Over the years, ITC has built its presence in more than one industry; from cigarettes and tobacco to hotels, packaging, paper and paperboards and international commodities trading. Each industry has its unique policy of corporate governance and ITC has always tried to maintain unity in spite of the dif- ferences in corporate governance policy. In this new era, companies are going global which calls for them to follow the norms of transparency and good governance followed internationally. The governing policy of ITC, accordingly, is to cater to the challenges of this new business reality.
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Industrial Packaging Company Limited (BIPCO), located close to Coimbatore, Tamil Nadu. The Kovai Unit allows ITC to improve its customer service with reduced lead time and wider product range.
In 1985, ITC set up the Surya Tobacco Company in Nepal as an Indo-Nepal and British joint ven- ture. Since its inception, its shares have been held by ITC, British American Tobacco and also various independent shareholders in Nepal. Surya Tobacco became a subsidiary of ITC Limited in August 2002 and its name was changed to Surya Nepal Private Limited (Surya Nepal).
In 1990, ITC also acquired Tribeni Tissues Limited, which was a specialty paper manufacturing company as well as a major supplier of tissue paper to the cigarette industry. The merged entity was named as the Tribeni Tissues Division (TTD). TTD was merged with the Bhadrachalam Paperboards Division to form the Paperboards & Specialty Papers Division in November 2002 to harness strategic and operational synergies.
In 1990, while leveraging its agri-sourcing competency, it set up the Agri Business Division for export of agri-commodities. The division is today one of India’s largest exporters. ITC’s unique and widely acknowledged e-Choupal initiative had begun in 2000 with soya farmers in Madhya Pradesh.
Now it extends to 10 states, covering over 4.1 million farmers. ITC’s fi rst rural mall, Choupal Saagar, was inaugurated in August 2004 at Sehore. On the rural retail side, 24 “Choupal Saagars” are now op- erating in the three states of Madhya Pradesh, Maharashtra and Uttar Pradesh.
In 2000, ITC also forayed into the greeting, gifting and stationery products business with the launch of the “Expressions” range of greeting cards. A line of premium-range notebooks under the brand “Paper- kraft” was launched after 2 years. To extend its offering and to reach a wider student population, a popu- lar range of notebooks was launched under the brand “Classmate” in 2003. “Classmate,” over the years, has become India’s largest notebook brand, and has also increased its portfolio by owning a larger share of the school bag market. The years 2007–2009 saw the launch of children’s books, slam books, geom- etry boxes, pens and pencils under the brand “Classmate.” In 2008, ITC had repositioned the business as the Education and Stationery Products Business and also launched India’s fi rst environment-friendly premium business paper under the brand of “Paperkraft,” which offers a diverse portfolio in the premium executive stationery and offi ce segment. In 2009, Paperkraft entered into new categories in the offi ce consumable segment with the launch of text liners, permanent ink markers and White Board Markers.
ITC also entered the lifestyle retailing business with the launch of the Wills Sport range of interna- tional quality wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores later ex- panded its range to include Wills Classic formal wear in 2002 and Wills Club-life evening wear in 2003.
ITC also initiated a foray into the popular segment of men’s-wear brand, John Players, in 2002. In 2006, Wills Lifestyle became the title partner of the country’s most premier fashion event – Wills Lifestyle India Fashion Week – which has gained recognition from buyers as well as retailers as the single larg- est B2B platform for the fashion industry. To mark this occasion, ITC launched a special “Celebration Series,” and took the event forward to the consumers.
In 2000, ITC had spun off its information technology business into a wholly owned subsidiary, ITC InfoTech India Limited, so as to more aggressively pursue emerging opportunities in the respective area. Today, ITC InfoTech is one of the country’s fastest growing global IT and IT-enabled services company and has established itself as a key player in the offshore outsourcing market, while providing outsourced IT solutions and services to leading global customers across key verticals such as manu- facturing, BFSI (banking, fi nancial services and insurance), CPG&R (consumer packaged goods and retail), THT (travel, hospitality and transportation) and media and entertainment.
