Source: The Times of India

Noted corporate lawyer Cyril Shroff, who was mandated by Infosys board to look into its corporate governance framework, is set to prescribe a new governance code for the IT behemoth aimed at addressing the concerns raised by its founders. The revamped corporate code aims to plug the gap in the governance norms, which the founders have raised in the recent past.

Shroff’s law firm Cyril Amarchand Mangaldas is working on a new code encompassing Murthy’s views that the bar for corporate governance needs to be reviewed, also reflected in Infosys chairman R Seshasayee’s comments in the past few days. Seshasayee had told TOI on Monday that Cyril Amarchand Mangaldas, among other things, would develop a framework for board members, as to who would be independent directors and who would be nominee directors. This move follows after questions were raised on D N Prahlad and Punita Sinha’s appointment as independent directors. Seshasayee also said that a new agreement will be in place in terms of sharing material information with the founders.

He clarified that the role of the law firm was not just to facilitate communication between the founders and the board, but to benchmark the broader aspects of governance.

“The Indian corporate position is evolving on the entire question of independence, which is now raised as a major issue in the context of the Tatas. We need definitions of what is independent and how do the independent directors function and how do we make sure that there is a fair representation of importance from all shareholders. This has not been addressed. If we manage that, we will be one unique company where we will take the governance standard to another level. That’s’ exactly what we intend to do,” Seshasayee said.
The new code is aimed to encourage the board to be more transparent and organised in times of rising shareholder activism, especially in professionally managed companies with a highly distributed ownership. Incidentally, Murthy is an adviser to Cyril Amarchand Mangaldas.

Suhail Nathani, managing partner at Economic Laws Practice, said there is nothing wrong with a shareholder exercising his right and demanding changes in the way a company functions if it slips in its delivery. He said that in the US, shareholder activism is quite high with investors like hedge funds with significant holding demanding changes in management or splitting businesses if the company is undervalued. In fact, activist investor Elliot, which purchased 4% stake in Cognizant Technology Solutions last year, has prompted the company to commence a $3.4-billion cash payback to shareholders citing inefficient capital deployment plans.

“In India, the issue is that a promoter-shareholder exercising his right is caught behind personalities. Moreover, large institutional investors like LIC have not been playing their part as activists. The management and the board have to be answerable to somebody,” Nathani said. Shriram Subramanian, MD of corporate governance research firm InGovern Research Services, said, “Infosys will hopefully be more transparent in the future. In the best interest of transparency, the company should make greater disclosures regarding severance payout that’s outside the norm”. Infosys severance packages to its key management personnel have been under attack as the founders felt that everything was not above board.