corporate governance rating final

8/4/2019 Corporate Governance Rating Final

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Corporate Governance Rating


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Corporate Governance (CG)

It is a set of processes, customs, policies, laws, and institutions

affecting the way a corporation is directed, administered and controlled.

Principal stakeholders which are affected by CG are the shareholders,

management,board of directors, employees, customers, creditors,

suppliers, regulators, and the community at large.


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About Reliance

Dhirubhai H. Ambani (1932-2002)

Reliance Industries Limited, is a Fortune Global 500 company and is

the largest private sector company in India.

Enjoys global leadership in its businesses.

Shares are listed in both BSE and NSE.

Major Group Companies are Reliance Industries Limited and Reliance

Industrial Infrastructure Limited
http://www.ril.com/http://www.ril.com/http://www.ril.com/http://www.ril.com/http://www.ril.com/http://www.ril.com/


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Businesses

Businesses

Capital

Communicati

on

Power

Infrastructure

Health

Entertainm

ent


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GMI

Governance Metrics International (GMI) is an independent ratings

agency formed in April 2000 which has designed a rating system that

creates a metric to compare companies corporate governance

characteristics.

GMI starts the rating process by developing a governance profile

incorporating hundreds of variables per company plus analysts

insights.


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Rating criteria

Financial Disclosure and Internal Controls

Market for Control

Shareholder Rights

Board Accountability

Executive Compensation

Corporate Behavior


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Red Flags

GMI issues red flags whenever there is a significant governance issue

or other issue of concern that might potentially affect shareholder value.

While flags may be attached to one or more research categories,companies with three or more flags are rare.

Red flags are assigned when GMI publishes its scheduled quarterly

rating releases, and in between the scheduled releases, on an as needed

basis.


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Interpret GMI Rating

Scored on a scale of 1.0 (lowest) to 10.0 (highest).

Companies in the same region or country of origin (the company's 'home

market' rating) or to the approximately 4,200 companies rated by GMI

worldwide ('global rating'). Thus, a company may have high overall ratings inits home market but fare less well on a global basis

GMI Rating Status

9.0 or above well above average

8.5 7.5 Above average7.0 6.0 Average

5.5 3.5 Below average

3.0 or less well below average


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Internal Parameter

Financial disclosure and InternalControls


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Criteria 1

Currently under formal investigation for accounting

Irregularities

Justification

The financial statements have been prepared in conformity with

the applicable accounting standards issued by the Institute of

Chartered Accountants of India and requirements of the

Companies Act, 1956

Total: 10 Score : 10


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Criteria 2

Audit committee wholly composed of independent members

Justification

The Audit Committee of the Board comprises three independent directors

namely

Shri Yogendra P. Trivedi,

Shri Mahesh P. Modi

Dr. Raghunath A.Mashelkar



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Criteria 3

At least one non-executive member of the audit committee has

expertise in accounting or financial management

Justification

All the members of the Audit Committee possess financial/accounting

expertise/Exposure



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Criteria 4

Non-executive members of the audit committee with expertise

in accounting or financial management form a majority of the

Committee

JustificationAll three non executive members of the audit committee

expertise in financial management.



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Criteria 5

Chair of the audit committee is non-executive and has expertise

in accounting or financial management

Justification

Chairman, Shri Yogendra P. Trivedi who is a non executive member has

expertise in financial management .



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Criteria 6

At least one non-executive member of the audit committee has substantial industryknowledge

Justification

1. Mahesh Prasad

Chairman of Telecom Commission & Secretary, Telecommunications Department

Director General, Telecommunications

Secretary, the Ministry of Coal; Special Secretary (Insurance), Economic Affairs Department

Joint Secretary, the Ministry of Petroleum, Chemicals and Fertilizers.

Director on the Board of Directors of many public sector and private sector companies, including:

GAIL (Founder Director), IPCL, BPCL, CRL, BRPL, Life Insurance Corporation of India, General

Insurance Corporation, Mangalore Refinery & Petrochemicals, Essar Shipping, BSES, ICICI

Prudential Life Insurance Co. ; India Advisory Board of BHP Billiton


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2. Raghunath A Mashelkar

The Director General of the Council of Scientific and Industrial Research

(CSIR) for over 11 years.

