4.

Corporate governance
Corporate governance is the set of processes, customs, policies, laws, and
institutions affecting the way a corporation (or company) is directed, administered
or controlled. Corporate governance also includes the relationships among the
many stakeholders involved and the goals for which the corporation is governed.
The principal stakeholders are the shareholders, the board of directors,
employees, customers, creditors, suppliers, and the community at large.

Corporate governance is a multi-faceted subject.[1] An important theme of

corporate governance is to ensure the accountability of certain individuals in an
organization through mechanisms that try to reduce or eliminate the principal-
agent problem. A related but separate thread of discussions focuses on the
impact of a corporate governance system in economic efficiency, with a strong
emphasis on shareholders' welfare. There are yet other aspects to the corporate
governance subject, such as the stakeholder view and the corporate governance
models around the world (see section 9 below).

The case, 'Corporate Governance at Infosys'talks about the corporate

governance practices at Infosys, one of India's largest software companies. Till
late 1990s, corporate governance did not have much significance in India. In
1999, two committees (Confederation of Indian Industries, CII and the Kumar
Mangalam Birla Committee) were set up to recommend good governance norms.
These committees came out with several recommendations, which were made
mandatory for the companies to adhere to by 2001. Infosys was one of the first
companies in India which had complied with the recommendations made by the
committees. The case discusses in detail, the corporate governance practices at
Infosys, which complied with most of the recommendations made by the
committees.

Report of SEBI committee (India) on Corporate Governance defines corporate

governance as the acceptance by management of the inalienable rights of
shareholders as the true owners of the corporation and of their own role as
trustees on behalf of the shareholders. It is about commitment to values,
about ethical business conduct and about making a distinction between
personal & corporate funds in the management of a company.” The
definition is drawn from the Gandhian principle of trusteeship and the
Directive Principles of the Indian Constitution. Corporate Governance is
 viewed as business ethics and a moral duty. See also Corporate Social
Entrepreneurship regarding employees who are driven by their sense of
integrity (moral conscience) and duty to society. This notion stems from
traditional philosophical ideas of virtue (or self governance) [3]and
represents a "bottom-up" approach to corporate governance (agency).

Corporate Governance of infosys

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 of every corporate body is to ensure predictability,
sustainability and profitability of revenues year after year.

- N. R. Narayana Murthy
Chairman of the Board and Chief Mentor

Corporate governance policies

Corporate governance is a reflection of our culture, policies, our relationship with

stakeholders, and our commitment to values. Infosys has been a pioneer in
benchmarking its corporate governance practices with the best in the world.

Corporate governance report

As a part of our commitment to follow global best practices, we comply with the
Euro shareholders Corporate Governance Guidelines 2000, and the
recommendations of the Conference Board Commission on Public Trusts and
Private Enterprises in the U.S.

Corporate social responsibility

Infosys Foundation, the philanthropic arm of Infosys Technologies Ltd., fulfils the
social responsibility of the company. The Foundation has undertaken various
initiatives in providing medical facilities to remote rural areas, organizing novel
pension schemes, etc.
Annual Reports

If the events of the last two years have brought us face to face with one reality, it
is that enterprises need to be made future-proof. In our Annual Report 2009-10,
‘Building Tomorrow’s Enterprises’, we elucidate how in our endeavor to future-
proof the businesses of our clients, we have identified seven key areas that are
rapidly increasing in influence, and present great scope for IT-led innovations.
These are: Digital Consumers, Emerging Economies, Sustainable Tomorrow,
Smarter Organizations, New Commerce, Pervasive Computing, and Healthcare
Economy.

An annual report is a comprehensive report on a company's activities

throughout the preceding year. Annual reports are intended to give shareholders
and other interested people information about the company's activities and
financial performance. Most jurisdictions require companies to prepare and
disclose annual reports, and many require the annual report to be filed at the
company's registry. Companies listed on a stock exchange are also required to
report at more frequent intervals (depending upon the rules of the stock
exchange involved).

Typically annual reports will include:

• Chairman's report
• CEO's report
• Auditor's report on corporate governance
• Mission statement
• Corporate governance statement of compliance
• Statement of directors' responsibilities
• Invitation to the company's AGM

as well as financial statements including:

• Auditor's report on the financial statements

• Balance sheet
• Statement of retained earnings
• Income statement
 • Cash flow statement
• Notes to the financial statements
• Accounting policies

Balance sheet

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Sources of funds
Owner's fund
Equity share capital 287.00 286.00 286.00 286.00 138.00
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 21,749.00 17,523.00 13,204.00 10,876.00 6,759.00
Loan funds
Secured loans - - - - -
Unsecured loans - - - - -
Total 22,036.00 17,809.00 13,490.00 11,162.00 6,897.00
Uses of funds
Fixed assets
Gross block 3,779.00 5,986.00 4,508.00 3,889.00 2,837.00
Less : revaluation reserve - - - - -
Less : accumulated
- 2,187.00 1,837.00 1,739.00 1,275.00
depreciation
Net block 3,779.00 3,799.00 2,671.00 2,150.00 1,562.00
Capital work-in-progress 409.00 615.00 1,260.00 957.00 571.00
Investments 4,636.00 1,005.00 964.00 839.00 876.00
Net current assets
Current assets, loans &
17,242.00 15,732.00 12,326.00 9,040.00 6,105.00
advances
Less : current liabilities &
4,030.00 3,342.00 3,731.00 1,824.00 2,217.00
provisions
Total net current assets 13,212.00 12,390.00 8,595.00 7,216.00 3,888.00
Miscellaneous expenses not
- - - - -
written
Total 22,036.00 17,809.00 13,490.00 11,162.00 6,897.00
Notes:
Book value of unquoted
4,636.00 1,005.00 964.00 839.00 876.00
investments
Market value of quoted
- - - - -
investments
Contingent liabilities 295.00 347.00 603.00 670.00 523.00
 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Number of equity
5728.30 5728.30 5719.96 5712.10 2755.55
sharesoutstanding (Lacs)

