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Ril Corporate Governance


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Ril Corporate Governance

  1. 1. Corporate Governance Assesment Reliance Industries Limited
  2. 2. Framework to assess Corporate Governance
  3. 3. Framework to assess Corporate Governance
  4. 4. Parameter Measurement Rating wrt wealth creation for stakeholders Very High Level 1 High Level 2 Strong Level 3 Moderate Level 4 Adequate Level 5 Society Level 6 Poor Level 7 Lowest Level 8
  5. 5. Equitable treatment of shareholders
  6. 6. Shareholding Pattern At A Glance Share Holding Pattern of Reliance Industries Limited as on 30th June 2009 Promoters’ Holding 49.03 3.15 22.02 Non Promoters’ Holding (MF, 25.8 49.03 FII, Foreign Institutional 25.8 Investors) Others (Private Corporate 22.02 Bodies, Indian Public, NRIs and OCBs, Subsidiary companies) Promoter Holding Shares held by Custodians 3.16 Non Promoter's Holding Others Source : Reliance Industries Ltd. Corporate website Shares held by Custodians
  7. 7. Safeguarding interest of minority stakeholders • Shareholders'/ Investors' Grievance Committee • Corporate Governance and Stakeholders' Interface Committee • Transparency and accountability • Fair and equitable treatment of all its stakeholders • Compliance with all the applicable rules and regulations
  8. 8. Safeguarding interest of minority stakeholders : Issues  Complex web of shareholdings and crossholdings among members of the Ambani family and subsidiaries  Influence of Mukesh Ambani over directors of most of the companies and subsidiaries within the group  group keeps changing the status of different companies from subsidiaries to associates and vice versa
  9. 9. Insider Trading: Prevention Measures • Directors are required to give disclosures in terms of Companies Act 1956 and Reliance code of conduct of Prohibition of insider trading. • Whistle Blower Mechanism: • The company promotes ethical behaviour in all its business activities and has put in place mechanism of reporting illegal or unethical behaviour.
  10. 10. Insider Trading : Issues • SEBI probe found violating regulations on insider trading norms and other rules related to prevention of fraudulent and unfair practices. • After the merger of RPL with RIL, Sebi issued a show-cause notice to RIL, following a probe into alleged insider trading in Reliance Petroleum Ltd (RPL) shares in November 2007.
  11. 11. Parameter Rating Rating for Equitable treatment of shareholders S. No. Governance Parameters Rating Equitable treatment of shareholders The interest of minority shareholders Level 3 Disclosure of shareholding pattern Level 2 Detect and prevent insider trading Level 4 Average Rating Level 3
  12. 12. Ownership rights of shareholders
  13. 13. Ownership rights of shareholders • Compliance with the law – RIL has complied with the conditions of Clause 49 of the Listing Agreement. • Presence of anti takeover provisions – Secretarial audit takes in to consideration compliance with the SEBI Act, 1992. – Secretarial audit is conducted every quarter and annual report is included in annual audit report. • Preferential rights for any shareholders – Audit takes in to consideration of the issue and rights of the preferential shareholders if any. Warrants issued in April, 2007 are in accordance with SEBI Guidelines, 2000. – 12 cr. warrants issued in April, 2007 are in accordance with SEBI Guidelines, 2000. • Voting Rights – RIL provides provision for passing special resolution through Postal ballots.
  14. 14. Ownership rights of shareholders • Shareholders participation in the meetings – Notices for venue and date of AGM and EGM are sent to all equity shareholder of the company under companies act, 1956. The same is published at company’s official website. – Venue, date and special resolution passed in the last three years are published in the corporate governance report. • Shareholder rights – Half yearly financial Reports sent to the Members at their address registered with the Company. The Company has established policies and procedures for corporate communication and disclosures. – Printed copy of the Chairman’s Speech is distributed to all the shareholders at the Annual General Meetings. It is also sent to all shareholders who do not attend the Annual General Meeting. The same is also placed on the website of the Company.
