Pert 6 Makalah

ETIKA PROFESI

DAN

TATA KELOLA KORPORAT

Disusun oleh:

Kristianto Setiawan

Puspita Marchianggita

2015

PENDIDIKAN PROFESI AKUNTANSI

IKLIM ETIKA DAN ORGANISASI BERINTEGRITAS

Case : Infosys


Case : Infosys


A PENTINGNYA MEMBANGUN IKLIM ETIKA DAN ORGANISASI BERINTEGRITAS

Setiap individu bertanggung jawab terhadap tindakan – tindakan tidak beretika yang mereka

lakukan. Sementara itu, perusahaan tidak dapat berbuat apa – apa untuk mempengaruhi

etika seseorang karena sudah terbentuk melalui keluarga dan pendidikan pada masa kecil

mereka.

Seperti kasus Gayus Tambunan dan Melinda Dee, walaupun mereka telah menerima

hukuman, namun tetap mempengaruhi organisasi / perusahaan tempat mereka bekerja.

Karena kasus Gayus menyebabkan kurangnya kepercayaan pembayar pajak, sedangkan

kasus Melinda Dee menyebabkan Citibank harus membayar kerugian nasabah dan mereka

dihukum BI.

Namun, karena tuntutan dalam organisasi juga dapat mempengaruhi perilaku dan etika

seseorang, seperti pada kasus Sears, Roebuck & Company pada tahun 1992. Karena adanya

tekanan dan tuntutan dari perusahaan untuk meningkatkan kuota penjualan, perusahaan

membuat suatu sistem target penjualan dan bonus bagi para mekanik. Namun, dampaknya

secara tidak sadar, para mekanik telah melanggar etika, dengan mengganti suku cadang

yang belum waktunya untuk diganti. Karena hal tersebut, perusahaan harus mengganti

kerugian pelanggan dengan menawarkan kupon untuk membeli suku cadang tertentu dan

mengalami kerugian sebesar $60 juta.

B KETERBATASAN PROGRAM COMPLIANCE

Risiko menghadapi kasus hukum karena tindakan yang dilakukan oleh pegawainya yang

melanggar hukum tanpa terdeteksi berdampak pada konsekuensi biaya yang signifikan dan

kehilangan nama baik serta kepercayaan pelanggan. Hal tersebut menyebabkan perusahaan

menyadari pentingnya etika organisasi. Sementara itu, Amerika Serikat mendorong

perusahaan untuk menerapkan program compliance serta memberikan denda rendah jika

terjadi pelanggaran program tersebut.

Program compliance merupakan program pencegahan melawan hukum melalui peningkatan

pemantauan dan pengawasan serta dnegan memberikan hukuman bagi pelanggar. Program

Iklim Etika dan Integritas Organisasi –Infosys Case Study

tersebut diawasi oleh karyawan dengan posisi tinggi. Adapun tujuan program compliance

tersebut :

Pengembangan standar dan prosedur

Pengawasan terhadap standar dan prosedur

Menghindari pendelegasian wewenang kepada orang – orang yang berpotensi

melakukan pelanggaran.

Mengkomunikasikan standar dan prosedur melalui pelatihan dan publikasi.

Melakukan audit kepatuhan, proses pemantauan, sistem whistleblowing dimana

karyawan dapat melaporkan pelanggaran hukum tanpa merasa takut dihukum.

Secara konsisten melaksanakan standar – standar dengan tindakan disiplin.

Tanggap dan cepat ketika terdeteksi pelanggaran hukum.

Melakukan pencegahan agar pelanggaran sejenis tidak terulang di masa mendatang.

Keterbatasan – keterbatasan yang terjadi :

Perusahaan multinasional menghadapi perbedaan hukum dan aturan pada masing –

masing negara.

Terlalu menekankan pemberian ancaman deteksi dan hukuman untuk mendorong

perilaku yang menaati hukum.

Cenderung untuk tidak mendorong terciptanya imajinasi moral atau komitmen.

C INTEGRITAS SEBAGAI TATA KELOLA ETIKA

Pendekatan berbasis integritas diyakini membuat organisasi meiliki standar yang lebih kuat.

Jika program compliance berakar pada upaya untuk menghindari pelanggaran hukum, maka

organisasi yang berintegritas berbasis konsep pengelolaan sendiri ( self – governance)

berdasarkan sekumpulan prinsip.

Dari prespektif integritas, tugas dari manajemen etika :

Untuk mendefiniskan dan menghidupkan nilai – nilai organisasi

Untuk menciptakan lingkungan yang mendukung perilaku yang beretika baik.

