ASSIGNMENT # 3

Business Environment

CORPORATE GOVERNANCEAND ITS EFFECTIVENESS

TATA MOTORS Ltd. vs. ASHOK LEYLAND

SUBMITTED TO SUBMITTED BYMiss Impreet Kaur Rohan Sinha

10904030 RT1902B48

REPORT ON CORPORATE GOVERNANCE

Tata Motors Limited

Since Tata Motors is a part of a large conglomerate company it needs to have a strong corporate governance to ensure that its employees act ethically and the business continues to run smoothly especially during the ever changing and dynamic global economy. “Tata Group’s corporate governance is founded upon a rich legacy of fair, ethical, and transparent governance practices” (tatacarsworldwide.com). One of the more important parts of this is the transparency of the company people have a right to know what the company is doing not only to ensure ethical practices, but for the insurance of their many shareholders whom have a right to know the inner workings of the company

Tata has created some models for employees to guide themselves through everyday business practices to ensure that the corporate governance is continuously being upheld. The Tata business excellence model is upheld by Tata quality management services. Quality management is an in-house group dedicated to helping the various Tata companies achieve their business objectives through specific processes. The two main processes that the quality management services employees focus on are business excellence and business ethics. These two objectives have helped build Tata into the strong, dynamic company it is today. These models are entrenched in the company’s ethnical standards and Tata feels strongly about enforcing both throughout the company. “Tata quality management services plays the role of supporter and facilitator in the journey that Tata enterprises undertake to reach the peaks

of business eminence while, at the same time, adhering to the highest ethical standards” (Tata.com).

To further prove their commitment to quality and ethical practices Tata has introduced annual quality awards for those companies conducting business with the utmost quality. These awards are called the JRD quality value awards named after the late chairmen JRD Tata. These awards are presented annually on July 29 th, the birthday of JRD Tata. Tata has committed to ensuring quality and ethical standards not only within Tata Motors, but throughout their many other branches and sectors of the Tata Group. They have done so by benchmarking quality standards through the Tata business excellence model

as well as providing incentives for companies to strive to improve the quality of their service, by awarding JRD quality management awards.

FINANCIAL POSITIONTata Motors have increased its earnings over the years through their various acquisitions and joint ventures with truck manufacturers in Southeast Asia. Gross profit in the year 2006 was 1,160.9 million and increased to 1,510.1 million in the year 2007. Earnings after taxes also increased significantly between 2006 and 2007 increasing from 336.6 million to 405.5 million in 2007. After a large drop in revenues from 2004 to 2005 when the company first went public on the NYSE it has been increasing revenues greatly annually, from 4,422.0 million in 2005 to 7,354.0 in 2007.

CORE COMPETENCIESTata Motors is able to maintain, as well as increase, their market share by capitalizing on their core competencies. Tata Motors is active, competitive, and dynamic in all aspects of the automotive industry, which means that there must be many different activities going on in all areas of the company. As a result of the ever evolving automotive industry Tata Motors must always be changing and one way to stay at the forefront of the industry is to make continuous improvements in technology through research and development. One way that Tata Motors has done this is by producing one of the most efficient and low cost vehicles on the market. Acquisitions, mergers, and expansion is another core competency that Tata Motors has is embedded in their company structure and philosophy. Another core competency that Tata Motors holds is being located in the India. This location has allowed them to understand not only the Indian market but also the dynamics of emerging and developing markets. This market understanding and knowledge allows Tata Motors to manufacture their products at lower costs, sell them to emerging markets while making profits as well as take advantage of the strong labor base in India.

Ashok Leyland

The Board of Directors and the Management of Ashok Leyland are committed to the enhancement of shareholder value.

> through sound business decisions, prudent financial management and high standards of ethics throughout the organization.

> by ensuring transparency and professionalism in all decisions and transactions.

> achieving excellence in Corporate Governance by conforming to, and exceeding wherever possible, the prevalent mandatory guidelines on Corporate Governance and by regularly reviewing the Board processes and the Management systems for further improvement.

The company has adopted a Code of Conduct for the members of the Board and senior management, who have all affirmed in writing their adherence to this Code.

Ombudsman

Another significant step has been the appointment of an Ombudsman to deal with any references, complaints or grievances about the Company, its employees or its dealings.

If the suppliers, employees or customers have any suggestions on governance issues or grievances or complaints on Ashok Leyland's practices - inclusive of its executives in various functions - which they feel ought to be raised with the Ombudsman and not with the usual channels of business, they may do so.

It is advised that the regular business dealings should be through the usual business functional channels. The Ombudsman will not deal with them under normal circumstances.

The Ombudsman is Mr.T. AnanthaNarayanan, a former Executive Director of the Company, with an excellent understanding of Ashok Leyland as an organization and its functioning, having been with the company for nearly 30 years.

