This document discusses corporate misgovernance and governance issues in India and other countries. It provides examples of corporate scandals in India like the Harshad Mehta case and preferential allotment scam. Examples from the US like the Worldcom and Enron scandals are also mentioned. Reasons for misgovernance like a closed economy and lack of regulatory frameworks are discussed. The document also covers various corporate governance models and theories. It examines the roles, composition and responsibilities of boards of directors. Benefits of good governance and issues regarding boards, disclosure, and shareholder rights are summarized.
2. Corporate misgovernance
• In new millenium several companies in USA and
else where faced collapse.
• Existing frame work seems inadequate with the
gigantic business conglomérâtes.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 2
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3. Corporate misgovernance in INDIA
• Increasing corruption in the government and
its various services had kept the management
of country’s industrial and business
organizations above accountability for their
misdeeds, encouraging them to indulged in
more unethical practices.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 3
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4. Corporate misgovernance in INDIA
• First realize during BIG BULL, harshad mehta case.
• Involving lagre no’s of banks and resulting in the stock
market nosediving for the first time.
• Preferential allotment scam where investors loose Rs
5000 Crore.
• Disappearance of companies during 1993-1994, when
stock market shot up to 120 %, companies raised Rs25000
crore vanished and did not step back to their projects.
• Plantation companies scam Rs 50,000 crore
• Non banking finance companies scam. etc
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 4
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5. Corporate misgovernance in USA
• Worldcom improperly booked 3.8b in expenses,
thus inflating profits.
• Bernie ebbers borrows $408 million from phone
company to cover personal debts.
• Enron created outside partnerships that helped
hide poor financial condition. Executive earned
millions by selling company stock.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 5
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6. Reasons for misgovernance
• A closed economy.
• Sheltered market.
• Limited need and access to global business.
• Lack of competitive spirit.
• Inefficient regulatory authority framework.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 6
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7. Corporate Governance
• Problems that results from the separation of
leadership.
• Focus upon: internal structure, rules of the board
of directors, audit committees, discloser of
information rules to shareholders and creditors,
control of management.
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8. Corporate Governance
• Definition by corporate and academic
point.
• Academic point.
Shareholders
Board
Management
Employees
by Dr.Rajesh Patel,Director, nrv
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9. Corporate Governance
• Corporate point of view
• Corporate governance deals with ways in which
suppliers of finance to corporation assure
themselves of getting a return on their
investment. How do the suppliers of finance get
management to return some of the profits to
them?
• How do they make sure that managers do not
steal the capital they supply or invest it in bad
projects?
• How do suppliers of finance control managers?
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 9
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10. Corporate Governance MODEL
• Mc kinsey model.
• The Market model.
• Efficient, well developed equity markets and
dispersed ownership.
• Developed nations.
• US, UK, CANADA and AUSTRALIA.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 10
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11. SHAREHOLDERS INVIRONMENT INDEPENDENCE AND PERFORMANCE
Non-executive
Dispersed Majority
CORPORATE CONTEXT
INSTITUTIONAL CONTEXT
ownership boards
Sophisticated
Aligned
Institutional
incentives
ownership
Active High
Equity discloser
market Active
Takeover Shareholder
market equity
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM TRANSPARENCY AND ACCOUNTABILITY
CAPITAL MARKET LIQUIDITYmba,email:1966patel@gmail.com 11
12. Corporate Governance MODEL
• Second version of Mc Kinsey model.
• The control model
• Underdeveloped equity markets, concentrated
(family) ownership, less share holder transparency
and inadequate protection of minority and foreign
shareholders
• ASIA, LATIN AMERICA, EAST EROPEAN NATIONS
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05/10/12 03:39 AM 12
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13. SHAREHOLDERS INVIRONMENT INDEPENDENCE AND PERFORMANCE
Concentrated Insider
boards
CORPORATE CONTEXT
INSTITUTIONAL CONTEXT
ownership
Reliance on
Incentive
family,
Aligned with
bank,
Core
public
shareholders
finance
Underdeveloped Limited
New issue Discloser
market Limited
takeover Inadequate
market minority
protection
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM TRANSPARENCY AND ACCOUNTABILITY
CAPITAL MARKET LIQUIDITYmba,email:1966patel@gmail.com 13
14. Corporate Governance
• Sir adrian cadbury, chairman of cadbury
committee.
• Experts at the organisation of economic co-
operation and development OECD.
• All these definitions which are shareholder
centric captures some of the most important
concerns of government for society in general.
