Corporate Governance
The governance framework in Dr. Reddy’s integrates the environmental, social and economic dimensions of our performance. We receive high-level guidance on our approach to sustainability, which covers a diverse range of issues at Dr. Reddy’s. The Board supports our investments in environmental protection, provides guidance to initiate progressive employee practices and regularly reviews regulatory compliance, all of which add value to our sustainability efforts.
At Dr. Reddy’s, the integration of sustainability thinking with our core business processes happens on two levels.
The Company’s commitment to sound governance is reflected in the Board’s composition and independence. The Board comprises individuals of diverse backgrounds with broad relevant experience. As on March 31, 2009, the Board of Dr. Reddy’s had nine Directors, comprising three executive Directors, including the Chairman and six independent Directors as defined under Listing Agreement with Indian Stock Exchanges and the Corporate Governance Guidelines of the NYSE. Detailed profiles of Directors have been discussed in the annual report 2008-09.
Lead independent Directors and focus areas:
Committees of the Board
The Board Committees appointed by the Board focus on specific areas and make informed decisions within the authority delegated. Each Committee of the Board is guided byits Charter, which defines the composition, scope and powers of the Committee.
The Committees also make specific recommendations to the Board on various matters from time-to-time. All observations, recommendations and decisions of the Committees are placed before the Board for information or for approval.
The Company has six Board-level Committees, namely:
The Audit Committee, Compensation Committee and Governance Committee are entirely comprised of Independent Directors, whilst the Shareholders’ Grievance Committee, Investment Committee and Management Committee are chaired by Independent Directors.
Audit Committee
Audit Committee supervises processes concerned with internal controls, financial reporting, and auditing practices. They ensure accurate and timely disclosures that maintain the transparency, integrity and quality of financial control & reporting. The primary responsibilities of the Audit Committee are to:
Compensation Committee *
The Compensation Committee reviews the performance of the executive Directors and senior executive(s) one level below the Board, and also reviews the remuneration package offered by the Company to different grades/levels of its employees. While reviewing the remuneration of senior management personnel, the Committee takes into account the following:
As on March 31, 2009, the Committee consists of Mr. Ravi Bhoothalingam as Chairman and Dr. J. P. Moreau and Ms. Kalpana Morparia as members.
Governance Committee *
As on March 31, 2009, the Committee consists of Mr. Anupam Puri as Chairman and Dr. Omkar Goswami as member.
The role of the Governance Committee is:
Shareholders’ Grievance Committee
The Shareholders’ Grievance Committee is empowered to perform all the functions of the Board in relation to handling of Shareholders’ Grievances. It primarily focuses on:
Investment Committee
The Investment Committee reviews the Company’s capital investment proposals and ongoing projects.
The Investment Committee consists of Mr. G V Prasad as Chairman, with Mr. Satish Reddy and Mr. Ravi Bhoothalingam as members.
Management Committee
The role of Management Committee is to authorize Directors and officers of the Company to deal with day-to-day business operations such as banking, treasury, insurance, excise, customs, administrative and dealing with other government/non-government authorities; approve loans to subsidiaries or other entities/persons up to an overall limit of
Rs. 250 million; and approve borrowings from any person up to an overall limit of
Rs. 250 million.
The Management Committee consists of Mr. Satish Reddy as Chairman, with
Mr. G V Prasad and Mr. Ravi Bhoothalingam as members.
Compliance Review
The Compliance Committee reviews all the compliances and laws applicable to the Company. The senior management team including the CEO and the COO are updated on the compliance status through periodic forums and quarterly review meetings. Periodically, presentations on the Compliance status are scheduled during the Audit Committee meetings.
Stakeholders Information
The Company has established systems and procedures to disseminate relevant information to its stakeholders, including shareholders, analysts, suppliers, customers, employees and the society at large. The primary source of information regarding the operations of the Company is the corporate website of the Company www.drreddys.com. All official news releases and presentations made to institutional investors and analysts are posted on this corporate website.
Quarterly and Annual results of the Company are published in widely circulated national newspapers such as The Economic Times / Business Standard and the local daily Andhra Prabha / Vaartha. These are also disseminated internationally through Business Wire.
