becg project group no. 11

8/13/2019 BECG Project Group No. 11

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Project report on

Corporate Governance rating of Reliance Industries Ltd.

(BECG)

Submitted By: Shalini Saigal (12BSPHH010938) Submitted to: Prof. Rajan Mani

Laishram Meiraba (12BSPHH010501)

Trishagini Sen (12BSPHH011136)

Divya Bharadwaj (12BSPHH010312)


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INDEX

Topic Pg. No.

1) Introduction: RIL 32) Corporate Governance 43) ICRA Rating Framework 54) Evaluation of RIL 65) Rating 186) Conclusion 217) References 22


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Introduction: RIL

Reliance Industries Limited (RIL)is anIndianconglomerateholding company headquartered inMumbai,

Maharashtra,India. The company operates in five major segments: exploration and production,refining and

marketing,petrochemicals,retail andtelecommunications.

RIL is the second-largest publicly traded company in India bymarket capitalisation and is the second largest

company in India by revenue after the state-runIndian Oil Corporation.The company is ranked #107 on

the Fortune Global 500 list of the world's biggest corporations, as of 2013. RIL contributes approximately 14%

ofIndia's total exports.

The number of shareholders in RIL are approx. 3 million. The promoter group, Ambani family, holds approx.

45.34% of the total shares whereas the remaining 54.66% shares are held by public shareholders, including FII and

bodies corporate.Life Insurance Corporation of India is the largest non-promoter investor in the company with

7.98% shareholding. In January 2012, the company announced a buyback program to buy a maximum of 120

million shares for 10440crore (US$1.7 billion). By the end of January 2013, the company bought back 46.2

million shares for 3366crore (US$540 million).

The company's equity shares are listed on theNational Stock Exchange of India Limited (NSE) and theBSE Limited.

TheGlobal Depository Receipts (GDRs) issued by the Company are listed onLuxembourg Stock Exchange It has

issued approx. 56 million GDRs wherein each GDR is equivalent to 2 equity shares of the company. Approx. 3.46%

of its total shares are listed on Luxembourg Stock Exchange Its debt securities are listed at the Wholesale Debt

Market (WDM) Segment of the National Stock Exchange of India Limited (NSE) Credit Ratings: It has received

domestic credit ratings of AAA from CRISIL (S&P subsidiary) and Fitch. Moodys and S&P have provided inves tment

grade ratings for international debt of the Company, as Baa2 positive outlook (local currency issuer rating) and

BBB+ outlook respectively.

RIL has received the following awards and recognitions:

International Refiner of the Year in 2013 at the HART Energys 27th World Refining & Fuel Conference. This isthe second time that RIL has received this Award for itsJamnagar Refinery,the first being in 2005.

According to survey conducted byBrand Finance in 2013, Reliance is the second most valuable brand in India. The Brand Trust Report,2013 has ranked 'Reliance' as the 7th most trusted brand in India. RIL was certified as 'Responsible Care Company' by theAmerican Chemistry Council in March, 2012. RIL was ranked at 25th position across the world, on the basis of sales, in the ICIS Top 100 Chemicals

Companies list in 2012.

RIL was awarded the National Golden Peacock Award 2011 for its contribution in the field of corporatesustainability

In 2009,Boston Consulting Group (BCG) named Reliance Industries as the world's fifth biggest 'sustainablevalue creator' in a list of 25 top companies globally in terms of investor returns over a decade.

The company was selected as one of the world's 100 best managed companies for the year 2000byIndustryWeek magazine.

From 1994 to 1997, the company won National Energy Conservation Award in the petrochemical sector.
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Conglomerate_(company)http://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Upstream_(petroleum_industry)http://en.wikipedia.org/wiki/Downstream_(petroleum_industry)http://en.wikipedia.org/wiki/Downstream_(petroleum_industry)http://en.wikipedia.org/wiki/Petrochemicalshttp://en.wikipedia.org/wiki/Retailing_in_Indiahttp://en.wikipedia.org/wiki/4Ghttp://en.wikipedia.org/wiki/Publicly_traded_companyhttp://en.wikipedia.org/wiki/Market_capitalisationhttp://en.wikipedia.org/wiki/Indian_Oil_Corporationhttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Life_Insurance_Corporation_of_Indiahttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Global_Depository_Receipthttp://en.wikipedia.org/wiki/Luxembourg_Stock_Exchangehttp://en.wikipedia.org/wiki/Jamnagar_Refineryhttp://en.wikipedia.org/wiki/Brand_Financehttp://en.wikipedia.org/wiki/The_Brand_Trust_Reporthttp://en.wikipedia.org/wiki/Responsible_Carehttp://en.wikipedia.org/wiki/American_Chemistry_Councilhttp://en.wikipedia.org/wiki/Boston_Consulting_Grouphttp://en.wikipedia.org/wiki/IndustryWeekhttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/IndustryWeekhttp://en.wikipedia.org/wiki/Boston_Consulting_Grouphttp://en.wikipedia.org/wiki/American_Chemistry_Councilhttp://en.wikipedia.org/wiki/Responsible_Carehttp://en.wikipedia.org/wiki/The_Brand_Trust_Reporthttp://en.wikipedia.org/wiki/Brand_Financehttp://en.wikipedia.org/wiki/Jamnagar_Refineryhttp://en.wikipedia.org/wiki/Luxembourg_Stock_Exchangehttp://en.wikipedia.org/wiki/Global_Depository_Receipthttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Life_Insurance_Corporation_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Indian_Oil_Corporationhttp://en.wikipedia.org/wiki/Market_capitalisationhttp://en.wikipedia.org/wiki/Publicly_traded_companyhttp://en.wikipedia.org/wiki/4Ghttp://en.wikipedia.org/wiki/Retailing_in_Indiahttp://en.wikipedia.org/wiki/Petrochemicalshttp://en.wikipedia.org/wiki/Downstream_(petroleum_industry)http://en.wikipedia.org/wiki/Downstream_(petroleum_industry)http://en.wikipedia.org/wiki/Upstream_(petroleum_industry)http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Conglomerate_(company)http://en.wikipedia.org/wiki/India