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15. Corporate Governance
• Management accountability.
• Providing adequate investment to management.
• Disciplining and replacement of bad management.
• Enhancing corporate performance.
• Transparency.
• Shareholder activism.
• Investor protection.
• Improving access to capital markets.
• Promoting long terms investments.
• Encouraging innovations.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 15
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16. Governance Is More Than Just Board Processes
And Procedures
• It involves full set of relationship between company’s
management, its board, its shareholders and its other
stakeholders, such as its employees and the community in
which it is located.
• Poor governance ripples Russia and Asian markets.
• Cadbury code and CII code.
• World bank, OECD, APEC-Asia pacific economic co-
operation.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 16
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17. OECD emphasis
• Rights of shareholders.
• Equitable treatment of shareholders.
• Role of stakeholders in corporate
governance.
• Discloser and transparency.
• Responsibility of board.
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05/10/12 03:39 AM 17
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18. HOME WORK -1
RESPONSIBILITY: KARANBIR
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19. CG In Banking Sector
• Bank failure in west.
• Weakness in banking sector leads to financial
instability.
• Lyon G-7 summit in june 1996.
• IMF and world bank.
• Basel committee on banking supervision.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 19
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20. Issues in corporate governance
1.Distinguishing the roles of board and
management
• By or under the direction of board.
• Board occupies key position between
shareholders (owners) and company’s
management ( day 2 day managers)
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21. Issues in corporate governance
• Select, decide the remuneration and evaluate on a regular basis,
when necessary the CEO.
• Oversee the conduct of company business.
• Review and where necessary, approve the company financial
objectives and major corporate plan and objectives.
• Render advice and counsel.
• Identify and recommend candidates for board of directors.
• Comply with laws and regulations.
• All other functions required by law to be performed.
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05/10/12 03:39 AM 21
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22. Issues in corporate governance
2.Composition of the board and
related issues
No. of directors of diff kinds.
BORAD OF DIRECTORS
EXECUTIVE DIRECTORS NON EXECUTIVE DIRECTOS
AFFILATED DIRECTORS
INDEPENDENT DIRECTORS
NOMINEE
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23. Issues in corporate governance
3. Separation of the roles of the CEO and
chairperson
4. Should the board of directors have
committees.
Appointment of special committees
Nomination
Remuneration
auditing
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05/10/12 03:39 AM 23
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24. Issues in corporate governance
5. Appointment of the board and director’s re-election.
6. Directors and executive’s remuneration.
7. Discloser and audit.
8. Protection of shareholder rights and their expectation.
9. Dialog with institutional shareholders.
10.Should investor have a say in making a company
“socially responsible corporate citizen”?.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 24
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25. Benefits Of Good Corporate Governance
To A Corporation
• Creation and enhancement of a corporation’s
competitive advantage
• Enabling a corporation perform efficiently by
preventing fraud and malpractices.
• Providing protection to shareholders interest.
• Enhancing the valuation of an enterprise.
• Ensuring compliance with laws and regulations.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 25
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26. Theory In Corporate Governance
AGENCY THEORY
• Adam smith who identified an agency
problem(managerial negligence and profusion).
• Shareholders (owners)- principals-they define
objective of the company.
• Agents-management who pursue such objectives.
• Chief executive desire and shareholders long term
investment.
• Mismatch objective leads to agency problem.
• Cost inflicted by such dissonance is the agency cost.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 26
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27. Theory In Corporate Governance
AGENCY THEORY
Two broad mechanism that reduce agency cost
and improve performance are:
• Fair and accurate financial disclosures
• Efficient and independent board of directors
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 27
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28. Theory In Corporate Governance
Stewardship theory:
• Managers are trustworthy and attach significant value to
their personal reputation
• Managers are steward whose motives are aligned with the
objectives of principles.
• Steward behavior will not depart from the interests of
his/her organization.
• Control can be counterproductive, because it undermines
the pro-organisational behavior of the steward by lowering
his/her motivation.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 28
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29. Theory In Corporate Governance
Behavioral difference between agency and stewardship
theories
• Agent and steward
• Agency- sociological and psychological
• Steward- individualistic, opportunistic and self serving
With regard to psychological mechanisms
Agency theory states that motivation resolves around lower
order and extrinsic needs
Steward theory states it resolves around higher order and
intrinsic needs
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 29
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30. Theory In Corporate Governance
Stakeholder theory:
• Interest of all groups- employees, customers,
dealers, government and society.
