0.50 0.62 Italy ITA 0.67 0.22 0.67 1.00 0.25 0.00 0.50 0.48 Jordan JOR 0.67 0.22 0.33 1.00 1.00 0.67 0.00 0.60 Mexico MEX 0.58 0.11 0.00 1.00 0.25 0.00 0.50 0.35 Netherlands NLD 0.50 0.89 0.33 1.00 0.50 0.00 0.50 0.47 Peru PER 0.33 0.66 0.67 1.00 0.75 1.00 0.50 0.78 Philippines PHL 0.83 1.00 0.67 1.00 1.00 1.00 0.50 0.83

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This table shows the securities laws variables for each country covering the areas of (a) disclosure requirements (b) Liability standards (c) Supervisor characteristics (d) Rule making power of the Supervisor (e) Investigative powers of the Supervisor (f) Orders to issuers, distributors, and accountants (f) Criminal sanctions applicable to directors, distributors, and accountants and (g) Public enforcement

Portugal PRT 0.42 0.66 0.67 1.00 1.00 0.25 0.00 0.58 Spain ESP 0.50 0.66 0.67 0.00 0.50 0.00 0.50 0.33 Turkey TUR 0.50 0.22 0.67 1.00 1.00 0.00 0.50 0.63 Uruguay URY 0.00 0.11 0.67 1.00 0.25 0.50 0.42 0.57 Venezuela VEN 0.17 0.22 0.33 1.00 1.00 0.08 0.33 0.55 Mean 0.45 0.39 0.52 0.79 0.64 0.32 0.40 0.53

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Company Symbol Disclosure

requirements Liability standard

Supervisor characteristics

Rule - making power

Investigative powers

Orders Criminal Sections

Public enforcement

German Legal Origin Austria AUT 0.25 0.11 0.33 0.00 0.00 0.00 0.50 0.17 Germany DEU 0.42 0.00 0.33 0.00 0.00 0.00 0.50 0.22 Japan JPN 0.75 0.66 0.00 0.00 0.00 0.00 0.00 0.00 Korea KOR 0.75 0.66 0.33 0.00 0.00 0.08 0.33 0.25 Switzerland CHE 0.67 0.44 0.33 1.00 1.00 0.00 0.33 0.33 Taiwan TWN 0.75 0.66 0.33 1.00 1.00 0.17 0.83 0.52 0.60 0.42 0.28 0.33 0.17 0.04 0.42 0.25 Scandinavian Legal Origin Denmark DNK 0.58 0.55 0.00 1.00 0.50 0.33 0.00 0.37 Finland FIN 0.50 0.66 0.67 0.00 0.25 0.17 0.50 0.32 Norway NOR 0.58 0.39 0.00 0.00 0.25 0.33 1.00 0.32 Sweden SWE 0.58 0.28 0.00 1.00 0.25 0.67 0.38 0.50 Mean 0.56 0.47 0.17 0.50 0.31 0.38 0.52 0.38 Mean all countries 0.60 0.47 0.45 0.66 0.60 0.38 0.50 0.52

Source: What Works in Securities Laws? Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer*, Dartmouth College, Yale University, and Harvard University, June 11, 2004