3. Yogendra P. Trivedi

President of the Western India Automobile Association.

Member of the All India Association of Industries; W.I.A.A. CLUB, B.C.A. Club,

Orient Club, the Yachting Association of India and the Yacht Club. Chairman of the Audit Committee, Corporate Governance and Stakeholders

Interface Committee and the Employees Stock Compensation Committee of the

Company.

Member of Shareholders/Investors Grievance Committee and the Remuneration

Committee of the Company.

Chairman of the Audit Committee of Birla PowerSolutions Limited.

Member of the Audit Committee of Zodiac Clothing Company Limited, Sai Service

Station Limited and Seksaraia Biswan Sugar Factory Limited.

Total: 10 Score : 9


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Criteria 7

Non-executive members of the audit committee with substantialindustry knowledge form a majority of the committee

Justification

All the Non executive members of audit committee have

substantial industry knowledge

Total: 10 Score : 9


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Rating Summary

Criteria Rating

Criteria 1 10Criteria 2 10

Criteria 3 10

Criteria 4 10

Criteria 5 10

Criteria 6 09

Criteria 7 09

Total 68

Rating Total / 7 (criteria)= 68/7

= 9.71

The overall rating of Financial disclosure and Internal Controls is 9.71


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Internal Parameter

SHAREHOLDER RIGHTS


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Criteria 1

All the common or equity share holders have oneshare one vote

JustificationAs per companies act 1956 voting right on a poll

shall be in proportion to his share of the paid upequity capital of the company

Score- 10/10


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Criteria 2

Voting rights capped at a percentage no matterhow many shares the investor owns

Justification

The majority shareholders have the most votingrights as indicated by the governance report. Thisis not considered as a positive sign as it may act

as a deterrent to the minority share holders.

Score- 0/10


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Criteria 3

Voting rights are different for domestic and nonresident investors

JustificationAs specified in the companys governance

report. This provides an extra edge to thedomestic shareholders.

Score- 10/10


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Criteria 4

Voting is confidential

Justification

The Votes of the shareholders are strictlyconfidential- as per the governance report. Thispractice is encouraged in the company as itprotects the right of the shareholders to vote

without any undue pressure and influence

Score- 10/10


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Criteria 5

Cumulative voting in case of election ofdirectors

Justification

The election of directors can be done by passinga resolution in the AGM

Score- 5/10


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Criteria 6

Shareholders can act in concert way throughwritten communication

Justification

Use of the company website to postshareholders grievances. The company has

dedicated contact points for shareholders

Score- 10/10


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Criteria 7

Shareholders can convene an EGM with 10%or less of the shares

Justification

According to the provision of companies law1956 EGM can be held by shareholders with

10% or more of the sharesScore- 0/10


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Rating Summary

Criteria Rating


Criteria 3 10

Criteria 4 10

Criteria 5 05

Criteria 6 10

Criteria 7 00

Total 45


= 6.428



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Internal Parameter

MARKET FOR CONTROL


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Criteria 1

The company has a single shareholding groupwith voting power in excess of 50%

Justification

The amount of shares held by the AMBANI familyis 44.44% of total shares which is still on the

higher side.

Score- 5/10


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Criteria 2

The company has a unilateral right to amend the by-laws/AOA/constitution without approval ofshareholders, which is positive for any company tohave strong market for control

Justification

Companys promoters, principal shareholders are ableto influence major policy decisions, including overallstrategic and investment decisions, decisions ondividend payments, approval of annual budgets,increase/ decrease in share capital, approvingmergers and acquisitions, disposals of assets andamending articles of association

Score- 06/10


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Criteria 3

Directors can be removed without cause

Justification

The reason for removal of directors is generallynot made public by the company

Score- 0/10


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Criteria 4

Has a CLASSIFIED board

Justification

The board does not believe in fixed tenure of thedirectors and thus having different tenures foreach director

Score- 10/10


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Criteria 5

Involved in a series of cross shareholding of other companies

Justification

The major shareholders are involved in cross shareholdings

in different companies which makes the shareholding patternscomplex

Score-05/10


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Criteria 6

Has adopted a Poison Pill Strategy

Justification

This strategy is generally followed in case ofhostile takeovers but in case of a bigconglomerate that is highly unlikely

Score- 05/10


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Criteria 7

Shareholders rights plan includes a TIDE planor 3 year sunset provision

Justification

The three year independent directorevaluation helps asses the currentshareholders rights plan. The company doesnot follow any such strategy which is in the

interest of the shareholders.