  15. 15. Parameter Rating Rating for Ownership rights of shareholders S. No. Governance Parameters Rating Ownership rights of shareholders Compliance with Law Level 2 Presence of anti-takeover provisions Level 2 Preferential rights of shareholders Level 2 Voting Rights Level 2 Shareholder participation in meetings Level 2 Average Rating Level 2
  16. 16. Composition of Board
  17. 17. Composition of Board • Board Structure, strength and Size • Compliance with clause 49 (structure and size) • Right mix of various capabilities • Selection Criteria, Tenure, and Age Limit of Directors • Not defined • Composition of Sub committees • Statutory Committees (Audit Committee etc.) • Non- mandatory committees (Remuneration etc)
  18. 18. Holding position No of shares as on Name Category since 31 March 2008 Total / % of total # of directors Mukesh D. Ambani Promoter Director 18,07,923 shares (CMD) July 01, 1988 Nikhil R. Meswani (Whole Time 1,21,174 shares Director) 4 / 30.77% August 4, 1995 Hital R. Meswani Executive Directors (Whole-time 87,930 shares Director ) April 1, 2000 Hardev Singh Kohli (Whole-time 1,155 shares Director ) Non-Executive Ramniklal H. Ambani Non-Independent 1 / 7.69% January 11, 1977 84,397 shares Directors September 27, Mansingh L. Bhakta 1,57,000 shares 1977 Yogendra P. Trivedi April 16, 1992 12,200 shares March 28, 2001., 6,799 shares Dr. DharamVir Kapur Independent Mahesh P. Modi 8 / 61.54% March 28, 2001. 562 shares Directors S. Venkitaramanan June 27, 1997 NIL Prof. Ashok Misra April 27, 2005 220 shares Prof. Dipak C. Jain August 4, 2005 NIL June Dr. Raghunath A. Mashelkar NIL 9, 2007 Total 13 / 100%
  19. 19. Parameter Rating Rating for Composition of Board S. No. Governance Parameters Rating Composition of Board Board Structure, Strength, and Size Level 2 Election term, Disclosure of Tenure, and Age Limit of Directors Level 3 Composition of sub-committees Level 3 Average Rating Level 3
  20. 20. Functioning of Board
  21. 21. Functioning of Board • Overseeing Management Performance • Board meetings • Assessing Board Effectiveness • Post-Board Meeting Follow-Up System and Compliance of the Board Procedure • Means of Communication and General Shareholder Information • Contribution of Independent Directors
  22. 22. Parameter Rating Rating for Functioning of Board S. No. Governance Parameters Rating Functioning of the Board Level 2 Overseeing Management performance Level 3 Assesing board effectiveness Level 3 Contribution of independent Directors Average Rating Level 3
  23. 23. Management Assessment
  24. 24. Reputation and profiles of the management – Mr. Mukesh D. Ambani is a Chemical Engineer from the University of Bombay and pursued MBA from Stanford University, USA. He is the Chairman of Reliance Petroleum Ltd and Reliance Retail Ltd and a Director of Reliance Europe Ltd, KDA Enterprises Private Limited and Pratham India Education Initiative. – Mr. Nikhil R Meswani is a Chemical Engineer. He is the son of one of the founding directors of the company. In recognition of his far reaching vision, management skills, innovative ideas, untiring efforts and dynamic leadership. – Mr. Hital R. Meswani graduated with honours in the Management & Technology programme from University of Pennsylvania. He received a B.S. Degree in Chemical Engineering and B.S. Economics from the Wharton Business School, both from University of Pennsylvania, U.S.A. – Mr. Hardev Singh Kohli is a MSc. He has wide experience in implementation and operation of fertilizers and petrochemicals plants. He is Recipient of Rotary Centennial Service Award for Professional Excellence from Rotary International. He is listed as one of the Leading Lawyers of Asia for 2006 and 2007 by Asialaw, Hongkong.
