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Group no. 5
DEVELOPMENT & JOURNEY
OF
CORPORATE GOVERNANCE
Presented by:
Sandesh Kadole 16106A1041Shirali Birah 16106A1043Vinaykumar Elegeti 16106A1045Preeti Khade 16106A1047Tejshree Manore 16106A1049Manish Tiwari 16106A1051Anup yelve 16106A1053Tejshree Mali 16106A1055Pranav Satpute 16106A1057Nikhil Balai 16106A1059
Corporate Governance Corporate means “Large company or corporate group”
Corporate
Governance Governance means “control”
• It is concerned with the set of “Principles, ethics, values, morals, rules regulation and procedure”
• For corporate governance to be good one has to meet responsibilities towards its owners, creditors, employees, customers, government and society at large
Historyof
Corporate Governance
• Concept of governance has its root in India from the days “Arthashstra” written by kautilya in Chandragupta Maurya’s era
• The concept emerged in India after the second half of 1996 due to Liberalization and Globalization of industry and business
• Need for corporate governance arises due to Separation of Management from the owner
EMERGENCE OF NEW VALUE SYSTEM IN BUSINESS
• Corporate governance led to the emergence of new value system in business by setting its principal
• Rights and equitable treatment of shareholders
• Interests of other stakeholders• Role and responsibilities of the
board• Integrity and ethical behaviour• Disclosure and transparency
• Example:- Maruti-Suzuki
Infosys
If in an organization corporate governance is followed properly certain benefits may be derived:
• Customer appreciation
• Brand reinforcement
• Support for new business
• Avoidance of business risk
• Creation of goodwill
• Creation of competitive advantage
• Increase in company spirit
• Better organisational environment
Consequences of improper corporate Governance:
• These can be explained by understanding the case of” LEHMAN BROTHERS” whose unethical behaviour led them down.
• The case starts with their “GREED TO GROWTH TO DOWNFALL”
• Negative impact on business growth, development• Negative impact on the society• Shortens business life span
Former CEO of Lehman brothersMr. Fuld
LEHMAN BROTHERS
• A piece of investment plan landed on the desk of Richard Fuld, the chief executive of Lehman Brothers
• Invest in real estate market• Next 5 years Borrowing of billion dollars, to invest and become 4th largest investment bank• Ease credit policy after terrorist attack of 2001• Booming housing market• Acquiring 5 mortgage lenders to become the leader• Mistake of acquisition of AURORA LOAN SERVICE and BNC MORTGAGE • Various lawsuit against Lehman• Subprime crisis
KEY FACTORS LED TO THE COLLAPSE OF LEHMAN
• Dealing in unethical manner
• Valuation problems• Misrepresentation of
financial statements• Managerial problems • Poor asset and risk
management• We are “to big to fail”• Fraud
Correlation with Ethics:
• Conflict between profit maximization and social responsibility
• Covert action• Unethical behaviour and effect on life of business• Competitive pressure
WARREN BUFFETT – INVESTOR 5 BILLION DOLAR
RAJAT GUPTA McKINSEY- MANAGING DIRECTORBoard Member Of-GOLDEN SACHS, PROCTER AND GAMBLE,AMERICAN AIRLINES
RAJ RAJARATNAMFOUNDER OF-The Galleon Group (one of the largest hedge fund management organisation)
Rajat Gupta Scam • Misuse of the Sensitive Information related to company
• Insider Trading and Corporate Governance
• Overall 60 Million Dollar Hedge Fund Insider Trading
• SEC Accused Rajat Gupta of Tipping Raj Rajaratnam on Goldman sach Earnings
• Insider Trading is Considered as unethical
CORELATION :
• Covert Action• Test of Agreement of Evidence• Opportunity• Conflict between personal values and
organizational values
Volkswagen Emission ScandalCase:-• Dubbed as the ‘Diesel Dupe’• Violated Environment Protection ACT• Defective device or software in diesel engine• Programming cause Vehicles Nitrogen Oxide output to meet US Standards
RESULT OF SUCH UNETHICAL BEHAVIOUR:- • Quarterly loss of 2.5 Billion Euros• 11 million global consumers affected• CEO Martin Winterkorn resigned with top managers of R&D Department• Affected the trust and reputation crisis • Cultural failure in marketing, risk management, internal controls
• CO-RELATION :
• Bad Governance• Ethics failure in terms of scale and
reputational loss• Risk Management and Internal
Control • Conflict of Interest• Bad use of technology
Case:
Rise
• Company that reached dramatic height only to face dizzying collapse
• Enron named as America’s most innovative company
• Formed in 1985 following merger between Houston natural gas co. and Omaha
• Quickly rebranded Enron into an Energy trader and supplier
• Deregulation in energy market allowed Enron to take advantage
• Valuation of organisation went high with share price of $90.75
Wrong turn• Investment in Enron online
• Disastrous flop
• Decided to build high speed broadband telecom networks
• Disastrous flop
• Suffered heavy loss
Unethical approach to hide the loss• Technique of Mark to Market accounting
• Start up of SPEs to hide debts
Co relation :
• Covert action
• Un-ethical behavior will shorten the life of business.