• Ethics of cares
• Ethics of fiduciary relationship
• Theory of property rights
• Criticised mainly because not applicable in
practice by corporations
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 30
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31. Theory In Corporate Governance
Sociological theory
• Focus on board composition
• Implication of power and wealth distribution
• Financial reporting
• Problems of interlocking dictatorship and
concentration in privilege class to equity and
social progress
• Socio-economic objective of corporations
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 31
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32. Corporate Governance
The role of the management is to run the
enterprise while the role of the board is to see
that it is being run well and in the right
direction. Corporate governance system vary
around the world. Scholars suggest 3 broad
versions.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 32
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33. Anglo American Model
Unitary board model/ Anglo-Saxon
Corporate governance in America, Britain,
Canada, Australia
Board of directors stakeholders
Shareholder
supervisors
elect Appoints and supervise
Officers(managers) Regulation/legal
Monitor system
manage &
Lien on
Creditors Stake in
regulates
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 33
company
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34. Anglo American Model
• Ownership is equally divided between
individual and institutional shareholders.
• Directors are rarely independent of
management.
• Run by professional managers who have
negligible ownership stake.
• Most institution investors are reluctant
activists.
• Discloser norms.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 34
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35. German Model
• Two tier boar model
• Upper boards supervises the executive board on
behalf of stakeholders and it is typically social
oriented.
• Shareholders do not dictate the governance
mechanism.
• Shareholder elects 50% of members of supervisory
board and rest is by labor unions, ensuring they
enjoy share in governance.
• Supervisory board appoints and monitors the
management board
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 35
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36. German Model
Appoint 50%
Supervisory board
Appoint 50%
Appoint 50%
Appoint
& supervise
Management board
Employees and
(including shareholder
Labor unions
labor relation officer)
manage
Own
Company
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 36
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37. Japanese Model
• Business network model
• Boards tends to be large
• Predominantly executive and often ritualistic.
• President who consult both supervisory board
and the executive management.
• Importance of lending bank.
• Shareholders and lending bank together
appoints the board of directors and president.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 37
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38. Japanese Model
Appoint Provides managers,
Supervisory board monitor, act in emergencies
Ratifies president Provides
decisions managers
President
Consult
Main bank
Shareholders
Executive management
Primarily board of directors
Manages
Provides loans
Own Company
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 38
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39. Indian Model
• Governed by the company’s Act of 1965
• Which follow UK model
• Private companies is mostly held or
dominated by a founder, his family and
associates.
• India has adopted the key tenets of the Anglo
American external and internal control
mechanism after economic liberlisation.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 39
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40. Indian Model
HOMEWORK:
Draw Indian model on your notebooks in next
class.
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05/10/12 03:39 AM 40
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41. Obligation To Society
• National interest • Competition
• Political non-alignment • Trusteeship
• Legal compliance • Accountability
• Rule of law • Effectiveness and efficiency
• Honest and ethical • Timely responsiveness
• Corporate citizen • Corporation should uphold the fair
• Ethical behavior name of the country
• Social concerns
• CSR
• Environment- friendliness
• Healthy and safe working
environment by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 41
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42. Obligation To Investors
• Towards shareholders
• Measures promoting transparency and
informed shareholder participation
• Transparency
• Financial reporting and records
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 42
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43. Obligation To Employees
• Fair employment practices
• Equal opportunities employer
• Encouraging whistle blowing
• Humane treatment
• Participation
• Empowerment
• Equity and inclusiveness
• Participative and collaborative environment
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 43
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44. Obligation To Customers
• Quality of products and services
• Products at affordable prices
• Unwavering commitment to customer
satisfaction
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05/10/12 03:39 AM 44
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45. Managerial Obligation
• Protecting company’s assets
• Behavior towards government agencies
• Control
• Consensus oriented
• Gifts and donations
• Role and responsibility of corporate board and
directors
• Direction and management must be distinguished
• Managing and whole time directions
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 45
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46. Cadbury Committee On Corporate
Governance
• Objective “to help raise the standards of
corporate governance and level of confidence
in financial reporting and auditing by setting
out clearly what it sees as the perspective
responsibilities of those involved and what it
believes is expected of them”.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 46
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47. Cadbury Committee On Corporate
Governance
• Code of best practices
• Listed on London stock exchange
• 19 recommendations
• Relating to board of directors, non
executive directors, executive
directors, reporting and controlling
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 47
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48. Cadbury Committee On Corporate Governance
Relating to board of directors
• Board should meet regularly, retain full control and monitor
• Division of responsibility, balance of power.
