INFOSYSThe Best Corporate Governed Company

Submitted on:3/1/2009

Submitted to:

Prof. Anita Chouhan

METs Institute of Management

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“We've always striven hard for respectability, transparency and to create an ethical organisation. There are certain expectations that we haven't fulfilled. But we're also a very young organisation and in areas like track record of management, we may be low because we're yet to show longevity.”

- Narayana NR Murthy, Chairman and CEO, Infosys Technologies Limited (Infosys),

2001

MCOMPILED BY:M

Madhur Agarwal (002)

Kashyap Damniwala (000)

Rima Gupta (036)

Maulik Parikh (000)

Mubin Panjwani (071)

Sneha Saraf (091)

Vedant Thakur (114)

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MMMMINDEXMMMM

SR. NO PARTICULARS PG NO.

1. Introduction 5 – 6

2. About Infosys 7 – 8

3. About Narayan Murthy 9 – 10

4.

Corporate Governance for Infosys

Corporate Governance Philosophy

Code of Conduct

11 – 16

5. The High Priest Of Corporate Governance 17

6. Codes for Corporate Governance 18 – 20

7. Awards Won 21 – 27

8. Structural Risk

Ownership Structure & influence

(a.) Transparency of Ownership

(b.) Ownership Concentration & Influence

Shareholder Right & Stakeholder Relation

(a.) Shareholder Meeting & Voting Process

(b.) Ownership Rights

(c.) Stakeholder Relation

Transparency, Disclosure & Audit

(a.) Content of Public Disclosure

(b.) Timing & access

28 - 40

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(c.) Audit Process

BOD Structure & Effectiveness

(a.) BOD Structure & independence

(b.) Role & Effectiveness of BOD

(c.) BOD & Senior Management Compensation

(d.) Committees

9.

Transaction Risk

Related Party

Nature of Transaction with Related Party

Materiality

Disclosure

41 – 42

10.Accounting Risk

MTM43

11. Corporate Governance – The Infosys Way 44 – 49

12.Infosys – A Benchmark For Corporate

Governance50

13. Bibliography 51

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MMMMMINTRODUCTIONMMMM

In the last decade, two events significantly contributed to making corporate governance nearly a household term. The first was the wave of financial crises in Russia, Asia, and Brazil in 1998, when the activities of the corporate sector influenced entire economies and the global financial system. Three years later, the corporate scandals in the U.S. had highlighted the macroeconomic consequences of weak corporate governance systems. In the aftermath, economists, the corporate world, and policy makers everywhere began to recognize the importance of corporate governance. The traditional analysis of corporate governance focused on the allocation of power and duty among the Board of Directors, management, and shareholders. As the sole residual claimants on company assets, shareholders were presumed to have the most incentive to maximize company value. According to that perspective, the Board of Directors acted as the shareholders' agent and management was responsible for daily operations. In today's scenario, the Board and the Management play the role of trustees. Effective corporate governance requires a clear understanding of the respective roles of the Board and the senior management, and their relationships with others in the corporate structure. The relationship of the Board and the Management with stockholders should be characterized by candor; their relationship with employees should be characterized by fairness; their relationship with the communities in which they operate should be characterized by good citizenship; and their

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relationship with the government should be characterized by a commitment to compliance. Till late 1990s, corporate governance did not have much significance in India. In 1999, two committees Confederation of Indian Industries (CII) and the Kumar Mangalam Birla Committee were set up to recommend good governance norms. These committees came out with several recommendations, which were made mandatory for the companies to adhere to by 2001. Infosys was one of the first companies in India which had complied with the recommendations made by the committees.

“The fundamental objective of corporate governance is the enhancement of long-term shareholder value while, at the same time, protecting the interests of other stakeholders.”

- Kumar Mangalam Committee Report on Corporate

Governance, 1999.

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Our industry has set many records for growth, quality and corporate governance in the country and the world and needs to continue on a pristine pure path as we climb bigger mountains in the journey towards full globalization of services! Hence there is the need for more and more companies to adopt the Infosys way of working.

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MMMMMABOUT INFOSYSMMVM

Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250. Today, it is a global leader in the "next generation" of IT and consulting with revenues of over US$ 4 billion.

 Infosys defines, designs and delivers technology-enabled business solutions that help Global 2000 companies win in a Flat World. Infosys also provides a complete range of services by leveraging our domain and business expertise and strategic alliances with leading technology providers.

 Infosys' service offerings span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services and business process outsourcing.

Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive force in the industry leading to the rise of offshore outsourcing. The GDM is based on the principle of taking work to the location where the best talent is available, where it makes the best economic sense, with the least amount of acceptable risk.

 Infosys has a global footprint with over 50 offices and development centers in India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys has over 103,000 employees.

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 Infosys takes pride in building strategic long-term client relationships. Over 97% of our revenues come from existing customers.

Vision

"To be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people."

Mission

"To achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large."

ValuesWe believe that the softest pillow is a clear conscience. The values that drive us underscore our commitment to:

Customer Delight: To surpass customer expectations consistently

Leadership by Example: To set standards in our business and transactions and be an exemplar for the industry and ourselves

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Integrity and Transparency: To be ethical, sincere and open in all our transactions

Fairness: To be objective and transaction-oriented, and thereby earn trust and respect

Pursuit of Excellence: To strive relentlessly, constantly improve ourselves, our teams, our services and products to become the best

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MMMMNARAYAN MURTHYMMVM

SIMPLE, SELFLESS, SUPER RICH

An Indian IT chief who's really made it big without dropping his ethical precepts by the wayside is Nagawara Ramarao Narayana Murthy, Chairman of Infosys. Born in 1946, Murthy's father was a schoolteacher in Kolar district, Karnataka, India. A bright student, Murthy went on to acquire a degree in Electrical Engineering from Mysore University and later studied Computer Science at the IIT, Kanpur, India.

The Infosys legend began in 1981 when Narayana Murthy dreamt of forming his own company, along with six friends. There was a minor hitch was that he didn’t have any seed money. Luckily, like many Indian women who save secretly without their husband's knowledge, his wife Sudha-then an engineer with Tatas-had saved Rs 10,000. This was Murthy's first big break.

The decade until 1991 was a tough period when the couple lived in a one-room house. The second break came in 1991 when Indian doors to liberalization were flung open… Murthy grabbed the opportunity with both hands and has never looked back ever since. Today, Infosys is the first Indian company to be listed on the US NASDAQ.

While working in France in the 1970s, Murthy was strongly influenced by socialism. The bubble was pricked, however, when he was arrested in Bulgaria on espionage charges. Today, he says:

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"I'm a capitalist in mind, a socialist at heart." It was this belief in the distribution of wealth that made Infosys one of the first Indian companies to offer employees stock-option plans. Infosys now has 400 employees who are dollar millionaires.

In a poll conducted by Asiaweek, the quiet, soft-spoken man was selected one of the 50 most powerful people in Asia for 2000. And 50 per cent of the respondents in an online poll conducted by The Economic Timesvoted him the best CEO of India.

Heading a company with the largest market capitalization didn't changed Murthy's life-style much. The man still doesn't know how to drive a car! On Saturdays-his driver's weekly off-the Infosys chief is driven to the bus stop by his wife, from where he boards a company bus to work! Incidentally, Sudha Murthy is Chief of the Infosys Foundation, which channels Rs 50 million into charity every year.

Simplicity, humility and maintaining a low profile are the hallmarks of this super-rich Bangalorean. And the man is principled to a fault. Murthy's unprecedented wealth has catapulted him into the public glare.

