Corporate governance

Corporate Governance

Concerned with holding the balance between economic and social goals and between individual and communal goals.

Encourage the efficient use of resources and equally to require accountability for the stewardship of those resources.

The aim is to align as nearly as possible the interests of individuals, corporations and society

What is Corporate Governance? Contd…

The primary purpose of corporate leadership is to create wealth legally and ethically

This translates to bringing a high level of satisfaction to five constituencies -- customers, employees, investors, vendors and the society-at-large

The raison d'être of every corporate body is to ensure predictability, sustainability and profitability of revenues year after year.

Constituents of CG

Business Ethics & Corp Gov.

Discipline that examines good or bad practices within the context of a moral duty.

Business ethics include practices and behaviors that are good or bad.

Moral conduct is behavior that is right or wrong.

Ethical Issues

Company-Shareholder Relations

Company-Community

Employee-Employer RelationsEmployee-Employee

Relations

Company-Customer Relations

Organization with good ethical practices

CAPITAL MARKET SCAMS

INTRODUCTION TO “BIG BULL OF THE TRADING FLOOR”• HARSHAD MEHTA• THE GREAT INDIAN SCAM -1992

WHO WAS HARSHAD MEHTA ?

STARTED HIS CAREER WITH NEW INDIA ASSURANCE COMPANY

QUIT HIS JOB IN 1981 TO BECOME A SUB-BROKER

WENT BANKRUPT IN 1982 AND RECOVERED SOON TO BECOME MORE STRONGER

HE WANTED TO BECOME THE MOST SUCCESSFUL BROKER- THERE BY HE EARNED THE NAME OF “THE BIG BULL”

WHAT WAS THE SCAM ABOUT?

DIVERSION OF FUNDS

USE OF READY FORWORD (RF) TO MAINTAIN SLR (STATUTORY LIQUIDITY RATIO)

CREATIVE ACCOUNTING

INTRA-DAY TRADING

HOW IT WAS DONE AND THE ROLE OF BROKER ?

• MEHTA SOON MASTERD THE TRICKS OF TRADE BY MANAGERING SEVERAL BROKERS AND SET OUT ON DANGEROUS GAME PLAN

• MEHTA TAKES OFF THE HUGE MONEY FROM SEVERAL BANKS AND MILLION OF INVESTORS WERE CONEDIN THE PROCESS.

• HIS SCAM WAS EXPPOSED AND THE MARKET CRASHED.

EXPLOITING THE LOOP HOLE IN THE BANKING SYSTEM

• HE TRIGGERED THE RISE IN BOMBAY STOCK EXCHANGE IN THE YEAR 1992 BY TRADING IN SHARES AT PREMIUM ACROSS MANY SEGMENTS• TAKING ADVANTAGES OF LOOPHOLES IN THE BANKING SYSTEM, HARSHAD AND HIS

ASSOCIATES TRIGGERED A SECURITIES SCAM DIVERTING FUNDS TO THE TUNE OF RS 4000 CRORES FROM THE BANKS TO STOCK HOLDERS BETWEEN APRIL 1991 TO MAY 1992• HE WAS ARRESTED AND BANED FOR LIFE FROM TRADING IN THE STOCK MARKETS• MAJOR CULPRITS WERE BROKERS, BANKERS AND FINANCIAL INSTUTIONS.• HE WAS CHARGED WITH 72 CRIMINAL OFFENCES. A SPECIAL COURT ALSO SENTENCED

SUDHIR MEHTA, HARSHAD’S BROTHER, 6 OTHERS, INCLUDING FOUR BANK OFFICIALS. • THEY GOT RIGROUS INPRISONMENT FROM 1 YEAR TO 10 YEARS ON A CHARGE OF

DUPING STATE BNK OF INDIA TO THE TUNE OF RS 600 CRORES IN CONNECTION WITH THE SECURITES SCAM THAN ROCKED THE FINANCIAL MARKETS IN 1992.

HIS FAVORITE STOCKS INCLUDED

• ACC• APOLLO TYRES• RELIANCE• TATA IRON AND STEEL CO. (TISCO)• BPL• STERILITE• VIDEOCON

THANK YOU!

By,Sanket BhawarkarMustahid Ali