In addition to the corporate website, the Company maintains various portals such as www.customer2drl.com, www.housecallsindia.com and www.drlintouch.com, which have proved to be effective and widely appreciated tools for information dissemination.
Code of Business Conduct & Ethics and Ombudsman Procedure
Dr. Reddy’s has adopted a Code of Business Ethics (COBE), which applies to all its directors, officers and Employees, regardless of their position, business affiliation or location. COBE lays down the principles that must guide our conduct and explains how we can practically apply them in our jobs and in our relationships with others – our customers, colleagues, shareholders, the authorities and the media.
Every Employee has a duty to adhere to this Code and all existing policies and procedures of Dr. Reddy’s and to report any suspected violations in accordance with the procedure stated in this Code. Employees must adhere to the letter and spirit of the Code. This Code is not intended to be totally comprehensive and Dr. Reddy’s therefore relies on its Employees to exercise discretion and engage in ethical conduct consistent with this Code.
The Board and the Senior Management affirms compliance with the Code of Business Conduct and Ethics annually. A certificate of the Vice-Chairman and Chief Executive Officer of the Company to this effect is enclosed to the Corporate Governance Section of the Annual Report of the Company, every year.
Employees of Dr. Reddy’s undergo a COBE Evaluation assessment on the intranet portal, to build awareness about the Ombudsman procedure. Processes are in place for the assessment in India, USA and UK and will soon roll out in other countries of our operations.
An Ombudsman Procedure has also been made under this Code, which describes the ombudsman framework and procedures for investigation and communication of any report on any violation or suspected violation of the Code, appeal against any decision taken by Ombudsman, and submission of complaint against any retaliation action against any employee. An independent Director has been appointed as Chief Ombudsman, and the reports and complaints submitted to the Company will be reported to the Audit Committee. To ensure complete confidentiality of the procedure, a dedicated direct access to the Chief Ombudsman has been set-up, wherein employees can register their complaint or appeal against any violation of the Code. Employees can access the Chief Ombudsman through any of the three media available; toll-free number, email or mail. Toll-free number access is currently available in India and USA and for other operations; dedicated toll-free numbers are being set-up.
The Code of Business Conduct and Ethics and Ombudsman Procedure have been posted on the Company’s website – www.drreddys.com.
Remuneration and Compensation
Executive Directors are appointed by shareholders’ resolution for a period of five years. No severance fees is payable to the Executive Directors. Except the commission payable, all other components of remuneration to the Executive Directors are fixed and in line with the Company’s policies. The remuneration for the three Executive Directors, including the commission based on net profits of the Company, is recommended by the Board’s Compensation Committee to the Board for consideration. The commission to be paid each year to the Executive Directors is decided by the Board, within the limits approved by the shareholders.
The independent Directors receive sitting fees for attending meetings of the Board and its Committees and commission based on the net profits of the Company. The remuneration including commission payable to the Directors during the year under review was in conformity with the applicable provisions of the Companies Act, 1956, duly considered and approved by the Board and the shareholders.
The criteria for making payments to the Executive Directors are:
Avoidance of Conflicts of Interests
Senior management of the Company (employees at Senior Director level and above, as well as certain identified key employees) make annual disclosures to the Board relating to all material financial and commercial transactions where they have personal interest, if any, that may have a potential conflict with the interest of the Company at large. Transactions with key managerial personnel have been discussed in financials sections of Annual Report 2008-09 under Related Party Transactions.
Selection and Appointment of New Directors
Induction of any new member on the Board of Directors is the responsibility of the Governance Committee, which is entirely composed of independent Directors. Taking into account the existing composition and organization of the Board, and the requirement of new skill sets, if any, the Governance Committee reviews potential candidates in terms of their expertise, skills, attributes and personal and professional backgrounds. Candidates, meeting the criteria, are then considered by the Governance Committee, for induction as a Director on the Board of the Company.
Risk Management
The Company has a detailed enterprise-wide risk management system in place. During the year, detailed presentations were made to the Board members on the enterprise-wide risk management system and a process was set up to inform Board members about the risk assessment and minimization procedures. These procedures are periodically reviewed to ensure that the management controls the risk through means of a properly defined framework.