And finally the philanthropist Murthy with some of the founder members of infosys have contributed more then a billion rupees for the upgradation of the IIT centers. The Infosys founder member says that unless a person makes a difference to the society and earn their trust, he  can never become long-term players. Therefore, in everything that humans do they should ask themselves whether we they are

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adding value to the society regardless of which part of the globe they are in.

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HGDSDSDIMPORTANCE OF CORPORATEDDSD

SDSDGOVERNANCE FOR INFOSYSDSDD

“Sound corporate governance is critical to enhance and retain investor trust,” said Kris Gopalakrishnan, President and Board Member, Infosys Technologies. He explained how the company aims to satisfy the spirit – not just the letter – of the law, believing that a company that is “globally respected, transparent, with a culture of innovation should lead by practice of these values.”

Corporate governance is about maximizing shareholder value legally, ethically and on a sustainable basis, while ensuring fairness to every stakeholder - customers, employees, investors, vendor-partners, the governments of the countries in which it operates, and the community. Thus, corporate governance is a reflection of their culture, policies, our relationship with stakeholders and our commitment to values.

Infosys believe that sound corporate governance is critical to enhance and retain investor trust. Accordingly, it always seeks to ensure that Infosys attains its performance rules with integrity.

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The Board exercises its fiduciary responsibilities in the widest sense of the term. Their disclosures always seek to attain the best practices in international corporate governance. Infosys also endeavors to enhance long-term shareholder value and respect minority rights in all business decisions.

Infosys continues to be a pioneer in benchmarking corporate governance policies with the best in the world. Their efforts are widely recognized by investors in India and abroad. Infosys have undergone the corporate governance audit by ICRA and CRISIL. ICRA has rated our corporate governance practices at CGR 1. CRISIL has assigned CRISIL GVC Level 1 rating.

Infosys have complied with the recommendations of the Narayana Murthy Committee on Corporate Governance constituted by the Securities and Exchange Board of India (SEBI). The Infosys philosophy is that an active, well-informed and independent board is necessary to ensure the highest standards of corporate governance. A majority of board members (eight out of fifteen) are independent, and there is clear demarcation of the responsibilities and authority of the chairman, CEO, COO and CFO. The audit committee consists solely of independent directors. Mr Gopalakrishnan also described the high level of transparency that characterizes the company’s investor relations, and demonstrated how seriously Infosys takes its social responsibilities, through its rural reach and teacher training programme, for example.

"Corporate governance is about working ethically and finding a balance between economic and social

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goals. It includes the ability to function profitably while obeying laws, rules and regulations." 

Smt. Pratibha Devisingh Patil, Hon. President of India, February 12, 2008

njjnjnCORPORATE GOVERNANCE

PHILOSOPHYnjjnjn

Our corporate governance philosophy is based on the following principles: Satisfy the spirit of the law and not just the letter

of the law Corporate governance standards should go

beyond the law Be transparent and maintain a high degree of

disclosure levels When in doubt, disclose Make a clear distinction between personal

conveniences and corporate resources Communicate externally, in a truthful manner,

about how the Company is run internally Comply with the laws in all the countries in which

the Company operates Have a simple and transparent corporate

structure driven solely by business needs Management is the trustee of the shareholders'

capital and not the owner

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NjjnjnCODE OF CONDUCTnjjnjn

Infosys has always followed the highest standards of corporate governance. We have set new levels in transparency and integrity. Today, our challenge is to continue doing this. Today every action of the company and its employees is the focus of public attention and we need to reinforce our tradition of values. Our challenge is to continue maintaining this high standard, even as we become a global company and work in multi-cultural environs. To this end, we have adopted this code of business conduct and ethics to guide our transactions with our colleagues, communities, customers, governments, investors, regulators and society.

The essence of this code is based on the Infosys Core Values of C-LIFE – Customer Delight, Leadership by Example, Integrity and Transparency, Fairness and Pursuit of Excellence. We ask you to read, understand, enforce and adhere to this Code, and also ensure that others who work for you do the same.

Our reputation and ability to comply with all applicable laws depends on the integrity and upright behavior of each one of us and your pledge to continue to adhere to this code will help us to be Powered by Intellect and Driven by Values.

This Code of Business Conduct and Ethics helps ensure compliance with legal requirements and our standards of business conduct. All Company employees and trainees are expected to read and understand this Code of Business Conduct and Ethics, uphold these standards in day-to-day activities, comply with all applicable policies and procedures, and ensure that all agents and

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contractors are aware of, understand and adhere to these standards.

Each year as part of your annual review you will be asked to sign an acknowledgment indicating your continued understanding of the Code of Business Conduct and Ethics. Ethical business conduct is critical to our business. As an employee, your responsibility is to respect and adhere to these practices. Many of these practices reflect legal or regulatory requirements. Violations of these laws and regulations can create significant liability for you, the Company, its directors, officers, and other employees.

Part of your job and ethical responsibility is to help enforce this Code of Business Conduct and Ethics. You should be alert to possible violations and report possible violations to the Human Resources Department or the Legal Department. You must cooperate in any internal or external investigations of possible violations. Reprisal, threats, retribution or retaliation against any person who has in good faith reported a violation or a suspected violation of law, this Code of Business Conduct or other Company policies, or against any person who is assisting in any investigation or process with respect to such a violation, is prohibited.

YOUR RESPONSIBILITIES TO THE COMPANY AND ITS STOCKHOLDERS A. General Standards of Conduct

A1. Workplace free of Harassment A2. Drug and Alcohol Abuse A3. Safety in Workplace A4. Dress Code and other personal standards A5. Expense Claims

B. Applicable Laws C. Conflicts of Interest

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D. Corporate Opportunities D1. Solicitation and Distribution of Literature

E. Protecting the Company's Confidential Information F. Obligations Under Securities Laws-"Insider" Trading G. Prohibition Against Short Selling of Company Stock H. Use of Company's Assets I. Maintaining and Managing Records J. Records on Legal Hold. K. Payment Practices L. Foreign Corrupt Practices Act.

RESPONSIBILITIES TO OUR CUSTOMERS AND OUR SUPPLIERS A. Customer Relationships B. Payments or Gifts from Others C. Publications of Others D. Handling the Confidential Information of Others E. Selecting Suppliers F. Government Relations G. Lobbying H. Government Contracts I. Free and Fair Competition

DISCIPLINARY ACTIONS

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dddddTHE HIGH PRIEST OF CORPORATEddd

dddddGOVERNANCEddddd

By the late 1990s, Infosys Technologies Limited (Infosys) had clearly emerged one of the best managed companies in India. Its corporate governance practices seemed to be better than those of many other companies in India. Because of its good governance practices, Infosys was the recipient of many awards.

In 2001, Infosys was rated India’s most respected company by Business World. Infosys was also ranked second in corporate governance among 495 emerging companies in a survey conducted by Credit Lyonnais Securities Asia (CLSA) Emerging Markets. It was voted India’s best managed company five years in a row (1996-2000) by the Asiamoney poll. In 2000, Infosys had been awarded the “National Award for Excellence in Corporate Governance” by the Government of India. In 1999, Infosys had been selected as one of Asia’s leading companies in the Far Eastern Economic Review’s REVIEW 2000 Survey and voted India’s most admired company by The Economic Times.

Infosys had also provided all the information required by the Cadbury committee Infosys had benchmarked its corporate governance practices against those of the best managed companies in the world. It was one of the first companies in India to publish a compliance report on corporate governance, based on the recommendations of a committee constituted by the Confederation of Indian Industries (CII). Infosys maintained a high degree of transparency while disclosing information to stakeholders. It had been providing consolidated

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financial statements under US GAAP to its global investors and financial statements under Indian GAAP to Indian shareholders. Infosys provided details on high and low monthly averages of share prices in all the stock exchanges on which the company’s shares were listed. It was one of the few companies in India to provide segmentwise breakup of revenues.