• Non executive directors should have skill and knowledge and
in right numbers
• Formal schedule of matters
• Take independent professional advice at the company’s
expense
• All directors should have access to the advice and services of
the company secretary, removal also.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 48
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49. Cadbury Committee On Corporate Governance
Relating to non executive directors
• Non executive members should bring an independent
judgment to bear on issues of strategy, performance,
resources, key appointments and standard of conduct.
• Independent of the management and any other business
and relationship, fee reflect the time they commit to the
work they are assigned.
• Appointment and reappointment.
• Selection through formal procedure.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 49
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50. Cadbury Committee On Corporate Governance
Relating to executive directors
• Directors service should not exceeds 3 years
without shareholders approval.
• Clear and full discloser of their salary and other
incomes.
• Pay should be according to remuneration
committee inclusive of non executive directors.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 50
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51. Cadbury Committee On Corporate
Governance
Reporting and controls
• Boards duty to present a balanced and understandable assessment
of the company.
• Board should insure that an objective and professional relationship is
maintained with the auditors.
• Board should established an audit committee with at least 3 non
executive directors.
• Directors should explain their responsibilities.
• Should report on the effectiveness of the company’s system to
internal control
• Should report that the business is going concern
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 51
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52. Paul Ruthman Committee
• Controversial point of cadbury committee.
• Practicality
• The effectiveness of company’s system of
internal control
• Extensions of directors responsibility
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 52
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53. THE GRRENBURY COMMITTEE 1995
• Established to identify good practices of confederation of British
industry CBI
• Directors remuneration and prepare code of such practices used
in public limited company
• Accountability and level of directors pay
• Proper allocations of responsibility, directors remuneration,
proper reporting to shareholders, greater transparency
4 sections
• Remuneration committee
• Disclosures
• Remuneration policy
• Service contracts and compensation
by Dr.Rajesh Patel,Director, nrv
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54. The Hampel Committee 1995
• To promote high standards of CG both to protect
investors and Enhance the standing of companies in LSE
• Developed further cadbury committee report
• Auditors should report privately to directors
• Directors maintain and review all controls
• Internal audit function importance
• Introduced combined code of cadbury and greenbury
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 54
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55. The Turnbull Committee 1999
• Established by the institute of chartered accountants in
England and Wales ICAEW
• Stress put on combined code on internal control
• Provide guidance to implement combined codes
• Annual internal audit importance
• Board of directors confirm the existence of procedures
for evaluating and managing key risk function
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 55
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56. World Bank on CG
• Earliest international organization to study and suggest
the guidelines for CG
• Their report on CG recognize the complexity of the
concept
Focuses on
• Transparency
• Accountability
• Fairness
• Responsibility
That are universal in application
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 56
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57. OECD Principles
• One of the earliest non government organization to
work on and spell out principle and practices of CG
and their goal to attain long term shareholder Value.
Major elements
• The right of shareholders
• Equitable treatment to shareholders
• The role of stakeholder in CG
• Discloser and transparency
• The responsibility of board
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 57
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58. Mc Kinsey Survey On CG
• International management consultant
organization.
• Conducted a survey with a sample size of 188
companies from 6 countries.
• INDIA , MALAYSIA, MEXICO, SOUTH KOREA ,
TAIWAN AND TURKEY
• To determine the correlation between good CG
and valuation of the company
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 58
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59. Mc Kinsey Survey On CG
• Increase financial performance
• Transparency of dealing
• Increasing investors confidence
Parameters for CG
• Accountability: transparent ownership, board size,
board accountability
• Discloser and transparency
• Shareholders equity: one share on vote
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:39 AM 59
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60. Sarbanes Oxley act 2002
• Scandals
• The Act calls for protection to those who have the
courage to bring frauds to the attention of those who
have to handle frauds.
• It ensures that such things are not left to the
individuals who may or may not choose to reveal
them.