At Dr. Reddy’s, the integration of sustainability thinking with our core business processes happens on two levels.
- The corporate level, where overall policies and strategic direction are set and capital is allocated
- The business groups, which generate revenue and where the impact on communities and the environment is most immediate
The Company’s commitment to sound governance is reflected in the Board’s composition and independence. The Board comprises individuals of diverse backgrounds with broad relevant experience. As on March 31, 2009, the Board of Dr. Reddy’s had nine Directors, comprising three executive Directors, including the Chairman and six independent Directors as defined under Listing Agreement with Indian Stock Exchanges and the Corporate Governance Guidelines of the NYSE. Detailed profiles of Directors have been discussed in the annual report 2008-09.
| Name | Position |
|---|---|
| Dr. K Anji Reddy | Executive Chairman |
| Mr. G V Prasad | Vice Chairman and CEO |
| Mr. Satish Reddy | Managing Director and COO |
| Dr. Omkar Goswami | Independent Director |
| Mr. Ravi Bhoothalingam | Independent Director |
| Mr. Anupam Puri | Independent Director |
| Dr. J. P. Moreau | Independent Director |
| Ms. Kalpana Morparia | Independent Director |
| Dr. Bruce L.A. Carter | Independent Director |
Lead independent Directors and focus areas:
| Mr. Anupam Puri | Governance, Corporate strategy and driving agenda for Board and Board Committee meetings and its improvement |
| Ms. Kalpana Morparia | Internal Audit and control |
| Dr. Omkar Goswami | Finance, internal controls and risk management |
| Mr. Ravi Bhoothalingam | Compliance and Chief Ombudsman for the Whistle Blower Policy of the Company |
| Dr. J. P. Moreau | Pharma Regulatory Compliance and its improvement |
Committees of the Board
The Board Committees appointed by the Board focus on specific areas and make informed decisions within the authority delegated. Each Committee of the Board is guided byits Charter, which defines the composition, scope and powers of the Committee.
The Committees also make specific recommendations to the Board on various matters from time-to-time. All observations, recommendations and decisions of the Committees are placed before the Board for information or for approval.
The Company has six Board-level Committees, namely:
- Audit Committee
- Compensation Committee *
- Governance Committee *
- Shareholders’ Grievance Committee
- Investment Committee and
- Management Committee
The Audit Committee, Compensation Committee and Governance Committee are entirely comprised of Independent Directors, whilst the Shareholders’ Grievance Committee, Investment Committee and Management Committee are chaired by Independent Directors.
Audit Committee
Audit Committee supervises processes concerned with internal controls, financial reporting, and auditing practices. They ensure accurate and timely disclosures that maintain the transparency, integrity and quality of financial control & reporting. The primary responsibilities of the Audit Committee are to:
- Supervise the financial reporting process;
- Review the quarterly and annual financial results before placing them to the Board along with related disclosures and filing requirements;
- Review the adequacy of internal controls in the Company, including the plan, scope and performance of the internal audit function;
- Discuss with management the Company’s major policies with respect to risk assessment and risk management;
- Hold discussions with statutory auditors on the nature and scope of audits, and any views that they have about the financial control and reporting processes;
- Ensure compliance with accounting standards, and with listing requirements with respect to the financial statements;
- Recommend the appointment and removal of external auditors and their fees;
- Review the independence of auditors;
- Ensure that adequate safeguards have been taken for legal compliance both for the Company and its other Indian as well as foreign subsidiaries;
- Review related party transactions;
- Review the functioning of Whistle Blower mechanism; and
- Implementation of the applicable provisions of the Sarbanes Oxley Act, 2002.
Compensation Committee *
The Compensation Committee reviews the performance of the executive Directors and senior executive(s) one level below the Board, and also reviews the remuneration package offered by the Company to different grades/levels of its employees. While reviewing the remuneration of senior management personnel, the Committee takes into account the following:
- Financial position of the Company;
- Trends in the industry;
- Appointee’s qualifications and experience;
- Past performance;
- Past remuneration; etc.