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fdfdfCODE OF CORPORATE GOVERNANCEfdfdf

In the late 1990s, the Confederation of Indian Industries (CII) published a code of corporate governance. In 1999, the Securities and Exchange Board of India (SEBI) appointed a committee under the Chairmanship of Kumar Mangalam Birla to recommend a code of corporate governance. The report was submitted by the committee in November 1999 and accepted by SEBI in December 1999.

Naresh Chandra Committee

The Government of India, by an order dated August 21, 2002, constituted a high-level committee under the chairmanship of Naresh Chandra to examine the auditor-company relationship and to regulate the role of auditors. The trigger was instances of scams in the U.S. and certain instances in India involving auditors. In fact, the spontaneity with which the U.S. responded to the high-profile corporate scams by enacting the Sarbanes-Oxley Act in a very short time and taking strong measures to deter recurrences of such scams, prompted the Indian regulators and authorities to come out with almost similar recommendations. The Naresh Chandra Committee report contains five chapters. Chapters 2, 3 and 4 which deal with the auditor-company relationship, auditing the auditors’ and independent directors’ role, remuneration and training are relevant to us. Chapter 1 is an introductory section and Chapter 5 relates to regulatory changes. Infosys comply with these recommendations.

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Kumar Mangalam Birla Committee

SEBI appointed the Committee on Corporate Governance on May 7, 1999, under the chairmanship of Kumar Mangalam Birla, member of the SEBI Board, to promote and raise the standards of corporate governance. The SEBI Board considered and adopted the recommendations of the committee in its meeting held on January 25, 2000. In accordance with the guidelines provided by SEBI, the market regulator, the stock exchanges had modified the listing requirements by incorporating in the listing agreement a new Clause 49, so that proper disclosure for corporate governance is made by companies in the following areas: Board of directors, Audit committee, Remuneration committee, Board procedure, Management discussion and analysis, Shareholder Information, and Corporate governance report in the annual report. Infosys comply with these recommendations.

Revised Clause 49 of the listing agreement

SEBI, with a view to improve corporate governance standards in India, constituted the Committee on Corporate Governance under the chairmanship of N. R. Narayana Murthy. This move of SEBI signifies the regulator’s anxiety to ensure that the governance practices are corrected and improved upon expeditiously. The terms of reference for the committee were to review the performance of corporate governance and to determine the role of companies in responding to rumors and other price-sensitive information circulating in the market, in order to enhance the transparency and integrity of the market.

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The committee came out with two sets of recommendations: the mandatory recommendations and the non-mandatory recommendations. The mandatory recommendations focus on strengthening the responsibilities of audit committees, improving the quality of financial disclosures, including those pertaining to related party transactions and proceeds from initial public offerings, requiring corporate executive boards to assess and disclose business risks in the annual reports of companies, calling upon the Board to adopt a formal code of conduct, the position of nominee directors, and improved disclosures relating to compensation to non-executive directors and shareholders’ approval of the same.

The non-mandatory recommendations pertain to moving to a regime providing for unqualified corporate financial statements, training of Board members and evaluation of non-executive directors’ performance by a peer group comprising the entire Board of Directors, excluding the director being evaluated. SEBI has incorporated the recommendations made by the Narayana Murthy Committee on Corporate Governance in Clause 49. Clause 49 as revised was made effective from January 1, 2006. Infosys fully comply with the revised Clause 49 of the Listing Agreement.

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MMMMAWARDS WONMMMM

Infosys has consistently been honored by customers, industry bodies, media and other influencers. The following are among the recognitions received over the past year:

An independent analyst has cited Infosys as a leader in SAP implementation services, noting that "Infosys' SAP practice is aligned along verticals to ensure that clients get the benefit of its deep vertical process expertise."

2008

The Asset magazine acclaims Infosys' Corporate Governance

Infosys ranked  No. 14 among the most respected companies in the world by Reputation Institute's Global Pulse 2008

Infosys wins award for best investor relations by an APAC company in the US market at IR Magazine US Awards 2008

Best Investor Relations Website  and Company with Best Corporate Governance Practices in Investor Relations (IR) Global Rankings 2008 in APAC categories

2007

The Reputation Institute: Infosys, a globally respected company

2006

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Infosys is most admired company for the 6th consecutive survey by Asia Wall Street Journal

Infosys is the   ‘Best company to Work For In India 2006’   says the BT-Mercer-TNS survey published in ‘Business Today’

Infosys is ranked the “Businessworld Most Respected Company” in a survey. The special issue featured rankings of top companies from all sectors

2005

First position in SAFA (South Asian Federation of Accountants) Best Presented Accounts Award 2004 in the Communication and Information Technology Sector based on the evaluation of the Annual Report of the company

Infosys named “India’s Best Managed Company” based on a study conducted by Business Today and A.T. Kearney

Infosys tops the regional rankings for best Corporate Governance in Asiamoney’s Corporate Governance Poll

Best Annual report award from the Institute of Chartered Accountants of India for tenth successive year

2004

SAFA (South Asian Federation of Accountants) Best Presented Accounts Award 2003 in the Communication and Information Technology Sector based on the evaluation of the Annual Report of the company

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Infosys is ranked as one of the World’s Most Respected Companies in the   Financial Times- PwC   annual survey

Infosys Sweeps   Businessworld   Most Respected Companies Awards 

Rated as India’s most respected company by FT-PwC survey

Best Annual report award of the Institute of Chartered Accountants of India for ninth successive year

2003

Ranked as the No.1 Employer in the IT sector by Dataquest for the second time in a row

Ranked the Best Employer in India by Business Today-Hewitt in their annual survey

Awarded the Global Corporate Achievement Award 2002 for Asia Pacific Region by Economist Intelligence Unit [EUI]

Ranked as the Best Managed Company In India by Asiamoney

Rated the Most Respected Company in India by Businessworld

Rated the Most Globally Competitive Company, Most Dynamic Company, Most Ethical Company and Best IT Company by Businessworld

A Financial Times-PwC survey listed Infosys among 50 companies that demonstrate the most integrity

2002

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First rank in the Business World's survey of "India's Most Respected Company."

Corporate Citizenship Award by The Economics Times of India

The Institute of Company Secretaries of India National Award for Excellence in Corporate Governance by the Ministry of Law, Justice and Company Affairs, Department of Company Affairs, Government of India

Golden Peacock Award for Excellence in Corporate Governance in the Global Category by the World Council for Corporate Governance, London

Ranked No. 1 in CG Watch 2002, a corporate governance survey of emerging market companies by CLSA Emerging Markets

The Institute of Chartered Accountants of India award for best presented annual report in 2001 for the seventh successive year

Asiamoney award for best investor relations in India for 2001, best managed company in India for 2001 and best managed company of the decade in India 1991-2001

2001

Infosys has been ranked #2 in corporate governance in a survey of 495 emerging market companies by CLSA Emerging markets

Infosys was ranked Number One among the most respected companies in India by the Business World-IMRB Survey. Infosys was also ranked number one on 13 of the 18 parameters judged by the survey

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Infosys has been ranked #2 in corporate governance in a survey of 495 emerging market companies by CLSA Emerging markets

The Institute of Chartered Accountants of India has adjudged the "Annual Report and Accounts" of Infosys for the year ended March 31, 2000 as the best among the entries received from Non-Financial Private Sector Companies for the Best Presented Accounts Competition 1999-2000. This is the sixth consecutive year that Infosys has won the Silver Shield

\

2000

Voted India's Best Managed Company four years in a row (1996, 1997, 1998 and 1999) by the Asiamoney poll