• The SOX Act is a sincere attempt to address all the
issues associated with corporate failure to achieve
quality governance and to restore investors
confidence
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 60
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61. Sarbanes Oxley act 2002
Provisions :
• Establishment of public company accounting oversight board
PCAOB
• Audit committee
• Conflict of interest- 1 year after preceding
• Audit partner rotation- once after 5 years
• Improve influence on conduct of audits
• Prohibition of non audit services
• CEOs and CFOs required to affirm financials
• Loans to directors
• Attorneys
• Securities analysis
• penalities by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 61
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62. Indian Committees And Guidelines
• Developments all over the world
• Influence from UK
• After Cadbury Committee report it was studied
by CII, Associated chambers of commerce, SEBI
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63. Working Group On the Companies Act, 1996
• Review the Act in light of modern requirements
• Aspiration of investors
• Globalization of economy
• Liberalisation
• Bill was introduced in rajya sabha on 14th august
1997
by Dr.Rajesh Patel,Director, nrv
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64. Working Group On the Companies Act, 1996
Financial disclosers recommended by the group
• Directors remuneration and commission should be a part of directors report
• Cost incurred in using the services of other group companies
• Listed co. must give report
A review on operation yearly
Share in total turnover
Market condition
Future aspects
• Use of each funds generated from shares and debentures
• Debt exposure disclosure
• Foreign exchange outflow
• Financial statements pertaining fixed and current assets and long term liabilities
• Leased assets
• Any inappropriate treatment in balance sheet in directors report
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 64
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65. Working Group On the Companies Act, 1996
Non Financial disclosers recommended by the group
• Comprehensive report on directors relatives-either employee or directors
• Register maintenance for directors interest
• AGM members inspection at any time
• Loans to directors details
• Secretarial compliance certificate in concern to returns file
• According to companies Act
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66. Narayana Murthy Committee Report ,2003
• Disclosure of contingent liabilities
• Certifications by CEOs and CFOs
• Definition of independent directors
• Independence of audit committees
homework
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67. Rights To Share Holders
• Right to obtain Copies of MOA & AOA
• Right to have certificate of shares held by him within 3 years of allotment
• Right to transfer his share or interests in the company(AOA)
• Right to appeal company law board if refuses
• He has the preferential right to purchase shares on pro rata basis
• Right to apply to the company law board
• For the rectification of register of members
• He has the right to apply to the court to have variation or abrogation to his right
set aside by the court
• Right to inspect the registers, index of members, annual returns, etc.
• He is entitled to receive notice of general meeting and to attend and vote in the
meeting either in person or by proxy
• He is entitled to receive a copy of the statutory report
• He is entitled to receive a copy of the annual report of directors, annual accounts
and auditors reports.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 67
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68. Rights To Share Holders
• He has the right to participate in the appointment of auditors and elections of
directors at the AGM.
• He has the right to AGM by writing letter to company law board
• He can make application to company law board to convene an extraordinary
general meeting of the company where it is impractical to call such meeting
• He is entitled to have copies of minutes of general meetings.
• He has the right to participate in declaration of dividend and receive on duly date.
• He has the right to demand poll
• He has the right to apply to the company law board for investigation of affairs of
the company.
• He has the right to remove a director even before the expiry of the terms of
director office
• He has the right to make an application to company law board for any oppression
and mismanagement.
• He can make a petition to the high court for winding up of factory.
• He has the right towards any surplus assets of the company
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 68
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69. Investors Problems And
Protection
• Investor protection is associated with effective
corporate governance.
• He invested hard earn money and have expectation
• Capital growth
• Mismatch occurs with expectation and final outcome of
company
• Reasons of such outcome of company
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 69
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70. Relationship Between Investor Protection
And Cg
• CG lies in designing and putting in place
mechanisms such as
Disclosures
Monitoring
Oversight
Corrective system
To align the objective of two as closely as possible
and minimise agency problems
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 70
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71. CG Through Legal Protection Of Investors
• Impact of investors protection on ownership and
control of firms
• Impact of investors protection on the
development of financial markets
• Banks and corporate governance
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 71
mba,email:1966patel@gmail.com
72. Investor Protection In India
• Scandals of 1990’s
• Ketan parekh scam 2001
• UTI crisis 1998 and 2001
• Computer technology
House holds investors survey of society for capital market research
and development SCMRD,
• Report unsatisfactory experience with equity markets
• 80% say no confidence on companies management
• 55% shows little or no confidence on the market regulator or SEBI
• Most preferred savings are….
•
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 72
mba,email:1966patel@gmail.com
73. NK mittal committees on investor
protection
• Specific demand for an Act to protect investors.
• Establishment of judicial forum
• Investor education and protection fund in under
companies Act Should shift to SEBI.