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Corporate Governance

Corporate governancerefers to the system by which corporations are directed and controlled. The governance

structure specifies the distribution of rights and responsibilities among different participants in the corporation

(such as the board of directors, managers, shareholders, creditors, auditors, regulators, and otherstakeholders)

and specifies the rules and procedures for making decisions in corporate affairs. Governance provides the

structure through which corporations set and pursue their objectives, while reflecting the context of the social,

regulatory and market environment. Governance is a mechanism for monitoring the actions, policies and decisions

of corporations. Governance involves the alignment of interests among the stakeholders.

In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders,

tradecreditors, suppliers, customers and communities affected by the corporation's activities. Internal

stakeholders are theboard of directors,executives,and other employees.

Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of

interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes,

customs, policies, laws, and institutions which have an impact on the way a company is controlled. An important

theme of governance is the nature and extent of corporateaccountability.

A related but separate thread of discussions focuses on the impact of a corporate governance system oneconomic

efficiency, with a strong emphasis on shareholders' welfare. In large firms where there is a separation of

ownership and management and no controlling shareholder, theprincipalagent issue arises between upper-

management (the "agent") which may have very different interests, and by definition considerably more

information, than shareholders (the "principals"). The danger arises that rather than overseeing management on

behalf of shareholders, the board of directors may become insulated from shareholders and beholden to

management. This aspect is particularly present in contemporary public debates and developments in regulatory

policy.

Economic analysis has resulted in a literature on the subject. One source defines corporate governance as "the set

of conditions that shapes theex post bargaining over thequasi-rents generated by a firm." The firm itself is

modeled as a governance structure acting through the mechanisms of contract. Here corporate governance may

include its relation tocorporate finance.
http://en.wikipedia.org/wiki/Stakeholder_(corporate)http://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Executive_(management)http://en.wikipedia.org/wiki/Accountabilityhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Principal%E2%80%93agent_problemhttp://en.wikipedia.org/wiki/Principal%E2%80%93agent_problemhttp://en.wikipedia.org/wiki/Principal%E2%80%93agent_problemhttp://en.wikipedia.org/wiki/Ex_posthttp://en.wikipedia.org/wiki/Quasi-renthttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Quasi-renthttp://en.wikipedia.org/wiki/Ex_posthttp://en.wikipedia.org/wiki/Principal%E2%80%93agent_problemhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Accountabilityhttp://en.wikipedia.org/wiki/Executive_(management)http://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Stakeholder_(corporate)


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ICRA rating framework

ICRA Limited(ICRA) is an Indian independent and professional investment information andcredit rating

agency.It was established in 1991, and was originally named Investment Information and Credit Rating

Agency of India Limited(IICRA India). It is second largest Indian rating comapany in term of customer

base. It was a joint-venture betweenMoody's and various Indian commercial banks and financial

services companies. The company changed its name to ICRA Limited, and went public on 13 April 1997,

with a listing on theBombay Stock Exchange and theNational Stock Exchange.

