Corporate Governance &
Ethics
Zaeen De Souza-2409
Purva Risbud -2438
Vishnu Kant-2440
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.
Four Pillars of Corporate Governance
Accountability
Responsibility
Transparency
Fairness
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
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 call
that company an ethical company.
Unethical Practices
• Bribery
• Insider trading
• Conflict of interest
• Unfair Discrimination
• Political Donation and Gifts
• Accumulation of profit by illegal means
PUBLIC SECTOR BANKS
AND
GOVERNANCE
• 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
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.
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.
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.
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.
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 didn’t 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
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.
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.
"Mr. Duncan, Enron robbed the
bank. Arthur Andersen provided
the getaway car, and they say
you were at the wheel."