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:-