Untuk menanamkan rasa akuntabilitas bersama diantara pegawai.

Pada pendekatan integritas, konsep etika yang disepakati oleh anggota organisasi

merupakan kekuatan utama dari organisasi. Nilai – nilai etika akan mempertajam upaya


pencarian kesempatan, perancangan system organsasi, dan proses pengambilan keputusan

oleh individu dan kelompok.

Nilai – nilai etika akan memberikan kerangka acuan yang sama dalam organisasi dan

berfungsi sebagai kekuatan untuk mempersatukan organisasi dari fungsi yang berbeda,

bisnis yang berbeda, dan kelompok pegawai yang berbeda. Etika organisasi membantu

mendefinisikan organisasi dan apa yang diperjuangkan dari organisasi tersebut

Bentuk dari program integritas menyerupai dengan program compliance, seperti :

kode etik,

pelatihan,

mekanisme, pelaporan, investigasi atas potensi pelanggaran, dan

audit dan pengawasan untuk menjamin standar dan aturan perusahaan dijalankan

dan dipatuhi, serta

dapat menciptakan dasar untuk mencari kemanfaatan dari kepatuhan terhadap

hukum.

Pendekatan organisasi yang berintegritas lebih luas, lebih dalam, dan lebih sulit.

Lebih luas

Pendekatan ini berupaya untuk memungkinkan terciptanya perilaku yang

bertanggungjawab

Lebih dalam

Mencakup ethos dan system operasi dari organisasi dan anggota –anggotanya,

nilai – nilai yang mereka pedomani, cara berpikir, dan berperilaku.

Lebih sulit

Membutuhkan upaya secara efektif untuk mendefinisikan tanggung jawab dan

aspirasi yang menjadi bagian dari pedoman etika organisasi.

Etika organisasi tugas bagi manajemen, pimpinan memegang peranan penting pada

perancangan dan implementasi program integritas, seluruh manajer dari seluruh lini dan

seluruh fungsi terlibat dalam proses.


D PROGRAM INTEGRITAS YANG EFEKTIF

Beberapa karakteristik dari program integritas yang efektif :

Nilai dan komitmen yang masuk akal dan secara jelas dikomunikasikan

Pimpinan organisasi secara pribadi memiliki komitmen, dapat dipercaya, dan

bersedia untuk melakukan tindakan atas nilai – nilai yang mereka pegang.

Nilai – nilai yang digunakan terintegritas dalam proses pengambilan keputusan

manajemen dan tercermin dalam kegiatan – kegiatan penting organisasi

System dan struktur organisasi mendukung dan menguatkan nilai – nilai organisasi

Seluruh manajer memiliki ketrampilan pengambilan keputusan, pengetahuan, dan

kompetensi yang dibutuhkan untuk membuat keputusan yang berbasis etika setiap

harinya.

E DAMPAK ORGANISASI YANG BERINTEGRITAS TERHADAP AKUNTAN PROFESIONAL

Untuk akuntan professional yang mengembangkan kantor sendiri

o Pendekatan integritas akan membantu akuntan professional dalam

menghidupkan dan menjaga etika akuntan professional yang akan

memudahkan akuntan professional dalam menjalankan profesionalnya.

o Dapat melakukan penilaian terhadap integritas organisasi dari kliennya

dalam menilai resiko yang dihadapi

Untuk akuntan professional yang bekerja pada organisasi

o Penilaian terhadap integritas organisasi dalam memilih organisasi

tempat mereka bekerja yang mendorong terciptanya etika akuntan

profesional.

o Akuntan professional harus menghindari tempat bekerja yang

berpotensi untuk menciptakan konflik – konflik etika dan mendorong

akuntan untuk mengorbankan etika profesionalnya.

o Membantu organisasi menjadi organisasi berintegritas selaras dengan

nilai – nilai etika profesionalnya.


INFOSYS

HUMBLE BEGINNING AND SPECTACULAR GROWTH OF INFOSYS

Infosys Technologies is India’s most popular and best managed IT company with its global headquarters at Bangalore. It was founded in 1981 by Narayana Murthy and six of his colleagues in Bombay in a single room of Murthy’s house with a paltry sum of INR 10,000 as capital. It has, today, a global presence of 32 sales offices in 16 countries, 33 global software development centres and one business continuity centre. It employed 35,229 people as on 31 December 2004.

VISION AND MESSAGE OF INFOSYS

The vision of Infosys is ‘to be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people’. Its mission is ‘to achieve our objectives in an environment of fairness, honesty and courtesy towards our clients, employees vendors and society at large’. Infosys has set standards in every business activity—best campus, best working environment, best employer, most transparent dealings, highest quality standards—as well as the highest ethical standards, never seeking any deviant benefits from the government.

