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Corporate Governance & Ethics Zaeen De Souza-2409 Purva Risbud -2438 Vishnu Kant-2440
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Page 1: Corporate governance & ethics

Corporate Governance & Ethics

Zaeen De Souza-2409

Purva Risbud -2438

Vishnu Kant-2440

Page 2: Corporate governance & ethics

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.

Page 3: Corporate governance & ethics

Four Pillars of Corporate Governance

Accountability Transparency

ResponsibilityFairness

Page 4: Corporate governance & ethics

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

Page 5: Corporate governance & ethics

Framework

Page 6: Corporate governance & ethics

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)

Page 7: Corporate governance & ethics
Page 8: Corporate governance & ethics

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.

Page 9: Corporate governance & ethics

Unethical Practices

• Bribery

• Insider trading

• Conflict of interest

• Unfair Discrimination

• Political Donation and Gifts

• Accumulation of profit by illegal means

Page 10: Corporate governance & ethics

PUBLIC SECTOR BANKS AND

GOVERNANCE

Page 11: Corporate governance & ethics

• 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

Page 12: Corporate governance & ethics

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.

Page 13: Corporate governance & ethics
Page 14: Corporate governance & ethics
Page 15: Corporate governance & ethics

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.

Page 16: Corporate governance & ethics

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.

Page 17: Corporate governance & ethics

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.

Page 18: Corporate governance & ethics
Page 19: Corporate governance & ethics

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.

Page 20: Corporate governance & ethics

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.

Page 21: Corporate governance & ethics

Summary of the crash:

• Over valued stocks.

• Profits and share prices didn’t match.

• Went bankrupt.

Page 22: Corporate governance & ethics

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.

Page 23: Corporate governance & ethics

Stock Price Timeline

Page 24: Corporate governance & ethics

Governance issues?

• The board of directors--direction?

• Insider trading/Conflict of interest--

High stakes

• Gambling employees money--

Unacceptable.

Page 25: Corporate governance & ethics

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.

Page 26: Corporate governance & ethics

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.

Page 27: Corporate governance & ethics

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

Page 28: Corporate governance & ethics