Analysis of Corporate Governance

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Analysis of Corporate Governance of BAJAJ AUTO LTD.

Company Profile

Bajaj Auto Limited is one of India’s premier two and three wheeler automobile manufacturing companies. It was founded in the year 1945. For the financial 2009-10, the company had sales of Rs. 12152.74 crores and net income of Rs. 1597.22 crores. It exports its two and three wheeler vehicles to more than 50 countries. The company as of 2010 accounts for 24.3% of the Indian motorcycle market.

Corporate Governance practices of Bajaj Auto Ltd.

Here are the significant points regarding the corporate governance of Bajaj Auto followed by an analysis of their effectiveness and impact.

* The company has stated that its corporate governance policy is centered on 4 concepts of transparency, fairness, disclosure and accountability. Any good governance has 8 features that characterize it. They are: participative, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follow the rule of law. Bajaj Auto as from its statement on corporate governance, we can conclude that it follows and implements at the maximum 5 out of the 8 features necessary for good governance ( the 4 features that it has explicitly stated and the 5th feature being implicitly assumed that it follows the rule of law). Thus there is more room for the company to improve its corporate governance policies. It must strive to incorporate all the 8 features that are essential to implement good governance. * The company has been following corporate governance policies even before SEBI rules and the clause 49 of the listing agreement came into force. This is a good sign of the commitment shown by the company towards effective corporate governance and indicates that the company believes in the principles of transparency, fairness, disclosure and accountability. * The company’s chairman Rahul Bajaj is also an executive. Thus according to the rules the company’s board must have at least one half of its members to be non executive, independent directors. The board consists of 16 members of which 4 are executives, 3 are non executive and 9 are non executive and independent thus conforming to the said rule. The board during the year 2009-10 met 6 times, and one of the independent directors J N Godrej was absent for all the 6 meetings. This undermines the above rule as an independent director must attend the board meetings and ensure that the company is functioning in the proper manner and it is following all the rules and upholding the interests of all the stakeholders. Only 3 out of the 9 independent directors attended all the 6 board meetings

* The company in its board meeting on January 30, 2008 laid down a code of conduct for all directors and senior management of the company. All directors and senior management personnel have affirmed compliance with the code for 2009-10. A declaration to this effect signed by the managing director / chief executive officer is given in this annual report (2009-10). The code of conduct lays down a set of rules to ensure more honesty and integrity of the directors and senior management of the board. This is a step in the right direction to promote good governance in the company.

* Some of the board of directors such as J N Godrej ( also the chairman of Godrej & Boyce Manufacturing Company Limited ), Shekhar Bajaj (also director of Bajaj Electricals Ltd. And Hind Musafir Agency Ltd. ) were involved in related party transactions. All the related party transactions are maintained by the register of contracts maintained by the company under section 301 of the Companies Act, 1956.

* The board does not provide stock option plans for any of its directors be it executive or non executive. The directors are also were not paid any performance linked incentive. The company also did not advance any loans to any of the directors for 2009-10. Their remuneration is set independently by the...
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