Institute of Professional Education and Research(Bhopal)

BUSINESS ENVIRONMENT
ASSIGNMENT # 1

Corporate governance
Corporate governance is "the system by which companies are directed and controlled". It
involves a set of relationships between a companys management, its board, its
shareholders and other stakeholders; it deals with prevention or mitigation of the conflict of
interests of stakeholders. Ways of mitigating or preventing these conflicts of interests
include theprocesses, customs, policies, laws, and institutions which have impact on the way
a company is controlled. An important theme of corporate governance is the nature and
extent ofaccountability of people in the business, and mechanisms that try to decrease
the principalagent problem.
Corporate governance also
includes
the
relationships
among
the
many stakeholders involved and the goals for which the corporation is governed. In
contemporary business corporations, the main external stakeholder groups are
shareholders, debtholders, trade creditors, suppliers, customers and communities affected
by the corporation's activities. Internal stakeholders are the board of directors, executives,
and other employees. It guarantees that an enterprise is directed and controlled in a
responsible, professional, and transparent manner with the purpose of safeguarding its
long-term success. It is intended to increase the confidence of shareholders and capitalmarket investors.
A related but separate thread of discussions focuses on the impact of a corporate
governance system on economic efficiency, with a strong emphasis on shareholders'
welfare; this aspect is particularly present in contemporary public debates and
developments in regulatory policy (see regulation and policy regulation).

Principles of corporate governance

Rights and equitable treatment of shareholders: Organizations should respect the

rights of shareholders and help shareholders to exercise those rights. They can help
shareholders exercise their rights by openly and effectively communicating information
and by encouraging shareholders to participate in general meetings.
Interests of other stakeholders:Organizations should recognize that they have legal,
contractual, social, and market driven obligations to non-shareholder stakeholders,
including employees, investors, creditors, suppliers, local communities, customers, and
policy makers.
Role and responsibilities of the board: The board needs sufficient relevant skills and
understanding to review and challenge management performance. It also needs
adequate size and appropriate levels of independence and commitment
Integrity and ethical behavior: Integrity should be a fundamental requirement in
choosing corporate officers and board members. Organizations should develop a code
of conduct for their directors and executives that promotes ethical and responsible
decision making.
Disclosure and transparency: Organizations should clarify and make publicly known the
roles and responsibilities of board and management to provide stakeholders with a level
2

of accountability. They should also implement procedures to independently verify and

safeguard the integrity of the company's financial reporting. Disclosure of material
matters concerning the organization should be timely and balanced to ensure that all
investors have access to clear, factual information.

NTPC
Indias largest power company, NTPC was set up in 1975 to accelerate power development in India. NTPC is
emerging as a diversified power major with presence in the entire value chain of the power generation
business. Apart from power generation, which is the mainstay of the company, NTPC has already ventured
into consultancy, power trading, ash utilisation and coal mining. NTPC ranked 341 st in the 2010, Forbes
Global 2000 ranking of the Worlds biggest companies. NTPC became a Maharatna company in May, 2010,
one
of
the
only
four
companies
to
be
awarded
this
status.
The total installed capacity of the company is 36,014 MW (including JVs) with 15 coal based and 7 gas based
stations, located across the country. In addition under JVs, 5 stations are coal based & another station uses
naptha/LNG as fuel. The company has set a target to have an installed power generating capacity of
1,28,000 MW by the year 2032. The capacity will have a diversified fuel mix comprising 56% coal, 16% Gas,
11% Nuclear and 17% Renewable Energy Sources(RES) including hydro. By 2032, no fossil fuel based
generation capacity shall make up nearly 28% of NTPCs portfolio.
NTPC has been operating its plants at high efficiency levels. Although the company has 17.75% of the total
national capacity, it contributes 27.40% of total power generation due to its focus on high efficiency.

In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as fresh issue and 5.25%
as offer for sale by Government of India. NTPC thus became a listed company in November 2004 with the
Government holding 89.5% of the equity share capital. In February 2010, the Shareholding of Government
of India was reduced from 89.5% to 84.5% through Further Public Offer. The rest is held by Institutional
Investors
and
the
Public.

