1. Corporate Governance- Investor Expectations & Benefits A presentation by ICRA Limited 15th December, 2005

2. ICRA Limited uWhat are investors looking for ? uDo investors reward good Governance ? uICRA’s Rating/ Assessment framework Agenda for discussion 2

3. ICRA Limited 3 Characteristics of good CG - Findings from an ICRA investor survey..I

4. ICRA Limited 4 Corporate governance concerns - Findings from an ICRA investor survey..II

5. ICRA Limited uEntrepreneurial activities are underpinned by a proper system of checks and balances uThe management communicates, transparently and honestly, with investors uControlling shareholders are not in a position to take advantage of minority shareholders 5 Overall, investors are looking for an assurance that.. “Shareholders have only the governance mechanism to formally assert their rights”

6. ICRA Limited Typical CG issues from Enron and Parmalat …..a comparison 6 Source : CLSA Report --Parmalat Smokescreen

7. ICRA Limited uFree cash flows being used to fund a ‘group’s investment plans in unrelated area uLoans and advances to a maze of subsidiaries and associates uMandated takeovers, M&A, dividend payouts etc. Limited or no board autonomy to debate and decide uPreferential allotments to promoters and promoter groups Typical CG issues in the Indian context 7

8. ICRA Limited uOwnership transparency uStrong, Independent Board of Directors q‘Watchdog’ for all stakeholders uAccounting integrity, independent ‘Auditors’ uTransparency and disclosures uAppropriate compensation philosophy uA transparent and fair decision making process qNo back seat driving qThe freedom must be exercised within a framework of accountability uFocus on ethical practices In ICRA’s opinion, the key elements of Corporate Governance are 8

9. ICRA Limited uWhat are investors looking for ? uDo investors reward good Governance ? uICRA’s Rating/ Assessment framework Agenda for discussion 9

10. ICRA Limited uFinancial theory is yet to establish a linkage uResearch supports the proposition that ‘good governance enhances value’. qOpinion based surveys McKinsey Investor Opinion Survey qResearch studies linking governance rankings / ratings with performance and value creation qCALPERs focus list 10 What are the benefits of Corporate Governance ?

11. ICRA Limited Governance ranking research uCG and Equity Prices - A Study by Paul Goompers of Harvard Business School and others qA ‘Governance Index’ was calculated for 1500 large firms during the 1990s qAn investment strattegy that bought firms in the lst decile (strongest CG) and sold firms in the 10th decile (lowest CG) would have outperformed the index by 8.5% during the period. uCG and Expected Stock Returns - A Study by Wolfganag Dorbetz, University of Basel qAn investment strategy that bought high-CGR firms and shorted low CGR firms would have earned excess returns of 12% compared to the DAX 100 during 1998-2000. 11

12. ICRA Limited Governance ranking research …..II uStudy by Japan Corporate Governance Research Institute. (Data from 2003 report) The Institute has developed the JCG Index, which measures corporate governance in Japanese firms Their study found that high JCG Index firms achieved superior performance, as measured by ROA, ROE, Stock Returns etc. 12

13. ICRA Limited Shareholders Wealth Effect of CALPERs focus list uCalifornia Public Employees Retirement Systems identifies and publishes a Focus list annually ---- companies with poor Governance and financial performance uCalLPERs study showed that there is a significantly positive shareholder impact from the release of CalLPERs focus list u1997 update showed that CalPERS focus list companies outperformed by 23% in 5 years after focus listing compared to 89% under-performance in previous 5 years 13

14. ICRA Limited uWhat are investors looking for ? uDo investors reward good Governance ? uICRA’s Rating/ Assessment framework Agenda for discussion 14

15. ICRA Limited Ratings / Assessment Approach uPrimary focus on the business processes qStrength and integrity of structures, processes, risk management and disclosure standards from a stakeholders perspective uThe measurable outcome is also evaluated qNo established input-output relation, however consistently poor performance needs to be factored in uEmphasis on substance over form, not a ‘Checkbox’ exercise 15

16. ICRA Limited Key Variables in the Assessment Process uOwnership transparency uRisk Governance uBoard Structure and Processes uAudit and Control uTransparency & Disclosures uFinancial discipline 16

17. ICRA Limited Accepted ratings so far uBank of Baroda uAndhra Bank uInfosys Technologies Limited uWipro Limited uITC Limited uGodrej Consumer Products Limited u3i Infotech Limited uPNB Gilts Limited 17 Excludes several CG Assessments which are not in public domain ……..

18. ICRA Limited Thank You 18 Contacts: shivakumar@icraindia.com aghosh@icraindia.com