FIVE STEPS TO EFFECTIVE

CORPORATE GOVERNANCE

WIPRO COUNCIL FOR INDUSTRY RESEARCH

Introduction
In the wake of the recent unfortunate scenario played out at the now-beleaguered Indian IT major,
corporate governance has attracted renewed attention. The fiasco saw a complete failure of and breakdown
in the corporate governance machinery. The disclosures have indeed been a wake up call to all stakeholders
alike-- companies, customers, governments and employees.

Corporate Governance, now a frequently used phrase, in its simplest form means:

1. Promising what you can deliver and delivering what you have promised
2. Fair treatment to the current shareholder and the potential shareholder
3. Information shared in a manner that is meaningful to the investors.
4. Decision making which is beneficial to shareholders irrespective of the size of their holding.

The recent episode highlights the need for a deep commitment to business ethics and good corporate
governance values in order to survive in the global market place. Principles such as transparency, ethical
business practices, management's ownership of corporate actions, and upholding auditor and stakeholder
interests are tenets of good governance that have to be followed on a non-negotiable basis.

It is imminent that executives should continuously demonstrate these values through words, actions and a
commitment to high ethical standards. Demonstration of quality of governance will help enhance the
confidence of all stakeholders. It is important to build a culture of corporate governance that is driven as
much by external government regulations as by internal initiatives to maintain socially responsible
corporate values.

This whitepaper takes a look at the importance of corporate governance in today's context and some best
practices that companies can adopt in this area for effective corporate governance.

The basic objective of corporate governance is to oversee the practice of ethical principles and the setting of
infallible standards, in order to maximize shareholder value. Corporate governance is obviously a matter of
global concern since large public companies operate globally and have worldwide investors.

The turn of the century witnessed some of the largest accounting frauds in the global corporate world,
involving mammoths like Enron and WorldCom, greatly affecting shareholder value and investor markets
worldwide. This, consequently, led to the introduction and enforcement of more stringent regulation,
including the Sarbanes-Oxley Act for adoption of better corporate governance practices.

Some corporate governance regulations in practice across the globe today include:

• The presence of a majority of Independent Directors on the company board: This has been made
mandatory by stock exchanges in the US and has been recommended by Corporate Governance
codes in the UK and EU.

• Independent Audit Committees and Independent Auditors: The Sarbanes-Oxley Act mandates that
all U.S. public companies have an audit committee composed entirely of independent directors that
has control over the selection and work plan of the outside auditors.

• Shareholder Rights: In the area of shareholder rights, the U.S. is more restrictive than many other
countries, particularly the U.K. As with the majority of independent directors, issue restrictions on
shareholder rights reflect the fact that U.S. companies are less controlled than non-U.S. companies
by dominant shareholders.

Most large global corporations which began as family-owned businesses such as Sony, Siemens, Wipro have
framed constitutions detailing how owners will participate in the businesses. These companies have
weathered the forces of globalization and competition very well. The turn of the century also witnessed
more companies wanting access to global capital markets either by getting listed on international bourses

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Five steps to effective Corporate governance
or through investments by FIIs. This required these companies to make their operations and financials more
transparent. This saw SEBI taking a huge step in this direction. The SEBI asked listed companies to
implement Clause 49. The clause strengthens the role of independent directors serving on corporate boards,
mandates the submission of a quarterly compliance report to the stock exchange in the prescribed form,
mandates a separate section on corporate governance in the annual report with a detailed compliance
report, mandates a certificate either from auditors or practising company secretaries regarding compliance
of conditions as stipulated to be annexed to the director's report and mandates the existence of an audit
committee.

The recent debacle at a leading Indian IT firm has exposed loopholes in corporate governance practices
adopted by India Inc. For instance, a majority of independent directors on the board of a company by itself
will not ensure unbiased and impartial governance, as long as the appointed Directors are close to the
management or majority shareholders. The need for enhanced transparency in accounting and financial
practices in family promoted companies is also being touted now. These loopholes must be closed to restore
India Inc.'s credibility in an increasingly globalised and competitive world.

Wipro & Corporate Governance

Wipro has to its credit a 60 year heritage of success, stability & high levels of corporate governance.

