AGENCY COSTS:

The separation of ownership and control in modern corporations gives rise to agency costs.Agency theory refers to a set of propositions in governing a modern corporation which is typically characterized by large number of shareholders or owners who allow separate individuals to control and direct the use of their collective capital for future gains. These individuals, typically, may not always own shares but may possess relevant professional skills in managing the corporation. The theory offers many useful ways to examine the relationship between owners and managers and verify how the final objective of maximizing the returns to the owners is achieved, particularly when the managers do not own the corporation’s resources.

To minimize the potential for such agency problems, there are two important steps:

First, the principal-agent risk-bearing mechanism must be designed efficiently and second, the design must be monitored through the nexus of organizations and contracts. The first step, considered as the formal agency literature, examines how much of risks should each party assume in return for their respective gains. The principal must transfer some rights to the agent who, in turn, must accept to carry out the duties enshrined in the rights. The second step, is the ‘positive agency theory’, clarifies how firms use contractual monitoring and bonding to bear upon the structure designed in the first step and derive potential solutions to the agency problems. The inevitable loss of firm value that arises with the agency problems along with the costs of contractual monitoring and bonding are defined as agency costs.

An agency relationship arises whenever one or more individuals, called principals, hire one or more other individuals, called agents, to perform some service and then delegate decision-making authority to the agents. The primary agency relationships in business are those (1) between stockholders and managers and (2) between debt holders and stockholders. These relationships are not necessarily harmonious; indeed, agency theory is concerned with so-called agency conflicts, or conflicts of interest between agents and principals. This has implications for, among other things, corporate governance and business ethics. When agency occurs it also tends to give rise to agency costs, which are expenses incurred in order to sustain an effective agency relationship (e.g., offering management performance bonuses to encourage managers to act in the shareholders' interests).

CONFLICTS BETWEEN MANAGERS AND SHAREHOLDERS SELF-INTERESTED BEHAVIOR.

Agency theory suggests that, in imperfect labor and capital markets, managers will seek to corporate resources in the form of perquisites and the avoidance of optimal risk positions, whereby risk-averse managers bypass profitable opportunities in which the firm's shareholders would prefer they invest. Outside investors recognize that the firm will make decisions contrary to their best interests. Accordingly, investors will discount the prices they are willing to pay for the firm's securities.

A potential agency conflict arises whenever the manager of a firm owns less than 100 percent of the firm's common stock. If a firm is a sole proprietorship managed by the owner, the owner-manager will undertake actions to maximize his or her own welfare. The owner-manager will

probably measure utility by personal wealth, but may trade off other considerations, such as leisure and perquisites, against personal wealth. If the owner-manager forgoes a portion of his or her ownership by selling some of the firm's stock to outside investors, a potential conflict of interest, called an agency conflict, arises. For example, the owner-manager may prefer a more leisurely lifestyle and not work as vigorously to maximize shareholder wealth, because less of the wealth will now accrue to the owner-manager. In addition, the owner-manager may decide to consume more perquisites, because some of the cost of the consumption of benefits will now be borne by the outside shareholders.

In the majority of large publicly traded corporations, agency conflicts are potentially quite significant because the firm's managers generally own only a small percentage of the common stock. Therefore, shareholder wealth maximization could be subordinated to an assortment of other managerial goals. For instance, managers may have a fundamental objective of maximizing the size of the firm. By creating a large, rapidly growing firm, executives increase their own status, create more opportunities for lower- and middle-level managers and salaries, and enhance their job security because an unfriendly takeover is less likely. As a result, incumbent management may pursue diversification at the expense of the shareholders who can easily diversify their individual portfolios simply by buying shares in other companies.

Managers can be encouraged to act in the stockholders' best interests through incentives, constraints, and punishments. These methods, however, are effective only if shareholders can observe all of the actions taken by managers. A moral hazard problem, whereby agents take unobserved actions in their own self-interests, originates because it is infeasible for shareholders to monitor all managerial actions. To reduce the moral hazard problem, stockholders must incur agency costs.

COSTS OF SHAREHOLDER-MANAGEMENT CONFLICT.