For the fifth year in succession, Infosys received the Silver Shield from the Institute of Chartered Accountants of India for the Best Presented Accounts, among the entries received from non-financial, private sector companies, for the year 1998-99

Infosys was awarded the "National Award for Excellence in Corporate Governance" by a panel of judges chaired by Former Chief Justice of India, Shri P.N. Bhagwati. This award is conferred by the Government of India and sponsored by Unit Trust Of India

Won the Corporate Award for excellence in Corporate Governance, Bombay Stock Exchange

1999

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Infosys was voted India's most admired company by The Economic Times Survey of India's Most Admired Companies

Won the Best Managed Company award (1999) by Asiamoney magazine

Received the ICAI Silver Shield for Best Presented Accounts for the fourth consecutive year

National Award for Excellence in Corporate Governance - Sponsored by the Unit Trust of India

1998

Won the award for the Best Published Corporate Accounts in the non-financial sector for 1996-97 awarded by the South Asian Federation of Accountants

Ranked first in the "Award for Corporate Excellence", Economic Times, India

Best Annual Report Award for 1997-98 from the Institute of Chartered Accountants of India, New Delhi

Won "Company of the Year" from The Economic Times Awards for Corporate Excellence

1997

Voted one of Asia's Best Managed Companies by Asia Money

1995-1996

Voted as one of Asia's Best Managed Companies by Asiamoney

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1994-1995

Won the Best Annual Report Award, Institute of Chartered Accountants of India, New Delhi

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scscasadCORPORATE GOVERNANCE RATINGSsasadcsc

CRISIL

CRISIL assigned us the "CRISIL GVC Level 1" rating. This Governance and Value Creation (GVC) rating indicates our capability to create wealth for all our stakeholders while adopting sound corporate governance practices. 

ICRA

ICRA assigned "CGR 1" rating to our corporate governance practices. The rating is the highest on ICRA's Corporate Governance Rating (CGR) scale of CGR1 to CGR 6. We are the first company in India to be assigned the highest CGR by ICRA. The rating reflects our transparent shareholding pattern, sound Board practices, interactive decision-making process, high level of transparency, and disclosures encompassing all important aspects of our operations, and our track record in investor servicing. A notable feature of our corporate governance practices is the emphasis on "substance" over "form," besides our transparent approach to following such practices.

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cdcdcSTRUCTURAL RISKScdcdc

OWNERSHIP STRUCTURE AND EXTERNAL INFLUENCE

Transparency of OwnershipInfosys is a widely held company with a transparent shareholding structure. The company discloses shareholdings by type and percentage. Infosys shares are widely held and its shareholding structure is transparent. In addition to disclosing shareholdings by category, the company’s annual report also discloses a distribution of shareholdings by size, class and categories of shareholders. Substantial shareholders are disclosed down to the level of five percent. The largest single shareholder (Mr.Narayana Murthy and his family) holds 6.7% of Infosys’ shares. Shareholdings of directors are adequately disclosed.

Ownership Concentration and InfluenceInfluence of ownership is most strongly felt among the founder/managers of the company, though strict separation between management and ownership is maintained, and the size of these stakes is slowly decreasing. Standard & Poor’s has seen evidence of a strict separation between ownership and control and between the roles of founders as owners and as executives. The separation is reflected in the absence of most personal benefits that would normally accrue to a founding executive (there is only one company car, for example) and a culture that restricts deals with executives outside the ordinary course of business. Undue influence of ownership is controlled by an active and zealous audit committee and by both the internal and

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external auditors. Moreover, as the founders may not receive stock options, their stake, which now stands at 26.62 percent, will decrease over time as other options are exercised Despite this, there is positive influence from the founders collectively, on everything from the company’s culture of transparency to its long-term strategy. The extent to which this can be maintained will depend to some degree on the continuity of current management. Indeed, one of the few potential areas where influence might be negatively felt is in a change of control, as there are reasonable questions about what would happen were a bid to be made that did not coincide with the company’s (and founders’) values. For its part, the company has seized the earliest opportunity to increase the limit on foreign ownership of its shares to 100 percent, showing increased openness to a bid (See Section 2.3). Also, Standard and Poor’s assesses as positive the recent amendment to the company’s Articles that removed protection for Mr.Murthy’s position as CEO (managing director) providing he held at least five percent of the company’s equity.

SHAREHOLDER RIGHTS AND STAKEHOLDER RELATIONS

Shareholder Meeting & Voting ProceduresInfosys’s commitment to shareholder democracy is strong. The company supplies comprehensive information to shareholders well in advance of company meetings. The company’s website is accessible and informative. Key Infosys has well-established procedures for disseminating shareholder meeting information. Registered shareholders are sent copies of the notice of meeting along with detailed explanatory notes when there is special business, additional information on nominated directors, a proxy form and an

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attendance slip. The notice clearly spells out voting procedures at shareholders’ meetings and provides information regarding relevant documents that can be inspected by shareholders. The company webcasts the meeting to enable shareholders across the world to view the proceedings. Voting at shareholder meetings is by show of hands, in line with Indian law. A poll is conducted only if demanded by a member or a proxy holding at least one-tenth of the total shares entitled to vote or by those holding paid-up capital of at least Rs.50,000. A proxy may not vote except on a poll. However, a representative (as opposed to a proxy, a representative exercises the rights of a corporate member as if it were an individual) can vote by show of hands. As neither shareholders nor management insist that polls are called for every resolution, members present at a meeting with just a few shares could have a greater effect on voting than large shareholders who have sent their proxies for attending the meeting. Indian law permits voting by postal ballot under limited circumstances, including where the company proposes a share buyback, an acquisition, the appointment of new directors, or a new issue of shares. Though not required by law, Infosys introduced a non-mandatory postal ballot system for every agenda item at its 2003 meeting. Though these votes could not be used to calculate voting results, they were announced during the meeting to highlight the opinion of those shareholders who could not attend. Indian law does not permit electronic voting at shareholder meetings.

Ownership Rights & Takeover DefensesOwnership rights are clearly stated and well protected. There are no obstacles to a legitimate, value-enhancing bid for the company’s shares. Rights attached to Infosys shares are secure and fully transferable. Karvy consultants, who are

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reputable independent registrars and share transfer agents in India, are given charge of shares of the company. The company’s ADR issue is administered by Deutsche Bank. All ordinary (common) shares are equal; no preference is given to any particular holding. Owners of ordinary shares have the right to vote, receive dividend payments, and in the case of liquidation of the company, to receive proportional payment in turn. Voting rights are laid out by the Companies Act of India, 1956. Shareholders vote on all major company decisions including the election and removal of directors, appointment of auditors, dividends, remuneration plans, article amendments, sharebuyback plans and major acquisitions and disposals via either ordinary or special resolutions as laid out by the Companies Act. Shareholders may also put forward shareholder proposals and convene extraordinary shareholder meetings according to reasonable and well-articulated procedures. The company has a clearly stated dividend policy of distributing up to 20 percent of profit after tax, which it has followed. Infosys has been prompt in paying declared dividends. The company’s Memorandum and Articles of Association do not have any explicit anti-takeover provisions. The company has removed from its Articles a provision that, if invoked, could have thwarted an otherwise value-enhancing bid. Section 107 of the company’s charter stated that Mr. Murthy would not be required to stand for reelection as CEO (managing director) provided he or his relatives held five percent of the company’s shares. In line with the Indian Companies Act, a company cannot refuse any share transfer on the pretext of a takeover threat or a possibility of change in management. Share transfers can, however, be refused by the company’s board if good reason is given; including if the transferee is not a desirable person in the context of the overall interest of the company. Any person whose shareholding exceeds five percent should inform the

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company and the Securities and Exchange Board of India (SEBI, the capital market regulator) in writing and must make an open offer to remaining shareholders if shareholding exceeds 20 percent. Hence, Infosys can only with great difficulty refuse any take-over attempt by any person either by law or by provisions in its charter. Infosys has been proactive in this sense and shareholders approved a management-sponsored resolution at its shareholder meeting in June, 2002, to increase the maximum limit on foreign holdings in the company from 49 to 100 percent, a change that would allow a legitimate takeover to succeed, including one by a foreign company. Infosys proposed this change within months of India’s amendment of the Foreign Exchange Management Act (FEMA), which permitted software companies to increase this limit and made the change despite some opposition from local shareholders concerned about how it might eventually affect the company’s nationality. Stakeholder RelationsRelations with stakeholders appear to be moderately strong. Reporting on stakeholder issues at Infosys is adequate. The company contributes to TheInfosys Foundation, which is involved in various charitable works and the Foundation reports on its activities annually. There do not appear to be any problematic relationships between the company and its employees, its suppliers, or other stakeholders.