As on March 31, 2009, the Committee consists of Mr. Ravi Bhoothalingam as Chairman and Dr. J. P. Moreau and Ms. Kalpana Morparia as members.
Governance Committee *
As on March 31, 2009, the Committee consists of Mr. Anupam Puri as Chairman and Dr. Omkar Goswami as member.
The role of the Governance Committee is:
- Shortlisting of nominees for induction to the Board of the Company;
- Selection of nominees on the Board of the Company;
- Recommendation, appointment and handle resignations of members to the Board for its consideration; and
- Review the principles of corporate governance of the Company.
Shareholders’ Grievance Committee
The Shareholders’ Grievance Committee is empowered to perform all the functions of the Board in relation to handling of Shareholders’ Grievances. It primarily focuses on:
- Review of investor complaints and their redressal;
- Review of the queries received from investors;
- Review of the work done by Share Transfer Agent; and
- Review of corporate actions related work.
Investment Committee
The Investment Committee reviews the Company’s capital investment proposals and ongoing projects.
The Investment Committee consists of Mr. G V Prasad as Chairman, with Mr. Satish Reddy and Mr. Ravi Bhoothalingam as members.
Management Committee
The role of Management Committee is to authorize Directors and officers of the Company to deal with day-to-day business operations such as banking, treasury, insurance, excise, customs, administrative and dealing with other government/non-government authorities; approve loans to subsidiaries or other entities/persons up to an overall limit of
Rs. 250 million; and approve borrowings from any person up to an overall limit of
Rs. 250 million.
The Management Committee consists of Mr. Satish Reddy as Chairman, with
Mr. G V Prasad and Mr. Ravi Bhoothalingam as members.
Compliance Review
The Compliance Committee reviews all the compliances and laws applicable to the Company. The senior management team including the CEO and the COO are updated on the compliance status through periodic forums and quarterly review meetings. Periodically, presentations on the Compliance status are scheduled during the Audit Committee meetings.
Stakeholders Information
The Company has established systems and procedures to disseminate relevant information to its stakeholders, including shareholders, analysts, suppliers, customers, employees and the society at large. The primary source of information regarding the operations of the Company is the corporate website of the Company www.drreddys.com. All official news releases and presentations made to institutional investors and analysts are posted on this corporate website.
Quarterly and Annual results of the Company are published in widely circulated national newspapers such as The Economic Times / Business Standard and the local daily Andhra Prabha / Vaartha. These are also disseminated internationally through Business Wire.
In addition to the corporate website, the Company maintains various portals such as www.customer2drl.com, www.housecallsindia.com and www.drlintouch.com, which have proved to be effective and widely appreciated tools for information dissemination.
Code of Business Conduct & Ethics and Ombudsman Procedure
Dr. Reddy’s has adopted a Code of Business Ethics (COBE), which applies to all its directors, officers and Employees, regardless of their position, business affiliation or location. COBE lays down the principles that must guide our conduct and explains how we can practically apply them in our jobs and in our relationships with others – our customers, colleagues, shareholders, the authorities and the media.
Every Employee has a duty to adhere to this Code and all existing policies and procedures of Dr. Reddy’s and to report any suspected violations in accordance with the procedure stated in this Code. Employees must adhere to the letter and spirit of the Code. This Code is not intended to be totally comprehensive and Dr. Reddy’s therefore relies on its Employees to exercise discretion and engage in ethical conduct consistent with this Code.
The Board and the Senior Management affirms compliance with the Code of Business Conduct and Ethics annually. A certificate of the Vice-Chairman and Chief Executive Officer of the Company to this effect is enclosed to the Corporate Governance Section of the Annual Report of the Company, every year.
Employees of Dr. Reddy’s undergo a COBE Evaluation assessment on the intranet portal, to build awareness about the Ombudsman procedure. Processes are in place for the assessment in India, USA and UK and will soon roll out in other countries of our operations.