Agency costs are defined as those costs borne by shareholders to encourage managers to maximize shareholder wealth rather than behave in their own self-interests. Corporate debt levels and management equity levels are both influenced by a wish to contain agency costs. There are three major types of agency costs: (1) expenditures to monitor managerial activities, such as audit costs; (2) expenditures to structure the organization in a way that will limit undesirable managerial behavior, such as appointing outside members to the board of directors or restructuring the company's business units and management hierarchy; and (3) opportunity costs which are incurred when shareholder-imposed restrictions, such as requirements for shareholder votes on specific issues, limit the ability of managers to take actions that advance shareholder wealth.

In the absence of efforts by shareholders to alter managerial behavior, there will typically be some loss of shareholder wealth due to inappropriate managerial actions. On the other hand, agency costs would be excessive if shareholders attempted to ensure that every managerial action conformed to shareholder interests. Therefore, the optimal amount of agency costs to be borne by shareholders is determined in a cost-benefit context—agency costs should be increased as long as each incremental dollar spent results in at least a dollar increase in shareholder wealth.

MECHANISMS FOR DEALING WITH SHAREHOLDER-MANAGER CONFLICTS

There are two polar positions for dealing with shareholder-manager agency conflicts. At one extreme, the firm's managers are compensated entirely on the basis of stock price changes. In this case, agency costs will be low because managers have great incentives to maximize shareholder wealth. It would be extremely difficult, however, to hire talented managers under these contractual terms because the firm's earnings would be affected by economic events that are not under managerial control. At the other extreme, stockholders could monitor every managerial action, but this would be extremely costly and inefficient. The optimal solution lies between the extremes, where executive compensation is tied to performance, but some monitoring is also undertaken. In addition to monitoring, the following mechanisms encourage managers to act in shareholders' interests: (1) performance-based incentive plans, (2) direct intervention by shareholders, (3) the threat of firing, and (4) the threat of takeover.

STOCKHOLDERS VERSUS CREDITORS: A SECOND AGENCY CONFLICT

In addition to the agency conflict between stockholders and managers, there is a second class of agency conflicts—those between creditors and stockholders. Creditors have the primary claim on part of the firm's earnings in the form of interest and principal payments on the debt as well as a claim on the firm's assets in the event of bankruptcy. The stockholders, however, maintain control of the operating decisions (through the firm's managers) that affect the firm's cash flows and their corresponding risks. Creditors lend capital to the firm at rates that are based on the riskiness of the firm's existing assets and on the firm's existing capital structure of debt and equity financing, as well as on expectations concerning changes in the riskiness of these two variables.

CORPORATE GOVENANCE

Corporate governance is "the system by which companies are directed and controlled. It involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders; it deals with prevention or mitigation of the conflict of interests of stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have impact on the way a company is controlled. An important theme of corporate governance is the nature and extent of accountability of people in the business, and mechanisms that try to decrease the principal–agent problem.

Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders, debt holders, trade creditors, suppliers, customers and communities affected by the corporation's activities. Internal stakeholders are the board of directors, executives, and other employees. It guarantees that an enterprise is directed and controlled in a responsible, professional, and transparent manner with the purpose of safeguarding its long-term success. It is intended to increase the confidence of shareholders and capital-market investors.

CLAUSE 49

Clause 49 of the Listing Agreement to the Indian stock exchange comes into effect from 31 December 2005. It has been formulated for the improvement of corporate governance in all listed companies. In corporate hierarchy two types of managements are envisaged: i) companies managed by Board of Directors; and ii) those by a Managing Director, whole-time director or manager subject to the control and guidance of the Board of Directors.

As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the board should comprise independent directors. In the case of a company with a non-executive Chairman, at least one-third of the board should be independent directors.

It would be necessary for chief executives and chief financial officers to establish and maintain internal controls and implement remediation and risk mitigation towards deficiencies in internal controls, among others.

Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report to stock exchange in the prescribed form. The clause also requires that there be a separate section on corporate governance in the annual report with a detailed compliance report.

A company is also required to obtain a certificate either from auditors or practicing company secretaries regarding compliance of conditions as stipulated, and annex the same to the director's report.

The clause mandates composition of an audit committee; one of the directors is required to be "financially literate".

It is mandatory for all listed companies to comply with the clause by 31 December 2005.

Corporate Governance may be defined as “A set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders.” It ensures Commitment to values and ethical conduct of business; Transparency in business transactions; Statutory and legal compliance; adequate disclosures and Effective decision-making to achieve corporate objectives. In other words, Corporate Governance is about promoting corporate fairness, transparency and accountability. Good Corporate Governance is simply Good Business.