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TRANSPARENCY, DISCLOSURE & AUDIT

Content of Public DisclosureInfosys uses its strong disclosure standards as a differentiator and as a way to gain competitive advantage over its competitors. The company produces a very strong annual report, maintains a comprehensive website and presents its financial statements according to multiple accounting standards. Infosys has undertaken to disclose its financials and non-financials as if it were a US-incorporated, SEC-registered company.

Infosys’ high disclosure standards are already widely recognized. The company quite early in its development adopted a policy of enhanced disclosure to give it a competitive advantage in developing trust and attracting investors, counterparties and importantly, in its industry, employees. For Western companies however, devoting the amount of time and money to disclosure that Infosys does would likely be unsustainable or of questionable use of shareholders’ funds. To the suggestion that there

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could be too much disclosure, or a point of diminishing returns, management strongly disagreed. As long as disclosure continues to be a competitive advantage for Infosys, we see no reason to differ. It does seem, however, to be of most use to an emerging market company with a US-centered client base. Infosys’ annual report and 20-F filing to the American SEC are very comprehensive: disclosure includes an exhaustive corporate governance review, financial reports in four languages and reconciliation to eight accounting standards and much else besides. Content is both deep and broad, allowing shareholders to gain a thorough understanding of the company’s and the industry’s financial health, business strategy and corporate governance practices. Infosys discloses the aggregate remuneration paid to each full and part time directors. The company provides details about related party transactions undertaken during the year (for example, accounts held in financial institutions where Infosys directors also serve). The company’s website is presented in five languages (those of its major clients and investors) and provides information about the various measures undertaken in areas of community service, research, knowledge management and includes an interactive and comprehensive investor relations section. In addition to US and Indian GAAP accounts, which are audited, the annual report also contains summary financial statements prepared in substantial compliance with the GAAP requirements of Australia, Canada, France, Germany, Japan and the United Kingdom, each in their original language, and reports on its compliance with the respective corporate governance standards of these markets again, in the original language. This level of disclosure shows sensitivity to other countries’ standards for corporate governance, and not just those Infosys has adopted or those adopted in the US. As well, this is disclosure that is tightly tailored

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to the needs and expectation of Infosys’ investors and clients, based on their country of origin. Infosys has adopted a number of disclosure standards that are not required of it or it has adopted disclosure standards before they were required. For example, in the process of obtaining its Level III ADR listing on Nasdaq, Infosys undertook to comply with all the regulations that would be applicable to a US-incorporated company (except for parts of Rule 16(a) of the Securities Exchange Act 1934, which deal with reporting of insiders’ and directors’ trades, and for which compliance would open the company to liability claims – Infosys’ D&O liability insurance does not cover trades in non-US registered securities). The company follows several other rules related to information access that are not required of it. Infosys’ complied with the certification procedures under the Sarbanes-Oxley Act in advance of its deadline, and is also on track for substantially early compliance with Section 404 reporting on internal control procedures under the Act. In addition to the Annual Report, Infosys also publishes quarterly reports that are distributed to all its shareholders. The quarterly reports include financials in accordance with Indian GAAP (audited) and US GAAP (unaudited). Furthermore, quarterly reports include a shareholder-information section, which gives detailed information about the exchanges Infosys shares are traded on, shareholder complaints and other SEC filings like the 6-K. Although Infosys has decided not to charge option expenses against its earnings under US or Indian GAAP – preferring to wait until more consensus is reached on the issue – in terms of Standard & Poor’s corporate governance criteria, this is assessed negatively. While it is true that there is no clear and accepted guidance from regulators on the issue, it seems unusual for Infosys to stay on the sidelines of a disclosure issue given

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the company’s leadership in other areas of disclosure.

Timing and Access to Public DisclosureTiming and access to disclosure at Infosys is very strong. The company has followed some practices before it was required to and goes to some trouble to promote fair disclosure in the face of restrictive local regulations.

Infosys’ standards of providing timely information to shareholders are very strong and in a number of cases exceed local and US requirements. The company provides audited quarterly results to its shareholders within two weeks from the close of each quarter and announces when it will do so at the beginning of each year (Infosys announced its results for the quarter ended 31 December, 2003, for example, on 9 January, 2004). Moreover, the company publishes its 20F (10K equivalent) and 6K (10Q equivalent) filings within 60 days, even though, until last year, SEC rules allowed more generous deadlines (From 2004, the SEC will require filing within 60 and 35 days, respectively).The

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company offers a fax-on-demand service immediately after announcement of quarterly financial results whereby those interested can obtain financial performance details. Moreover, within an hour of each quarterly announcement, the company uploads its financial statements onto its website. After the announcement, the company makes itself available for television interviews that are of interest to local shareholders. Infosys also hosts two earnings calls with analysts each quarter, the first within four to five hours of announcement of the financial results, which is broadcast live on its website. Infosys meets all its statutory reporting deadlines. Its website is easy to find through search engines and it is clear that the company uses it to communicate all important information to shareholders and other stakeholders. Detailed presentations made to media, analysts, institutional investors are displayed on the corporate website. Media releases are also posted on the website and the entire site is regularly updated. Infosys has made all its SEC filings in electronic form, and began doing so before SEC regulations required it of foreign issuers. Finally, it is positive that the company has decided to follow regulation Fair Disclosure (FD), the SEC’s rule governing selective disclosure, as if it were required to even though, as a foreign private issuer, the rule does not apply to Infosys. Though Regulation FD remains controversial (some have argued that it has had the effect of encouraging companies to disclose less), this has clearly not been the case at Infosys.

Audit ProcessInfosys’ Indian GAAP accounts are audited by Bharat S Raut and Company (a KPMG affiliate), while the US GAAP accounts are audited by KPMG. An external

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firm of chartered accountants carries out the internal audit. Oversight over the audit process, including that of an independent, board-level audit committee, is strong.

Infosys’ auditors are appointed by shareholders on an annual basis, upon the recommendation of the audit committee and the board of directors as a whole. The audit committee, whose role has been clearly identified as one of monitoring audit independence, is composed entirely of independent outside directors, with one exception. Standard & Poor’s saw clear evidence, in interviews with committee members and in the minutes of the committee, of procedures and practices that aim to maintain a high quality audit. Several of those who have worked with it have commented to Standard & Poor’s that the present committee is among the most active and engaged in India. KPMG, the outside auditors, are reputable and well known, and the lead partner on the engagement is a US partner recently relocated to India and fluent in both GAAP standards and the latest in Sarbanes-Oxley related audit independence requirements. Neither internal nor statutory auditors provide consulting or other services to Infosys, except for some minor services provided by KPMG with respect to legal formalities (visa requirements) in countries where Infosys is in the process of setting up offices. There is limited,

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specific disclosure about the nature of these services in public reports. The external auditors finalize their audit plan each year in consultation with the audit committee. Quarterly reports are presented to the management for their comments and responses.

