Corporate governance & ethics

Corporate Governance & Ethics

Zaeen De Souza-2409

Purva Risbud -2438

Vishnu Kant-2440

What is corporate Governance ?

• System of rules, Practices and Process

• Balancing the interests of many Stakeholders in

the company.

• shareholders, management, customers,

suppliers, financiers, government and the

community.

Four Pillars of Corporate Governance

Accountability Transparency

ResponsibilityFairness

Principles of Corporate governance

• Rights and equitable treatment of shareholders

• Interests of other stakeholders

• Role and responsibilities of the board

• Integrity and ethical behavior

• Disclosure and transparency

Framework

Why Corporate governance matters?

• Enhances the performance of the company

• Enhances access to the capital

• Enhances long term prosperity

• Provides barrier to corrupt dealing

• Impact society as a whole ( Better companies , Better Societies)

Business Ethics

• Trade off between pursuing economic

objective and its social obligations

• Trust( Supplier, Customer, Employee)

• If the company is able to maintain trust

Relationship with all stakeholders, then we

call

that company an ethical company.

Unethical Practices

• Bribery

• Insider trading

• Conflict of interest

• Unfair Discrimination

• Political Donation and Gifts

• Accumulation of profit by illegal means

PUBLIC SECTOR BANKS AND

GOVERNANCE

• India’s public sector bank’s governance is

known to be fragile.

• Weak governance has led to :

Low productivity

Erosion of profitability

Deterioration of credit quality

DIFFICULTIES•

• Dual regulation by the finance ministry and the Reserve Bank of India

• Politically-induced lending, leading to bad-loan accretion

• Faulty process of appointing boards of directors

• Short average tenure of top management and delays in appointing senior executive.

• Wide compensation differentials with private banks.

REMEDIES

• Instilling more transparency.

• Reinforcing a culture of good governance.

• Upgrading technology and skill-set.

• Bank’s should focus on an agenda which

increases long term value through better

governance.

SEBI

• The STOCK AND EXCHANGE BOARD

OF INDIA (SEBI) is the regulator of

securities in India.

• It also overlooks corporate governance in

India.

• It has a set of guidelines and norms to

regulate all listed companies.

CLAUSE 49

• Clause 49 came into effect from 31

December 2005.

• It’s formulated for improvement of

corporate governance in all listed

companies.

• It was intended to introduce some basic

corporate governance guidelines .

• In December 2009 – new corporate

governance voluntary guidelines were

issued.

Introduction:

• Enron was an American energy, commodities and services company.

• Enron was the 6th/7th largest company in the world, according to gross revenue.

• Claimed revenue of nearly $101 billion during the year 2000.

• Went bankrupt on 2nd December, 2001.

How did Enron get so big?

• Enron, took advantage of the deregulated energy market.

• The reason that Enron was allowed to grow big, was that they manipulated their share prices.

• Spent nearly $6 million on campaigns for George W Bush.

Summary of the crash:

• Over valued stocks.

• Profits and share prices didn’t match.

• Went bankrupt.

Causes of the downfall:

• Mark to Market accounting.

• Overvalued stocks, due to the mark to market accounting.

• Hiding/transferring debt, using Special Purpose Entities, so that it wouldn't appear on the Enron balance sheet.

Stock Price Timeline

Governance issues?

• The board of directors--direction?

• Insider trading/Conflict of interest--

High stakes

• Gambling employees money--

Unacceptable.

About the scam:

• Enron admitted, that they had overstated the company’s earning by $57 million.

• Enron officials, who knew about the fraud, had sold their own shares, when the price was high, and had finished most of the money they made by selling them.

Aftermath:

• Enron's shareholders lost $74 billion.

• $2billion, was lost from the employee’s pension fund.

• 20,000 were unemployed.

• Arthur Andersen was shut down.

"Mr. Duncan, Enron robbed the bank. Arthur Andersen provided the getaway car, and they say you were at the wheel."