Clause 49 of the SEBI guidelines on Corporate Governance as amended on 29 October 2004 has made major changes in the definition of independent directors, strengthening the responsibilities of audit committees, improving quality of financial disclosures, including those relating to related party transactions and proceeds from public/ rights/ preferential issues, requiring Boards to adopt formal code of conduct, requiring CEO/CFO certification of financial statements and for improving disclosures to shareholders. Certain non-mandatory clauses like whistle blower policy and restriction of the term of independent directors have also been included.

TATA STEEL

Tata Steel, established in 1907, is among the top ten steel producers in the world with an existing annual crude steel production capacity of 30 Million Tones Per Annum (MTPA).

Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries.

The Company’s Corporate Governance PhilosophyThe Company has set itself the objective of expanding its capacities and becoming globally competitive in its business. As a part of its growth strategy, the Company believes in adopting the ‘best practices’ that are followed in the area of Corporate Governance across various geographies. The Company emphasizes the need for full transparency and accountability in all its transactions, in order to protect the interests of its stakeholders. The Board considers itself as a Trustee of its Shareholders and acknowledges its responsibilities towards them for creation and safeguarding their wealth. In accordance with the Tata Steel Group Vision, Tata Steel Group (‘the Group’) aspires to be the global steel industry benchmark for value creation and corporate citizenship. The Group expects to realise its Vision by taking such actions as may be necessary in order to achieve its goals of value creation, safety, environment and people.

BOARD ROLE Board of directors met 10 times in a year and gap between any two meetings did not

exceed 4 months. The Company pays sitting fees of Rs. 20,000 per meeting to the NEDs for attending the

meetings of the Board, Executive Committee of the Board, Remuneration Committee, Audit Committee and Committees constituted by the Board from time to time. For other meetings, viz. Investor Grievance Committee and Ethics Committee, the Company pays to the NEDs sitting fees of Rs. 5,000 per meeting.

Full disclosure has been made regarding the remuneration packages of all directors

Audit CommitteeThe 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.

Audit Committee meetings are attended by the Group Chief Financial Officer, Chief (Corporate

Audit) and Chief Financial Controller (Corporate) and Representatives of Statutory Auditors.

The Company Secretary acts as the Secretary of the Audit Committee.

Five Audit Committee Meetings were held during 2010-11. The dates on which the said

meetings were held were as follows:

9th April, 2010, 25th May, 2010, 11th August, 2010, 11th November, 2010 and 15th February,

2011.

The necessary quorum was present at the meetings.

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 Counselor/Chairman of the Audit Committee of the Company and make protective

disclosures about the unethical behavior, 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 Counselor/Chairman of the Audit Committee.

Means of Communication Half-yearly report – The half-yearly results of the Company are published in the

newspapers and posted on the website of the Company. Results – The quarterly and annual results along with the Segmental Report are generally

published in The Times of India, The Indian Express, Nav Shakti, Free Press Journal, and Loksatta and also displayed on the website of the Company www.tatasteel.com shortly after its submission to the Stock Exchanges.

Presentation to Institutional Investors or to analysts – Official news releases and presentations made to Institutional Investors and analysts are posted on the Company’s website.

Management Discussion & Analysis Report – The MD&A Report forms a part of the Directors’ Report. All matters pertaining to industry structure and developments, opportunities and threats, segment/product wise performance, outlook, risks and concerns, internal control and systems, etc. are discussed in the said report.

5. Shareholders’ CommitteeAn Investors’ Grievance Committee was constituted on 23rd March, 2000 to specifically look into the redressal of Investors’ complaints like transfer of shares, non-receipt of balance sheet and non-receipt of declared dividend, etc.One meeting of the Investors’ Grievance Committee was held on 12th November, 2010.

Shareholder/Investor Complaints:

Complaints pending as on 1st April, 2010: 6

During the period 1st April, 2010 to 31st March, 2011,

Complaints identified and reported under Clause 41 of the Listing Agreements: 755Complaints disposed off during the year ended 31st March, 2011: 757Complaints unresolved to the satisfaction of shareholders as on 31st March, 2011: 4 No. of pending share transfers of Ordinary Shares as on 31st March, 2011: 115

OBSERVATIONS :

We have observed the corporate governance report of Tata Steel Limited, for the year ended on

31st march, 2011. The company has strong corporate governance with set of procedures

following the Fixed Board of Directors, whistle Blower policy, Share holder’s committee and

audit committee. As per our understanding and the information found and kept in this document,

we feel that Tata Steel Limited is complied with the conditions of corporate Governance as

stipulated in Clause 49 Agreement.