ICRAs framework is designed to analyse the following key variables while arriving at the CGR for a

corporate entity:

Ownership Structure Governance Structure and Management Processes Board Structure and Processes Stakeholder Relationship Transparency and Disclosures Financial Discipline Ethical Practices
http://en.wikipedia.org/wiki/Credit_rating_agencyhttp://en.wikipedia.org/wiki/Credit_rating_agencyhttp://en.wikipedia.org/wiki/Moody%27shttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Moody%27shttp://en.wikipedia.org/wiki/Credit_rating_agencyhttp://en.wikipedia.org/wiki/Credit_rating_agency


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Evaluation of RIL

1) Ownership Structure Extent to which dominant shareholders are easily identifiable: The majority of shares held

by the top management are as follows:

Name of Shareholders No. of shares held

Mukesh Ambani 36,15,846

Nikhil R. Meswani 2,78,374

Hital R. Meswani 2,11,886

P.M.S. Prasad 36,666

Pawan Kumar Kapil 10,276

Ramniklal Ambani 1,72,632

Mansing L. Bhakta 3,20,000

Yogendra P. Trivedi 27,984

Dharam Vir Kapur 13,544

Mahesh Prasad Modi 2,924

Ashok Mishra 2,300

Extent of cross-holdings that may compromise minority interest Extent of shareholding by promoter group: The promoter group consists of Mukesh Ambani.

He is the Chairman and Managing Director of the company. The shares held by him as on

March, 31, 2013 are 36,15,846.

Extent of institutional shareholding & Pattern of retail shareholding: The corporate website(www.ril.com)has information about institutional and retail shareholder. Shareholders who

need information about their shareholding can contact the Company directly or can contact

through any of the Investor service centers of the Companys Registrars and Transfer Agents

(which are spread over 80 cities in India).

2) Governance Structure and Management ProcessesRIL maintains the highest standards of Corporate Governance. It also keeps in mind the

international codes of Corporate Governance and practices which are adopted by the well

known global companies. Some of the best global governance norms put into practice include

the following:

A Lead Independent Director is designated who has a defined role. The Shareholders/Investors Grievance Committee of the Company reviews all securities related

filings with Stock Exchanges and SEBI.

There is an independent Board Committee which deals with matters related to corporategovernance, stakeholders interface and nomination of the Board members.

The Internal audit of the Company is done by independent auditors.
http://www.ril.com/http://www.ril.com/http://www.ril.com/http://www.ril.com/


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There is also a secretarial audit; it is conducted by an independent company secretary. Thequarterly audit reports are presented before the Board and the annual audit report is presented

before the Board is included in the Annual Report

3) Board Structure and ProcessesThe key functions of Board of any organization may be summed up as follows:

i Approving, monitoring and reviewing the strategy proposed by the executive management.ii Evaluating the performance of the top management.iii Ensuring compliance with legal and statutory requirements (that is, the control function of the

Board).

iv Balancing the rights and concerns of shareholders and other stakeholders.ICRAs CGR process evaluates the Board Structure and Processes in relation to the following:

Structural Aspectso Size of the Board: The board consists of 13 directors. Their designation is shown in the table

below.

Director Name of Director

Promoter Director Mukesh D. Ambani (Chairman and

Managing Director)

Executive Director Nikhil R. Meswani

Hital R. Meswani

P.M.S. Prasad

Pawan Kumar Kapil

Non-executive non-independent director Ramniklal H. Ambani

Independent Director Mansingh L. Bhakta

Yogendra P. Trivedi

Dr. Dharam Vir Kapur

Mahesh P. Modi

Prof. Ashok Misra

Prof. Dipak C. Jain

Dr. Raghunath A. Mashelkar

o Proportion of Independent Directors: Out of 13 directors, 7 are independent directors.This contributes to 54% of the entire board.

o Other Directorships held by the Independent Director(s): Mansingh L. Bhakta: Lead Independent Director of the Company. Apart from RIL he is

also the Director of Micro Inks Limited, the Indian Merchants Chamber, Mumbai, JCB

India Limited and Jyoti CNC Automation Limited, member of the Audit Committees of

Micro Inks Limited and JCB India Limited.


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Yogendra P. Trivedi: He is also the Chairman of the Audit Committee, the Shareholders/Investors Grievance Committee, the Remuneration Committee, the Corporate

Governance and Stakeholders Interface Committee and the Employees Stock

Compensation Committee of the Company. Director of The Supreme Industries Limited,

Zodiac Clothing Company Limited, The Seksaria Biswan Sugar Factory Limited, New

Consolidated Construction Company Limited, Emami Limited and Metro Exporters

Private Limited.

Dr. Dharam Vir Kapur: . He is a member of the Corporate Governance and StakeholdersInterface Committee, the Remuneration Committee and the Health, Safety and

Environment Committee of the Company. Director on the Boards of Honda Siel Power

Products Limited, Zenith Birla (India) Limited, DLF Limited and other private limited

companies. Earlier he was a Director on the Boards of Tata Chemicals Limited, Larsen &

Toubro Limited and Ashok Leyland Limited.

Mahesh P. Modi: He is a member of the Audit Committee, the Employees StockCompensation Committee and the Corporate Governance and Stakeholders Interface

Committee of the Company. He is a Director on the Board of FACOR Power Limited.

Prof. Ashok Misra: He is an Independent Director on the Board of Jubilant IndustriesLimited and also a member of its Audit Committee and Compensation Committee.