Apart from adherence to statutory and regulatory requirements, Wipro can claim a lot of firsts in
adopting voluntary corporate governance practices in India. These include setting up an Audit
Committee way back in 1986 and having its internal audit function ISO 9002 certified in 1998.

An Approach to Corporate Governance: The 5 dimensional framework

A five-dimensional famework encompassing components like Transparency, Independence of Board and
Auditors, a stringent Disclosure Practice, Management Ownership of Corporate Actions and Ethical
Business Practices is recommended for organizations who want to adopt high levels of corporate
governance. Wipro has been successful in adopting this five-dimensional corporate governance framework
thus helping it create an image of an ethical company.

Transparency

Ethical Business Disclosure Practice

Practices
Corporate
Governance

Management Ownership of Independence of

Corporate Actions Board & Auditors

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Five steps to effective Corporate governance
1. Transparency - Transparency and effective communication creates a bond of trust between
the Organization and its Stakeholders. Thus arises the need for a Disclosure Committee in every
company that monitors information flow within and outside the organization and a
Controllership Organization that constantly benchmarks with Global Reporting Standards. The
Investor Relations Team should act as central nodal function for all Investor Interactions &
Information-Exchange. Wipro has displayed a high level of transparency in:

• Publishing segmental and consolidated accounts years before it became mandatory

• The voluntary publication of US GAAP accounts when listing
• Making the investor relations function best-in-class, in terms of communication and
connect.

2. Independence of Board & Auditors - The independence of the Board and auditors is of
paramount importance to ensure good corporate governance practices. Every company should
make it a practice to share all documents with the Board, Audit Committee and auditors well in
advance of any meeting. The Board should hold periodic meetings / reviews, and addresses key
audit issues

The Audit Committee should have direct access to and meet the statutory and internal auditors
every quarter, without the presence of management. Changes in accounting standards need to
be brought to the notice of the Audit Committee during these meetings, with the members
being apprised of the latest developments. A detailed SOX control process and any significant
deficiencies identified should also be presented to the committee. The process should involve
two levels of control checks; one by management & another by the auditors. The Audit
Committee Chairman should brief the Board members during all Board meetings about key
issues & concerns, if any.

Wipro has had independent directors on its board since its inception, and before Company Law
made this mandatory. Many of these non-executive independent directors head critical
committees such as the Audit Committee, Board Governance and Compensation Committee
and the Shareholders/ Investor Grievance Committee.

Wipro's board has taken up the responsibility to ensure that management implements an
effective system of internal controls - that internal/external oversight functions are effective.

Wipro's corporate governance practices ensure uninterrupted and independent board & audit
functions:

• Timely ongoing communication to the Board about M&As, major events, litigation, key
employee exits, and customer wins, proactively seeking their views.
• Continuous interaction between external independent directors and senior operating
managers
• Independent meetings amongst external directors without executive directors
• Comprehensive minutes to record dissent during Board meetings
• Disclosures made to the Board in case of conflict of interest like trading in company's
shares, and related party transactions in a contract.
• Ongoing feedback from directors and providing them with information when they want
to understand and probe an issue further
• The Internal Audit and Risk committees report directly to the Audit Committee. The head
of the Internal Audit committee holds independent meetings with the Audit Committee
without any management presence.

3. Corporate Disclosure Practices - Companies should define a Corporate Disclosure Policy for
dissemination of information to the Press, Investors & Research Analysts, with appropriate
Forward Looking Statements. The company's Disclosure Committee should review the
regulatory filings made to SEC in the US and SEBI in India.

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Five steps to effective Corporate governance
 Wipro as a standard practice, announces the quarterly audited financial results within 15
minutes of approval by the Board of Directors, and uploads the audited financial statements
and Press Releases of both Indian & US GAAP on the company's website soon after it is
announced to the stock exchanges.

4. Management Ownership of Corporate Actions - Ownership goes hand-in-hand with

authority for all key management positions. Companies should believe that the management
must present an objective, dispassionate analysis of key business decisions taken and should
take responsibility for the execution of the business decision.

A robust Ombuds policy should also be undertaken by a corporate ombudsperson who receives
issues which get reviewed by the Audit committee annually. The Ombudsperson should act as
the Chief Risk Officer reporting to the Joint CEO, CFO & the Audit committee.