Hindustan Unilever

Hindustan Unilever is India's largest Fast Moving Consumer Goods Company. The Company has over 16,000 employees and has an annual turnover of around Rs.19,

401 crores (financial year 2010 - 2011). HUL is a subsidiary of Unilever, one of the world’s leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe.

HUL meet everyday needs of millions of Indians, right from the morning cup of tea to brushing at bedtime.

HUL brands touch the lives of more than 700 million Indians. Our stated strategy is to grow our business competitively, profitably and sustainably. Leverage Unilever's global technology expertise and the research and development

capabilities in India to bring innovative products that meet the needs of consumers within India.

HUL works to create a better future every day and helps people feel good, look good and get more out of life with brands and services that are good for them and good for others.

Unilever has about 52% shareholding in HUL.

Corporate Governance

Transparency and accountability are the two basic tenets of HUL Corporate Governance. Employees at Hindustan Unilever, feel proud to belong to a Company whose visionary founders had laid the foundation stone for good governance long back and made it an integral principle of the business, demonstrated in the words above. 

Approach to Corporate GovernanceTo succeed, HUL believe in the highest standards of corporate behaviour towards everyone they work with, the communities they touch, and the environment on which they have an impact. This is the road to sustainable, profitable growth and creating long-term value for HUL shareholders, people, and business partners.

Board Role

The Directors may meet together as a Board from time to time for the dispatch ofbusiness and shall so meet at least once in every three calendar months and at leastfour such meetings shall be held in every year. The Directors may adjourn and otherwiseregulate their Meetings as they think fit.

The Company shall in each year hold a General Meeting as its Annual General Meetingin addition to any other meetings in that year. All General Meetings other than AnnualGeneral Meetings shall be called Extraordinary General Meetings.

The Annual General Meeting shall be held within six months after the expiry of each financial year; provided that not more than fifteen months shall elapse between the date of one Annual General Meeting and that of the next.

Every Annual General Meeting shall be called for a time during business hours,on a day that is not a public holiday, and shall be held at the Office of the Company orat some other place within the City of Bombay as the Board may determine and theNotices calling the Meeting shall specify it as the Annual General Meeting.

Every Member of the Company shall be entitled to attend either in person or by proxy

Auditor Committee

Auditors means those persons appointed auditors of the Company’s accountsfor the time being by the Company.

Auditor of the Company shall have the right to attend and to be heard at an General Meeting which he attends on any part of the business which concerns him as Auditor.

Every account of the Company when audited and adopted by a General Meeting shall be conclusive except as regards any error discovered therein within three months next after the adoption thereof. When any such error is discovered within that period the account shall forthwith be corrected and thenceforth shall be conclusive.

The Audit Committee reviews adequacy and effectiveness of the Company’s internal control environment and monitors the implementation of audit recommendations including those relating to strengthening of the Company’s risk management policies and systems.

The Audit Committee met six times during the financial year ended 31st March, 2011 on 25th May, 2010, 2nd June, 2010, 26th July, 2010, 25th October, 2010, 20th December, 2010 and 25th January, 2011.

Whistle Blower Policy

The Company has adopted a Whistle Blower Policy to provide appropriate avenues to the employees to bring to the attention of the Management any issue which is perceived to be in violation of or in conflict with the fundamental business principles of the Company.

The Company has provided a dedicated e-mail address for reporting such complaints. Alternatively, employees can also send written communications to the Company.

The employees are encouraged to raise any of their concerns by way of whistle blowing. Secretary is the designated officer for effective implementation of the policy and

complaints registered under the policy. All cases registered under the Code of Business Principles and the Whistle Blower Policy

of the Company are reported to the Committee of Executive Directors and is subject to the review of the Audit Committee.

Means of Communication

The Company regularly interacts with shareholders through multiple channels of communication such as result announcement, annual report, media releases, Company’s website and subject specific communications.

The quarterly, half-yearly and annual results of the Company’s performance are published in leading newspapers such as Times of India and Hindu Business Line.

