CORPORATE GOVERNANCE (SM 09 07)

GROUP PROJECT REPORT

NAME OF GROUP ENROLLMENT NAME OF NAME OF

MEMBER NUMBER INDUSTRY ORGANIZATION
HRISHIKESH DESHPANDE EPGCSM 09 13 TEXTILE RAYMOND LTD.
RONAK B. JOSHI EPGCSM 09 27 TEXTILE ARVIND LTD.
 Index
Sr. No. Topic Page No.

1 Abstract 3
2 Methodology 3
3 Comparison summary of Corporate Governance practices 4
4 Analysis of Corporate Governance score
- Statement of companys philosophy on code of governance 5
- Structure & strength of board 5
- Chairman & CEO duality 5
- Disclosure of tenure & age limit of directors 6
- Disclosure of definition & selection criteria for independent directors 6
- Post board meeting follow up system & compliance of board procedures 6
- Appointment of lead independent director 6
- Disclosure of other provision as to the boards & committees 6
- Disclosure of remuneration policy & remuneration of directors 7
- Code of conduct 7
- Board committees 7
- Audit committee 8
- Remuneration / compensation committee 8
- Shareholders / investors grievance committee 9
- Nomination committee 9
- Other committee 10
- Disclosure & transparency 10
- General body meetings 11
- Means of communication & general shareholder information 12
- CEO / CFO certification 12
- Compliance of corporate governance & auditors certification 12
- Disclosure of stakeholders interests 12
5 Annexure 14
Abstract

Corporate Governance has become a buzzword for the organizations today. SEBI guidelines
clause 49 lays emphasis on corporate governance. Mr. Y. K. Modi, President FICCI said,
"Good corporate governance is the key to enhance the long-term value of the company for the
benefit of shareholders and other stakeholders. The pillars on which the edifice of corporate
governance stands are Fairness and Accountability. Thus it becomes necessary for every
organization to achieve high standards of corporate governance.

Corporate Governance is a culture of relationships. This study report, attempts to

study corporate governance with special reference to Textile Industry. We tried to study &
compare Arvind Limited (Lalbhai Group) & Raymond Limited (Singhania Group). Both the
companies are started before Independence. Bothe companies are among the oldest & trusted
companies in India. They maintain higher standards of Corporate Social Responsibility. Code
of Conduct, core values practiced by the group, all talk volumes about the business
excellence with high standards followed by both the Group.

Methodology

The attempt is to study corporate governance with respect to the Arvind Limited & Raymond
Limited. Both have a legacy of approx. 100 years and continues to be one of the most revered
brand even today. Both the groups strictly adheres to a high degree of corporate governance
practices. The study focuses on the various initiatives and business practices undertaken by
both the companies in relation to corporate governance. The secondary data is gathered by
the review of annual reports of 205 16 & literature pertaining to 'Corporate Governance'
and Arvind Limited & Raymond Limited. The study also involves a few unstructured
discussions / interviews with some of the executives working with these companies, to get the
primary data on the study topic. Based on recommendations in clause 49 & various regularity
bodies, we have shortlisted 17 points which we found most critical. All these points were
then assigned weightage based on their criticality. Thereafter both the companies were
studied against these criteria separately & given points accordingly. Compiled, summarized
& put in matrix to have clear picture & comparison of corporate governance practices in both
the companies.
Comparison summary of Corporate Governance practices

We have covered Arvind Limited & Raymond Limited in order to study the corporate
governance trends in the textile industry. Following is the summary of the same.

Sr No Governance Parameter Score Arvind Raymond

Assigned Limited
1 Statement of Company's philosophy on code 2 2 2
of governance
2 Structure & Strength of the Board 2 2 2
3 Chairman & CEO duality 5 1 1
4 Disclosure of tenure & age limit of directors 2 1 1
5 Disclosure of Definition and selection criteria 3 2 2
for (Independent) Directors
6 Disclosure of Post Board meeting follow up 2 0 0
system and compliance of the board
procedures
7 Appointment of lead independent director 2 0 0
8 Disclosure of other provision as to the boards 1 1 1
and committees
9 Disclosure of Remuneration Policy & 2 2 2
Remuneration of Directors
10 Code of conduct 2 2 2
11 Board committee 25 15 15
12 Disclosure & transparency 25 18 16
13 General body meetings 3 3 3
14 Means of communication & general 2 2 2
shareholder information
15 CEO / CFO certification 2 2 2
16 Compliance of Corporate Governance and 10 10 10
Auditors' Certificate
17 Disclosure of Stakeholders' interests 10 5 4
Total 100 68 65
Analysis of Corporate Governance Score

