ITC Sustainability Report 2014

The Company's Corporate Governance processes are designed to support effective management of multiple businesses while retaining focus on each one of them. The practice of Corporate Governance at ITC takes place at three interlinked levels.

Strategic Supervision	By the Board of Directors (Board)
Strategic Management	By the Corporate Management Committee (CMC)
Executive Management	By the Divisional / Strategic Business Unit (SBU) Chief Executive assisted by the respective Divisional / SBU Management Committee (DMC)

The role, powers and composition of the Board, Board Committees, CMC and DMC are available on the Company's corporate website.

Governance Structure

Board of Directors

The ITC Board is a balanced Board comprising Executive Directors and Non-Executive Directors.

SELECTION OF DIRECTORS

ITC's Governance Policy requires that the Non-Executive Directors, including Independent Directors, be drawn from amongst eminent professionals with experience in business / finance / law / public administration and enterprises.

Directors are appointed / re-appointed with the approval of the Shareholders for a period of three to five years or a shorter duration in accordance with retirement guidelines as determined by the Board from time to time.

The Nomination Committee recommends, inter alia, Executive Directors' appointment to the Board, appointment to the Corporate Management Committee and the seniormost level of executive management below the Executive Directors.

The initial appointment of Executive Directors is normally for a period of three years. All Directors are liable to retire by rotation unless otherwise approved by the Shareholders or provided under any statute.

The Independent Directors have confirmed that they meet the criteria of 'Independence' as stipulated under the statute.

COMPOSITION OF THE BOARD

The strength of the Board as on 31st March, 2014, was fourteen, of which four were Executive Directors and seven Independent Directors. The composition of the Board, including other Directorships / Committee memberships of Directors was as follows:-

Director	No. of other Directorship(s)¹	No. of Membership(s) [including Chairmanship(s)] of Board Committees of other companies²
Executive Directors
Y. C. Deveshwar (Chairman)	1	Nil
N. Anand	8	1
P. V. Dhobale	Nil	Nil
K. N. Grant	2	1
Non-Executive Directors
A. Baijal	3	1 (as Chairman)
A. V. Girija Kumar	1	Nil
S. H. Khan	6	9 (including 4 as Chairman)
R. E. Lerwill	Nil	Nil
S. B. Mathur	12	8 (including 3 as Chairman)
P. B. Ramanujam	Nil	Nil
S. S. H. Rehman	Nil	Nil
A. Ruys	Nil	Nil
M. Shankar (Ms)	Nil	Nil
K. Vaidyanath	Nil	Nil

1. Excludes Directorship in Indian Private Limited Companies & Foreign Companies and Membership of Managing Committees of Chambers of Commerce / Professional Bodies.

2. Denotes Membership / Chairmanship of Audit Committee and / or Investors Grievance Committee of Indian Public Limited Companies.

ITC's Governance Policy requires the Board to meet at least six times in a year. During the year, six meetings of the Board were held.

Board Committees

The CSR and Sustainability Committee inter alia, reviews, monitors and provides strategic direction to the Company's CSR and sustainability practices towards fulfilling its Triple Bottom Line objectives.

During the financial year 2013-14, there were five Board Committees – the Audit Committee, the Compensation Committee, the Stakeholders Relationship Committee, the Nominations Committee and the CSR and Sustainability Committee.

AUDIT COMMITTEE

The Audit Committee, as on 31st March, 2014, comprised five Non-Executive Directors, four of whom were Independent Directors. The Chairman of the Committee was an Independent Director. The Executive Director representing the Finance function, the Chief Financial Officer, the Head of Internal Audit and the representative of the Statutory Auditors were Invitees to the Audit Committee. The Head of Internal Audit was the Co-ordinator and the Company Secretary was the Secretary to the Committee. The representatives of the Cost Auditors are invited to meetings of the Audit Committee whenever matters relating to cost audit are considered. All members of the Committee are financially literate; three members, including the Chairman of the Committee, have accounting and financial management expertise.

COMPENSATION COMMITTEE

The Compensation Committee, as on 31st March, 2014, comprised five Non-Executive Directors, four of whom were Independent Directors. The Chairman of the Committee was an Independent Director.

STAKEHOLDERS RELATIONSHIP COMMITTEE

The Stakeholders Relationship Committee (earlier known as 'Investor Services Committee'), as on 31st March, 2014, comprised five Directors, three of whom were Independent Directors. The Chairman of the Committee was an Independent Director.