These results are also made available on the website of the Company www.hul.co.in.The website also displays vital information relating to the Company and its performance, official press releases and presentation to analysts.

Shareholders / Investors Grievance Committee The Committee is entrusted with the responsibility to address the shareholders and

investors complaints with respect to transfer of shares, non-receipt of annual report, non-receipt of declared dividends, etc. and ensures an expeditious share transfer process in line with the proceedings of the Share Transfer Committee.

The Committee also evaluates performance and service standards of the Registrar and Share Transfer Agent of the Company, and also provides continuous guidance to improve the service levels for investors.

During the financial year ended 31st March, 2011, the Committee met twice on 25th October, 2010 and 30th March, 2011.

During the financial year ended 31st March, 2011, 106 complaints were received from the shareholders.

All the complaints have been redressed to the satisfaction of shareholders / investors and none of them were pending as on 31st March, 2011.

OBSERVATIONS:

We have observed the corporate governance report of Hindustan Unilever Limited, for the year ended on 31st march, 2011. The company has strong corporate governance with set of procedures following the Fixed Board of Directors, whistle Blower policy, Share holder’s committee and audit committee. As per our understanding and the information found and kept in this document, we feel that Hindustan Unilever Limited is complied with the conditions of corporate Governance as stipulated in Clause 49 Agreement.

ITC

ITC Limited has been one of the frontrunners in India to have put in place a formalised system of

Corporate Governance. Its governance framework enjoins the highest standards of ethical and

responsible conduct of business to create value for all stakeholders.

THE COMPANY’S GOVERNANCE PHILOSOPHY

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 conservation and development 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.

ITC believes that any meaningful policy on Corporate Governance must empower the executive

management of the Company. At the same time, Governance must create a mechanism of checks

and balances to ensure that the decision-making powers vested in the executive management are

used with care and responsibility to meet stakeholders’ aspirations and societal expectations.

THE GOVERNANCE STRUCTURE

The practice of Corporate Governance in ITC is at three interlinked levels:

The three-tier governance structure ensures that:(a) Strategic supervision- by the Board of Directors (on behalf of the shareholders),being free

from involvement in the task of strategic management of the Company, can be conducted by the

Board with objectivity, thereby sharpening accountability of management;

(b) Strategic management of the Company, uncluttered by the day-to-day tasks of executive

management, remains focused and energized; and

(c) Executive management of a Division or Business, free from collective strategic

responsibilities for ITC as a whole, focuses on enhancing the quality, efficiency and

effectiveness of the business.

BOARD OF DIRECTORS

In terms of the Company’s Corporate Governance Policy, all statutory and other significant and

material information are placed before the Board to enable it to discharge its responsibility of

strategic supervision of the Company as trustees of the Shareholders.

Board Agenda

Meetings are governed by a structured agenda. The Board members, in consultation with the

Chairman, may bring up any matter for the consideration of the Board. All major agenda items

are backed by comprehensive background information to enable the Board to take informed

decisions. Agenda papers are circulated at least seven working days prior to the Board meeting.

Employee Stock Option Schemes

The Company granted 42, 30,600 Options during the financial year to the eligible employees of

the Company and some of its subsidiary companies. Pursuant to the Shareholders’ approval on

23rd July, 2010 to the Bonus share issue, in the ratio of 1 Bonus share for every existing 1

Ordinary share, adjustment was made to the outstanding Options with respect to the number of

Options and the exercise price, in accordance with the Employee Stock Option Schemes of the

Company read with the Securities and Exchange Board of India (Employee Stock Option

Scheme and Employee Stock Purchase Scheme)Guidelines, 1999, consequent to which

1,92,80,432Bonus Options were allocated during the year.

MEANS OF COMMUNICATION

Timely disclosure of consistent, comparable, relevant and reliable information on corporate

financial performance is at the core of good governance. Towards this end -

● The quarterly results of the Company were announced within a month of completion of

the quarter. Audited annual results along with the results for the fourth quarter were

announced within two months of the end of the financial year; such results were published,

inter alia, in ‘The Times of India’ and ‘Aajkal’ from Kolkata, and on an all India basis in

major newspapers, and also in Luxembourger Wort, Luxembourg. All these results were

posted on the Corporate Filing and Dissemination System (CFDS) website

(www.corpfiling.co.in). As in the past, the Company will publish its quarterly, half-yearly

and annual financial results. Information relating to shareholding pattern, compliance with

corporate governance norms etc. is also posted on the CFDS website.

