Carborundum Universal Limited (“CUMI”), as a constituent of the Murugappa Group, is committed to high standards of corporate governance in all its activities and processes. CUMI looks at corporate governance as the cornerstone for sustained superior financial performance and for serving all it’s stakeholders. Apart from drawing from the various legal provisions, the group practices are continuously benchmarked with industry practices. The entire process begins with the functioning of the Board of Directors, with leading professionals and experts serving as independent Directors and represented in the various Board Committees. Systematic attempt is made to ensure symmetry of information. Key elements in corporate governance are transparency, internal controls, risk management, internal/external communications and good standards of safety and health. The Board has empowered responsible persons to its broad policies and guidelines and has set up adequate review processes.

a) Composition

The Board comprised of 8 members as on 31^st March 2010. The Board has been constituted in a manner, which will result in an appropriate mix of  executive and independent directors. This has been done to preserve the independence of the Board and to separate the Board functions of governance and management.

b) Board Meetings

The Board has a formal schedule of matters reserved for its consideration and decision. These include setting performance targets, reviewing performance, approving investments, ensuring adequate availability of financial resources overseeing risk management and reporting to the shareholders.

The Board periodically reviews the compliance of all applicable laws and gives appropriate directions wherever necessary.

The Board has laid-down a “Code of Conduct” for all the board members and the senior management of the company. Annual declaration is obtained from every person covered by the Code of Conduct. A declaration to this effect signed by the Managing Director is attached to this report. 

The Company has laid down procedures to inform Board members about the risk assessment and minimisation procedures. The Board reviews the significant business risks identified by the management and the mitigation process being taken up.

The Board also reviews the Board meeting minutes and financial statements of subsidiary companies, and also their significant transactions.

Five Board Meetings were held during the year on 29th April 2009, 31st July 2009, 30th October 2009, 27th January 2010 and 19th March 2010.

+ Excluding Alternate Directorships and directorships in foreign companies, private companies (which are not subsidiary or holding company of a public company) and Section 25 companies

* Only Audit & Investors Grievance committee.

d. Directors who retired / resigned during the year 2009-10

# None of the Directors are related inter-se as per provisions of the Companies Act, 1956. Mr. M M Murugappan and Mr. A Vellayan are partner in certain partnership firms and also form part of the promoter group

The resume, nature of expertise and directorships and committee memberships of the directors proposed for reappointment at the forthcoming Annual General Meeting are given in the Notice of the meeting.

The Board has set up the following Committees as per the requirements of the stock exchanges: 

a. Audit Committee

This committee has been formed to monitor and provide effective supervision of the financial control and reporting process. The terms of reference of the committee are in line with the requirements of the Companies Act, 1956 and the Listing Agreement. This inter alia includes review of the financial reporting process (including related party transactions), internal audit process, adequacy of internal control systems and also to recommending the appointment of the statutory / internal auditors and their remuneration. This committee is entirely composed of independent Directors and all members of the committee are financially literate.

The committee met on five occasions during the year. The Chairman of the Board, the statutory auditor, internal auditor and members of the senior management are permanent invitees to the committee meetings. The names and attendance of the committee members are given below:

b. Compensation & Nomination Committee

The main functions of this committee are to (a) recommend to the Board the appointment/ reappointment of the executive and non-executive directors and the induction of Board members into various committees (b) approve the remuneration package of the executive director(s), annual incentive and periodic increments in salary (c) to formulate, implement, administer and superintend the Employee Stock Option Scheme(s). This committee comprises entirely of independent directors.
The committee met 3 times during the year. The names and attendance of committee members are given below:

c. Share Transfer, Finance and Investors’ Grievance Committee

The terms of reference of this committee encompasses formulation of investors’ servicing policies, looking into redressal of investors complaints and approval / overseeing of transfers, transmissions, transpositions, splitting, consolidation of shares and debentures, demat/remat requests, allotment of debentures and authorizing terms of various borrowings and creating security in respect thereof, allotment of shares on exercise of options by employees under the Employees Stock Option Scheme and performing other functions as delegated to it by the Board from time to time.

The committee also monitors investor servicing on a continuous basis by receiving monthly reports from the Company Secretary on investor Services. The Committee met on 4 occasions during the year. The names and attendance of Committee members are given below:

6 complaints mainly non receipt of annual report / dividend have been received from shareholders during the year. All of them have been resolved to the satisfaction of the shareholders. There were no complaints pending as on 31.03.2010.

The Board has appointed Mr. S Dhanvanth Kumar, Company Secretary as the Compliance Officer for the purpose of compliance with the requirements of the Listing Agreement.

a. Policy

The compensation of the Managing Director comprises of a fixed component and a performance incentive based on certain pre-agreed parameters. The compensation is determined based on level of responsibility and scales prevailing in the industry. The Managing Director is not paid sitting fees for Board / Committee meetings attended by him.

