Corporate governance & ethics

Slide 1

Corporate Governance & EthicsZaeen De Souza-2409Purva Risbud -2438Vishnu Kant-2440What 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 Principles of Corporate governanceRights 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 callthat company an ethical company.

Unethical PracticesBribery

Insider trading

Conflict of interest

Unfair Discrimination

Political Donation and Gifts

Accumulation of profit by illegal means

PUBLIC SECTOR BANKS AND GOVERNANCE

Indias public sector banks governance is known to be fragile.

Weak governance has led to :

Low productivityErosion of profitabilityDeterioration of credit quality

DIFFICULTIES

Dual regulation by the finance ministry and the Reserve Bank of IndiaPolitically-induced lending, leading to bad-loan accretionFaulty process of appointing boards of directorsShort average tenure of top management and delays in appointing senior executive.Wide compensation differentials with private banks.

REMEDIESInstilling more transparency.Reinforcing a culture of good governance.Upgrading technology and skill-set.Banks should focus on an agenda which increases long term value through better governance.

SEBIThe 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 49Clause 49 came into effect from 31 December 2005.Its 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 didnt 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 companys 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 employees 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."