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N.R. Narayana Murthy- As a Role Model of Corporate Governance
INTRODUCTION BORN: Nagavara Ramarao Narayana Murthy was Born in Mysore,
Karnataka on 20 August 1946.
EDUCATION: Murthy graduated with a degree in electrical engineering from the National Institute of Engineering, University of Mysore in 1967. He received his master's degree from IIT Kanpur in 1969.
INFOSYS: He and six other engineers co-founded Infosys in 1981. Murthy served as CEO from 1981 to 2002. From 2002 to 2011, he served as the Chairman.
RETIRED: In 2011, he stepped down from the board and became Chairman Emeritus.
Over the years: top to bottom) N.R. Narayana Murthy; an early 1990s photo of Infosys
founding members and employees, among them Murthy (extreme left), N.S. Raghavan and
Kris Gopalakrishnan (third and fourth from left, front row, respectively), and S.D. Shibulal
(extreme right)
CAREER Murthy's first job position was at IIM Ahmedabad, where he worked as
the chief systems programmer.
After IIM Ahmedabad, he started a company named Softronics in 1976.
When that company failed, he joined Patni Computer Systems in Pune.
After settling down in Pune, Mr. Murthy founded Infosys in 1981with an
initial capital injection of Rs 10,000, which was invested by his wife
Sudha Murthy. Murthy served as the CEO of Infosys for 21 years.
And after retirement in August 2011 Mr. Murthy serves as an
independent director on the corporate boards of HSBC, DBS Bank,
Unilever, ICICI and NDTV.
PERSONAL LIFEHis wife, Sudha Murthy is an Indian social worker and
accomplished author. She is known for her philanthropic
work through the Infosys Foundation.
Perhaps his biggest influence on Indian youth has been
his simplicity. He stays in a simple house and has a
simple lifestyle.
And just as he showed how to create wealth, he knows
how to let go of it as well. His charity efforts and his
resignation are proofs of just that.
WHAT IS CORPORATE GOVERNANCE?
According to Mr. Murthy,
The primary purpose of corporate leadership is to create
wealth legally and ethically.
This translates to bringing a high level of satisfaction to
five constituencies -- customers, employees, investors,
vendors and the society-at-large.
The raison d'être (reason for being) of every corporate
body is to ensure predictability, sustainability and
profitability of revenues year after year.
CORPORATE GOVERNANCE: HISTORY IN INDIA
There have been several major corporate governance
initiatives launched in India since the mid-1990s.
The first was by the Confederation of Indian Industry
(CII).
The second was by the SEBI.
The third was the Naresh Chandra Committee.
The fourth was again by SEBI — the Narayana Murthy
Committee, which also submitted its report in 2002.
N.R Narayan Murthy Committee on Corporate
GovernanceThe Securities and Exchange Board of India (SEBI) had
constituted a Committee on Corporate Governance in 2002
It was set up to review Clause 49, and suggest measures to
improve corporate governance standards.
Some of the major recommendations of the committee
primarily related to audit committees, audit reports,
independent directors, related party transactions, risk
management, directorships and director compensation,
codes of conduct and financial disclosures.
CONTD…..Further the committee also discussed:
About the whistle-blower policy, related-party
transactions, need for independent directors to be
truly independent, tenure of non-executive directors,
CEO- and CFO-certification on the lines of Sarbanes-
Oxley, oversight of subsidiaries.
THE KEY MANDATORY RECOMMENDATIONS
FOCUSED 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;
Cont…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
INCLUDED:
Moving To A Regime Where Corporate Financial
Statements Are Not Qualified;
Instituting A System Of Training Of Board Members; And
Evaluation Of Performance Of Board Members.
CLAUSE-49 :AMENDMENT DONE BY NARAYAN MURTHY
COMMITTEE1. Board of Directors
2. Audit Committee
3. Subsidiary Companies
4. Disclosures
5. CEO/ CFO certification
6. Report On Corporate Governance
7. Compliance
1. Board of Directors
A. Composition of Board
B. Non executive Director’s Compensation and
Disclosures
C. Other Provisions as to Board and Committees
D. Code of Conduct
A. Composition of Board:
combination of executive and non executive directors
with not less than fifty percent
at least one-third of the board should comprise of
independent directors
B. Non executive Director’s Compensation and
Disclosures:
any paid to non-executive directors shall require previous
approval of shareholders in general meeting.
C. Other Provisions as to Board and Committees:
The board shall meet at least four times a year
A director shall not be a member in more than 10
committees or act as chairman of more than five
committees across all companies in which he is a director
D. Code of Conduct:
• The board shall lay down a code of conduct for all Board
members and senior management of the company.
• All board members and senior management personnel
shall affirm compliance with the code on an annual basis.
2. Audit Committee
A. Qualified and Independent Audit Committee
B. Meeting of Audit Committee
C. Powers of Audit Committee
D. Role of Audit Committee
E. Review Of Information By Audit Committee
A. Qualified and Independent Audit Committee:
• The audit committee shall have minimum three directors as
members
• All members of audit committee shall be financially literate
and at least one member shall have accounting or related
financial management expertise
B. Meeting of Audit Committee:• The audit committee should meet at least four times
in a year and not more than four months shall elapse between two meetings.
C. Powers of 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.
D. Role of Audit Committee:
disclosure of its financial information
the appointment and removal of the statutory auditor and
the fixation of audit fees.
Approval of payment to statutory auditors
Reviewing the annual financial statement before
submission to the board for approval
Reviewing performance of statutory and internal auditors
(E) Review of Information By Audit Committee:
• analysis of financial condition
• Statement of significant related party transactions
submitted by management;
• Management letters/ letter of internal control
• Internal audit reports
• The appointment, removal and terms of remuneration of
the chief internal auditor
3. Subsidiary CompaniesAt least one independent director on the board of
directors of the holding company shall be a director on
the board of directors of a material non listed Indian
subsidiary company.
Review the financial statements
The minutes of the board meetings of the unlisted
subsidiary company shall be placed at the board meeting
of the listed company
4. DisclosuresA. Basis Of Related Party Transactions
B. Disclosure Of Accounting Treatment
C. Board Disclosures – Risk Management
D. Procedures From Public Issues, Right Issues, Preferential
Issues Etc.
E. Remuneration Of Directors
F. Management
G. Shareholders
5. CEO/ CFO certification
CEO/ CFO shall certify to the board that:
• They have reviewed financial statements and the cash
flow statement for the year
• There are no fraudulent, illegal or volatile transactions.
Cont…• They have evaluated the effectiveness of internal control
systems of the company pertaining to financial reporting
• They have indicated to the auditors and the audit
committee about significant changes in internal control, in
accounting policies and Instances of significant fraud
6.Report on Corporate Governance
separate section on corporate governance in the annual
reports of company
companies shall submit a quarterly compliance report to the
stock exchanges within 15 days from the close of quarter
7. Compliance
The company shall obtain a certificate from either the
auditors or practicing company secretaries
The non- mandatory requirements may be implemented
as per the discretion of the company.
CORPORATE GOVERNANCE AT INFOSYS
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
CONTD….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
We continue to be a pioneer in
benchmarking our corporate
governance policies with the best in
the world. Our efforts are widely
recognized by investors in India and
abroad. We have undergone the
corporate governance audit by
ICRA and CRISIL. ICRA has rated
our corporate governance practices
at CGR 1. CRISIL has assigned
CRISIL GVC Level 1 rating to us.