Prof. Dipak C. Jain: He is a member of the Employees Stock Compensation Committeeof the Company, Director of Reliance Retail Limited and also a member of its Audit

Committee. Director of Hindustan Media Ventures Limited and HT Global Education,

Director of John Deere & Company, United States of America, Global Logistic Properties,

Singapore and Northern Trust Bank, United States of America.

Dr. Raghunath A. Mashelkar: He is a member of the Audit Committee and theRemuneration Committee of the Company. Director of Tata Motors Limited, Hindustan

Unilever Limited, Thermax Limited, KPIT Cummins Infosystems Limited, IKP Knowledge

Park, Piramal Enterprises Limited (formerly Piramal Healthcare Limited) and several

private limited companies, Director of Reliance Gene Medix Plc. (company incorporated

outside India.

The mix of skill sets which the Independent Directors bring to the Board ICRA Rating Feature Rating

Methodology of Corporate Governance.

Effectiveness of the Board: Following aspects are taken into consideration for evaluating theeffectiveness of the board.

o Frequency of Board meetings: Minimum of 5 Board meetings are held every year.Additional Board meetings are also convened. This is done by giving appropriate


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notice in order to address the specific needs of the Company. When there is a case

of business exigencies or urgency of matters, resolutions are passed by circulation.

o Attendance track record of Directors:Name of Director Attendance at meetings during

2012-2013No. of other

directorship(s)No. of Membership(s)

/

Chairmanship(s) of

Board

Committees in other

Companies2

Board Meetings Last AGM

Mukesh D. Ambani 5 Yes 2 1 (as chairman)

Nikhil R. Meswani 5 Yes 1 1 (as chairman)

Hital R. Meswani 5 Yes 2 2 (including 1 as

chairman)

P.M.S. Prasad 5 Yes 1 1

Pawan Kumar Kapil 4 Yes Nil NilRamniklal H. Ambani 5 No 2 1 (as chairman)

Mansingh L. Bhakta 5 Yes 3 2

Yogendra P. Trivedi 5 Yes 6 2

Dr. Dharam Vir

Kapur

5 Yes 5 6 (including 4 as

chairman)

Mahesh P. Modi 4 Yes 1 Nil

Prof. Ashok Misra 5 Yes 1 1

Prof. Dipak C. Jain 4 No 2 1

Dr. Raghunath A.

Mashelkar

4 Yes 5 3

o Quality of agenda papers and extent to which they are circulated in advance: Theagenda as well as the notes on agenda are circulated to the Directors, in advance.

o Quality of presentations made to the Boardo Boards role in approving strategy proposed by the executive management: The Board

critically evaluates strategic direction of the Company, management policies and their

effectiveness. The agenda for Board reviews include strategic review from each of the

Board committees, a detailed analysis and review of annual strategic and operating

plans and capital allocation and budgets. Additionally, the Board reviews related party

transactions, financial reports from the CFO and business reports from each of the

sector heads. Frequent and detailed interaction sets the agenda and provides the

strategic roadmap for the future growth of the Company.


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o Deliberations related to major investments, capital expenditure, and related partytransactions: Finance Committee: The terms of reference of the Finance Committee,

inter alia, include the following:

Review the Companys financial policies, risk 72 Fulfilling Indias Aspirations. WithInnovation and Enterprise risk assessment and minimization procedures, strategies and

capital structure, working capital and cash flow management and make such reports

and recommendations to the Board with respect thereto as it may deem advisable.

Review banking arrangements and cash management. Exercise all powers to borrow moneys (otherwise than by issue of debentures) within

the limits approved by the Board and taking necessary actions connected therewith

including refinancing for optimization of borrowing costs.

Giving of guarantees/issuing letters of comfort/providing securities within the limitsapproved by the Board.

Borrow monies by way of loan and/or issuing and allotting bonds/notes denominated inone or more foreign currencies in international markets, for the purpose of refinancing

the existing debt, capital expenditure, general corporate purposes including working

capital requirements and possible strategic investments within the limits approved by

the Board.

Provide corporate guarantee/performance guarantee by the Company within the limitsapproved by the Board.

Approve opening and operation of Investment Management Accounts with foreignbanks and appoint them as agents, establishment of representative/sales offices in or

outside India etc.

Carry out any other function as is mandated by the Board from time to time and/orenforced by any statutory notification, amendment or modification as may beapplicable.

Other transactions or financial issues that the Board may desire to have them reviewedby the Finance Committee.

Delegate authorities from time to time to the executives/authorised persons toimplement the decisions of the Committee.

Regularly review and make recommendations about changes to the charter of theCommittee.

o Boards role in determining executive compensation:Remuneration Committee: The Remuneration Committee has been constituted torecommend/review remuneration of the Managing Director and Whole-time Directors,

based on their performance and defined assessment criteria.