The compensation of the non-executive directors takes the form of commission on profits. Though the shareholders have approved payment of commission upto 1% of net profits of the Company for each year calculated as per the provisions of the Companies Act, 1956, the actual commission paid to the directors is restricted to a fixed sum. This sum is reviewed periodically taking into consideration various factors such as performance of the Company, time spent by the directors for attending to the affairs and business of the company and extent of responsibilities cast on directors under general law and other relevant factors. Further the aggregate commission paid to all non-executive directors is within the limit of 1% of the net profits as approved by the shareholders. The non-executive directors are also paid sitting fees within the limits set by government regulations for every Board / Committee meeting attended by them.

b. Remuneration for 2009-10

(a) Will be paid after adoption of accounts by shareholders at the fifty sixth Annual General Meeting

(b) Director for part of the year.

Managing Director

(a) Mr. K Srinivasan was appointed as Managing Director by the shareholders from 1.2.2006 till 31.1.2010. Board of Directors at their meeting held on 27.01.2010, re-appointed Mr. K Srinivasan for a further period of 5 years commencing from 1st February 2010. He is subject to all other service conditions as applicable to any other employee of the Company including termination with 3 months notice.

(b) As per the terms of his remuneration, he is eligible for an annual incentive based on a balance scorecard which comprises of company financials, company scorecard and personal objectives. For 2009-10 a sum of Rs.1.66 million has been provided in the accounts for this purpose. The actual amount will be decided by the Compensation and Nomination Committee in July 2010.

(c) Represents incentive paid in 2009-10 in respect of the financial year 2008-09.

The details of options granted to Mr. K Srinivasan under the “Carborundum Universal Limited Employees Stock Option Scheme 2007” are as follows:

a. Last 3 Annual General Meetings

b. Special Resolutions passed during the last three Annual General Meetings.

c. Special Resolutions passed by Postal Ballot since 1st April 2009

No special resolutions were passed by postal ballot since 1st April 2009.

a. There were no materially significant related party transactions during the year having conflict with the interests of the Company.

b. There have been no non-compliance by the Company or penalty or stricture imposed on the Company by the Stock Exchange or SEBI or any statutory authority, on any matter related to capital markets, during the last 3 years.

c. The Company has established a whistle blower mechanism to provide an avenue to raise concerns, in line with the Company commitment to the highest possible standards of ethical, moral and legal business conduct. The mechanism also provides for adequate safeguards against victimization of employees who avail of the mechanism and also for appointment of an Ombudsperson who will deal with the complaints received. The policy also lays down the process to be followed for dealing with complaints and in exceptional cases, also provides for direct appeal to the Chairperson of the Audit Committee. We further affirm that during the year, no employee has been denied access to the audit committee.

The quarterly unaudited financial results and the annual audited financial results are normally published in Business Standard and Makkal Kural. Press releases are given to all important dailies. The financial results, press releases and presentations made to institutional investors / analysts are posted on the Company’s website i.e. www.cumi-murugappa.com.

In order to avoid duplication and overlap between the Directors Report and a separate Management Discussion & Analysis Report, the information required to be provided has been given in the Directors Report itself as permitted by the listing agreement.

1. The Board has constituted a Compensation and Nomination Committee. The terms of reference of this Committee is given in para 3 (b) above.
2. Financial results for the six months ended 30th September 2009 were sent to the individual households of shareholders.
3. The company has put in place a Whistle Blower mechanism.
4. The Company’s financial statements do not carry any qualifications by theAuditors.
5. The expenses incurred by the Chairman in performance of his duties are reimbursed.

Other non-mandatory requirements have not been adopted at present.

Carborundum Universal Ltd.’s (CUMI) commitment to ethical and lawful business conduct will be a fundamental shared value of the Board of Directors, the senior management and all other employees of the Company.

Consistent with its ‘Values and Beliefs’, CUMI has formulated the following Code of Conduct as a guide to the high ethical standards expected of its Directors and Senior Management.

For this purpose, the term "senior management" shall mean

1. all executives designated as Vice President and above;
2. all executives directly reporting to the Chief Executive and
3. Company Secretary

In performing their functions, the directors and senior management of the Company shall:

• Act honestly, diligently and in good faith and integrity in all their dealings with and for the Company
• Not use any confidential information obtained by them from the Company for personal financial gain nor will that information be used to obtain financial benefit for any other person
• Not engage in any business, relationship or activity which might detrimentally conflict with the interest of the Company
• Maintain the confidentiality of all material non-public information about the Company, its business and affairs
• Abide by all applicable laws and regulations including the Company's Insider Trading code
• Not use their status to seek or accept any personal gains or favours from those doing business or seeking to do business with the Company or from the other employees of the Company
• Not accept, any gifts, donations or comparable benefits the value of which is more than Rs.1,000 in their official capacity
• Not share any information regarding the Company, its business and/or affairs with media without the prior approval of the Corporate Disclosure Officer

In addition, in performing their Board and Board Committee functions, the directors shall:

• Not hold position of Director/Advisor with a competitor Company
• Inform the Chairman of changes in their interests that may interfere with their ability to perform their duties or impact their independence as a Board member