1. Philosophy on Corporate Governance

The Board of Directors and the Management of Ashok Leyland commit themselves to:• strive towards enhancement of shareholder value through— sound business decisions— prudent financial management and— high standards of ethics throughout the organization• ensure transparency and professionalism in all decisions and transactions of the Company• achieve excellence in Corporate Governance by— conforming to and exceeding wherever possible, the prevalent mandatory guidelines on Corporate Governance

— regularly reviewing the Board processes and the management systems for further improvement. The Company has adopted a Code of Conduct for members ofthe Board and senior management. All Directors have affirmed in writing their adherence to the above Code. The full text of the Code is furnished at the end of this Report, and is alsodisplayed at the Company’s website www.ashokleyland.com.

(other constituents of the report)

2. Board of Directorsi) Non-Executive DirectorsPromoter GroupMr A K Das (Alternate : Mr P Banerjee)Mr D G Hinduja (Co-Chairman) (Alternate : Mr Y M Kale)Mr F SahamiMr A SpareDr V SumantranIndependentMr D J Balaji RaoMr P N GhataliaMr Ramachandran R Nair (Nominee of LIC)Mr Shardul S ShroffMr R J Shahaneyii) Executive DirectorsManaging DirectorMr R SeshasayeeWhole-time Director & Chief Operating OfficerMr Vinod K DasariNone of the Directors is related to each other

3. Audit committee

The composition of the Audit Committee is:

Independent Directors

Mr P N Ghatalia - Chairman

Mr D J Balaji Rao

Promoter Director

Mr F Sahami

All the members of the Audit Committee have expertise in finance as well as in general management. Mr. P N Ghatalia and Mr F Sahami had been senior partners in leading firms of Chartered Accountants. Mr. D J Balaji Rao had been.

Deputy Managing Director of the then ICICI Ltd., (now ICICI Bank) and Managing Director of Infrastructure Development Finance Company Ltd.

4. Remuneration committee

The Remuneration Committee consists of Mr. D J Balaji Rao, Independent Director, as the Chairman of the Committee, with Mr R J Shahaney and Mr F Sahami being the other members.

Mr A R Chandrasekharan, Executive Director and Company Secretary is the Secretary to the Committee.

5) Shareholders/investors grievance committee

The Shareholders/Investors Grievance Committee was constituted in 2000. Mr R J Shahaney is the Chairman of the Committee; Mr D J Balaji Rao, Independent Director, and Mr R Seshasayee, Managing Director are the other members. This Committee approves issue of new share certificates and looks into investor relations/grievances on a periodical basis. The Managing Director approves the share transfers/transmissions on a fortnightly basis and the same is reported to the Committee on a quarterly basis. Mr A R Chandrasekharan, Executive Director and Company Secretary is the Secretary to the Committee and is also the Compliance Officer nominated for this purpose.

6) General body meetings

Details of location and time of holding the last three AGMs.Year Location Date & Time

57th AGM - 2006 Kamaraj Memorial Hall, August1,2006 492 Anna Salai, 10.00 a.m. Teynampet, Chennai - 600 006

58th AGM – 2007 Narada Gana Sabha, July 20, 2007 314 TTK Road, Chennai - 600 018 10.25 a.m.

59th AGM - 2008 Kamaraj Memorial Hall, July 30, 2008 492 Anna Salai, 10.30 a.m. Teynampet, Chennai - 600 006

7) Disclosures

There have been no materially significant related party transactions with the Company’s Promoters, Directors, the Management, their Subsidiaries or relatives which may have potential conflict with the interests of the Company. The necessary disclosures regarding the transactions with related parties are given in the Notes to the Annual Accounts for the year 2008-09.

There have been no instances of non-compliance by the Company on any matters related to the capital markets, nor have any penalty/strictures been imposed on the Company by the Stock Exchanges or SEBI or any other statutory authority on such matters during the last three years. The Company had no subsidiary company as on March 31, 2009.

8) Means of communication

Investor mailer is being sent since 2001 as an enclosure to the half-yearly results and the same is available on the Company’s website www.ashokleyland.com.

Effectiveness of Corporate Governance:

The governance of both the companies here are quite comprehensive and are indicative of the successes these companies have milked. Important groups of people who directly or indirectly are affected by the governance of any company are customers, lenders, employees and owners. The corporate group of Tata Motors has satisfied owners, customers and lenders but not employees as much as Ashok Leyland has satisfied their employees according to report. No wonder both the companies are well governed and managed and there cannot be more than a thread-width of difference. Tata motors has excelled as one of the world’s most competent firms unlike Ashok Leyland which has managed to get limited market overall. The transparency policies and grievance redress policies are appreciable of both the corporate giants.