Remuneration policy: The Chairman and Managing Directors compensation has beenset at 15 crore as against 38.93 crore that he is eligible as per the shareholders

approval, reflecting his desire to continue to set a personal example for moderation in

managerial compensation levels. The performance criteria for the Executive Directors


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who are entitled for Performance Linked Incentive (PLI) is determined by the

Remuneration Committee. The tenure of office of the aforesaid Managing Director and

Whole-time Directors is for a period of 5 years from their respective dates of

appointments and can be terminated by either party by giving three months notice in

writing. There is no separate provision for payment of severance fees.

Each of the Non-Executive Directors will also be paid commission amounting to 50 lakhs

on an annual basis and the total commission payable to such directors shall not exceed

5 (five) crore per annum in the aggregate. During the year, the Company has paid ` 0.29

crore as professional fees to M/s. Kanga & Co., a firm in which Shri Mansingh L. Bhakta,

Director of the Company, is a partner.

Functioning of Board Committees: Among the Board Committees, the Audit Committeeis clearly the most important in terms of scope of activities. A properly functioning Audit

Committee has the potential to improve the quality of financial reporting, strengthen

the position of auditors, and ensure that effective internal audit and internal

control/risk management systems are in place. The key aspects relating to the

effectiveness of Audit

Committees as reviewed by ICRA are:

Composition of the Audit Committee: The composition of the Audit Committeemeets with the requirements of Section 292A of the Companies Act, 1956 and

Clause 49 of the Listing Agreement.

Background, expertise, experience and independence of its members: All themembers of the Audit Committee possess sound financial, accounting

knowledge and experience. Audit Committees role in the appointment of statutory auditors, and its policy

on rotation of lead partners and on non-Audit services provided by the

auditors: The Audit Committee also recommends to the Board, the

appointment, reappointment and the replacement or removal of Statutory

Auditors including Cost Auditors and fixation of audit fees.

Internal Auditorsand Audit Committees are mutually supportive; it is essential for the Audit Committee

to consider the work of internal auditors so as to gain an understanding of the organisations risk

management processes and control systems, and of the areas that need strengthening. Thus, ICRAs

assessment covers, among others:

Strength and quality of the Internal Audit team: Following are the tasks that the InternalAudit Team at RIL is supposed to take.

To investigate any activity within its terms of reference. To seek information from any employee. To obtain outside legal or other professional advice. To secure attendance of outsiders with relevant expertise, if it considers necessary.


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Extent of Internal Audits interaction with the Audit Committee: The Audit Committeereviews the adequacy of internal audit function, if any, including the structure of the

internal audit department, staffing and seniority of the official heading the department,

reporting structure, coverage and frequency of internal audit.

Managements responsiveness to issues highlighted by Internal Audit: The managementworks in close coordination with the Audit committee.

4) Stakeholder RelationshipAn organizations shareholders are its owners, and their basic rights include: the right to have their

shares transferred and registered smoothly; the right to access timely information; the right to

participate in, and vote at, shareholders meetings; the right to elect members on the Board; and the

right to share the organizationsprofits through dividends. Shareholders also have a say on issues such

as amendments to the organizations Memorandum and Articles of Association, reduction or

augmentation of share capital, and sale/lease/disposal of any undertaking. Most importantly, allshareholders need to be treated equitably.

Also, an organization must have appropriate systems in place to enable its shareholders participate

effectively in shareholders meetings and cast their votes.

The emphasis of ICRAs analysis is on evaluating the extent to which a company goes beyond what is

mandatory under law to serve the rights and interests of its shareholders.

The issues analyzed include:

1.

Conduct of Annual/Extraordinary General Meetings (AGMs/EGMs) and the extent of disclosuresat such meetings

2. Procedures for transfer and registration of shares and payment of dividend: There has been noinstance of non-compliance by the Company on any matter related to capital markets during the

last three years and hence no penalties or strictures have been imposed on the Company by the

Stock Exchanges or SEBI or any other statutory authority recommends measures for overall

improvement in the quality of investor services. The Committee also monitors implementation

and compliance with the Companys Code of Conduct for Prohibition of Insider Trading in

pursuance of SEBI (Prohibition of Insider Trading) Regulations, 1992

3. Companys responsiveness to investor complaints: The investor complaints are processed in acentralized web based complaints redress system. The salient features of this system are:Centralized database of all complaints, online upload of Action Taken Reports (ATRs) by the

concerned companies and online viewing by investors of actions taken on the complaint and its

current status.

4. Timeliness of release of any market sensitive information: The CGSI (Corporate Governance andStakeholder Interface committee makes the information available to investor, institutions and

public at large.


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5. History of penalties levied by regulators for violations of statutory provisions: There has been noinstance of non-compliance by the Company on any matter related to capital markets during the

last three years and hence no penalties or strictures have been imposed on the Company by the

Stock Exchanges or SEBI or any other statutory authority.