The most telling message that Infosys gives out to any discerning observer is its motto: Powered by Intellect and Driven by Values. These two phrases put together stand for everything that Infosys is and wants to be. It is a combination of the business acumen and the deep commitment to ethical values.

Powered by intellect: Infosys plans to take a lead in leveraging the global delivery model (GDM), pioneered and perfected by it, to help clients derive maximum strategic advantage. In the next growth phase, Infosys would focus on customercentricity, meeting shareholder expectations and building a multicultural work-force—a seamlessly integrated team of talented, global professionals.

Driven by values: Infosys is an ethical organization whose value system ensures fairness, honesty, transparency and courtesy to all its constituents and society at large.

Infosys Technologies strives to be the best company both commercially and ethically not only in India but also globally. To realize this objective, the company has developed C-Life Principle of core values that it puts into practice in all aspects of its business activities.

Customer delight: A commitment to surpassing customer expectations. Leadership by example: A commitment to set standards in the business and

transactions, and be an exemplar for the industry and their own teams.

Integrity and transparency: A commitment to be ethical, sincere and open in their dealings.

Fairness: A commitment to be objective and trans-action-oriented, thereby earning trust and respect.

Pursuit of excellence: A commitment to strive relentlessly, to constantly improve themselves, their teams, services and products so as to become the best.


Infosys also has developed a strong management system to guarantee at all times to all its stakeholders a set of procedures that would serve them. For example, there was a much publicized sexual harassment case against one of its top managers in the USA that was settled out of court. But this unsavoury situation has led the company to review and improve its staff training to create an awareness of such problems and to introduce a code of conduct for employees with a view to guiding them follow a certain work ethics in their places of work.

Even while Infosys is committed to long-term shareholder value, its business activities are anchored in three pillars of corporate behaviour, namely, business ethics, corporate governance and corporate social responsibility. The Infosys fraternity recognizes, understands and appreciates these principles. As a result, Infosys demonstrates an exceptional work ethic.

INDIA’S MOST ADMIRED COMPANY

Infosys Technologies is widely known for its best practices in terms of business ethics and corporate governance. In 2000, the company was conferred the National Award for Excellence in Corporate Governance by the Government of India. The Business World—IMRB Survey ranked Infosys number one among the most respected companies in India, in 2001. It was voted as India’s best managed company for 6 years in a row, between 1996 and 2001 by the Asia Money Poll. In the year 2000, in the survey of Far Eastern Economic Review, Infosys was selected as one of Asia’s leading corporations and was ranked first as ‘The Company that Others Try to Emulate’. The company was voted ‘India’s Most Admired Company’ in Economic Times in 2000. In 2003, Infosys Technologies co-founder and chairman, N.R. Narayana Murthy, won the Ernst & Young World Entrepreneur of the Year award; judges of the award praised his ‘intellectually, philosophically, ethically and spiritually-driven entrepreneurship’ and his company’s ‘outstanding financial performance and global impact in a dynamic and volatile industry’. Infosys Technologies has won the prestigious ‘Global Most-Admired Knowledge Enterprises (MAKE)’ Award, for 2004. Infosys won the award for the second time in a row, and remains the only Indian company to have ever been named a prestigious global most-admired knowledge enterprise.

Infosys Technologies made a winning sweep in the Business World ‘Most Respected Companies’ Award’ 2004. The company remained ‘India’s most respected company’ since 2001; it topped the special categories of ‘most ethical and most globally competitive’ companies and the ‘Most Respected Company in the IT Sector’ category, topping all 19 parameters of the survey. The latest Business Today—AT Kearney study conducted in March 2005 placed Infosys Technologies as ‘India’s Best Managed Company.’ Such encomiums have been pouring in for Infosys, year after year.

Infosys Technologies featured among the world’s most respected companies, having climbed in the ‘respect’ ranking from last year. It was also recognized in a number of other categories including corporate governance, creation of shareholder value, corporate social responsibility and innovation.


A PEOPLE-CENTRIC COMPANY

Infosys excels in people management. While its employee strength has skyrocketed to over 35,000 from around 5000 at the turn of the century, the intense focus on people and their skills has only increased over the years. Infosys focus on people is a natural corollary of its growing business, with customers identifying this as a quality that often distinguishes it from other competitors in the IT services sector. As Infosys seeks to transform itself into a global enterprise, it has learnt that its employees have to be the best, not just in India, but in the globe. While its selection is already stringent (in 2003–04, it recruited 10,000 people from over a million applicants), training will help keep its nose ahead of the increasing competition.

