TATA CONSULTANCY SERVICES LIMITED

Introduction

TCS, a division of Tata Sons, a global IT services organization providing comprehensive range
of IT services expands in all sectors – banking and finance, telecommunication, retail, insurance,
transportation, manufacturing and utility industries. It has a revenue of 1,464,630 M with a share
price of 2057.35 INR and Market Capitalization of 7,719,969 M.

Analysis of the Corporate Governance practices followed by the company

72.05 % of the Share holding is with the Promoters which is huge, indicating they have a great
control as a shareholder over company’s affairs (majority shareholding percentage exceeding
65% isn’t considered as a good management pactice). ForeignInstitutions have 15.52 % and the
other minority shareholders (five) contribute to the remaining 12.43%. This can put the
promoters in a dicey situation as if shares may underperform, this high percentage holding will
not prove to be fruitful for them. On the other hand, leaving out a less percentage for the
minority shareholders which are very distributed is a good sign as even if they combine, their
high percentage won’t be high enough to be problematic to cause disputes.

The remaining percentage of 12.43 of shareho0lding is almost equally distributed among the
minority shareholders avoiding the case where a few shareholders own large or lesser voting
rights over other shareholders. Although, the minority shareholders may find the independent
directors unreliable. A high percentage of majority shareholders may seem dominating, but the
minority shareholders are protected legally.

Tata has been investing highly in other group companies too and therefore a reduction in the
cross holdings is intimidated which will prove to be profitable. The company responsible for
more than 70 % of the revenue of the group will also be affected hence.

Increase in the remuneration for managers was 14.66% which is high as the average increase in
India, annually was 6%. The managers receive high earnings which will motivate them to be
efficient. There is a large difference between their wages and that of the other employees’ which
makes the managers more responsible. Also, the increase in the employees’ salary was also high
enough and in line with the market trend. The Company performing well in the industry,
remuneration this high is not a negative aspect.

There are no joint ventures, promoting clarity of objectives and flexibility by avoiding imbalance
and clashing of management styles. There are 50 subsidiaries instead over which the company
has great control.

The company has 11 Non-Executive Directors (which is a good number as it should be at least
50% of the board), 2 Executive Directors, 1 Chief Financial Officer and a Company Secretary.
The top executives’ and the Board Members’ performances on various fronts (TRA) are reflected
in their working tenure.

The CEO has been working at this position since the past 4 years only avoiding the case od
domination in the board. He is one of the youngest CEOs of the Tata Group and achieved this
position after working as a CFO prior to this which is rare hence it proves that he must have had
gained a great operational experience before achieving this position. The CEO does not sit on
other boards, hence there aren’t disputes in that matter.

Subramanian Ramadorai, who was the advisor to PM of India, was MD and CEO of the
company till 2009 but is not anymore. There is no significant influential member in the board as
such minimizing negative effects on the governance.

The company has 9 Board Members (including the Chairman) which is an appropriate number
for efficient management and lesser conflicts while gaining different viewpoints and opinions.
The CEO is not the Chairman which allows the decisioning process to be unbiased and effective.
Their average age is around 58.5 suggesting that they are experienced enough.

In 2018, two new members were appointed as independent directors, so there are 7 out of 11
independent directors with relevant experience in the board effectively (satisfying the criteria
that there should be at least one third of the directors). They meet the criteria for independence.
There is increased scope of corporate credibility and governance standards by improving the
performance of the company.
The 6 board meetings that were held were at almost regular intervals, without much gap with full
attendance of all the board members, showing high effectiveness. Separate meetings of the
Independent directors were also held to evaluate the performance of the no independent ones.

Almost all the board members also have a cross board membership across about 50 companies
(like Citi Alternative Investments, HDFC Clubb General Insurance, Hindustan Unilever Ltd,
Indian Hotels, etc) . This large number of interlocking directorates affects the quality of decision
making of board. Although, there are only one or two such directors that are mostly present on
other’s boards and for a company, there is only single board member that’s common hence it
might not affect the decision making that greatly. Also because the Company is a big one, this
will not matter much.

The board also has a female director that makes the Company as the only IT company with a
woman as an executive director. Aarthi Subramanian, heading global delivery group is also
experienced enough, providing valuable inputs.

5 of the 6 members of the Audit Committee comprises of the Independent Directors ensuring the
reporting process of the financial information of the company to be valid. There are no members
that belong to the family of the promotors confirming impartial decision making. A good number
of 5 audit committees were held in the last year with the required quorum present; meetings were
at regular intervals without exceeding the gap much.

Various Committees including Audit Committee, Nomination and Remuneration Committee,

Stakeholders’ Relationship Committee (except for CSR and RMC) largely comprise of
Independent Directors (~90%) which is a sign of weak governance - may cause imbalance of
various interests .Although, it is a large public company, hence this doesn’t prove to be a big
issue.
Summary

The overall corporate governance of the company is good enough meeting all the required
standards. There are almost negligible signs of weak governance. Even if there are any, their
effects are nullified because of the Company’s great governance practices in the other areas.
There are significantly no influential members on the board. There are lesser chances of
members dominating over other members while making key decisions during meetings. The
remuneration policies are also just. The tenure of the board members is not high, ranging from 2-
6 years, avoiding dominance in decision making. Cross boarding in 50 companies does not seem
to be a good corporate governance practice. AGMs were held regularly with no absenteeism.
Internal audit reports are verified and are of good quality providing accurate insights.
Shareholding percentage of majority shareholders is also very high, it weakens the rights of the
minority shareholders.

References

 www.bloomberg.com
 http://www.capitalmarket.com/Company-Information/Corporate-Actions/AGM/Tata-
Consultancy-Services-Ltd/5400
 https://www.accordfintech.com/ace-equity
 https://economictimes.indiatimes.com/tata-consultancy-services-
ltd/shareholding/companyid-8345.cms
 https://www.tcs.com/corporate-governance
 https://economictimes.indiatimes.com/tech/ites/tcs-appoints-two-new-independent-
directors/articleshow/67164880.cms?from=mdr#targetText=TCS%20now%20has%20six
%20independent,A%2FS%20Group%20in%20Denmark.