At NTPC, People before Plant Load Factor is the mantra that guides all HR related policies. NTPC has been
awarded No.1, Best Workplace in India among large organisations and the best PSU for the year 2010, by
the Great Places to Work Institute, India Chapter in collaboration with The Economic Times.
The concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture. Through its expansive
CSR initiatives, NTPC strives to develop mutual trust with the communities that surround its power stations.
Corporate Governance is a process that aims to meet shareholders aspirations and societal expectations. It is a
commitment that is backed by the fundamental belief of maximizing shareholders value, transparency in functioning,
values and mutual trust amongst all the constituents of organization. Its not a discipline imposed by a Regulator,
rather a culture that guides the Board, management and employees to function towards best interest of
stakeholders. In our Company, Corporate Governance philosophy stems from our belief that corporate governance is
a key element in improving efficiency and growth as well as enhancing investor confidence and accordingly the
Corporate Governance philosophy has been scripted as under:
As a good corporate citizen, the Company is committed to sound corporate practices based on conscience,
openness, fairness, professionalism and accountability in building confidence of its various stakeholders in it thereby
paving the way for its long term success.
We are making continuous efforts to adopt the best practices in corporate governance and we believe that the
practices we are putting into place for the company shall go beyond adherence to regulatory framework . Our
corporate structure, business and disclosure practices have been aligned to our Corporate Governance Philosophy.

Board compositionDiversified Expertise based Board drives NTPC:NTPC Board, at present, comprises of six full time functional Directors and the
ManagingDirector who is also the Chairman of the company. Companys functional directors
arehighly experienced professionals in their functional areas; provide directions to
themanagement on operational issues, adoption of systems and best practices in
management andoversight of compliance of various legal and other [Link]
Company has nine Independent Directors and two directors nominated by theadministrative
ministry. The Independent Directors on the Board of the company are appointed by the
Government of India through an elaborate procedure of selection whichencompasses
induction of professionals and experts in relevant field through a SearchCommittee by the
Government of India. Our Company believes that Independent Directors bring with them
the rich experience followed in other companies resulting in imbibing the best practices
followed in the industry.

REPORT ON CORPORATE GOVERNANCE

CORPORATE GOVERNANCE RECOGNITIONS
In recognition of excellence in Corporate Governance, the following accolades have been
conferred on NTPC in recent years:
(i) 'ICSI National Award for Excellence in Corporate Governance - 2009' by the Institute of
Company Secretaries of India
(ii) 'Golden Peacock Global Award for Excellence in Corporate Governance' by World Council
for Corporate Governance in the years 2007 and 2009
(iii) 'Golden Peacock National Award for Excellence in Corporate Governance' by World
Council for Corporate Governance in the year 2008
(iv) SCOPE Meritorious Award for Good Corporate Governance for the year 2005-06.

BOARD OF DIRECTORS
Size of the Board:NTPC is a Government Company within the meaning of section 617 of the Companies Act,
1956 as the President of India presently holds 84.5% of the total paid-up share capital. As
per Articles of Association, the power to appoint Directors vests in the President of India.
5

In terms of the Articles of Association of the Company strength of our Board shall not be less
than four Directors or more than twenty Directors. These Directors may be either wholetime Directors or part-time Directors. The constitution of the Board is as under:
(i) Seven functional Directors including the Chairman & Managing Director,
(ii) Two government nominees and
(iii) Nine independent directors as per the requirement of the Listing Agreement.

Composition:The Board of Directors have an optimum combination of executive and non-executive

Directors. As on 31st March 2011, the Board comprised eighteen Directors out of which
seven were whole-time Directors including the Chairman & Managing Director. Two
Directors are nominees of the Government of India. The Board also has nine independent
Directors who have been appointed by the Government of India through a Search
Committee constituted for the purpose. The Directors bring to the Board wide range of
experience and skills.
The listing agreements with stock exchanges stipulate half of the Board members to be
independent directors.
We are compliant with Clause 49 (IA) of the Listing Agreement regarding composition of the
Board of Directors.

Age limit and tenure of Directors:The age limit of the Chairman & Managing Director and other whole-time Directors is 60
Years.
The Chairman & Managing Director and other whole time Directors are appointed for a
period of five years from the date of taking over the charge or until the date of
superannuation of the incumbent, or until further orders from the Government of India,
whichever event occurs earlier.
Government Nominee Directors representing Ministry of Power, Government of India retire
from the Board on ceasing to be officials of the Ministry of Power.
Independent Directors are appointed by the Government of India for tenure of three years.

Resume of Directors:The brief resume of Directors retiring by rotation and Additional Directors seeking
appointment including nature of their experience in specific functional areas, names of
companies in which they hold directorship and membership/chairmanship of
Board/Committees is appended to the notice calling the Annual General Meeting.