BUSINESS DESCRIPTION

The company’s services include business consulting, custom software development, maintenance and re-engineering services, systems integration, IT infrastructure management and business process outsourcing. Infosys is today the second largest publicly traded software services exporter providing specialist IT services to around 350 corporations such as GE, Airbus, Cisco and Nortel, predominently in the US. It was the first Indian company to be listed on the NASDAQ exchange in 1999, when their stock value soared.

FINANCIALS oF INFOSYS—NEXT $1-B REVENUE SEEN IN 18 MONTHS

Infosys’ net profits rose by 53 per cent to INR 513 crore, while revenue grew by 47 per cent to INR 1,987.32 crore for the quarter-ended 31 March 2005, over corresponding last year. Sequentially, the growth in net profits and revenues was at 3.25 per cent and 5.96 per cent, respectively. On-site volumes grew by 4.6 per cent while offshore volumes rose by 6.6 per cent during the March quarter, as compared to double digit-volume growth the company used to post in the last few quarters. The lower growth during the year was attributed to the high cost incurred by the company in complying with the tenets on corporate governance prescribed by The Sarbanes—Oxley Act, the Anti-Money Laundering Act and the Patriots Act in the US wherefrom most of Infosys business comes.

The company has forecast a substantial revenue growth in the current fiscal (2005–06) enabling it to cross the $2 billion mark by March 2006.

While it took 23 years for Infosys to go past the $1 billion revenue mark, it may take less than 18 months for it to cross the next billion. The scorching pace at which Infosys is growing gives an indication of the company getting several of its initiatives right. ‘We are beginning to see the results of various initiatives taken over the last few years,’ Nandan Nilekani, the CEO and Managing Director of the company, observed in April 2005. He said the company’s clients increasingly see it as a strategic long-term partner which can offer a wide range of services and contribute to their business goals. The company also hopes to reap large benefits from its current investments. Infosys is expected to invest

INR 950–1100 crore mainly in technology infrastructure expansion of seat capacity and China Operations.


BUSINESS STRATEGY OF INFOSYS

As Infosys scorches its way ahead with around 50 per cent growth rates, there are a handful of hurdles it will have to clear to stay on course. The most obvious one is the strong appreciation of the rupee, but there are other, far more significant challenges, such as the shrinking pool of skilled manpower and the creation of a complete solutions provider with global reach and scale; yet another challenge is the increasing cost of adherence to global best practices that would tell upon profit margins in an extremely competitive environment as has been demonstrated in 2004–05 financials of many software services companies. Their profit margins were highly reduced consequent on their complying with Sarbanes—Oxley Act on corporate governance, the Anti-Money Laundering Act and the Patriots Act in the US.

Like its peers in the upper reaches of India’s IT service industry, Infosys faces the challenges of, all at once, inducting and orienting a large number of employees, ensuring that the Infosys way, a process-driven way of working, does not change, and distilling knowledge from all the projects it has completed or from the work in progress. The company, which currently has around 36,000 employees on its rolls, has addressed these challenges through what it terms ‘Pride’ (Process Repository @ Infosys for Driving Excellence), an online resource that segues into the company’s fancied knowledge management system termed Kshop (Knowledge Shop) at one end, and the actual development environment at another. As a result of this, ‘Infosys will reap the benefit of an army of employees that works the same way, gains in process efficiency and productivity, and higher quality’.

RAPID WEALTH AND VALUE CREATION THROUGH DIVERSIFIED BUSINESS

Building a $1-billion company has not been achieved by just being good to employees. While it was initially just a plain IT services company, Infosys has stepped up its offerings over the past few years at both ends of the spectrum and is increasingly managing to string its various pieces together. Thus, Infosys Consulting, which the company started off in April 2004 with a $20-million investment, will become a 500-employee unit by 2007 and Progeon, its business process management subsidiary, already boasts of over 3,400 employees.

The company’s extended capabilities are reflected in growing engagements with customers across industries. In many cases, Infosys began with conventional IT maintenance work in 2000, but rapidly stepped up its partnership to encompass many other areas such as business process consulting, software process consulting, application development and support, enterprise architecture services, and technical training as in the case of Hannaford Brothers, a European retailer. The creation of a US-based consulting company is a major step forward in Infosys’ long-term strategy of presenting itself as a global service provider. Infosys’ $20-million investment in this subsidiary is designed to send a clear signal to the marketplace that it is being totally different from its Indian competitors, and intends to compete for business consulting services with the traditional consultancies.