Score- 0/10


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Rating Summary

Criteria Rating


Criteria 3 00

Criteria 4 10

Criteria 5 05

Criteria 6 05

Criteria 7 00

Total 31


= 4.43



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BOARD ACCOUNTABILITY

The Board of Directors is the apex body constituted by the shareholders foroverseeing the overall functioning of the Company.

The Board provides and evaluates the strategic direction of the Company,management policies and their effectiveness and ensures that the long-term

interests of the shareholders are being served.

.


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INDEPENDENT DIRECTORSDefinitionFor a director to be independent the director should not

have any direct or indirect material pecuniaryrelationship with the company.

Number..Non executive Chairman- 1/3rd of the Board

Executive Chairman- of the board

Role..Principles of Corporate Governance require

independent directors to review the overall strategy Oversee the performance of management and arriveat an independent judgement.Their key role is to provide unbiased and variedperspective to the board.


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BOARD COMPOSITION: RIL

Promoter Director Mukesh D. AmbaniChairman andManaging Director

Executive Directors Nikhil R. MeswaniHital R. MeswaniP.M.S. PrasadPawan Kumar Kapil1

Non-Executive Non- Ramniklal H. AmbaniIndependent Directors

Hardev Singh Kohli2Independent Directors Mansingh L. Bhakta

Yogendra P. TrivediDr. Dharam Vir KapurMahesh P. ModiProf. Ashok Misra

Prof. Dipak C. Jain


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Combined Chair/CEO/MD

Non-executive directors have a formal session without the executive membersat least once a year

Has a designated "lead" or senior non-executive director

Board policy is for the non-executive directors to meet in executive session before orafter every board meeting, time permitting

Non-executive Chair

PARAMETERS FOR RATING BOARD ACCOUNTABILITY UNDERGMI


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Within the last three years, company has failed to adopt the specificrecommendations (or a comparable alternative) of a shareholder proposalapproved by a majority vote

NET SCORE FOR THE BOARD ACCUOUNTABILITY= 7.65


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GMI RATINGS.

..\Board Accountability.docx Weightages and ratings on different parameters

under Board Accountability .

The methodology used for ratings is absolutelysubjective based on the data available on aaforesaid parameters.
http://board%20accountability.docx/http://board%20accountability.docx/http://board%20accountability.docx/http://board%20accountability.docx/http://board%20accountability.docx/


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REMUNERATIONThe Remuneration Committee is established to:

Ensure that remuneration arrangements support the strategic aims of the business

Comply with the requirements of regulatory and governance bodies

Satisfying the expectations of shareholders and remaining consistent with theexpectations of the wider employee population.


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COMPENSATION

Remuneration committee wholly composed of independent

members

Discloses stock ownership guidelines for CEO

Discloses ownership guidelines for the senior management

Shareholders has the say on pay of directors

Claw back of employee bonus/compensation etc. Based on a accounts whichare re-stated at a later date


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NET SCORE FOR THE COMPENSATION = 9.1


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Criteria Yes/N0 Score Criteria Yes/No Score

Remunerationcommittee wholly

composed ofindependent members

YES 10

Shareholders have the abilityto affect remuneration policy

through shareholderapproval of the remunerationcommittee report, the proxy'sCompensation Discussionand Analysis section orsomething comparable

NO 0

Discloses specificnumeric performancetargets for theupcoming fiscal year forat least one of theperformance objectives

YES 10

The remuneration committeehas discretion to alter thecriteria and/or incentivetargets for management afterbeing established or haspower to grant incentives orbonuses on a discretionarybasis.