Information placed before the Board of Directors:

The Board has complete access to any information within the Company. The information
regularly supplied to the Board includes:
Annual operating plans and budgets and any updates.
Capital Budgets and any updates.
Review of progress of ongoing projects including critical issues and areas needing
management attention
Annual Accounts, Directors' Report, etc.
Quarterly financial results.
Minutes of meetings of Audit Committee and other Committees of the Board.
Minutes of meetings of Board of Directors of subsidiary companies.
The information on recruitment and promotion of senior officers to the level of Executive
Director which is just below the Board level and Company Secretary.
Fatal or serious accidents, dangerous occurrences, and many more.

REMUNERATION OF DIRECTORS:As already stated under the heading Remuneration Committee above, the remuneration of
the Functional Directors and sitting fee payable to the Independent Directors is decided by
the Government of India. The Ministry of Power, Government of India has authorized the
Board of Directors of the Company to determine the sitting fee payable to Independent
Directors within the ceiling prescribed under the Companies Act, 1956. Accordingly, the
Board decides the sitting fee payable to the Independent Directors. Presently, sitting fee of
Rs. 15,000/- for each meeting of the Board, Committees of the Board and Group of Directors
constituted by the Board from time to time, is being paid to each Independent Director.

Management - NTPC
Name

Designation

Arup Roy Choudhury

I J Kapoor
D K Jain
N NMisra
Rakesh Jain
Adesh Jain
SantoshNautiyal
RajibSekharSahoo
Ajit M Nimbalkar
Homai A Daruwalla
SushilKhanna
Name

Chairman and Managing director

Director (Commercial)
Director (Technical)
Director (Operations)
Nominee Director
Independent Director
Independent Director
Non Official PartTime Director
Non Official PartTime Director
Non Official PartTime Director
Non Official PartTime Director
Designation

A K Singhal
B P Singh
S P Singh
I C P Keshari
KanwalNath
A K Sanwalka
S B GhoshDastidar
M GovindaRao
S R Upadhyay
AnolNathChatterji

Director (Finance)
Director (Projects)
Director (Human Resources)
Nominee Director
Independent Director
Independent Director
Non Official PartTime Director
Independent Director
Non Official PartTime Director
Non Official PartTime Director

(C) SHARE PRICES OF NTPC BETWEEN 2009 TO 2011

Month

Open High Low Close No. of

Price Price Price Price Shares

* Spread
No. of Total Turnover (Rs.)
Trades (Rs.)
H-L C-O

Mar 09 183.00 186.95 167.30 180.20 2,68,17,977 1,98,010 4,70,48,06,086 19.65 -2.80
Apr 09 181.00 205.50 176.10 190.15 3,19,77,409 2,58,173 6,12,81,89,159 29.40 9.15
May 09 193.70 222.75 185.15 215.45 2,89,81,161 2,46,613 5,90,44,57,302 37.60 21.75
Jun 09 219.00 233.00 186.55 195.05 5,15,93,394 3,49,639 10,97,94,43,337 46.45 -23.95
Jul 09 195.90 220.10 188.00 215.60 2,70,86,367 2,02,635 5,50,14,57,872 32.10 19.70
Aug 09 215.60 220.40 200.85 212.65 1,79,21,281 99,342 3,76,56,79,294 19.55 -2.95
Sep 09 214.00 215.30 203.55 213.70 1,16,13,142 77,688 2,42,61,61,926 11.75 -0.30
Oct 09 214.50 223.00 205.25 211.40 1,24,76,201 87,424 2,66,63,72,535 17.75 -3.10
Nov 09 211.00 218.85 201.65 209.75 91,46,687 60,978 1,94,06,40,537 17.20 -1.25
Dec 09 208.00 241.70 205.10 235.70 1,84,16,600 1,15,418 4,03,64,17,463 36.60 27.70
Jan 10 238.70 239.00 210.50 214.25 1,87,78,021 1,20,355 4,27,68,99,678 28.50 -24.45
Feb 10 216.10 216.90 196.10 203.00 1,40,51,854 99,760 2,87,87,17,454 20.80 -13.10
Mar 10 203.50 208.40 199.50 207.00 1,14,88,107 66,369 2,33,84,99,707 8.90 3.50
Apr 10 207.00 212.20 201.50 206.95 59,00,346 44,084 1,22,81,48,209 10.70 -0.05
May 10 207.00 208.50 190.40 202.00 66,68,183 55,914 1,34,32,22,111 18.10 -5.00
Jun 10 200.25 203.90 194.00 199.15 58,59,420 41,564 1,16,57,30,126 9.90 -1.10
Jul 10 198.45 205.80 197.30 198.60 71,89,404 44,817 1,44,36,32,413 8.50 0.15