At Wipro we have a chairman who dedicates over 15 days a year to train senior leadership on
corporate governance. Wipro has an organizational structure encouraging profit and loss
ownership at the micro level – empowering the Delivery Manger and Project Managers to make
decisions that impact their account or project profitability. Wipro also has in place an Ombuds
policy to ensure ethical business practices as part of the corporate governance framework.

5. Ethical Business Practices - Unyielding integrity & following ethical business practices should
be the pillars of any organization. The onus is on the management to communicate this
unequivocally to all its customers, associates and employees.

Wipro is recognized as standing for unyielding integrity and ethical business practices. A brand
perception survey conducted in 2008 on 732 current employees, investors, customers, media
personnel, and potential employees reflected the sentiment that “ Wipro stands for Integrity”
and that “Integrity is the first thing that comes to mind when people think of Wipro”.

Role of corporate governance in acquisitions:

With increasing globalization more and more companies are looking at inorganic growth
models. Under such circumstances, adhering to high levels of corporate governance is of
utmost importance. Wipro's criteria, when evaluating M&A opportunities, include deepening
the company's domain competence, expanding the company's service lines, obtaining access to
a new market, and enhancing technology footprint. The company's M&A strategy comprises a
“String of Pearls” approach to deals, focusing on plugging gaps in Wipro. In addition the final
decision for M&As is based on the company's “three-fit” approach comprising Strategic Fit,
Cultural Fit and Financial Fit. All acquisitions to date have been carried out with strict
adherence to our corporate governance policies & guidelines.

Conclusion
Today, if an organization has to survive and thrive in a commercial environment that is
increasingly global and competitive in its outlook, it has to concentrate on the interests and
concerns of every stakeholder in the business even in the most challenging times. And, that
includes not just the shareholder, but also the domestic and global customer, the lawmaker, the
community in which the enterprise operates, and environmental groups. This calls for laying a
strong corporate governance framework within the organization to ensure that the company
runs a “no compromise” business thereby leading to creation of shareholder wealth in an
earnest way.

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Five steps to effective Corporate governance
Author Profile
Lakshminarayana (Lan) is the Chief Strategy Officer of Information Technologies (IT) Businesses for Wipro
Limited (NYSE:WIT). He is responsible for overall strategies in Merger and Acquisition. At an annualized
Revenue of over $5 billion, Wipro's IT businesses constitute about 85% of Wipro Limited's Revenues and
90% of its profits and is among the top 3 IT players from India. With a team of nearly 100,000 people
operating out of 35 countries, Wipro addresses the IT requirements of more than 600 customers in North
America, Europe, Asia, Middle East, and India and has operations in over 35 countries.

Prior to this, Lan was CFO of the IT businesses between April 2006 and Dec 2007. Earlier, between 2003 and
2006, Lan was the Corporate Treasurer and Head of Investor Relations for Wipro. Lan was also ranked the No
1 IR representative among Tech companies in Asia in survey conducted by Institutional Investor
publications in 2004 as well as in 2005.

Lan is a qualified management accountant and a graduate in management from Indian Institute of
Management, Lucknow. He has been a visiting faculty at IIM, Bangalore, BIM, Trichy and ICWAI apart from
being a speaker at various National & International Conferences.

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Five steps to effective Corporate governance
About Wipro Technologies
Wipro is the first PCMM Level 5 and SEI CMMi Level 5 certified IT Services Company globally. Wipro provides
comprehensive IT solutions and services (including systems integration, IS outsourcing, package
implementation, software application development and maintenance) and Research & Development
services (hardware and software design, development and implementation) to corporations globally.
Wipro's unique value proposition is further delivered through our pioneering Offshore Outsourcing Model
and stringent Quality Processes of SEI and Six Sigma.

About Wipro Council for Industry Research

The Council for Industry Research at Wipro comprising of domain & technology experts from the
organization has been set up to address the needs of customers, specifically looking at innovative
strategies that will help them gain competitive advantage in the market.The council in collaboration
with leading academic institutions & industry bodies studies potential market trends and equips
organizations with insights that will facilitate their IT and business strategy.

For more information on the research council please visit www.wipro.com/industryresearch or email
[email protected]

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Five steps to effective Corporate governance