1) Statement of Company's philosophy on code of governance:

While looking to the Corporate Governance, the first score point was statement of
Companys philosophy on Corporate Governance and thus the point was assigned a
weightage of 2 on a scale of 100. Both the companies get the expected score of 2. On
other hand both companies have sufficient disclosure of the statement of Company's
philosophy on code of governance However, Arvind Limited have better described
Company's philosophy on code of governance.
2) Structure and Strength of board:
In the Corporate Governance score, the second score point was about the Structure
and Strength of the board. The point was assigned a weightage of 2 on a scale of 100.
Both the companies get the expected score of 2. All companies have sufficiently
disclosed the composition of the Board of Directors. Details are as under.
Particulars Arvind Limited Raymond Limited
Board size 10 7
% of non-executive + independent 60% 71.42%
directors
Independent directors 6 4
Remark -As per 2015 16 annual report of Raymond Limited Mr Vijaypat
Singhania was a Chaiman Emeritus & not considered in above comparison.
3) Chairman & CEO Duality
The appointment of Chairman of the board carries of critical importance. The third
point describes about the duality of Chairman and CEO. The point assigned a
weightage of total 5 points, which are assigned on the following basis.
Criteria for determination of Points for Chairman & CEO
Sr No Particulars Points
1 Promoter Executive Chairman - Cum - MD / CEO 1
2 Non Promoter Executive Chairman - Cum - MD / CEO 2
3 Promoter Non-Executive Chairman 3
4 Non Promoter Non-Executive Chairman 4
5 Non-Executive Independent Chairman 5
 No company assigned a score of 5 as no company is having Non Executive
Independent Chairman. Both the company are assigned a score of 1 as they have
Promoter Executive Chairman - Cum Managing Director.

4) Disclosure of Tenure and Age limit of directors

In the Corporate Governance score, the fourth point was about Disclosure of Tenure
and Age limit of directors. The point was assigned a weightage of 2 on a scale of 100.
Both the companies had mentioned that they are following norms set by regulatory
boards but not given mentioned that in details. Only 1 point assigned to both the
companies for the same.
5) Disclosure of Definition and selection criteria for (Independent) Directors
In the Corporate Governance score, the fifth point was about the definition of
Independent Director and Financial Expert and selection criteria for board
members (including independent director). The point was assigned a weightage of 3
on a scale of 100. None of the companies have disclosed definition of Financial
Expert and selection criteria for board members (including independent director). All
other information are as per requirement so assigned 2 points to both the companies.
6) Post Board meeting follow up system and compliance of the board procedures
In the Corporate Governance score, the sixth point was about disclosure of Post Board
meeting follow up system and compliance of the board procedures. The point was
assigned a weightage of 2 on a scale of 100. The systematic disclosures about the
Post Board meeting follow up system are not sufficiently available in the annual
report of both the companies. Hence, both the companies did not get any point in this
section.
7) Appointment of lead independent director
In the Corporate Governance score, the seventh point was about the appointment of
lead independent director. The point was assigned a weightage of 2 on a scale of 100.
Among the both, none of the companies have formally appointed lead independent
director. Hence, both the companies did not get any point in this section.
8) Disclosure of other provision as to the boards and committees
In the Corporate Governance score, the eighth point was about the disclosure of other
provision as to the boards and committees. The point was assigned a weightage of 1
on a scale of 100. It is observed that all the companies have sufficiently disclosed
 about the various committees and sub-committees of the board. Hence, both the
companies get expected score of 1.
9) Disclosure of Remuneration Policy & Remuneration of Directors
In the Corporate Governance score, the ninth point was about the disclosure of
Remuneration Policy & Remuneration of Directors. The point was assigned a
weightage of 2 on a scale of 100. The point was further equally divided as under
(a) Disclosure of remuneration policy and
(b) Disclosure of remuneration to directors.

Both the companies have sufficiently disclosed about remuneration to directors. The
remuneration policy is sufficiently disclosed in the annual report. Hence, both the
companies get the score of 2.