BOARD STRUCTURE & EFFECTIVENESS

Board CompositionAt the core of their corporate governance practice is the Board, which oversees how the management serves and protects the long-term interests of all stakeholders. Infosys believes that an active, well-informed and independent Board is necessary to ensure the highest standards of corporate governance. The majority of the Board, eight out of 15, consists of independent members.

Further, Infosys has audit, compensation, investor grievance, nominations and risk management committees, which comprise of independent directors. As a part of their commitment to follow global best practices, Infosys complies with the Euro shareholders Corporate Governance Guidelines 2000, and the recommendations of the Conference Board Commission on Public Trusts and Private Enterprises in the U.S. Infosys also adheres to the UN Global Compact Program.

At the core of Infosys corporate governance practice is the Board, which oversees how the management serves and protects the long-term interests of all its stakeholders. Infosys believe that an active, well-informed and independent Board is necessary to ensure the highest standards of corporate governanceLet us evaluate the Board Structure & Effectiveness

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Board Structure & Independence1. Independence of the board

It can be gauged from the fact that the Board consists of 15 members, 6 of whom are executive or full-time directors, one is non-executive and 8 are independent directors. According to Clause 49 of the Listing Agreement with Indian stock exchanges, an independent director means a person other than an officer or employee of the Company or its subsidiaries or any other individual having a material pecuniary relationship or transactions with the Company which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Infosys adopted a much stricter definition of independence than required by the NASDAQ listing rules and the Sarbanes-Oxley Act, U.S. For its part, Infosys, which has adopted a stricter definition of independence than has heretofore been required of it as a Nasdaq listed company, discloses that all eight of its non-executives are independent in all material respects.

The composition of Infosys Board, and the number of outside directorships held by each of the directors is given in the table.

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The director selection process includes explicit consideration of independence. The process includes evaluation of monetary, financial and or

commercial relationships with the company that might lead to conflict of interests. Qualifications and experience are also considered. They will not be relatives of an executive director or of an independent director. They are generally not expected to serve in any executive or independent position in any Company that is in direct competition with Infosys.

Directors represent a diversity of backgrounds and skills. Board members are expected to possess the expertise, skills and experience required to manage and guide a high-growth, high-tech software Company, deriving revenue primarily from G-7

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countries. Expertise in strategy, technology, finance, quality and human resources is essential.

2. Separation of Chairman & CEO positions The CEO and Chairman positions are separate to avoid conflict of interest and there is an identified lead director. The board has decided to appoint a lead independent director to whom other non-executives may approach with concerns and avoid insiders from dominating the agenda. Earlier when the Chairman was Executive appointing a lead director made more sense.Deepak M. Satwalekar is the lead independent director. He represents and acts as spokesperson for the independent directors as a group, and is responsible for the following activities:

o Presiding over all executive sessions of the Board’s independent directors

o Working closely with the Chairman, Co-Chairman and the CEO to finalize the information flow, meeting agendas and meeting schedules

o Liaising between the Chairman, Co-Chairman, CEO and the independent directors on the Board, and

o Along with the Chairman and Co-Chairman, taking a lead role in the Board evaluation process.

Role & Effectiveness of the Board Infosys board shows the results of a transition from an insular board dominated by its Indian-based founders and other insiders to an outward-looking body with a majority of outsiders from a variety of backgrounds and geographies. Infosys added its first outside directors in 1997 and many of its current non-executives have served on the board for less than three years.

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The board members are expected to rigorously prepare for, attend and participate in all board and committee meetings. Each board member was expected to ensure that other existing and planned future commitments did not interfere with the member`s responsibility as director of Infosys.

For non executive directors to play material role in corporate decision making and to maximize long term shareholder value, they should be active participants on the board and not passive advisors.

1. Discussion with independent directors’ The Board’s policy is to regularly have separate meetings with independent directors to update them on all business-related issues and new initiatives. In such meetings, the executive directors and other members of the senior management make presentations on relevant issues.In addition, our independent directors meet periodically in an executive session, i.e. without the Chairperson, any of the executive directors or the Management.

2. Evaluation of Performance Directors evaluate their own performance on a regular basis, though we note that there is no evaluation of the board as a whole. While individual evaluations might be divisive on other boards, there is no evidence of this here. The board has in place a formal training program that allows new directors without industry experience to familiarize themselves with the company’s departments, products and strategies, and which appears to be effective and well-received. There are procedures in place that allow directors to seek outside advice if needed. The performance of independent directors is reviewed by the full Board on an annual basis

3. Meetings

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Corporate Governance effectiveness requires participation of the Board members in the meetings conducted during the year. Dates for Board meetings in the ensuing year are decided in advance and published as part of the Annual Report. Most Board meetings are held at Infosys registered office at Electronics City, Bangalore, India.

The Chairman of the Board and the Company Secretary draft the agenda for each meeting, along with explanatory notes in consultation with the lead independent director, and distribute these in advance to the directors. Every Board member is free to suggest items for inclusion in the agenda.

The Board meets at least once a quarter to review the quarterly results and other items on the agenda, and also on the occasion of the annual shareholders’ meeting so that makes it 5 meetings per year. Additional meetings are held, when necessary.

At Infosys, Independent directors are expected to attend at least four Board meetings in a year. However, the Board being represented by independent directors from various parts of the world, it may not be possible for each one of them to be physically present at all the meetings and so Infosys effectively uses video / teleconferencing facilities to enable their participation.

Committees of the Board usually meet the day before the formal Board meeting, or when required, for transacting business.

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The

Board’s policy is to regularly have separate meetings with independent directors to update them on all business-related issues and new initiatives. In such meetings, the executive directors and other members of the senior management make presentations on relevant issues.

4. Retirement Policy Under this policy, the maximum age of retirement for executive directors is 60 years, which is the age of superannuation for our employees.Their continuation as members of the Board upon superannuation / retirement is determined by the nominations committee. The age limit for serving on the Board is 65 years.

Impose a retirement age to maintain a mix of skill, energy, enthusiasm and commitment.Ensure that management reports regularly to the board on succession planningInfosys Succession Planning

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The nominations committee constantly works with the Board to evolve succession planning for the positions of the Chairman, CEO, COO and CFO and also develops plans for interim succession for any of them, in case of an unexpected occurrence. The Board, if required, may review the succession plan more frequently.

Director & Senior Executive Compensation

The approach Infosys has taken to executive pay is rooted in the modest and egalitarian ‘middle class Indian’ values espoused by its founders. While the original seven partners have become wealthy via their equity stakes (In 2004 their collective 26.62 percent stake in the company has a market value of approximately USD 3.2 billion and stake has further reduced to 16.5%), they have insisted on modest annual salaries for themselves in line with Indian, not Western standards, and have never received stock option awards (founders have voluntarily declined option grants since before a 1998 regulation prohibiting company founders from receiving stock options was approved).

Moreover, the CEO and Chairman have both made public statements that the highest paid individual at Infosys should not earn more than a small multiple of the salary of the lowest paid professional at the company – at the moment, according to the chairman, somewhere between 10 and 15 times. Indeed, no India-based executive director earns more than USD 42,000, even though several US and European-based executives earn up to USD 243,000.

Executives also receive annual, performance-linked bonuses. This approach to pay is reflected

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throughout the organization; salaries at all levels are in line or slightly lower than Infosys’ peers within India, yet the company’s collegial working environment and aggressive culture continues to attract large numbers of applicants.