ITC’s entry into the foods business is a very outstanding example of successfully blending multiple internal competencies to create a new tool of business growth. It was started in August 2001 with the
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introduction of “Kitchens of India”, which is a range of ready-to-eat Indian gourmet dishes. In 2002, ITC entered the confectionery and staples segments with the successful launch of the brands mint-o and Candyman confectionery and Aashirvaad atta, wheat fl our. The year 2003 witnessed the introduction of
“Sunfeast” as the company entered the biscuit segment. ITC entered the fast-growing branded snacks category with Bingo! in the year 2007. In eight years, the foods business has neatly grown to a sig- nifi cant size with over 200 differentiated products under six distinctive brand names, with an enviable distribution reach combined with a rapidly growing market share and a solid market standing.
In 2002, ITC’s philosophy of contributing and enhancing the competitiveness of the entire value chain found another expression in the safety matches initiative. ITC currently markets popular safety matches brands like iKno, Mangaldeep, Aim, Aim Mega and Aim Metro.
ITC’s entry into the marketing of incense sticks in 2003 marked the manifestation of its partnership with the cottage sector. ITC’s popular incense sticks brands include Spriha and Mangaldeep across a range of fragrances like rose, jasmine, bouquet, sandalwood, sambrani and nagchampa.
ITC also introduced Essenza Di Wills, which is an exclusive range of fi ne fragrances and bath and body-care products for men and women, in 2005. Inizio, the signature range under the Essenza Di Wills brand, provides grooming regimen with distinct lines for men (Inizio Homme) and women (Inizio Femme). Continuing with the tradition of bringing world-class products to the Indian consumer mar- ket, the company launched “Fiama Di Wills,” a premium range of shampoos, shower gels and soaps in September, October and December 2007, respectively. The company also launched the “Superia”
range of soaps and shampoos in the mass-market segment within select markets in October 2007, the Vivel De Wills and Vivel range of soaps in February and the Vivel range of shampoos in mid-2008.
The Company’s Governance Philosophy
ITC corporate governance is a systemic process whose objectives are to enhance the wealth-generating capacity. In this era of industrial development when corporate social responsibility has become a ma- jor part of any company’s policy, a lot of companies utilize societal resources unthinkingly, but ITC’s governance policy ensures meeting of stakeholders’ aspirations as well as societal expectations. This is refl ected in the company’s commitment to contribute to the “triple bottom line” – development, nature and regeneration of the nation’s economic, social and environmental capital.
ITC’s corporate governance initiative is based on two core principles:
Management must have the executive freedom to drive the enterprise forward without undue i.
restraints; and
This freedom of management should be exercised within a framework of effective accountability.
ii.
ITC not only believes that the executive management of the company should be empowered but it also ensures through regular checking that the powers vested in them are not misused.
ITC’s governance philosophy includes trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. These are the pillars that lead to the creation of a right corpo- rate culture in the company.
Trusteeship
ITC believes that it is their responsibility to ensure that the rights of all shareholders, other capital pro- viders, business associates and employees are protected. This casts the responsibility of trusteeship on the company’s board of directors.
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Transparency
ITC’s philosophy of transparency includes maximum appropriate disclosures internally, with its em- ployees, and externally, to the public, without jeopardizing the company’s strategic interests.
Empowerment and Accountability
Empowerment is one of the core philosophies of ITC’s governance which they believe unleashes creativity and innovation within the organization by vesting decision-making powers at the appropri- ate levels. Along with empowerment comes accountability. In ITC’s case, the Board of Directors are accountable to the shareholders and the management is accountable to the Board of Directors. This ensures improvement in performance, thus enhancing the shareholder’s value.
Control
Control forms an important part of the company’s second core principle. To ensure that the powers vested in the management are not misused, regular checks are carried out. This facilitates the timely response to and the management of change and business risk.
Ethical Corporate Citizenship
ITC believes that unethical behavior corrupts the culture within the organization and reduces shareholder’s value. They consider it their responsibility to set an example of ethical behavior internally and externally.
The Governance Structure
The corporate governance structurein ITC Limited follows a three-step process:
Strategic supervision by the Board of Directors
Strategic management by the Corporate Management Committee
Executive management by the Divisional Chief Executive assisted by the Divisional Management
Committee
ITC believes in the right balance of freedom of management and accountability to shareholders, and this can be achieved through segregation of strategic supervision from strategic and executive management.