Infosys relies on its much-touted Global Delivery Model (GDM), which is based on much more than cheap manpower, to push its case as a preferred vendor. Yet, it is apparent that the competition, especially companies like IBM, having recently discovered GDM are pushing ahead with their new-found wisdom. The key to GDM is the focus on getting the best talent, wherever it is located, and using that to address the customer’s needs.


One of Infosys’ key strengths has been its ability to add new business offering and mould itself to suit changing market requirements. It has added services such as independent software testing and enterprise applications to its offerings. It has also reorganized itself along verticals or industrial compared to the geography-specific orientation it conformed to earlier. And most of the company’s growth has been organic, barring the odd buy like its acquisition of Expert Information Systems, which it morphed into Infosys Australia.

Infosys is also looking to diversify its risk and explore emerging markets for its range of services. The American market may offer the largest and deeper IT market to companies; yet, the potential in other countries can not be ignored. The contribution from the US has in fact dipped to just over 65 per cent for the third quarter ended 31 December 2004, compared to over 73 per cent in the corresponding period in the previous fiscal.

INFOSYS’ KEY TO SUCCESS

Infosys survived the global downturn in IT spending during the years of recession between 2001 and 2004, managing to actually grow by focussing on providing services to companies that desired to update their existing systems, undertaking more work for current clients, launching an aggressive marketing campaign overseas, adding new clients and cutting costs wherever possible.

Infosys’ attributes its success to investing heavily in its employees leading the market by focussing on cutting edge technology, and applying strict ethical business practices. Infosys’ success in the highly competitive IT industry lies in:

Giving employees a world-class environment to work and learn. Giving employees a high quality of life and wealth creation opportunities.

Looking at potential employees’ ability to learn and assimilate technical knowledge and skills.

Replacing obsolete technology regularly to remain at the cutting edge.

Emphasizing constantly on quality by benchmarking against the best processes in the world.

Diversifying income sources to minimize risk of revenue, i.e. setting limit to contributions from one client, one technology, one industry.

Complying with accounting standards of advanced countries and ensuring strictest adherence to corporate governance.

BUSINESS ETHICS AT INFOSYS

Infosys Technologies has unveiled a code of ethics for its finance professionals and a whistleblower’s policy to encourage and protect employees willing to share information on frauds, but who choose to remain anonymous. Though the Indian law has not imposed it on companies as yet, the Infosys chose to apply this code because it believes it should raise the bar for compliance.


The code of ethics for its finance professionals states, ‘We consider honest conduct to be conduct that is free from fraud or deception and marked with integrity. We consider ethical conduct to be conduct conforming to accepted professional standards of conduct. Ethical conduct includes the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. By expecting the highest standards of honesty and ethical conduct, we expect our officers to stay far from the line differentiating honesty from dishonesty and ethical conduct from unethical conduct’.

The Code of Business Conduct and Ethics helps the company ensure compliance with legal requirements and the company’s standards of business conduct. The code deals with aspects of employees’ responsibilities to the company and its stockholders, which includes General Standards of Conduct (covering workplace free of harassment, drug and alcohol abuse, safety in workplace, dress code and other personal standards, expense claims and applicable laws.

The Whistleblower’s policy encourages employees to report questionable accounting matters, any reporting of fraudulent financial information to shareholders, the government or the financial markets or any conduct that results in a violation of law by Infosys to the management even if it is on an anonymous basis. It sets out norms for receiving, retaining and treating complaints and procedures for confidential, anonymous submission by employees of complaints with regard to accounting frauds leading to results in a violation of laws or mismanagement of company resources.

In terms of ethical behaviour, Infosys has an unwavering commitment to best global practices and has been driven by its vision to became a global player. It was one of the first Indian public companies to adopt voluntarily the stringent US GAAP long time back while many other organizations are only toying with the idea of implementing it in their companies. To quote Nandan M. Nilekani, Infosys’ CEO and Managing Director: ‘Infosys as a company has always believed in commitment to values, ethical conduct of business and making a clear distinction between personal and corporate funds. When we founded the company, we took a decision that we keep this line very clear.’

The culture of ethical behaviour in the organization emanates from the top and percolates down to the managerial and employees’ level, for the foundations of such systems are made to rest on ethical value system. The founders of the company took only salaries and dividends and had no other benefits from the company unlike founders of other companies. In following these principles of observation and preservation of ethical standards in his company, N.R. Narayana Murthy ‘has known the way, shown the way, and gone the way’. In order to create an ethical working environment, the initiative must be supported by, or better still, come from, the top management and leaders in the organization. The steps in doing the same include the following:

Making the decision to commit to ethics. Recognizing that they are the role models by definition, by action, and by values.