Profit loss account

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Income
Operating income 21,140.00 20,264.00 15,648.00 13,149.00 9,028.00
Expenses
Material consumed - 20.00 18.00 22.00 16.00
Manufacturing expenses 2,317.00 1,822.00 1,549.00 1,378.00 854.00
Personnel expenses 10,356.00 9,975.00 7,771.00 6,316.00 4,274.00
Selling expenses 215.00 83.00 89.00 63.00 55.00
Adminstrative expenses 883.00 1,456.00 1,257.00 1,144.00 839.00
Expenses capitalised - - - - -
Cost of sales 13,771.00 13,356.00 10,684.00 8,923.00 6,038.00
Operating profit 7,369.00 6,908.00 4,964.00 4,226.00 2,990.00
Other recurring income 910.00 874.00 678.00 333.00 221.00
Adjusted PBDIT 8,279.00 7,782.00 5,642.00 4,559.00 3,211.00
Financial expenses - 2.00 1.00 1.00 1.00
Depreciation 807.00 694.00 546.00 469.00 409.00
Other write offs - - - - -
Adjusted PBT 7,472.00 7,086.00 5,095.00 4,089.00 2,801.00
Tax charges 1,717.00 895.00 630.00 352.00 303.00
Adjusted PAT 5,755.00 6,191.00 4,465.00 3,737.00 2,498.00
Non recurring items 48.00 -372.00 5.00 46.00 -77.00
Other non cash adjustments - -1.00 - -5.00 -
Reported net profit 5,803.00 5,818.00 4,470.00 3,778.00 2,421.00
Earnigs before appropriation 5,803.00 12,460.00 9,314.00 5,973.00 3,849.00
Equity dividend 1,434.00 1,345.00 1,902.00 649.00 1,238.00
Preference dividend - - - - -
Dividend tax 240.00 228.00 323.00 102.00 174.00
Retained earnings 4,129.00 10,887.00 7,089.00 5,222.00 2,437.00
Cash flow

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Profit before tax 7,472.00 6,714.00 5,100.00 4,129.00 2,724.00
Net cashflow-operating activity 5,876.00 5,152.00 3,816.00 3,256.00 2,237.00
Net cash used in investing
-3,314.00 -195.00 -978.00 -1,065.00 -392.00
activity
Netcash used in fin. activity -1,486.00 -2,430.00 -777.00 -316.00 244.00
Net inc/dec in cash and
1,008.00 2,600.00 2,079.00 1,871.00 2,096.00
equivlnt
Cash and equivalnt begin of
10,289.00 7,689.00 5,610.00 3,779.00 1,683.00
year
Cash and equivalnt end of year 11,297.00 10,289.00 7,689.00 5,650.00 3,779.00

Capital structure

Class Paid Up
From To Authorized Issued Paid Up Paid Up
Of Face
Year Year Capital Capital Shares (Nos) Capital
Share Value
Equity
2009 2010 300.00 286.91 573825192 5 286.91
Share
Equity
2008 2009 300.00 286.42 572830043 5 286.42
Share
Equity
2007 2008 300.00 286.00 571995758 5 286.00
Share
Equity
2006 2007 300.00 285.60 571209862 5 285.60
Share
Equity
2005 2006 150.00 137.78 275554980 5 137.78
Share
Equity
2004 2005 150.00 135.29 270570549 5 135.29
Share
Equity
2003 2004 50.00 33.32 66641056 5 33.32
Share
Equity
2002 2003 50.00 33.12 66243078 5 33.12
Share
 Class Paid Up
From To Authorized Issued Paid Up Paid Up
Of Face
Year Year Capital Capital Shares (Nos) Capital
Share Value
Equity
2001 2002 50.00 33.09 66186130 5 33.09
Share
Equity
2000 2001 50.00 33.08 66158117 5 33.08
Share
Equity
1999 2000 50.00 33.08 66150700 5 33.08
Share
Equity
1998 1999 50.00 33.07 33069400 10 33.07
Share
Equity
1997 1998 30.00 16.02 16017200 10 16.02
Share
Equity
1996 1997 10.00 7.26 7259600 10 7.26
Share
Equity
1995 1996 10.00 7.26 7258600 10 7.26
Share
Equity
1994 1995 10.00 7.26 7258600 10 7.26
Share
Equity
1993 1994 4.00 3.35 3352100 10 3.35
Share
Equity
1992 1993 4.00 1.98 1976100 10 1.98
Share

Impact of Corporate Governance

The positive effect of corporate governance on different stakeholders ultimately is
a strengthened economy, and hence good corporate governance is a tool for
socio-economic development.

Corporate governance models around the world

Although the US model of corporate governance is the most notorious, there is a
considerable variation in corporate governance models around the world. The
intricated shareholding structures of keiretsus in Japan, the heavy presence of
banks in the equity of German firms [9], the chaebols in South Korea and many
others are examples of arrangements which try to respond to the same corporate
governance challenges as in the US.

In the United States, the main problem is the conflict of interest between widely-
dispersed shareholders and powerful managers. In Europe, the main problem is
that the voting ownership is tightly-held by families through pyramidal ownership
and dual shares (voting and nonvoting). This can lead to "self-dealing", where the
controlling families favor subsidiaries fo