Aug 10 200.50 200.50 192.90 195.75 33,67,058 37,503 66,06,07,172

7.60 -4.75

Sep 10 196.00 221.00 195.10 216.90 1,29,23,901 78,707 2,70,79,29,326 25.90 20.90
Oct 10 217.70 222.20 193.90 194.95 1,05,63,032 62,525 2,19,55,72,179 28.30 -22.75
Nov 10 196.60 197.45 175.20 184.25 76,71,384 67,823 1,43,74,84,229 22.25 -12.35
Dec 10 184.00 202.95 182.05 200.60 65,22,209 65,091 1,25,78,86,631 20.90 16.60
Jan 11 201.00 203.15 185.00 188.90 43,52,288 48,938 84,45,95,047

18.15 -12.10

Feb 11 189.00 190.00 168.60 170.05 39,30,246 45,742 69,64,41,123

21.40 -18.95

Mar 11 172.50 194.90 171.05 193.00 37,08,698 46,612 66,49,77,713

23.85 20.50

NTPCs stock price down 12.8 per cent since its coverage initiation CARE Equity Research initiated NTPCs
coverage with Current Intrinsic Value (CIV) of Rs.246 per share and a valuation grade of 5, based on the
current market price of Rs.183.5 on 29thApril 2011. The stock is down 12.8 per cent cumulatively,
since then. However, the benchmark SENSEX in comparison has been lower by around 19.9 per cent.

FINANCIAL PERFORMANCE OF NTPC

Profit & Loss account of NTPC

------------------- in Rs. Cr. ------------------Mar '11

Mar '10

Mar '09

Mar '08

12 mths

12 mths

12 mths

12 mths

Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
Expenditure

57,796.64
313.47
57,483.17
2,338.65
0.00
59,821.82

48,585.88
274.29
48,311.59
2,900.29
0.00
51,211.88

44,532.70
236.00
44,296.70
3,229.20
0.00
47,525.90

38,903.90
228.00
38,675.90
2,891.80
0.00
41,567.70

Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Admin Expenses
Miscellaneous Expenses
Preoperative Exp Capitalised

38.55
36,865.61
3,605.44
1,811.41
2,228.31
611.86
-3,313.72

32.63
30,429.41
3,119.28
1,460.70
629.24
503.73
-2,645.28

32.70
29,122.40
3,009.00
1,149.00
583.00
454.80
-817.20

27.70
23,313.50
1,953.30
1,094.20
441.50
379.60
-293.90

Income

10

Total Expenses

41,847.46
Mar '11

33,529.71
Mar '10

33,533.70
Mar '09

26,915.90
Mar '08

12 mths

12 mths

12 mths

12 mths

Operating Profit

15,635.71

14,781.88

10,763.00

11,760.00

PBDIT
Interest
P
BDT
Depreciation
Other Written Off
Profit Before Tax
Extra-ordinary items
PBT (Post Extra-ord Items)
Tax
Reported Net Profit

17,974.36
4,470.04

17,682.17
3,781.46

13,992.20
2,095.30

14,651.80
1,819.80

13,504.32

13,900.71

11,896.90

12,832.00

2,719.69
0.00
10,784.63
1,353.50
12,138.13
2,727.63
9,348.23

2,894.38
0.00
11,006.33
595.03
11,601.36
2,734.11
8,837.65

2,494.90
0.00
9,402.00
1,302.90
10,704.90
2,611.60
8,092.50

2,206.00
0.00
10,626.00
-638.30
9,987.70
2,517.60
7,469.90

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

7,994.73

8,242.62

6,789.60

8,108.20

41,808.91
0.00
3,135.81
518.49

33,497.08
0.00
3,149.16
532.43

33,501.00
0.00
2,973.70
504.70

26,888.20
0.00
2,893.90
492.90

82,454.64
11.34

82,454.64
10.72

82,454.64
9.81

82,454.64
9.06

0.00
82.57

0.00
75.56

0.00
69.62

0.00
64.11

Minority Interest
Share Of P/L Of Associates
Net P/L After Minority Interest & Share Of
Associates
Total Value Addition
Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per share data (annualised)
Shares in issue (lakhs)
Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)

MAJOR ACTIVITIES THAT OCCURS BETWEEN 2009 TO 201128-12-2011

Others

25-10-2011

Quarterly Results

25-07-2011

Quarterly Results

10-05-2011

Audited Results & Final Dividend

31-01-2011

Quarterly Results & Interim Dividend

12-11-2010

Others

26-10-2010

Quarterly Results

26-07-2010

Quarterly Results

11

0.00

21-07-2010

Others

17-05-2010

Audited Results & Final Dividend

13-03-2010

Interim Dividend

29-01-2010

Quarterly Results

29-12-2009

Others

23-10-2009

Quarterly Results

27-07-2009

Quarterly Results

22-05-2009

Audited Results & Final Dividend

16-03-2009

To approve the Investment proposal

24-01-2009

Qtr. Results, Intrm. Dividend & Others

Analysis:
From the time NTPC has started practising corporate governance in their
working the share prices of this company has gone up year by year and the
impact of this is reflected on the buying and trading of shares and it creates a
good image in the market also.