10) Code of Conduct (Please refer annexure for content highlights of both companies)
In the Corporate Governance score, the tenth point was about the code of conduct.
The point was assigned a weightage of 2 on a scale of 100. The point was further
equally divided into two points,
(a) Information on Code of Conduct
(b) Affirmation regarding compliance for code of conduct.

It is observed that both the companies have sufficiently disclosed about both the
above points. Hence, both the companies get expected score of 2.

11) Board Committees

In the Corporate Governance score, the eleventh point is about the various committees
of the board. The point is assigned a weightage of 25 on a scale of 100. The
classification of the point is as under.
Criteria for Determination of points for Board Committees
Sr No Particulars Points
1 Audit committee 8
2 Remuneration policy 6
3 Shareholders / investor grievance committee 5
4 Nomination Committee 2
5 Other committee 4
Total 25
(a) Audit Committee
The Audit Committee is assigned a weightage of 8. It is further classified as
under.

Criteria for Determination of points for Audit Committees

Sr No Particulars Points
1 Transparency in composition of Audit committee 1
2 Compliance of minimum requirement of number of 1
independent directors in the committee
3 Compliance of minimum requirement of number of meetings 1
of the committee
4 Information about literacy & expertise of committee 1
members.
5 Information about participation of head of finance, statutory 2
auditor and chief internal auditor in the committee meeting
6 Disclosure of audit committee charter and terms of reference 1
7 Publishing of audit committee report 1
Total 8

It is observed that all companies have made sufficient disclosure about the audit
committee. However, none of among the sample companies, has published Audit
Committee Report in the annual report. Hence, both the companies get expected
score of 7.
(b) Remuneration / Compensation Committee
The Remuneration/Compensation Committee is assigned a weightage of 6. It is
further classified as under.
Criteria for Determination of points for Remuneration / Compensation
Committees
Sr No Particulars Points
1 Formation of the committee 1
2 Information about number of committee meetings 1
3 compliance of minimum requirement of number of non- 1
executive directors in the committee
 4 Compliance of the provision of independent director as a 1
chairman of the committee
5 Information about participation of all members in the 1
committee meeting
6 Publishing of the report 1
6

It is observed that both companies have formed the committee. They have also
disclosed sufficiently about point number 1 to 5. However, none of the companies
has published Remuneration Committee Report in the annual report.

(c) Shareholders' / Investors Grievance Committee

The Shareholders' / Investors Grievance Committee is assigned a weightage of 5.
It is further classified as under.
Sr No Particulars Points
1 Transparency in composition of the committee 1
2 Information about nature of complaints & queries received 1
and disposed.
3 Information about number of committee meetings 1
4 Information about action taken and investors/shareholders 1
survey
5 Publishing of committee reports 1
Total 5
It is observed that both the companies have formed the committee and have
sufficiently disclosed about point 1 to 3. However, none of the companies have
published information about the investors / shareholders survey (if conducted).
The Report of this committee is also not published by any of the companies.
Hence, both companies get the score of 3.
(d) Nomination Committee
The Nomination Committee was assigned a weightage of 2. The point was further
equally divided into two points
(i) Formation of the Committee
(ii) Publishing of committee charter and report.
 It is observed that none of the companies have formed this committee separately.
It was combine committee of remuneration & nomination. Also none of the
companies have published charter and report of this committee. Hence, both the
companies get the ZERO score.

(e) Other Committees

The formation of other committees is assigned a weightage of 4. It is further
classified as under.
(i) Health Safety and Environment Committee
(ii) Ethics and Compliance committee
(iii) Investment Committee

It is observed that following committees are not formed by any of the companies..
Hence, both the companies get ZERO score.

(12) Disclosure and Transparency:

In the Corporate Governance score, the twelfth point is about the various disclosure
and transparency shown by the company in the annual report. The point is assigned a
weightage of 25 on a scale of 100. The classification of the point is as under.