YES 9

Discloses a policyrequiring companyexecutives to retainsome or all of theshares acquiredthrough stock optionsfor a period of time

after the options havebeen exercised

NO 0

Claw back policy for anybonuses, options and/orother compensation basedon accounts that end upbeing restated at a later date NO 0


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The retention period forsome or all shares issuedupon exercise of stockoptions is 3 years or longer

YES 3Discloses stockownership guidelinesfor the CEO

YES 10

Some or all shares issued

upon exercise of stockoptions are required to beheld until retirement

NO 0

Discloses stock

ownership guidelinesfor the rest of seniormanagement

YES 6

Discloses a policy requiringcompany executives toretain some or all ofrestricted shares for some

time after they havecompleted theirperformance conditions

NO 0

Discloses stockownership guidelinesfor non-executivedirectors

YES 7

The retention period forsome or all restrictedshares that have met allperformance conditions is 3

years or longer

YES 3

Percent potentialdilution as a result ofstock optionsoutstanding

YES 6

Some or all restrictedshares that have met allperformance conditions arerequired to be held untilretirement

NO 0

Percent potentialdilution as a result ofstock optionsoutstanding, plus stockoptions approved forgrant but not yet

granted

NO 0

RATING 9.1


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CORPORATE BEHAVIOUR

Corporate behaviour is the behaviour of anorganisation when considered as a single body

A hundred years ago, resources were unlimited

Today we consume 20 billion gallons of water fromthe ground daily

We lose 25 billion tons of topsoil every year

There is no polite way to say that business isdestroying the world

CORPORATE SOCIAL


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CORPORATE SOCIALRESPONSIBILITY

The contributions which the company can make tothe

community can be in the areas of

-health-education

-infrastructure development (drinking water,construction of schools, etc.)

-environment (effluent treatment, treeplantation, treatment of hazardous waste, etc.)

-contributions to other social organisations


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Accountingfrauds Common red flagsARAMETERS FOR RATING CORPORATE BEHAVIOUR


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CORPORATE BEHAVIOUR

Corporate Behavior


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Parameter Value Weight

Company (or a current or former senior executive) has pending criminal litigation against it, has been

found guilty within the last 3 years, or has pled the equivalent of no contest in such litigation in the past

three years, or has been under criminal investigation within the last 3 years

No (1) 0.85

Company (or a current or former senior executive) has been cited, settled, or been found guilty of by

either national or supranational authorities for some breach of law involving non-accounting issues

within the last year

No (1) 0.6

Discloses its environmental policies Yes (1) 0.75

The company has in place a code of conduct (or equivalent) on environmental issues Yes (1) 0.8

Alleged by a responsible party that the company caused or substantially contributed to serious

environmental damage within the last three years

ND 0.4

Discloses its environmental performance Yes (1) 0.85

The company specifically discloses its Greenhouse Gas (GHG) emissions Yes (1) 0.75

Specific targets for reducing environmental exposures are disclose Yes (1) 0.7

Company (or a current or former senior executive) has been subject to a formal regulatory investigation

for a material issue other than for accounting irregularities within the last year

No (1) 0.5

Discloses its policy regarding corporate level political donations No (0) 0.7


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Has a policy addressing workplace safety Yes (1) 0.75

Discloses its workplace safety record in the annual report or in another form accessible to shareholders Yes (1) 0.7

Has been charged with three or more serious workplace safety violations within the last two years No (1) 0.75

Alleged by a responsible party that the company used child labor (under 14 or the minimum in market,

whichever is higher) within the last three years

ND 0.3

Alleged by a responsible party that the company used sweat shops as sub-contractors within the last three

years

ND 0.3

Alleged by a responsible party that the company used child labor as a source for sub-contracted work withinthe last three years

ND 0.3

SCORE: The score has been calculated by multiplying Values with Weights.(1*0.85 + 1*0.6 + 1*0.75 + 1*0.8 + 1*0.85 + 1*0.75 + 1*0.7 + 1*0.5 + 0*0.7 + 1*0.75 + 1*0.7 + 1*0.75 ) = 8.0


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Rating RIL :

Financial Disclosure and Internal Controls9.71/10

Market for Control-4.43/10

Shareholder Rights-6.42/10

Board Accountability-7.65/10

Executive Compensation-9.1/10

Corporate Behavior-8/10

Thus, on the scale of 10 we would give reliance

7.55.


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Thank You

corporate governance rating final

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