6. CSR: Social welfare and community development is at the core of Reliances CSR philosophy andthis continues to be a top priority. Reliance embraces responsibility for impact of its operations

and actions on all stakeholders including society and community at large.

7. Environmental Impact: The Health, Safety and Environment Committee has been constituted,inter alia, to monitor and ensure maintaining the highest standards of environmental, health

and safety norms and compliance with applicable pollution and environmental laws at all works

/ factories / locations of the Company and to recommend measures, if any, for improvement in

this regard. The Committee reviews, inter alia, the Health, Safety and Environment Policy of the

Company, performance on health, safety and environment matters and the procedures and

controls being followed at various manufacturing facilities of the Company and compliance with

the relevant statutory provisions.

So the above mentioned points are completely followed by the reliance. Board recognizes the

importance of two-way communication with shareholders and giving a balanced report of results and

progress and responds to questions and issues raised in a timely and consistent manner. Reliance

ensures that complaints and suggestions of its shareholders are responded in a timely and consistent

manner. A Shareholders Reference is provided with this annual report which is quite comprehensive

and informative. The Stakeholders Interference committee allows the stakeholders to take important

decisions regarding the dissemination of information to the media, investors, nomination of directors,

etc.

5) Transparency and DisclosuresListed companies have to meet several statutory requirements on disclosures, financial results, and

information that must be part of their published accounts. However, with the depth of the capital

markets increasing and institutional activity in the markets picking up, organizations are making

voluntary disclosures that go beyond the minimum disclosure requirements. Shareholders and potential

investors require access to regular, reliable and comparable information in sufficient detail to assess the

quality of the management, the organizationsgrowth prospects, and the associated risk factors. At the

same time, organizations are not expected to disclose information that may endanger their competitive

position. In ICRAs opinion, the information disclosed by organizations should be material and must shedlight on their plans/expectations as well the foreseeable risks.

The key parameters used to assess a companys transparency and disclosure standards are:

1. Accounting quality, including compliance with accepted accounting standards andcomparison with industry best practices

2. Changes in accounting policies


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3. Notes to accounts of a materially significant nature4. Quality and level of detail in accounts, especially with respect to item likes Loans and

Advances,

5. Inter-Corporate Advances and Contingent Liabilities6. Disclosures on transactions with subsidiaries, associates and other related parties7. Additional information to shareholders8. Quality of disclosures in Management Discussion and Analysis (MDA)9. While assessing the MDA and Directors report, ICRA evaluates the extent to which

information is available on areas2 like:

10.Competitive position of the companys product portfolio and trends in the same11.Key drivers of the companys operating performance, including sustainability of margins12.The rate and success of product innovations13.Risk factors that could have a bearing on the prospects of each business line14.The trends in share price movements around major corporate announcements are also

looked at to evaluate whether price sensitive information is disseminated in a timely

manner to all stakeholders.

As per the criteria mentioned for transparency and disclosure, Reliance fulfils all of them.

Corporate Governance is a set of systems and practices to ensure that the affairs of the

Company are being managed in a way which ensures accountability, transparency, and fairness

in all its transactions in the widest sense and meet its stakeholders aspirations and societal

expectations. e. At Reliance, we adhere to ethical standards to ensure integrity, transparency,

independence and accountability in dealings with all stakeholders.

Oversight of the Companys financial reporting process and the disclosure of its financial

information to ensure that the financial statements are correct, sufficient and credible.

Disclosure of related party transactions. None of the transactions with any of the related parties

were in conflict with the interest of the Company. Attention of members is drawn to the

disclosure of transactions with the related parties set out in Note No. 30 of the Standalone

Financial Statements, forming part of the Annual Report. The Companys major related party

transactions are generally with its subsidiaries and associates. The related party transactions are

entered into based on considerations of various business exigencies such as synergy in

operations, sectoral specialization and the Companys long-term strategy for sectoral

investments, optimization of market share. All disclosures and communications to BSE & NSE

are filed electronically through the CFDS portal and hard copies of the said disclosures and

correspondence are also filed with the Stock Exchanges.

6) Financial DisciplineThe ultimate objective of Corporate Governance is to create and maximize shareholder value. While the

actual shareholder value generated by a company may be dependent on a number of factors that are

beyond the control of its management, ICRA believes that maintenance of a certain level of discipline in

the conduct of business operations also has an important role to play. ICRAs analysis therefore focuses


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on factors that are within the companys control, and which, in ICRAs opinion, impact the sha reholder

value that a company is able to generate in the long run. Such factors include:

1. Business segments in which the company operates: The company operates in fivebusiness segments-exploration and production, refining and marketing, petrochemical,

retail andtelecommunications.2. Rationale for presence in multiple businesses, if any3. Return on capital employed in each business compared with the industry average: The

details about ROCE are shown in the diagram below.