NOMINATIONS COMMITTEE

ITC has constituted a Sustainability Compliance Review Committee, which presently comprises an Executive Director, two members of the Corporate Management Committee and five senior members of management.

The Nominations Committee, as on 31st March, 2014, comprised the Chairman of the Company and eight Non-Executive Directors, seven of whom were Independent Directors.

The Chairman of the Company was the Chairman of the Committee.

CSR AND SUSTAINABILITY COMMITTEE

The CSR and Sustainability Committee (earlier known as 'Sustainability Committee'), as on 31st March, 2014, comprised the Chairman of the Company and three Non-Executive Directors, two of whom are Independent Directors. The Chairman of the Company was the Chairman of the Committee.

The CSR and Sustainability Committee inter alia, reviews, monitors and provides strategic direction to the Company's CSR and sustainability practices towards fulfilling its Triple Bottom Line objectives. The Committee seeks to guide the Company in integrating its social and environmental objectives with its business strategies and assists in crafting unique models to support creation of sustainable livelihoods. The Committee formulates, reviews & monitors the CSR Policy and recommends to the Board the annual CSR Plan of the Company. The Committee also reviews the Business Responsibility Report of the Company.

ITC has clearly defined roles and responsibilities for specific areas that encompass the economic, environment and social dimensions. The Corporate Management Committee of the Company reviews and monitors performance on these dimensions to ensure progress on a continual basis.

The Corporate Management Committee has constituted a Sustainability Compliance Review Committee, which presently comprises an Executive Director, two members of the Corporate Management Committee and five senior members of management. The role of the Committee, inter alia, includes monitoring and evaluating compliance with the Sustainability Policies of the Company and placing a quarterly report thereon for review by the Corporate Management Committee.

The following are the Terms of Reference for the Sustainability Compliance Review Committee :-

To provide direction on the implementation of ITC's sustainability policies
To approve appointment of third party assurance provider for sustainability reporting
To review and approve the Annual Sustainability Report including the materiality matrix
To facilitate the identification of issues beyond the horizon
To review the sustainability risk portfolio of ITC and report back on closure by businesses
To review critical concerns raised by stakeholder and the corrective actions taken, as applicable
To review progress towards achievement of 50% renewable energy share by 2020 and water security
To provide guidance on ITC's public disclosures and engagement with external agencies

Chair of the Highest Governance Body

The Chairman is the Chief Executive of the Company. He is the Chairman of the Board and the CMC. His primary role is to provide leadership to the Board and the CMC for realising Company goals in accordance with the charter approved by the Board.

ITC has a diversified business portfolio, which demands that the senior leadership has an in-depth knowledge and understanding of the functioning of the Company, so as to enhance the value-generating capacity of the organisation and contribute significantly to stakeholders' aspirations and societal expectations. The Chairman of the Company is therefore chosen from the Executive Management.

Avoidance of Conflicts of Interest

ITC has a diversified business portfolio, which demands that the senior leadership has an in-depth knowledge and understanding of the functioning of the Company, so as to enhance the value-generating capacity of the organisation and contribute significantly to stakeholders' aspirations and societal expectations.

In terms of the ITC Code of Conduct, Directors, senior management and employees must avoid situations in which their personal interests could conflict with the interests of the Company. This is an area in which it is impossible to provide comprehensive guidance but the guiding principle is that conflicts, if any, or potential conflicts, must be disclosed to higher management for guidance and action as appropriate.

Senior management is required to confirm on an annual basis that no material transaction has been entered into by them which could have potential conflict with the interests of the Company at large; such confirmations are placed before the Board.

All transactions of the Company with related parties, if any, or their subsequent modifications, are required to be approved by the Audit Committee. Further, certain transactions with related parties which are not in the ordinary course of business or not on arm's length basis would also require the approval of the Board or Shareholders.

The Company has a code of conduct for prevention of insider trading in the securities of the Company. The ITC Code of Conduct for Prevention of Insider Trading, inter alia, prohibits purchase or sale of securities of the Company by Directors and employees while in possession of unpublished price sensitive information in relation to the Company.

Performance of the Highest Governance Body and Evaluation

ITC believes that every employee is a trustee of its stakeholders and must strictly adhere to the Code of Conduct and conduct himself/herself at all times in a professional and ethical manner.

The Board is equipped to perform its role of business assessment through inputs from time to time. Directors are fully briefed on all business related matters, risk assessment & minimisation procedures, and new initiatives proposed by the Company. Directors are also updated on changes / developments in the domestic / global corporate and industry scenario including those pertaining to statutes / legislation, social and economic environment.