• It has to be “Good”
• Conflict between profit maximization and
discharging social responsibility
committees
Maxwell Communications corporation
Leading British media business
Improper Use of Fund in 1990-unable to repay part of $3 billion borrowings;
the company faced a financial crisis
Maxwell used pension fund $767 million to raise investment in MCC
Accounts were window dressed
Independent Non-Executive Director-Robert Maxwell failed to carry out all
his duties that he had undertaken as a director
After the death of Robert Maxwell, his empire collapsed
End of Maxwell corporation
Cadbury Committee
The Committee was set up in May 1991 by the Financial Reporting Council & The London Stock Exchange
The committee was chaired by Sir Adrian Cadbury Consider the Aspects of corporate governance relating to financial
reporting and accountability Tried to focus on Balances between the shareholders, directors, employee,
auditor and the management Establishing A Code of Best Practice Provide a framework which will encourage and support
good governance. Considering role of auditors and addresses a number of recommendation
to the accountancy profession
Code of Best practices recommendations
Role of board of directors, duties of the board and its compositions
There should be a clearly accepted division of responsibility at the head of a company,
which will ensure balance of power and authority
Dealing with their remunerations
The board should report on the effectiveness of the company’s system of internal control
There should be rotation of audit partner's
The principal responsibility of the auditors and the extent should be clearly mentioned
The set up links between shareholders, boards, and auditors
Kumar Mangalam Birla committee Securities and Exchange Board of India (SEBI) in 1999 set up a committee
Kumar Mangalam Birla, Member SEBI Board to promote and raise the
standards of good corporate governance
Primary objective of the committee to the corporate governance from the
perspective of the investors and shareholders
‘CODE” To suit the Indian corporate environment
Corporate governance relates to issues of insider trading &
of investor protection
3 key aspects of Corporate Governance – Accountability, Transparency &
Equality of treatment for all stakeholders
Mandatory Recommendations
Board of directors should be optimum combination of executive & non-executive directors.
Audit committee contain 3 independent directors with
one financial, accounting knowledge. Corporate restructuring Remuneration Board should have at least 4 meetings in a year with maximum
gap of 4 months between 2 meetings to review operational plans capital budgets quarterly
Director shall not be the members of more than 10 committee and shall not act as chairman of more than 2 committees across all companies
Implementation of Birla committee recommendation in Infosys
Infosys had accepted various recommendation of Kumar Birla mangalam committee
Infosys had an executive chairman and CEO and Managing director, president and COO
The CEO was responsible for corporate strategy, brand equity, planning, external contacts,
acquisitions, and board matters
The COO was responsible for all day-to-day operational issues and achievement Of annual
targets in client satisfaction, sales, profits, quality, productivity and employee empowerment
The CEO, COO, Executive directors and the senior management made periodic presentations
to the board on their targets, responsibility and performance
RESULT: -
Infosys corporate governance practices offered many lessons to corporate India
Infosys had shown that increasing shareholder wealth and safeguarding the
interests of other stakeholders
Decisions made, and actions taken, is consistent with company values and
company objectives
It competes to win but within the framework of integrity, transparency and
compliance with all applicable “CODE”
Policy to be Equitable for all
It also derives organizational level benefit such as: -
Code of conduct-Honest and ethical conduct , equal opportunity workplace free of
discrimination or harassment, Free and fair competition
Greater working environment
Maximization of profit
Goodwill and reputation
Net worth of 9.501 billion USD
Role of Ethics in
Government Policies and Laws
Role of Ethics in Government Policies and Laws
• Application of Ethical Rules in Government Policies• Professional Code of Conduct• Laws and ethics have Common aim
Why Ethics is needed in Government Laws?
• Corruption level Index
• India Scored 38 with a rank of 85 of 168
• India’s Corruption level remains at a same level from the previous year
ETHICAL STANDARDS• The Utilitarian Approach –
Action that produces the best or does the least harm.
Example: Demonetization of 500 and 1000 Notes
• The Rights Approach- Actions which best protects and respects
those who are harmed. Example: Government building Dam projects and
compensating those who are affected because of it.
• Fairness or Justice Approach – All should be treated equallyExample: One rank and One Pension Scheme
• The Common Goods Approach – Life in a community is good in
itself and our actions should contribute to that life.
Example: Laws which are meant for specific community
• The Virtue Approach – Actions ought to be consistent with certain Ideal
Virtues that provides for the full development of our community.
Example: Lawyers, doctors abiding to their individual duties for
the full development of our community.
An Example: U S Ethics in Government ACT 1978
• Passed as a result of Nixon Watergate Scandal and the Saturday Night Massacre
• Disclosure of Financial and Employment History of Direct family members
• Resulted in Reduction of Lobbying by Government Authorities
Right to Information Policy : A CASE STUDY
• Anna Hazare Started Campaign for RTI, against Corruption, Money Laundering and Fiscal Evasion
• More than 80 countries have passed Freedom of Information Acts
• Forces public authorities and administration to open their files• The Act has empowered individuals and communities.• Positive in checking corruption as well as improving
transparency and efficiency in administration.• Rule of law, equality of all in front of the administration, public
institutions serving the public
Correlation
• Theory of Utilitarian Approach
• The Rights Approach
• It has to “just”
N.N Vohra Committee : A Case Study
• Studied the Criminalization of politicians and of Bureaucrats in India
• Running a Parallel Government
• Strong Nexus amongst Criminals gangs, Politicians and top officials
• Criminals enjoying backing of politicians
• Corruption undermines value of Human Dignity and Discrimination amongst people of the society
Correlation with Ethics :
• Followed Rights Approach
• Ethically Right and Good Decision
CONCLUSION:-
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