Corporate Governance 13

8/9/2019 Corporate Governance 13

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CORPORATE GOVERNANCE

Richa AroraR1809A08


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CORPORATEGOVERNANCE

Good governance is the structure that is intended to

make sure that right questions get asked and thatchecks and balances are in place to make sure thatthe answers reflect what is best for the creation of longterm sustainable values.

And that these answers lead to generation of positivecreation of these long term sustainable values.


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CSR

"Corporate Social Responsibility is the continuingcommitment by business to behave ethically and

contribute to economic development while

improving the quality of life of the workforce and

their families as well as of the local community

and society at large"


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CSR and CG

Corporate governance and corporate social

responsibility are both extremely important to acompany. But it is not a natural thing to separate them.If you have a well formed corporate governanceprogramme in place that would probably take care ofmost CSR issues


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Understanding corporate governance requiresunderstanding of what a corporation is.

Corporation is body of persons that is granted a

charter legally recognizing them as a separate entityhaving its own rights, privileges and liabilities distinctfrom those of its members.

A corporation is an artificial being ,invisible, intangible,existing only in the contemplation of law


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Then why should aCorporation exist?

Purpose :

To provide outlet for satisfaction of human drives.

Social structure: Corporation term is another form of socialstructure which brings together resources (financial andothers)

Efficiency : return of resources use and fulfillment of obj.s

F

lexibility : no boundaries of space or time.Corporate is flexible precisely because it is able to takerisk. Corporate is form of transferring enterprise risk tosociety.

Identity : as a source of job, as a mean to exercise etc.


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Who are the three key players in corporategovernance

Shareholder (responsible ownership)

Board(responsible management

monitoring) (performance)


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Shareholders

Shareholders as owners is a complicated issues, in

any cases what does ownership mean: Owner has the right to use property as he wishes ,to

regulate anyone elses use of the property, has theright to transfer the property on terms he wishes.

Corporations are legal entities/ legal persons. Thiscreates problems ofownership by shareholders.

So be careful in thinking that shareholder and owner ina absolute sense.


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BOD

SOMEFACTS:

Size : typically 10-20 More insiders in the UK and US than in india, japan,Germany

Nomination committee selects the board members,

usually nomination committee chosen byCEO

,existing board influences the choice

Meetings: once a month considered adequate

Increasing role in the affairs of the firm


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BOD

Means of influnce

Audit committee Compensation committee

Nomination committee

Governance committee

Listing agreements with stock exchange (clause$()and companies act,1956 (sec292A) makes the firstthree mandatory for companies registered in india.


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Management

Some of the issues vis--vis governance are:

Executive compensation particularly that ofCEO(variability and risk absorption the key)

Research shows past success cause for downfall

Balance between shareholder and the legitimate

stakeholders


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Meaning of Corporate

Governance

Good governance- expectation of stakeholders Enhancing business performance and accountability Governance code for corporate A structure within specific legal, regulatory and

institutional environment through whichObjectives are setMeans of attaining those objectives are determined

performance monitoring is establishedDisclosure of timely and accurate information is

ensured.


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CORPORATE GOVERNANCE-

NEW CLAUSE 49

based on SEBI circular dated Oct, 2004, clause 49 of the listing agreements revised by stock

exchanges

was to be implemented on or before 31st march 2004

Extended up to 31st December, 2005


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Clause-49

Board of Directors

Audit committee

Remuneration of directors

Board Procedure

Management

Shareholders

Report on Corporate Governance

Compliance


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AUDIT COMMITTEE

all members of the audit committee shall be financiallyliterate with one member having accounting/ financialmanagement expertise.

the term financially literate and accountingknowledge defined.

the related party transaction will have the samemeaning as contained in AS-18.


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CERTIFICATION BY

CEO/CFO TO THE BOARD

That they have reviewed the financial statements and

cash low statement for the year and: These do not contain any materially untrue statement or omit

any material fact

There were no fraudulent, illegal transactions volatile of thecos Code ofConduct

T

hey accept responsibility for establishing and maintaininginternal controls and have evaluated their effectiveness.


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REPORT ON CORPORATE GOVERNANCE TO THE

STOCK EXCHANGES

a compliance report within 15 days from the close of

the quarter in the revised format. the report contains the entire provisions of the new

corporate governance clause.

a separate cell is being set up by the stock exchangesto monitor the compliance of the provisions.


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SATYAM SCAM


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About Satyam

A leading global consulting and IT services company

Nearly 55,ooo employees Business is spread over 55 countries

Serves over 558 global companies, including over 185fortune 500 corporations

Satyam info way is the first Indian internet company tobe listed on NASDAQ


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UNDERSTANDING THE

SCAM

The balance sheet as of sep.30,2008showed:

Inflated (non-existent) cash and bank balances ofRs.5,040 crore (as against Rs.5312 crore reflected inthe books)

An accrued interest of Rs. 376 crore which is nonexistent

An understated liability of Rs. 1,230 crore on accountof funds arranged by BR raju

An over stated debtors position of Rs.490 crore(asagainst Rs.2651[cr.] reflected in the books)


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UNDERSTANDING THE

SCAM

For second quarter satyam reported a revenue of Rs.

2,700 crore and operating margin of Rs.649 crore(24% of revenue)

As against the actual revenue of Rs. 2112 crore andan actual operating margin of Rs. 61 crore (3%margin)

This has resulted in artificial ,cash and bank balancesgoing up by Rs. 588 crore in Q2 alone.


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Core of scam

Who was behind?- Chairman Ramalinga Raju, MD B RamaRaju, CFOSrinivas, Cost Accountant G Rama Krishna

Reason: Raju and his family held below 10% of thecompanys equity

Raju allegedly used accounts opened in the names ofrelatives to divert money and carry out insider trading

Siphoning off funds from Satyam into Maytas propertiesand various 325 firms floated by Mr. B Ramalinga Raju

Diversion of RS. 1,700 crore from an overses bank account


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Stake of promoters in

Satyam

percent of equity

In 2001 it is 25.6

In 2002 22.26

In 2003 20.74

In 2004 17.35

In 2005 15.67

In 2006 14.02

In 2007 8.79 In 2008. 8.65

03/jan/09...5.13


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Hidden facts

Two auditors ofSatyam computer, appointed by PwC,

were not partners of the audit firm at that time Those auditors had no role in fraud as they were given

forged documents by the company

CFO ofSatyam mislead directors: Luthra & Luthra- adelhi based law firm- has done the due diligence forMaytas properties


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Impact

Karnataka govt. decided to review airport projects inMaytas hands

Satyam lost cisco joint venture

E &Y snapped ties with Maytas projects

National Australia Bank, Qantas, Telstra andCaterpillar realised the harsh realities of offshoreoutsourcing

ICAI comes under pressure to come out withguidelines to make auditor rotation compulsory


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Sad Results

Satyam employees face a bleak future

Satyam employees were told that there is noassurance if they will receive salaries beyond january

US based employess ofSCS lose health cover,creditcards

200

SCSemployees in japan were told to rush back toindia


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Reboot Satyam

Tech Mahindra wins Satyam Computers Services

Tech M stock shot up by 12% Winning Bid :Rs. 58 per share (i.e Rs 2,889)


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Conclusion

Irrespective of 95 stake, a man could do a scam .A

complete failure ofC

orporateG

overnance.T

o avoidthis, a company needs to strictly follow a propersystem of corporate governance and rotating theauditors for every couple of years.


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Thank you

Documents

Corporate Governance 13