The Board of Directors act as trustees of the shareholders and exercise strategic supervision through strategic direction and control and seek accountability from the Corporate Management Committee (CMC) for sound strategic management. The CMC has the freedom to focus its attention on the strategic management of the company. The Divisional Chief Executives assisted by the Divisional Management Committee have the freedom to manage the divisional business units.
This ensures the Board’s clean supervision with objectivity, on behalf of the shareholders, and the accountability of the management. The strategic management of the company remains focused and demarks from the day-to-day tasks of executive management. Executive management of the divisional business can focus on enhancing the quality and effi ciency of its business. This is free from collective strategic responsibilities for ITC Limited as a whole.
The Board of Directors (Board)
The Board of Directors acts as a trustee to protect and enhance the shareholder’s value through the strategic supervision of ITC, its wholly owned subsidiaries and their wholly owned subsidiaries.
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As trustees, they ensure that the company is clear on their goals and their growth strategy. They set the strategic goals and are held accountable for their fulfi llment. They provide the methodology and exercise appropriate control to ensure that the company is managed to fulfi ll the stakeholder, as- pirations and societal expectations. The Board periodically reviews its own functioning for better management.
The Board consists of Executive and Nonexecutive Directors. One-third of the total strength of the Board consists of Executive Directors. Directors have a tenure of three to fi ve years and Executive Directors can stay on the board until retirement.
Nonexecutive Directors play a major role in balancing the decisions by bringing an independent opinion on issues of strategy and performance.
The Board meets at least six times in a fi nancial year and meetings are held once in every two months.
The decisions are by a simple majority. Meetings have a structured agenda. The agenda papers are usu- ally circulated three working days prior to the meeting. Normally, items for the Board Agenda, except those emanating from the Board Committees, are examined by the CMC. The minutes are circulated within 15 working days of the meeting and confi rmed at the next meeting. The Board decisions record the related logic as far as practicable.
Corporate Management Committee (CMC)
The role of the CMC lies in the strategic management business of the company within the framework approved by the Board. The composition of the CMC is determined by the Board based on the recom- mendations given by the Nominations Committee. Membership is reviewed by the Nominations Com- mittee annually. The Executive Chairman of the company convenes and chairs the committee. The Company Secretary is the secretary of the CMC. Fifty percent of the members, subject to a minimum of three members, is mandatory to form the quorum of the meeting. Decisions are taken by simple major- ity. The minutes of the CMC meetings are placed before the Board to keep them in the loop. However, issues arising from the CMC meetings and requiring the Board’s approval are in the form of a note from the relevant Executive Director. The agenda papers are circulated at least three days prior to the meet- ing. The CMC usually meets once in a month.
Executive Chairman of ITC
The Executive Chairman of ITC operates as the Chief Executive for ITC Limited. He is the Chairman of the Board and the CMC. The Executive Chairman provides leadership to the Board and the CMC for realizing the goals of the company. He is responsible for the working of the Board and its balance of membership and ensures that all relevant issues are on the agenda. He is answerable to the Board. He presides over the General Meetings of shareholders.
Divisional Management Committee (DMC)
The executive management of the divisional business is to realize tactical and strategic objectives in accordance with the CMC and the Board. The composition of the DMC is determined by the Line Director with the prior approval of the CMC. The Divisional CEO convenes and chairs the DMC meetings. The divisional CEO can delegate a person to chair the DMC only for a specifi c meet- ing or for a period of time. The key functions of the Division shall be represented on the DMC.
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The Divisional Financial Controller acts as the secretary to the DMC and is responsible for the cir- culation and the custody of agenda notes and the minutes of the meeting. The DMC generally meets at least once a month to review the Divisional performance and related issues. Fifty percent of the members form the quorum of the meeting. Decisions are taken by a simple majority. The minutes of meetings are reported to the CMC for its information. The agenda papers are circulated at least three days prior to the meeting.
Divisional CEO
The Divisional CEO functions as the Chief Operating Offi cer with executive responsibility for the day- to-day operations of the Divisional business and provides leadership to the Divisional Management Committee in its task of executive management.