CSR ACTIVITIES:NTPC believes in growth with a human face, and pursuing people-centred development.
NTPC is a socially committed organisation and a socially responsible corporate citizen. It
attaches great importance to discharging its overall social responsibilities to the community
and the society at large where its projects and stations are located. In this regard
Resettlement and Rehabilitation (R&R) program becomes an area of sharp focus, a program
that addresses people affected directly or indirectly in the wake of the projects undertaken.
Public Information Centre (PIC)
To disseminate information on the project, PICs at Corporate Centre and the projects house
an array of documents- survey reports, action plans, land records, policy etc. The PAPs are

12

able to glean information on various facets of the project and also submit any query or
grievance.
Village Development Advisory Committee (VDAC)
VDACs facilitates finalisation and implementation of RAPs in a participative manner. The
representatives of PAPs, Gram Pradhan, Panchayat representative, Block Development
Officer, other representatives of State Government NTPC and NGOs/CBOs, constitute it and
meet regularly since the formulation of RAP till completion and closure of RAPs at respective
projects.
NTPC Environment PolicyAs early as in November 1995, NTPC brought out a comprehensive document entitled "NTPC
Environment Policy and Environment Management System". Amongst the guiding principles
adopted in the document are company's proactive approach to environment, optimum
utilisation of equipment, adoption of latest technologies and continual environment
improvement. The policy also envisages efficient utilisation of resources, thereby minimising
waste, maximising ash utilisation and providing green belt all around the plant for
maintaining ecological balance.
Pollution control systemsWhile deciding the appropriate technology for its projects, NTPC integrates many
environmental provisions into the plant design. In order to ensure that NTPC comply with all
the stipulated environment norms, various state-of-the-art pollution control systems /
devices as discussed below have been installed to control air and water pollution.
On-line data base managementIn order to have better control on pollution and to achieve effective environment
management in and around NTPC stations, it is imperative to have an on-line, reliable and
efficient environment information system on the plant operational and environmental
performance parameters at all three levels i.e generating Stations, Regional Headquarters
and Corporate Centre. In consideration of the above, a computerized programme, namely
"Paryavaran Monitoring System" - PMS, which could provide reliable storage, prompt and
accurate flow of information on environmental performance of Stations was developed and
installed in NTPC. This software facilitates direct transfer of environment reports and other
environment related information from stations to the Regional Headquarters and Corporate
Centre. The PMS has already been implemented at Corporate Centre, the Regional
Headquarters
and
most
of
the
Stations.
This system has helped in achieving continuous improvement in NTPC's environment
performance through improved monitoring and reporting system by using the trend analysis
and advanced data management techniques.
13

Community DevelopmentThe concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture. Through its
expansive CSR initiatives NTPC strives to develop mutual trust with the communities that surround its
Power Stations.

Right from social to developmental work of the community and welfare based dependence, to creating
greater self reliance; constant endeavour is to institutionalise social responsibility on various levels.
NTPC's CSR-CD Policy establishes NTPC foundation as a trust and initiating scheme for economic self
reliance of physically challenged persons (PCP).

NTPC's approach towards CSR, further articulated in the corporate objectives on sustainable power
development, is as follows:

To contribute to sustainable power development by discharging corporate social

responsibilities.

lead the sector in the areas of resettlement and rehabilitation and environment protection
including effective ash-utilisation, peripheral development and energy conservation practices.

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Impact of corporate governance

The results reveal that:
(1) A higher level of institutional ownership.
(2) More independent members on the board of directors. These results suggest that firms
with stronger corporate governance mechanisms are less likely to make misleading earnings
adjustments and, as a result, they have lower incentives to cease reporting manageradjusted earnings numbers in the presence of SEC scrutiny.
3.) Interestingly, the presence of strong corporate governance mechanisms appears to
decrease investors' reliance on adjusted earnings measures. An analysis of the market's
reaction to earnings announcements indicates that both a high proportion of institutional
ownership and a high percentage of outside directors are associated with a lower market
reaction to non-GAAP earnings.

THANK YOU

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