Corporate governance - Performance and Measurement

1. Corporate governance - Performance and Measurement T.V.Mohandas Pai Member of the Board and CFO Infosys Technologies Limited

2. Corporate Governance A system of checks and balances between the board, management and investors to produce an efficiently functioning corporation, ideally geared to produce long-term value • The Conference Board

3. Issues in Corporate Governance • Asymmetry of power • Asymmetry of information • Interests of shareholders as residual owners • Role of owner management • Theory of separation of powers • Division of corporate pie among stakeholders

4. Current status on corporate governance • Insistence on forms and structures • Overarching regulations • Regulatory overkill • Lack of adequate number of strong, independent directors • Large liabilities for companies and officers • Has the pendulum swung too far? • For the first time in the decade-long history of the Index of Economic Freedom, the U.S. is no longer among the top ten “most free” countries • Wall Street Journal and the Heritage Foundation “Index of Economic Freedom”

5. Current status on corporate governance Source: Crisil Report on Corporate Governance

6. Governance and performance • Good governance leads to good performance • It creates an open and transparent system • It improves communication and breaks down systematic barriers to flow of information • Good governance allows decision making based on data. It reduces risk • Good governance helps in creating a brand and creates comfort for all stakeholders and society

7. Does performance depend on governance • Short term performance does not necessarily depend on governance • Market asymmetries are responsible for this. However, this increases risk. This also creates barrier to long term growth • We all know what happened to Enron?

8. Does performance depend on governance • Medium to long term performance requires governance • Most companies which have grown in the last 25 years have outstanding performance and have good governance structure • A good governance structure treats all stakeholders fairly • Governance alone cannot ensure performance

9. Governance and Performance - issues • Is governance a luxury that can be afforded only by the performing companies? • Do strategies and tactics need to change to accommodate governance with performance? • Is there a time-lag between governance and performance? • Are stakeholders concerned about “performance” or “promised performance” ?

10. Governance and Performance measurement - issues • Is governance behavior motivated by legislation? • Do standards vary with jurisdictions or do you adopt the best option? • Do you choose the right thing to do irrespective of whether it’s mandatory or not? • Is performance evaluation limited to valuation metrics? • Is it only ROE, Net margin, growth, shareholder wealth creation? • Do performance measures need to be holistic? • We need to encompass all stakeholders • Governance is an enabler for holistic performance • How do managers better understand governance requirements? • Do we need market research for governance requirements?

11. Investing in Corporate Governance • Companies need to invest in good governance • Corporate governance has a direct bearing on business performance and thereby ROI • Leverage the power of IT • On average, businesses with superior governance practices generate 20 percent greater profits than other companies • Astudy based on 256 companies conducted at the MIT Sloan School of Management

12. Thank You