This modesty has not, however, dampened the company’s enthusiasm for stock options as a way to provide significant wealth for its employees. Options remain an important motivator and a way to create real wealth among its employees.

Compensation policies at Infosys are also underpinned by an independent compensation committee, which plays a key role in setting compensation policy, administers both stock option plans, and which has clearly limited the influence executives have over their own pay. Infosys has even contradicted the cynic’s dictum that a CEO should never put an academic on his compensation committee (and, until recently, Infosys had two). Infosys also distinguishes itself from its US and other competitors by putting all executive director contracts, including salary and bonuses, to shareholders at AGMs, as Indian company law requires. There are no loans outstanding to executive directors.

Compensation for non-executive directors is decided by the board’s compensation committee and recommends to the Board. The compensation payable to independent directors is limited to a fixed amount per year as determined and approved by the Board, the sum of which is within the limit of 1% of Infosys net profits for the year. In fiscal 2007-08,it paid remuneration by way of commission to non-executive directors, at a sum not exceeding 0.5% per annum of its net profits.The components are fixed amount and variable amount based on the attendance of the board and committee meetings.

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The

Board further decided that effective April 1, 2008, independent directors based overseas and traveling to India to attend Board meetings will be eligible to

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receive an additional US $5,000 per meeting. The decision considers the fact that these independent directors have to spend at least two additional days in travel while attending board meetings in India.

While these fees are among the highest in India, they appear both necessary and adequate to attract and retain directors that meet the company’s global ambitions. The Board believes that the above commission structure is commensurate with global best practices in terms of remunerating non-executive directors of a company of similar size and adequately compensates for the time and contribution made by the non-executive directors.

Since 1999, non-executive directors were also eligible for stock options.

Structural features like Audit Committee, Nomination committee, Compensation Committee

1. Audit Committee A qualified and independent audit committee is set by the board of the Infosys. This committee is

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essential to enhance the credibility of the financial disclosures of the company and promoting transparency.

According to Clause 49 audit committee should comprise of non-executive directors, with the majority of them being independent but Infosys audit committee comprises of only independent directors. Infosys audit committee comprises six independent directors. They are:

o Deepak M. Satwalekar, Chairpersono Prof. Marti G. Subrahmanyamo Dr. Omkar Goswamio Rama Bijapurkaro Sridar A. Iyengaro David L. Boyles

Infosys audit committee adopted a charter which meets the requirements of Clause 49 of the Listing Agreement with Indian stock exchanges and SEC.

The primary objective of the audit committee (the committee) of Infosys Technologies Limited (the Company) is to monitor and provide effective supervision of the Management’s financial reporting process with a view to ensure accurate, timely and proper disclosures, and transparency, integrity and quality of financial reporting. The committee oversees the work carried out in the financial reporting process by the Management, the internal auditors and the independent auditor, and notes the processes and safeguards employed by each.

Audit Committee attendance during fiscal 2008

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2. Compensation Committee Infosys has established Compensation Committee as per the recommendation Kumar Mangalam Committee recommendation on Corporate Governance.Its independence can be gauged from the fact that it comprises of 4 independent directors. They are:

o Prof. Marti G. Subrahmanyam, Chairperson

o Deepak M. Satwalekaro Sridar A. Iyengaro Prof. Jeffrey S. Lehman

The compensation committee annually reviews and approve for the CEO, the executive directors and senior management (a) the annual base salary, (b) the annual incentive bonus, including the specific goals and amount, (c) equity compensation, (d) employment agreements, severance arrangements, and change in control agreements / provisions, and (e) any other benefits, compensation or arrangements.

The committee, in consultation with the CEO also reviews the performance of all the executive directors each quarter, on the basis of detailed performance parameters set for each of the executive directors at the beginning of the year.

Effectiveness of the compensation committee can be gauged from how many meetings have been

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attended by independent directors

3. Nomination Committee Infosys nominations committee comprises of five independent directors. They are:

o Claude Smadja, Chairpersono Deepak M. Satwalekaro Dr. Omkar Goswamio David L. Boyleso Prof. Jeffrey S. Lehman

The purpose of nomination committee is to oversee the Company’s nomination processIdentifying, screening and reviewing candidates for executive director, non-executive director and independent director positions, consistent with qualifications and criteria approved by the Board (including evaluation of incumbent directors for potential re-nomination), and making recommendations to the Board on candidates for:(i) nomination for election or re-election by the stockholders; and(ii) any Board vacancies that are to be filled by the Board.

4. Investor Grievance Committee Infosys investor grievance committee comprises of four independent directors. They are:

o Rama Bijapurkar, Chairpersono Dr. Omkar Goswamio Claude Smadjao Prof. Jeffrey S. Lehman

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It is appointed to look into share transfer and redressal of shareholder complaints.

The committee expresses satisfaction with the Company’s performance in dealing with investor grievances and its share transfer system in its report for the fiscal 2007-08

Details of complaints resolved during the financial year 2007-08 are as follows:

5. Risk Management Committee

Infosys risk management committee comprises of four independent directors. They are:

o David L. Boyles, Chairpersono Prof. Marti G. Subrahmanyamo Claude Smadjao Sridar A. Iyengar

The committee reviews the Company’s risk management activities on a quarterly basis. These includes review of findings of the Risk Survey for identification of risks, account and project-level risk assessment methodologies, approach & plan for the Infosys Risk Dashboard and measures instituted to mitigate risks from time to time.

The committee believes that the Infosys Risk Framework along with risk assessment and reporting methodologies are adequate to cover

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material risks facing the Company, and will strengthen the risk management practices across the Company. In conclusion, the committee is sufficiently satisfied that it has complied with its responsibilities as outlined in the risk management committee charter.

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cdcdcTRANSACTION RISKScdcdc

RELATED PARTY TRANSACTIONS

Related party for a company will include directors, management, subsidiary or relatives. Disclosure of related party transactions is essential as Corporate Governance Risk tends to be higher when the transaction is with a related party. Related party transactions can be in the form of sales, actual loans or even bank guarantees provided. Ideally, all such transactions need to happen at an “arm’s length”, i.e., as it would in the case of two independent parties. Yet in the absence of such comprehensive rules and regulations in India, it is common to come across incidences of abuse of related party transactions, for example the transferring of value from one company to another or by inflating numbers. Related transactions with non-subsidiaries are even more important as they do not get suppressed in consolidated accounts.

With respect to related-party transactions, one would be particularly concerned about those that are material in nature and can make a significant difference to a company’s assets, liabilities or profits. Disclosure of related party transactions is necessary but it is not sufficient proof of good corporate governance. Infosys seems to make adequate disclosure of materially significant related party transactions

SUBSIDIARIES

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Infosys discloses classifies its related party transactions into Capital transactions, Loans and Revenue transactions. Infosys transactions with its key management personnel i.e directors and statutory officers relates to only remuneration paid i.e.salary, contribution to provident fund, commission and sitting fees. It does not include any loan given to them.

Also Infosys discloses that there have been no materially significant related party transactions, monetary transactions or relationships between the Company and directors, management, subsidiary or relatives, except for those disclosed in the financial statements for the year ended March 31, 2008.

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cdcdcACCOUNTING RISKScdcdc

MARK TO MARKET TRANSACTIONSThe mark-to-market on options / forward contracts as of March 31, 2008 were Rs. 116 crore. Pursuant to the Institute of Chartered Accountants of India (ICAI) announcement “Accounting for Derivatives” on the early adoption of Accounting Standard AS 30 “Financial Instruments: Recognition and measurement”, we have early adopted the standard for the year under review, to the extent that the adoption does not conflict with the existing mandatory accounting standards and other authoritative pronouncements, companies law and regulatory requirements. The details on outstanding options / forward contracts are provided in the notes to the financial statements.