Committees
The board is obliged and has the power to set up committees who are given the authority to oversee the process. Currently, ITC Limited has primarily the following four board committees – the Audit Com- mittee, the Compensation Committee, the Investor Services Committee and the Nominations Commit- tee. The terms of reference of the Board Committees are determined by the Board on a time-to-time basis. The meetings of these Board Committees are convened by the respective Committee Chairman.
Signed minutes of Board Committee meetings are placed for the information of the Board. Matters re- quiring the Board’s approval are generally placed in the form of notes to the Board from the respective Committee Chairman. The role and composition of these Committees, including the number of meet- ings held during the fi nancial year and the related attendance are explained below.
I. Audit Committee
It is the task of the Audit Committee to provide information to the Board of all the effective internal control measures for the
1. effi ciency and effectiveness of operations
2. safeguarding of assets and adequacy of provisions for all liabilities
3. reliability of fi nancial and other management information and adequacy of disclosures 4. compliance with all relevant laws.
The Audit Committee is empowered to investigate any activity within its jurisdiction, to seek any infor- mation it requires from any employee and obtain legal or other independent professional advice.
The role of the Audit Committee includes the following:
(a) To oversee the company’s fi nancial reporting process and the disclosure of its fi nancial information to ensure that the fi nancial statements are correct, suffi cient and credible
(b) To recommend and appoint external auditors and fi x their audit fee (c) To review the fi nancial statements before submission to the Board.
The Audit Committee for ITC Limited comprises of three Nonexecutive Directors, all of whom are Independent Directors. The Chief Financial Offi cer, the Head of Internal Audit and the representative of the Statutory Auditors are invitees to the Audit Committee.
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II. Remuneration Committee
The Remuneration Committee or the Compensation Committee recommends to the Board regarding the compensation terms and conditions of Executive Directors and executive level employees. This com- mittee also oversees the Employee Stock Option Scheme of the Company.
The Compensation Committee is comprised of fi ve Nonexecutive Directors, three of whom are Directors. The Chairman of the committee is a Nonexecutive Independent Director. ITC’s remunera- tion strategy aims at attracting and retaining talent and inducing its employees to work with and build a relationship with the company. The committee sticks to the industry average, taking into account the competitive circumstances.
Remuneration of the Executive Directors is determined by the Compensation Committee comprising of only the Nonexecutive Directors. The recommendations of the Compensation Committee are consid- ered and approved by the Board subject to the approval of the shareholders. The Chairman and Execu- tive Directors are entitled to a performance bonus for each fi nancial year up to a maximum of 100%
and 85% of their consolidated salary, respectively, which is subject to the approval of the shareholders.
Nonexecutive Directors are entitled to remuneration by way of commission for each fi nancial year, up to a maximum of Rs.4,00,000/- individually, as approved by the shareholders. Nonexecutive Directors are also entitled to coverage under Personal Accident Insurance.
Employee Stock Option Scheme (ESOP)
ITC Limited follows a generous ESOP policy to its employees. Each option entitles the holder thereof to apply for and be allotted ten ordinary shares of the company of Rs 1/- each upon payment of the exercise price during the exercise period. The exercise period commences from the date of vesting of the options and expires at the end of fi ve years from the date of grant of the options.
Service Contracts, Severance Fee and Notice Period
The appointment of the Executive Directors is governed by resolutions passed by the Board and the shareholders of the company. A new service contract is not entered into by the company with those promoted to the Board from the management cadre as they are already under a contract. The statutory provisions for the severance pay are followed by ITC Limited. The articles of association provides that a notice of one month is required to be given by a Director who is seeking to vacate his offi ce and the resignation takes effect upon the expiration of such notice.
III. Investors Grievance Committee
The Investors Grievance Committee or the Investor Services Committee oversees the redressal of share- holders and investors grievances. They undertake the responsibility of the transmission of shares and issue duplicate share certifi cates.
The committee comprises three Directors of whom two are Independent Directors. The Chairman of the committee is a Nonexecutive Independent Director.
IV. Nominations Committee
The primary role played by the Nominations Committee is to make recommendations on the appointment of members of the Board, the Corporate Management Committee and the senior executive management.
The committee also plans the successions of these levels.