Assuming responsibility for instilling ethical behaviour.

Articulating their values.

Train the staff.

Encouraging open communication.


Being consistent in their approach.

It is only by doing all of the above on a continuous basis, that they can ensure the permeation of their ideals throughout the organizational layers, and deep-rooted understanding and following of these ideals by employees. Narayana Murthy and the other leaders at Infosys have taken this to heart and make it a point to express the company’s ideals at every opportunity, to fellow-Infoscions as well as to the society in general. Explains Nilekani, ‘When a company has a strong value system, focusses on honesty, transparency and fairness to all stakeholders, the key thing is we have to set the example and be a role model in the way we conduct ourselves. We cannot have a system where we preach corporate governance but in our actions we don’t demonstrate it. Then people will not believe us. I think once we practise that in every aspect of activity, then automatically people get ingrained in that’.

THE PHANEESH MURTHY CASE

For a company so revered by the entire Indian and foreign business community for having set the highest ethical standards, it seemed to be only a matter of time before someone tried to pull it down. But to their credit, the company honourably resolved the issue and came back much stronger and surer of its values than ever before. Infosys became entangled in a scandal, between October 1999 and December 2000, that dented its reputation as a company that had the best corporate governance structure in the country. The Hindu Business Line reported on 7 August 2002, ‘Since its inception, this is probably the first piece of negative news about Infosys’.

In December 2001, former Infosys employee Reka Maximovitch filed a complaint in the Alameda Superior County Court, Oakland, US, alleging verbal sexual harassment, unwanted sexual advancements and unlawful termination of employment against Phaneesh Murthy, the highestpaid employee of Infosys. It created ripples in business circles and in the eyes of the public when he abruptly resigned from Infosys in June 2002 to ‘devote time and attention to pursue a successful defence of the suit’.

Initially, Phaneesh Murthy refused to participate in the settlement initiated by Infosys on the terms specified by it. However, later on, he voluntarily signed the settlement and agreed to every condition that Infosys had set. As the company retained its right to sue Phaneesh for his actions and lack of contributions, it went ahead with the settlement without any contribution from Phaneesh.

The stand taken by Infosys in this case seemed to go against its image of a company considered to be a model of good corporate governance. Media reports blamed Infosys for having kept the issue under wraps for a long time neglecting to put in place a structured policy concerning sexual harassment, and for compromising on moral values. The company’s share price declined by 6.6 per cent soon after Phaneesh left. This news and the issue of sexual harassment at the workplace were debated heatedly in corporate and media circles, in India as well as abroad, as many more shocking events unfolded over the next 1 year.

Infosys Technologies maintained a studied silence on the episode on the ground that the matter was subjudice. On 11 May 2003, Infosys finally announced the amicable settlement with Maximovitch by agreeing to pay $3 million as compensation. The company contributed US$ 1.5 million and the balance US$ 1.5 million was contributed by the insurers under the company’s Directors and Officers Liability Insurance Cover. Infosys refused to give more


details about the manner in which the settlement was arrived at, and whether Infosys conducted any internal enquiry before Phaneesh Murthy submitted his resignation.

A crisis brings out the best and worst in any organization or in any person. It is also true that a crisis provides a learning opportunity for them. Infosys also learnt its lesson and put in place principles of work ethics to be followed by its employees and a whistle blower policy. Infosys chairman and chief mentor, N.R. Narayana Murthy said later, ‘The litigation with the plaintiff is behind us. We have taken further steps to strengthen our internal processes and improve the checks and balances to handle similar situations’.

CORPORATE GOVERNANCE AT INFOSYS

Infosys, beginning as a modest software consultancy firm in 1981, has become over the years, a large public company that conforms to internationally benchmarked standards of corporate governance. Admiration for Infosys both from within and outside the business community comes from its strong focus on corporate governance. It has been rated highly in several corporate governance reports, including one by rating agency CLSA, which has given it a high CG Star grade.

Infosys has set new and effective standards in communicating with shareholders, stock exchanges, and general public at large. Its annual report is said to be a trendsetter with respect to the disclosure norms evidenced by the sheer length and detail of the report. Its annual report has been commended as an ideal report by the Securities and Exchange Commission of US to be emulated American Companies. Infosys has demonstrated through its practices and procedures its commitment to enhance investor-relations and has amply rewarded its shareholders through its impressive performance by increasing shareholder value. In fact, the company pursues a value-based management methodology wherein it measures the company’s performance on the basis of various tools and techniques such as brand value, economic value added, intangible asset scorecard, balance sheet including intangible assets, current-cost-adjusted financial statements and human resources accounting and value-added statements. It continuously strives to improve itself on all these parameters.