4. History of equity dilution: The Companys Equity Shares are among the most liquid andactively traded shares on the Indian Stock Exchanges. RIL shares consistently rank

among the top few frequently traded shares, both in terms of the number of shares

traded, as well as value. The highest trading activity is witnessed on the BSE and NSE.

5. Extent of reliance on debt funding: RIL believes in debt funding. It has funded fromdifferent banks.

6. Dividend policy: In terms of distributing wealth to the shareholders, apart from having atrack record of uninterrupted dividend payout, RIL have also delivered a consistent

unmatched shareholder returns since listing. What epitomizes the impact of all that the

company does is the fact that their shareholder base has grown from 52,000 after the

IPO to a consolidated present base of around 3.2 million.

7. Number of subsidiaries/associates and rationale for the same
http://en.wikipedia.org/wiki/Upstream_(petroleum_industry)http://en.wikipedia.org/wiki/4Ghttp://en.wikipedia.org/wiki/4Ghttp://en.wikipedia.org/wiki/Upstream_(petroleum_industry)


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8. Nature of transactions with subsidiaries: All subsidiary companies of the Company areBoard managed with their Boards having the rights and obligations to manage such

companies in the best interest of their stakeholders. The Company does not have any

material unlisted subsidiary and hence is not required to nominate an independent

director of the Company on the Board of any subsidiary

It must be emphasized that ICRA does not view a companys presence in multiple businesses or the

existence of subsidiaries/associates as a negative factor per se. ICRA only tries to evaluate the rationale

for the same and determine whether the parent holds its subsidiaries/associates at arms-length in its

transactions with them and whether the business decisions are based on commercial prudence. This

actually varies depending on the industry to which the company belongs. The items highlighted would

apply to a typical consumer products company. ICRA Rating Feature Rating Methodology of Corporate

Governance .

According to this criteria oversight of the Companys financial reporting process and the disclosure of its

financial information to ensure that the financial statements are correct, sufficient and credible.

Financial statements, in particular the investments made by the unlisted subsidiary companies, are

reviewed quarterly by the Audit Committee of the Company. Additionally, the Board reviews related

party transactions, financial reports from the CFO and business reports from each of the sector heads.

Frequent and detailed interaction sets the agenda and provides the strategic roadmap for the future

growth of the Company. At the heart of our processes is the wide use of technology that ensures

robustness and integrity of financial reporting, internal controls, allows optimal use and protection of

assets, facilitates accurate and timely compilation of financial statements and management reports and

ensure compliance with statutory laws, regulations and company policies.

7) Ethical PracticesCorporate Governance, ultimately, is about promoting corporate fairness and transparency. Therefore, a

cornerstone of Corporate Governance is a companys commitment to maintain the highest standards of

ethical practices in all its transactions. ICRAs analysis thus covers:

1. Comprehensiveness of code of ethics and integrity.2. Steps taken to effectively communicate the principles of corporate ethics3. Extent to which compliance with the codes and guidelines is monitored4. Extent to which feedback systems have been established to encourage whistle-blowing.

Reliance always strives to conduct its business and develop its relationships in a manner that is

dignified, distinctive and responsible. At Reliance, we adhere to ethical standards to ensure integrity,

transparency, independence and accountability in dealings with all stakeholders. In this direction, we

have adopted various codes and policies which act as enablers to carry out our duties in an ethical way

Some of these codes and policies are:


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1. Code for Board of Directors and Board Committees2. Code of Business Conduct and Ethics for Directors3. Management Personnel.4. Code of Conduct for Prohibition of Insider Trading.5. Code of Ethics and Business Policies.6. Policy document on Values and Commitments.7. Manual on Corporate Governance.8. Health, Safety and Environment (HSE) Policy.9. Code of Financial Reporting, Disclosure & Transparency.10. Business Responsibility Policy Manual

The Company promotes ethical behaviour in all its business activities and has put in place a mechanism

of reporting illegal or unethical behaviour. The Company has a whistle blower policy wherein the

employees are free to report violations of laws, rules, regulations or unethical conduct to their

immediate supervisor or such other person as may be notified by the management to the workgroups.

The confidentiality of those reporting violations is maintained and they are not subjected to anydiscriminatory practice.


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Rating

We follow the ICRA methodology for corporate Governance rating; however the weightage for the each

parameter in the methodology has not been disclosed by the ICRA. Based on the stakeholder point of

view, we provide weightage to each parameter. As per ICRA, the company governance rating are

provided as CGR1,CGR2,CGR3, CGR4, CGR5 and CGR6,where CGR1 is the highest rating and CGR6 is the

lowest. And, also we have allotted weightage for each rating as follows:

RATING WEIGHTAGE

CGR1 >85

CGR2 70-85

CGR3 55-70

CGR4 40-55

CGR5 25-40

CGR6


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(C) Board Structure and Process

i. Structural1. Size of the Board 2 22. Proportion of Independent Directors 4 23. Other Directorships held by the Independent

Director(s)

4 3

Structural score 10 7

ii. Effectiveness of the Board1. Frequency of Board meetings 1 0.752. Attendance track record of Directors 1 0.753. Quality of agenda papers and extent to which they are

circulated in advance

1 0.75

4. Quality of presentations made to the Board 1 15. Boards role in approving strategy proposed by the

executive management

2 2

6.