The Board annually evaluates Directors collectively to reinforce the principle of collective responsibility.

The Board determines the remuneration of the Chairman and other Executive Directors, on the recommendation of the Nomination & Compensation Committee; remuneration of the Directors is subject to the approval of the shareholders. Such remuneration is linked to the performance of the Company in as much as the performance bonus is based on various qualitative and quantitative performance criteria. Such criteria also includes the Company's contribution with respect to sustainable development of the society / nation & social investments and sensitivity to environment.

Remuneration to Non-Executive Directors is by way of commission for each financial year; such commission is determined by the Board within the limit approved by the shareholders. Their remuneration is based, inter alia, on Company performance and regulatory provisions and is payable on a uniform basis to reinforce the principle of collective responsibility. Non-Executive Directors are also entitled to sitting fees for attending meetings of the Board and Committees thereof, the quantum of which is determined by the Board.

Remuneration and Incentives

ITC's remuneration strategy is market-led, leverages performance and takes into account the Company's capacity to pay. The remuneration package is competitive and is designed to attract and retain quality talent.

The ratio of remuneration of the highest paid employee to the median remuneration for the year 2013-14 was 252:1, computed on the basis of Total Compensation. The median Total Compensation covers all management staff and office associates (excluding the highest paid employee). Components included in determining Total Compensation are Basic/Consolidated Salary, Supplementary Allowance, Utility Allowance, House Rent Allowance or Perquisite Value of Housing, other Cash Allowances, Variable Compensation including Annual Performance Bonus /Variable Pay/Sales Incentives as appropriate; and value of Perquisites computed as per IT guidelines.

The ratio of the annual increase (percentage) in Total Compensation of the highest paid employee to the median annual increase (percentage) in Total Compensation of all management staff and office associates (excluding the highest paid employee) was 10:28 in 2013-14.

Total Compensation excludes contributions towards Retirement Benefits and Options granted under the Employee Stock Option Scheme.

Compensation for unionised employees is determined on the basis of Long Term Agreements (LTA) with the unions.

Ethics and Integrity

ITC believes that every employee is a trustee of its stakeholders and must strictly adhere to a Code of Conduct and conduct himself/herself at all times in a professional and ethical manner. Integrity is a core value and forms the basis of the Company's organisational culture.

ITC's Code of Conduct, has been in place since 1996. The Code is anchored in three core principles - good corporate governance, good corporate citizenship and exemplary personal conduct in relation to the Company's business and reputation. The Code clearly spells out guidelines for employees on dealing with people in the organisation, ensuring a gender friendly workplace, relationships with suppliers and customers, legal compliance, health & safety, avoidance of conflict of interest, transparency and auditability in all their actions, protection of confidential information, leading by example etc.

The ITC Code of Conduct is displayed on the Company's corporate website and is shared with employees at the time of their induction into the Company. Any violation of the ITC Code of Conduct by an employee renders him/her liable for disciplinary action.

ITC's Code of Conduct specifically states that in the context of possible or potential areas of conflict of interest, such incidents must be disclosed immediately to higher management for guidance and action as appropriate.

A Whistleblower Policy is also in place and has been displayed on the Company's corporate website and has been appropriately communicated to all employees.

Risk Management

A robust and comprehensive framework of strategic planning and performance management ensures realisation of business objectives, based on effective strategy implementation.

As a diversified enterprise, the Company has always had a system-based approach to business risk management.

The Corporate Risk Management Cell works with the Businesses to establish and monitor the specific profiles including strategic, operational, environmental and social related risks. The process includes the prioritisation of risks, selection of appropriate mitigation strategies and periodic reviews of the progress on the management of risks.

A combination of centrally issued policies and divisionally evolved procedures brings robustness to the process of ensuring that business risks are effectively addressed.

Appropriate structures have been put in place to proactively monitor and manage the inherent risks in Businesses with unique/ relatively high risk profiles.

A robust and comprehensive framework of strategic planning and performance management ensures realisation of business objectives, based on effective strategy implementation. The annual planning exercise requires all Businesses to clearly identify their top risks and set out a mitigation plan with agreed timelines and accountability. Businesses have confirmed that all relevant business risks have been identified, assessed, evaluated and appropriate mitigation systems have been implemented.

The combination of policies and processes, as outlined above, adequately addresses the various risks associated with the Company's businesses. The senior management of the Company also periodically reviews the risk management framework to maintain its contemporariness so as to effectively address the emerging challenges in a dynamic business environment.