An Ombudsman Procedure has also been made under this Code, which describes the ombudsman framework and procedures for investigation and communication of any report on any violation or suspected violation of the Code, appeal against any decision taken by Ombudsman, and submission of complaint against any retaliation action against any employee. An independent Director has been appointed as Chief Ombudsman, and the reports and complaints submitted to the Company will be reported to the Audit Committee. To ensure complete confidentiality of the procedure, a dedicated direct access to the Chief Ombudsman has been set-up, wherein employees can register their complaint or appeal against any violation of the Code. Employees can access the Chief Ombudsman through any of the three media available; toll-free number, email or mail. Toll-free number access is currently available in India and USA and for other operations; dedicated toll-free numbers are being set-up.
The Code of Business Conduct and Ethics and Ombudsman Procedure have been posted on the Company’s website – www.drreddys.com.
Remuneration and Compensation
Executive Directors are appointed by shareholders’ resolution for a period of five years. No severance fees is payable to the Executive Directors. Except the commission payable, all other components of remuneration to the Executive Directors are fixed and in line with the Company’s policies. The remuneration for the three Executive Directors, including the commission based on net profits of the Company, is recommended by the Board’s Compensation Committee to the Board for consideration. The commission to be paid each year to the Executive Directors is decided by the Board, within the limits approved by the shareholders.
The independent Directors receive sitting fees for attending meetings of the Board and its Committees and commission based on the net profits of the Company. The remuneration including commission payable to the Directors during the year under review was in conformity with the applicable provisions of the Companies Act, 1956, duly considered and approved by the Board and the shareholders.
The criteria for making payments to the Executive Directors are:
- Salary, as recommended by the Compensation Committee and approved by the Board and the shareholders. Perquisites and retirement benefits are also paid in accordance with the Company’s compensation policies, as applicable to all employees.
- Shareholders of the Company have approved the payment of commission on the net profits calculated in accordance with Section 198 / 349 of the Companies Act, 1956 to all executive Directors.
- The Compensation Committee decides the amount of commission payable every year within the overall limit.
- Remuneration paid to the executive Directors is determined keeping in view the industry benchmarks.
- Independent Directors are paid sitting fees for each meeting of the Board or Board Committee @ Rs. 5,000/- per meeting attended by them.
- Shareholders of the Company have approved payment of commission up to 0.5 per cent of net profits calculated in accordance with Section 198 / 349 of the Companies Act, 1956 collectively to all the independent Directors. The Board decides the amount of commission payable to Independent Directors every year within the overall limit of 0.5 per cent of net profits.
- Remuneration paid to independent Directors is determined by keeping in view industry benchmarks, and also on the basis of their memberships in various committees of the Board.
- Shareholders of the Company approved granting of up to 200,000 stock options in aggregate at any point of time during the financial years starting from 2006–07 and ending with 2010–11 to all the Directors (with the exception of the three executive Directors). Of this, up to 60,000 stock options can be granted in a single financial year to the Directors, as aforesaid, under any of the stock option plans, either existing or to be framed in future, and on such terms and conditions as the Compensation Committee / Board of Directors may think fit.
Avoidance of Conflicts of Interests
Senior management of the Company (employees at Senior Director level and above, as well as certain identified key employees) make annual disclosures to the Board relating to all material financial and commercial transactions where they have personal interest, if any, that may have a potential conflict with the interest of the Company at large. Transactions with key managerial personnel have been discussed in financials sections of Annual Report 2008-09 under Related Party Transactions.
Selection and Appointment of New Directors
Induction of any new member on the Board of Directors is the responsibility of the Governance Committee, which is entirely composed of independent Directors. Taking into account the existing composition and organization of the Board, and the requirement of new skill sets, if any, the Governance Committee reviews potential candidates in terms of their expertise, skills, attributes and personal and professional backgrounds. Candidates, meeting the criteria, are then considered by the Governance Committee, for induction as a Director on the Board of the Company.
Risk Management
The Company has a detailed enterprise-wide risk management system in place. During the year, detailed presentations were made to the Board members on the enterprise-wide risk management system and a process was set up to inform Board members about the risk assessment and minimization procedures. These procedures are periodically reviewed to ensure that the management controls the risk through means of a properly defined framework.
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