Effective July 1, 2007, we revised the employee death benefits provided under the gratuity plan, and included all eligible employees under a consolidated term insurance cover. Accordingly, the obligations under the gratuity plan reduced by Rs. 37 crore, which is being amortized on a straight line basis to the profit and loss account over 10 years, representing the average future service period of employees. An amount of Rs. 4 crore was amortized during the year. The unamortized balance as of March 31, 2008 was Rs. 33 crore. Advances received from clients denote monies received for the delivery of future services. Unearned revenue consists primarily of advance client billing on fixed-price, and fixed-time frame contracts for which related costs were not yet incurred. Unclaimed dividends represent dividends paid, but not

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encashed by shareholders, and are represented by a bank balance of the equivalent amount.

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CORPORATE GOVERNANCE—THE INFOSYS WAY

Infosys had accepted the recommendation of both the CII and the Kumar Mangalam Birla Committee. This section provides an overview of corporate governance practices followed by Infosys. Infosys had an executive chairman and chief executive officer (CEO) and a managing director, president and chief operating officer (COO). The CEO was responsible for corporate strategy, brand equity, planning, external contacts, acquisitions, and board matters. The COO was responsible for all day-to-day operational issues and achievement of the annual targets in client satisfaction, sales, profits, quality, productivity, employee empowerment and employee retention. The CEO, COO, executive directors and the senior management made periodic presentations to the board on their targets, responsibilities and performance.

In 2001, the board had sixteen directors. There were eight executive directors and eight non-executive directors (Refer Table I). Infosys believed that the one thing that could help them to improve corporate governance was to bring international professionals on corporate boards (See Table I). The board members were expected to possess the expertise, skills and experience required to manage and guide a high growth, hi-tech software company. Expertise in strategy, technology, finance, and human resources was essential. Generally, they were between 40 and 55 years of age and were not related to the other board members. They did not serve in any executive or non-executive position in any company in direct competition with Infosys. The board members were expected to rigorously prepare for, attend, and participate in all board and

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relevant committee meetings. Each board member was expected to ensure that other existing and planned future commitments did not interfere with the member’s responsibility as a director of Infosys.

Normally, the board meetings were scheduled at least a month in advance. Most of the meetings were held at the company’s registered office at Electronics City, Bangalore, India. The chairman of the board and the company secretary drafted the agenda for each board meeting and distributed it in advance to the board members. Board members were free to suggest the inclusion of any item on the agenda. Normally, the board met once a quarter to review the quarterly results and other issues. The board also met on the occasion of the annual shareholders’ meeting. If the need arose, additional meetings were held. The non-executive directors had to attend at least four board meetings in a year. The board had access to any information that it wanted about the company.

In 2001, the board had three committees - the nominations committee, the compensation committee and the audit committee. To ensure

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independence of the board, the members of the nominations committee, the compensation committee and the audit committee were all nonexecutive directors.

The nominations committee had four non-executive directors who looked after the issue of retirement of existing members and their re-appointment, on the basis of their performance. The nominations committee constantly evaluated the contribution of the members of the board and recommended to shareholders their re-appointment. The executive directors were appointed by the shareholders for a maximum period of five years, but were eligible for re-appointment upon completion of their term. The nominations committee adopted a retirement policy for the members of the board under which the maximum age of retirement of executive directors, including the CEO, was 60 years, which was the age of superannuation for the employees of the company. Their continuation as members of the board upon superannuation / retirement was determined by the nominations committee.

The compensation committee, which had three non-executive directors, looked after issues relating to compensation and benefits for board members. It determined and recommended to the board, the compensation payable to the members of the board. The compensation of the executive directors consisted of a fixed component that was paid monthly, and a variable component, which was paid quarterly, based on performance. The annual compensation of the executive directors was approved by the compensation committee within the parameters set by the shareholders at the shareholders meetings. The shareholders determined the compensation of the executive directors for the entire period of their term.

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The compensation of the non-executive directors was approved at a meeting of the full board. The components were a fixed amount, and a variable amount based on their attendance of the board and committee meetings. The total compensation payable to all the non-executive directors together was limited to a fixed sum per year determined by the board. This sum was within the limit of 0.5% of the net profits of the company for the year calculated, as per the provisions of the Companies Act and as approved by the shareholders. The compensation payable to the non-executive directors (and the method of calculation) was disclosed in the financial statements. Since 1999, the non-executive directors were eligible for stock options. Of the compensation payable for the year 1999, 60% was paid for being on the board and the balance 40% was paid in proportion to the board/committee meetings attended (Refer Table II for compensation payable to non-executive directors in 1999).

[Source: Annual Report, 1998-99]

None of the directors gained financially from any other contract of significance which the company or any of its subsidiary undertakings was party to. The audit committee was responsible for effective supervision of the financial reporting process, ensuring financial and accounting controls and

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compliance with the financial policies of the company. The committee periodically interacted with the statutory auditors and the internal auditors to ascertain the quality of the company’s transactions; to review the manner in which they were performing their responsibilities; and to discuss auditing, internal control and financial reporting issues. The committee provided overall direction on the risk management policies and also indicated the areas that internal and management audits should focus on. The committee had full access to financial data. The committee reviewed the annual and half yearly financial statements before they were submitted to the board. The committee also monitored proposed changes in the accounting policy, reviewed the internal audit functions and discussed the accounting implications of major transactions.

As per the recommendations of the Kumar Mangalam Committee, Infosys included a separate section on corporate governance in its annual report, which disclosed the remuneration paid to directors in all forms, including salary, benefits, bonuses, stock options. The annual report also carried a compliance certificate from the auditors.

Infosys also laid emphasis on succession planning and management development. The chairman reviewed succession planning and management development with the board from time to time. The chairman and CEO also managed all interaction with the investors, media, and the government. Where necessary, he took advice and help from the managing director, president, and COO as well as the CFO. The managing director and COO managed all interactions with the clients, taking the advice and the help of the CEO. Both the CEO and the COO handled employee communication.

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VINFOSYS-A BENCHMARK FOR CORPORATEV

VFVFVGOVERNANCEVFVFV

Some analysts felt that Infosys’ corporate governance practices offered many lessons to corporate India. Infosys had shown that increasing shareholder wealth and safeguarding the interests of other stakeholders was not incompatible. Infosys had given its non-executive directors the mandate to pass judgement on the efficacy of its business plans. Every non-executive director not only played an active role in decision making, but also led or served on at least one of the three (Nomination, Compensation and Audit) committees. Infosys’ founders had set very high standards, in a country where malpractices by founders were rampant. The founders only took salaries and dividends and derived no other financial benefits from the company.

Commenting on the strengths and weaknesses of Infosys’ corporate governance, Nandan M Nilekani, Managing Director, Chief Operating Officer and President of Infosys, said, “The strengths are that we have been very successful in creating a value based system with a very strong focus on ethics, and strong division between personal and professional funds etc. That has translated into brand equity, shareholder value etc. Obviously, we can do things better. We believe that we can never stand still. We will keep looking at global best practices, what the world is saying on this front. We keep trying to improve the way we manage to be on par with it.”

It remained to be seen whether other Indian companies could emulate Infosys form of corporate

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governance.

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MMMMMBIBLIOGRAPHYMMMM

http://video.google.com/videoplay?docid=3185683370541028199&ei=J86iScjQNYqsrAKa8YXYDw&q=infosys

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http://www.infosys.com/investors/corporate-governance/policies.asp

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http://www.infosys.com/investors/corporate-governance/report.asp

http://www.infosys.com/investors/corporate-governance/social-responsibility.asp

http://www.infosys.com/investors/corporate-governance/CodeofConduct.pdf

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