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.