Infosys has started implementing best international governance practices even while the concept was getting crystalized, after the recommendations of the Cadbury Committee and the Confederation of Indian Industry’s Code. The Kumar Mangalam Committee Report on Corporate Governance (1999) summarized the overall objective of the concept thus: ‘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.’ Infosys has adopted these ideals as an article of faith, and observes it to the minutest details. While Infosys has complied with most of the recommendations made by the CII and those of the Kumar Managam Birla Committee on Corporate Governance, it was also the pioneer in benchmarking its policies with the best in the world. If best corporate governance practices are to be implemented in an organization, it has to be done in a manner so as to ensure (i) an independent and proactive board; (ii) independent committees to decide executive compensation and for nomination and audit purposes; and (iii) an independent audit system. Infosys has put in place all these governance practices and has seen to their yielding the fruitful results for the overall welfare of all stakeholders.

One of the prerequisites of an lndependent Board is to have a clear demarcation of responsibilities and authority between the chairman of the board and the senior officers of the


management such as the chief executive officer, managing director, president and the chief operating officer. Infosys has achieved this separation between the board and management long back. The CEO is responsible for corporate strategy, brand equity, planning, external contacts, acquisitions by and board matters. The COO is 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 other senior management personnel make periodic presentations to the board on their targets, responsibilities and performance.

Another important criterion suggested by various committees to ensure best global practices in Indian companies is to have an appropriate mix of executive and non-executive directors to maintain the independence of the board. To separate the board functions of governance and the management, Infosys has eight executive directors and eight non-executive directors, out of the 16 directors on its board. While the executive directors bring to the board their expertise and experience in managing the day-to-day affairs of the company and the problems and issues involved in decision making, the non-executive directors bring in international professionalism to corporate boards. The board members are known to possess expertise in skills, technology, finance, human resources and business strategy, all of which are essential to manage and guide a high profile, high growth, high tech, global software company. The directors at Infosys belong to the productive age group between 40 and 55 years of age so as to serve the board actively. They are not related to any senior manager or board members so as to be bereft of any influence. The board members are expected to attend and participate in all board meetings and also in the meetings of the committees to which they belong. While the executive directors are not allowed to serve on the board of any other company—unless it is an industry association or government body relevant to the software industry or one whose objective is promotion of social welfare—non-executive directors are not expected to serve on boards of competitor companies. Board meetings are regularly held with clearcut agenda. Apart from routine meetings, the board also meets once in every three months to review the quarterly results and other issues.

An effective corporate board is one that delegates the resolution of important issues to specialized committees. Infosys has three committees—the Audit Committee, the Nomination Committee and the Compensation Committee. As suggested by various committees on corporate governance and to ensure independence of the board, the members of these committees are all non-executive directors. The degree of independence vested in these three committees ensures that vital areas such as compensation, audit and nominations are carried out in a just and equitable manner without being influenced by management. According to Nilekani, Infosys’ experience with these committees has been quite beneficial. ‘These committees have been extremely effective, especially the audit committee. We have used it very effectively to audit the entire business practices of the company. We have internal auditors, external auditors. We present all the issues before the audit committee. The whole process has been very effective.’

An ideal way to ensure better corporate governance is to assess the efficacy of the board of directors through an effective appraisal system. However, this ideal is rarely followed even in developed countries, and universally board performance is hardly monitored or evaluated. Infosys, to some extent, has put in place structures to ensure evaluation of performance of the Board. Says Nilekani: ‘All the working board members have performance indicators. At the beginning of every year when we present budgets to the board, we also present our individual performance indicators. What jobs we do? What are the goals for the year? We are measured


on that. The compensation committee decides our benefits based on the performance.’ It is a self-evaluation process, and external directors also measure the performance of the internal board.

Effective and efficient risk management is one aspect of corporate governance that helps a company achieve its goal of maximizing shareholder wealth. In today’s competitive environment, companies have to, apart from employing shareholders’ money productively, ensure that they do not expose their businesses to unwarranted risks. Infosys has put in place a risk management system that tracks every conceivable form of risk, arising out of client, geographic or technologies concentrations. The company’s diversified business strategy, especially in terms of risk avoidance, has been effective and has ensured that there is no undue dependence either on a single client, territory or technology.