The Company’s corporate website www.itcportal.comprovides comprehensive information

on ITC’s portfolio of businesses, including sustainability initiatives comprising CSR

activities, EHS performance, shareholding pattern, information on compliance with

corporate governance norms and contact details of Company’s employees responsible for

assisting &handling investor grievances. The website has entire sections dedicated to

ITC’s profile, history and evolution, its core values, corporate governance and leadership.

An exclusive section on ‘Shareholder Value’ serves to inform and service Shareholders,

enabling them to access information at their convenience. The entire Report and Accounts

as well as quarterly and half-yearly financial results are available in downloadable formats

under the section ‘Shareholder Value’ on the Company’s website as a measure of added

convenience to investors. The ‘Newsroom’ section includes all major media releases from

the Company and relevant media reports. Clarifications as and when provided to

institutional investors and analysts, including presentations made to them, are also posted

on the Company’s website.

ITC CODE OF CONDUCT

The ITC Code of Conduct, as adopted by the Board of Directors, is applicable to Directors,

senior management and employees of the Company. The Code is derived from three interlinked

fundamental principles, viz. good corporate governance, good corporate citizenship and

exemplary personal conduct. The Code covers ITC’s commitment to sustainable development,

concern for occupational health, safety and environment, a gender friendly workplace,

transparency and audit ability, legal compliance and the philosophy of leading by personal

example. The Code is available on the Company’s corporate website.NON - MANDATORY RECOMMENDATIONS UNDER CLAUSE 49 OF THE LISTINGAGREEMENT

The status of compliance with the non-mandatory recommendations of Clause 49 of the Listing

Agreement with Stock Exchanges is provided below:

1. Non-Executive Chairman’s Office: The Chairman of the Company is the Executive

Chairman and hence this provision is not applicable.

2. Tenure of Independent Directors: In terms of the Governance Policy of the Company, all

Directors, including Independent Directors, are appointed /re-appointed for a period of three to

five years or a shorter duration in accordance with retirement guidelines as determined by the

Board from time to time. No maximum tenure for Independent Directors has been specifically

determined by the Board.

3. Remuneration Committee: The Company has a Remuneration Committee under the

nomenclature ‘Compensation Committee’, the details of which are provided in this Report under

the section ‘Committees of the Board - Remuneration Committee’.

4. Shareholder Rights: The quarterly, half-yearly and annual financial results of the Company

are published in newspapers on an all India basis and are also posted on the Company’s

corporate websitewww.itcportal.com. Significant events are also posted on this website under the

‘Newsroom’ section. The complete Annual Report is sent to every Shareholder of the Company.

5. Audit Qualifications: It is always the Company’s endeavor to present unqualified financial

statements. There are no audit qualifications in the Company’s financial statements for the year

ended31st March, 2011.

6. Training of Board members: The Board is equipped to perform its role of business

assessment through inputs from time to time. Directors are fully briefed on all business related

matters, risk assessment & minimization procedures, and new initiatives proposed by the

Company. Directors are also updated on changes / developments in the domestic / global

corporate and industry scenario including those pertaining to statutes / legislation and economic

environment.

7. Mechanism for evaluation of Non-Executive Directors: The role of the Board of Directors

is to provide direction and exercise overall supervision to ensure that the Company is managed in

a manner that fulfils stakeholders’ aspirations and societal expectations. The Board has so far

evaluated Non-Executive Directors collectively to reinforce the principle of collective

responsibility.

8. Whistle-Blower Policy: The Company encourages an open door policy where employees

have access to the Head of the Business / Function. In terms of The ITC Code of Conduct, any

instance of non-adherence to the Code / any other observed unethical behavior is to be brought to

the attention of the immediate reporting authority, who is required to report the same to the Head

of Corporate Human Resources.

OBSERVATIONS:

ITC Company follows a strong corporate governance policy. They have different committees for every segment to have the policies followed strongly in the company. The committees are like audit committee, remuneration committee, investors grievance committee, nominations committee, sustainability committee, corporate management committee. So as they have different committees in every aspect they follow the policies very accurately. The audit committee has confirmed that ITC follows agreements and policies as per clause49.