Determination of points for Disclosure and Transparency

Sr No Particulars Points
1 Significant related party transactions having potential conflicts with the 2
interest of the company
2 Non Compliance related to capital market matters during last three years 2
3 Accounting treatment 2
4 Board disclosure Risk management 3
5 Management discussion & analysis 2
6 Shareholders information 4
7 Shareholder rights 2
8 Audit qualification 2
9 Training of board members 2
10 Evaluation of non-executive directors 2
11 Whistle Blower Policy 2
Total 25
 It is observed that

(i) Both the companies have sufficiently disclosed about significant

related party transactions.
(ii) Both the companies have adequately disclosed about Non Compliance
related to capital market matters during last three years. However,
Arvind Limited has given it in details as compare to Raymond. So
Arvind was assigned 3 & Raymond was assigned 2 points.
(iii) Both the companies have clearly mentioned about the accounting
treatments and significant changes in their accounting policy.
(iv) Both the companies have given sufficient information about risk
management and policies of the board. However, none of the company
has published risk management report.
(v) Both the companies have published the Management Discussion and
Analysis as a part of the annual report. Here again, Arvind Limited has
given it in details as compare to Raymond. So Arvind was assigned 1
point more than Raymond.
(vi) Both the companies have sufficiently disclosed the shareholders
information.
(vii) None of the companies have published rights of the shareholders as a
part of their annual report.
(viii) Both the companies are clear from any audit qualification.
(ix) None of the companies have given information about the training to
board members.
(x) None of the companies have given information about the system of
Evaluation of Non-Executive Directors.
(xi) Both the companies have given information about the Whistle Blower
Policy.
(13) General Body meetings
The Thirteenth score point was disclosure about the General Body Meetings thus the
point was assigned a weightage of 3 on a scale of 100. This point is further equally
divided into the disclosure regarding the following
(i) Location and time of general meetings held in last three years
(ii) Details of Special Resolution passed in last three AGMs \ EGMs
 (iii) Details of resolution passed last year through postal ballot including
conducting official and voting process both the companies have sufficiently
disclosed about the above points in the annual report. Hence, both the
companies get the expected score of 3.
(14) Means of communication & general shareholder information:

The Fourteenth score point was disclosure about the means of communication and
general shareholder information. This point was assigned a weightage of 2 on a scale
of 100. Both the companies have sufficiently disclosed about the point in the annual
report. Hence, both the companies get the expected score of 2.

(15) CEO / CFO Certification:

The Fifteenth score point was about the certification of CEO \ CFO for the corporate
governance. This point was assigned a weightage of 2 on a scale of 100. It is observed
that both the companies have certification from CEO \ CFO. Hence, both the
companies get the expected score of 2.

(16) Compliance of Corporate Governance & Auditors Certification:

The Sixteenth score point was about the compliance of Corporate Governance
guidelines issued by SEBI and Auditors Certificate. This point was assigned a
weightage of 10 on a scale of 100. The companies who have clean certification can
are assigned 10 points, whereas companies who do not have a clean certification are
assigned 5 points. It is observed that both the companies have clean certificate from
auditor. Hence, both the companies get the expected score of 10.

(17) Disclosure of Stakeholders Interests:

The Seventeenth score point was about the disclosure of the stakeholders interest.
This point was assigned a weightage of 10 on a scale of 100. These points are divided
equally to the following.

(a) Environment, Health & Safety Measures (EHS)

(b) Human Resource Development Initiative (HRD)
(c) Corporate Social Responsibility (CSR)
(d) Industrial Relation (IR)
(e) Disclosure of policies on EHS, HRD, CSR & IR
It is observed that both the companies have provided information about above
mentioned points in various forms. The disclosure about all items except Corporate
Social Responsibility are not adequately provided in the report. However, Arvind
Limited has given detailed report of the steps it had taken or in process regarding
environment / energy savings. Hence it get 1 point more than Raymond Limited.
Annexure

Both the companies have covered almost all the areas. However formats & sequence
are having little difference but the content / meaning are similar. Summary of the
areas / topics they have covered are as under.

1) Commitment towards employees

a. Equal opportunity employer
b. Upholding human rights
c. Kickbacks, anti-bribery & anti-corruption
d. Unlawful harassment
e. Dignity & respect
f. Gifts & hospitability
g. Freedom of association
h. Assignment outside employment
i. Use of companys resources
j. Conflicts of interest
k. Integrity of information & company assets
l. Drug, alcohol & weapon abuse
m. Insider trading
n. Employee separation
o. Safety & health
2) Commitment towards customers
a. Products & services
b. Fair dealing with suppliers, customers & competition
c. Payments for products & services
d. Dealings with customers
e. Business across border
3) Commitment towards financial
4) Commitment towards value chain
5) Commitment towards communities
6) Commitment towards governments
7) Commitment towards group grievance redressal