CORPORATE SOCIAL RESPONSIBILITY

If wealth creation for the benefit of shareholders is an objective of corporate governance, social concern to protect the interests of all stakeholders and the society at large are also to be given due prominence. Infosys balances wealth and welfare strategically. Infosys has used its wealth and stands to contribute to improvements in the community. A core value of Infosys is a strong sense of social responsibility and commitment to help people and community. It is actively involved in various community development programmes.

Infosys established the Infosys Foundation, a trust founded to further the company’s commitment to social causes, to aid destitutes and the disadvantaged people. One per cent of Infosys’ profit after tax is donated to the Foundation every year. The Foundation focusses on enhancing the living conditions of the rural population, healthcare for the poor, education, and promotion of Indian arts and culture. Last year (2003–04), Infosys initiated three social programmes to improve computer literacy of rural people as well as the teachers in rural areas. Along with Microsoft, infosys launched a programme, computers@classrooms, as part of which old computers were given away to educational institutions.

THE INFOSYS FOUNDATION

‘It is better to light a candle than remain in darkness.’ The Infosys Foundation starts with this humble, but thought-provoking philosophy. The foundation came into being with the objective of supporting the underprivileged in society. It began its activities in Karnataka in 1996. Today, the activities have been extended to Tamil Nadu, Andhra Pradesh, Maharashtra, Orissa and Punjab. The Foundation primarily aims at improving the health, education and basic facilities, benefiting a large number of individuals and institutions.

In a short span of time, the Foundation has successfully implemented projects in the the following areas:

Health care: It has constructed many hospitals, wards in hospitals, donated costly equipment, distributed medicines for free and introduced various schemes to benefit those in need.

Social rehabilitation and rural upliftment: The foundation has constructed orphanages, girls’ hostels and shelters, and undertaken various initiatives to aid the lesser privileged.


mailto:computers@classrooms

Learning and education: The Foundation has undertaken ‘A Library for Every School’, one of the largest rural education programmes in the country. It provides financial support to promising students from economically weaker sections. It has constructed science centres and labs in rural schools, and in some cases, entire schools for the benefit of rural children.

Arts and culture: The Foundation has coordinated a project to donate cassettes among rural schools in Karnataka to bring back life into the dying arts, puppet shows to enliven the theatre art, and encourages artistes to perform and also benefit financially.

Infosys Technologies contributed INR 5 crore to the Prime Minister’s National Relief Fund to assist the victims of the giant Tsunami that ravaged south and southeast Asia in the last week of December 2004. The company also actively supported its employees’ efforts across group companies globally, to make monetary and material contributions towards aid operations.

Infosys also instituted in 1999 the Infosys Fellowship Programme to foster excellence in education and offered funds at the Five IITs and three IIMs for Ph.D. programmes in computer science, management, law and accounting. Under this programme, the company grants INR 9 lakh per fellowship for the entire duration of Ph.D. programme.

NARAYANA MURTHY LOGS OUT of INFOSYS

After more than 30 years of association with Infosys, which he helped to set up with some of his friends, its chief mentor and chairman N.R. Narayana Murthy decided to step down as its chairman on 20 August 2011. Having been the most visible face of India’s second-largest information technologynology company, Narayana Murthy would be now its Chairman Emeritus. While leaving his full-time tenure of the company’s CEO, he sought to inspire the new leadership team and employees to take the company to greater heights. Murthy outlived his vision for the $6 billion Infosys to aspire to become a $60 billion firm in the near future. Murthy also sold a portion of his shares to start a venture capital firm, Catamaran Investments, with the objective of investing in fresh ideas, promoting the next generation of business leaders.

CONCLUSION

The founder and chief architect of Infosys, Narayana Murthy, is a visionary who exhibits a leading model of innovation and excellence in an industry that is rapidly evolving. He is capitalizing on growing opportunities in a world that is increasing its reliance on ecommerce and technology to form a vital part of business infrastructure. Narayana Murthy’s vision is to harness technology and the free market to create jobs, and in the alleviation of poverty. Infosys has created thousands of skilled, well-paid jobs and further opportunity for Indians to develop their expertise and skills. Infosys demonstrates that it is possible to create success and build prosperity among the poverty prevalent in India. Infosys Technologies is a company that the entire world looks up to, in terms of sticking to one’s sound ethical judgment and doing business the ‘Right Way’. It continues to set standards in everything that it does, and the people who make the company never think twice when they have to make a tough decision involving ethics. To them, ‘Dharma’ is above all.


Pert 6 Makalah

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Transcript of Pert 6 Makalah