  25. 25. Assessment of past strategies • Success – Exploration of gas in the Krishna-Godavari basin. – Large expansion in the polyester business. – Setting up of innovation council which led to the 19th ranking of RIL in the list of ‘World’s 25 most innovative companies’ from Business week and BCG. – Successful acquisitions in international market e,g, GAPCO – In the ‘Management discussion and Analysis section’ of the Annual Report, Company has presented a detailed analysis of major business of Reliance Industries e.g.- Exploration and Production, Petroleum and Retail business. – Opportunities have been identified in the respective sectors and strategies have also been laid out to capture opportunities and fight the challenges. e.g. – increasing trend of green fuel, promotion of SEZ’s.
  26. 26. Assessment of past strategies • Failures – Diversification into organized retail business through RRL (Reliance Retail Limited) wasn’t successful. – Reliance Petrol Retail operations met with resistance and company was forced to close its petrol pump across the country.
  27. 27. Parameter Rating Rating for Management Assessment S. No. Governance Parameters Rating Management Assessment Level 1 Reputation and profiles of Management Level 2 Assessment of past strategies Level 2 Average Rating
  28. 28. Transparency and Disclosures
  29. 29. Transparency and Disclosures Issues • Control’ Model of Governance • Related party transactions- With its Subsidiaries and Associates • Scheme of Amalgamation of RPL with RIL. • RIL's suit with RNRL.
  30. 30. Transparency and Disclosures • Disclosure of Definition of Independent Directors, Financial Experts and Selection Criteria for Board Members Including Independent Directors • Move of the management aims at ensuring increased level of transparency for stakeholders – Corporate Governance and Stakeholders’ Interface Committee – Employees Stock Compensation Committee – The Health, Safety and Environment Committee • Compliance certificate by the SEBI on matter related to capital markets
  31. 31. Parameter Rating Rating for Transparency and Disclosures S. No. Governance Parameters Rating Transparency & Disclosure completeness, quality and clarity of reporting Level 1 Related party transactions Level 4 Independence of the auditor Level 2 Adequacy/Effectiveness of internal audit Level 2 Disclosure of Independent Directors Level 2 Model of Governance Level 4 Governing body Compliance related to capital markets Level 2 Transparency for stakeholders Level 2 Average Rating Level 3
  32. 32. Value creation for Stakeholders
  33. 33. Value creation for stakeholders
  34. 34. Value creation for stakeholders • Customer – Largest producer of Polyester fibre and yarn (global market share 7%) – 6th largest producer of Mono Ethylene Glycol (MEG) – 7th largest producer of Polypropylene (PP) • Employee
  35. 35. Value creation for stakeholders • Society – Education – Health – Community Development – Environment – People
  36. 36. Parameter Rating Rating for Value creation for stakeholders S. No. Governance Parameters Rating Value Creation for various stakeholders Shareholder Level 2 Debt holder Level 3 Customers Level 2 Employee Level 2 Supplier Level 2 Society Level 2 Average Rating Level 2
  37. 37. Corporate Governance Rating Evaluation of Corporate Governance practices of RIL for the year 2007-08 S. No. Governance Parameters Rating Equitable treatment of shareholders Level 3 Ownership rights of shareholders Level 2 Composition of the Board Level 3 Functioning of the Board Level 3 Management Assessment Level 2 Transparency & Disclosure Level 3 Value Creation for various stakeholders Level 2 OVERALL CORPORATE GOVERNANCE LEVEL 3 (Strong) RATING
  38. 38. Final Conclusion • Reliance Industries Limited(RIL) has ‘strong’ corporate governance practices with a ‘Level 3’ rating, which means that while it appears to have done well , but there is still scope for improvement in the level of corporate governance standards and quality of disclosures to be practiced in the company.
  39. 39. References • ELCC handouts of Prof. Chalil, XLRI Jamshedpur • Reliance Industries Limited – Corporate Governance Report 2007-08 • CRISIL Corporate Governance Rating Criteria • Book: ICSI Corporate Governance (Best Practices) • Article: Corporate Governance Standards and Practices in Reliance Industries Limited - The ICFAI University Journal of Corporate Governance – July’08 Edition • • s/2005070300160600.htm •
  40. 40. Feedback & Questions !! THANK YOU