Deliberations related to major investments, capitalexpenditure, and related party transaction 2 1.5

7. Boards role in determining executive compensation 2 1Effectiveness of the Board Score 10 7.75

iii. Functioning of Board Committees1. Composition of the Audit Committee 3 22. Background, expertise, experience and independence

of its members

2 1.5

3. Audit Committee 5 4Functioning of Board Committees Score 10 7.5

Total Score(Board Structure and Process) 30 22.25

Board Structure and Process Score normalized to 15 30/2=15 11.125

(D) Stakeholder Relationship

1. Conduct of Annual/Extraordinary General Meetings(AGMs/EGMs) and the extent of disclosures at such

meetings

1 0.75

2. Procedures for transfer and registration of shares andpayment of dividend

1 0.75

3. Companys responsiveness to investor complaints 2 24. History of penalties levied by regulators for violations

of statutory provisions, if any

1 1

5. CSR 3 36. Environmental Impact 2 1.5

Total Score(Stakeholder Relationship) 10 9

Stakeholder Relationship Score normalized to 5 10/2=5 4.5

(E) Transparency and Disclosures

1. Accounting quality, including compliance with acceptedaccounting standards and comparison with industry

best practices

6 5

2. Changes in accounting policies 5 4


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3. Notes to accounts of a materially significant nature 3 34. Quality and level of detail in accounts, especially with

respect to item likes Loans and Advances, Inter-

Corporate Advances and Contingent Liabilities

3 3

5. Disclosures on transactions with subsidiaries,associates and other related parties

3 2

6. Additional information to shareholders 3 17. Quality of disclosures in Management Discussion and

Analysis (MDA)

7 6.5

Total Score(Transparency and Disclosures) 30 24.5

Transparency and Disclosures score normalized to 15 30/2=15 12.25

(F) Financial Discipline

1. Business segments in which the company operates 7 62. Rationale for presence in multiple businesses, if any 5 43. Return on capital employed in each business compared

with the industry average

8 7

4. History of equity dilution 4 25. Extent of reliance on debt funding 8 86. Dividend policy 4 27. Number of subsidiaries/associates and rationale for the

same

8 6

8. Nature of transactions with subsidiaries 6 3Total Score(Financial Discipline) 50 38

Financial Discipline Score normalized to 25 50/2=25 19

(G) Ethical Practices

1. Comprehensiveness of code of ethics and integrity 8 72. Steps taken to effectively communicate the principles

of corporate ethics

8 7

3. Extent to which compliance with the codes andguidelines is monitored

7 5

4. Extent to which feedback systems have beenestablished to encourage whistle-blowing

7 4

Total Score(Ethical Practices) 30 23

Ethical Practices score normalized to 15 30/2=15 11.5

(H) Aggregate score(A+B+C+D+E+F+G) 100 78.375

Rating Score of the company CGR2


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Conclusion

As comparing the given four rating agency for the project, out of the four, we found ICRA methodology

to be in line with the international rating agency viz. S&P rating and also the methodology is easy to

understand and implement it.

Based on the parameters of the ICRA, we tally the weightage for the RIL on the available public

information such as the Annual Reports, CSR reports and the corporate Governance Report.

Now a day, investors consider corporate governance while making investment decision. Keeping this

interest in mind, ICRA provides the services of cooperate governance rating to their client.

While doing this project we came to know the rating agency methodology and how the companies try to

improve their rating.


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References

http://www.icra.in/Files/Articles/2004-July-RM-Corporategovernance.pdf http://www.ril.com/downloads/pdf/corp_gov_report2012_13.pdf www.ril.com http://en.wikipedia.org/wiki/Corporate_governance http://en.wikipedia.org/wiki/Reliance_Industries
http://www.icra.in/Files/Articles/2004-July-RM-Corporategovernance.pdfhttp://www.icra.in/Files/Articles/2004-July-RM-Corporategovernance.pdfhttp://www.ril.com/downloads/pdf/corp_gov_report2012_13.pdfhttp://www.ril.com/downloads/pdf/corp_gov_report2012_13.pdfhttp://www.ril.com/http://www.ril.com/http://en.wikipedia.org/wiki/Corporate_governancehttp://en.wikipedia.org/wiki/Corporate_governancehttp://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Reliance_Industrieshttp://en.wikipedia.org/wiki/Corporate_governancehttp://www.ril.com/http://www.ril.com/downloads/pdf/corp_gov_report2012_13.pdfhttp://www.icra.in/Files/Articles/2004-July-RM-Corporategovernance.pdf

becg project group no. 11

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