• SEBI should be the only regulator
• SEBI should require all IPO’s to be insured under third
party
• SEBI Act 1992 should be amended
• The securities contracts Act 1956 should be amended.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 73
mba,email:1966patel@gmail.com
74. Problems Of Investors In India
• Against member broker of stock exchange
• Against companies listed for trading on stock
exchange
• Complaints against financial intermediaries
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 74
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75. Law Enforcement For Investors Protection
• Company’s level
• Stock broker level
• Stock exchanges
• Regulatory agencies
Investor grievances and guidance division
SEBI
Department of company affairs
Department of economic affairs
RBI
Consumer courts and court of Law
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 75
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76. Nature of complaints
• Complaints regarding delay in refund
• Complaints regarding delay in transfer of shares
• Complaints regarding refusal of transfer of shares
• Complaints regarding problems of odd lots
• Complaints regarding take over bid
• Complaints regarding insider trading, rigging, and other
malpractices
• Complaints regarding delay and non payments of interest/ fixed
deposits of companies
• Complaints regarding delay and non payment of dues or non
delivery of shares by brokers
• Complaints regarding non supply of debenture trust deed,
Refusal to inspection
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 76
mba,email:1966patel@gmail.com
77. Concept of CG and Stakeholder
• Stake holders as human being in
business Government
Society
Investor
Financial
Resources
Employee Value addition
Goods and services
Lender
Fixed assets
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM Supplier
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Customer 77
78. 3 A’s to make life for everyone
• Acceptability
• Availability
• Affordability
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 78
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79. CG Mechanism And Overview
4 P’s of corporate governance:
People
Purpose
Process
Performance
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 79
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80. CG Mechanism And Overview
Wealth
Wealth Management Wealth
creation distribution
•Gross value added •Dividend to investors
•Functional performance
•Economic value added •Timely payments to vendors
Improvement •Employee benefits and security
•Earning per share •Insurance and risks
•Market price per share •Fair price for customers
management •Payments of Govt Dues
•Return on investment •Technology up gradation
•Investment in corporation social
•Optimum utilization of
responsibility
Installed capacity
•Research and development
•HRM
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 80
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81. Bankruptcy in INDIA
Bankruptcy is legally declared in ability or impairment
ability of an individual or organization to pay their
creditors or is a legal proceeding in which a person who
cannot pay his or her bills can get a fresh financial start.
Purpose of bankruptcy :
• To give an honest start to debtors life, by reliving him
from most of the debts
• To repay creditors in an orderly manner to the extent
that the debtor has the mean available for payment
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 81
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82. Insolvency
• Insolvency is a financial condition experienced by
a person or business entity when their assets no
longer exceeds their liabilities, commonly
referred to as balance sheet insolvency or when
person or entity can no longer meet its debt
obligation when they come due, commonly
referred as to cash flow insolvency
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 82
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83. Corporate bankruptcy in INDIA
Indian post independence industrial policies
• Import substitution
• Industrial licensing
• Limited private ownership
• Deregulation
• Foreign competition
• Existing legal, political, social system
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 83
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84. Bankruptcy system
• High courts
• The company law board
• The board for industrial and financial
reconstruction BIFR
• Debt recovery tribunals DRT’s
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 84
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85. Companies Act 1956
• High court
• Company law Board
• Department of company affairs
• Voluntary liquidation by creditors
• Involuntary liquidation by court
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 85
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86. Sick Industrial Companies Act,
1985
• BIFR
• The process is applicable only for industrial
companies that have been registered for more
then five years and have accumulated losses at
the end of any year greater then their net worth.
• Board of directors have to fill application within
60 days with BIFR
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 86
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87. Time Bound Restructuring Or Liquidation
Guidelines
Step 1.
Company can refer to the tribunal within 180 days of coming to know of the
relevant facts giving to rise to cause of such references or within 60 days of
final adoption of accounts
Step 2.
Tribunal appoints an operating agency to conduct as initial exploration of whether
the sick industry should be reconstructed or if so how.
Tribunal will appoint a director
Step3.
Director report to tribunal
Step 4.
Operating agency will prepare a restructuring plan
Step 5.
Modification and changes as suggestion and objection receives from relevant
parties
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 87
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88. Role Of Auditors
• Lack of truthfulness of reports
• Transparency
• Window dressing
• Manipulation of profits and losses
• Unexplainable expenditures
• Poor performance etc
Role of auditor who are expected to certify the veracity of accounts
maintained by company for the benefits of all stakeholders of
the company including fair and transparent governance leaves to
be a desired.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 88
mba,email:1966patel@gmail.com
89. Audit
• Objective Of Audit
• Types of audit
Financial statement audits
Compliance audits
Operational audits
An auditor is a representative of the shareholders, forming a
link between government agencies, stockholders, investors
and creditors.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 89
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90. Types Of Auditor
• Internal auditors
• Independent auditors
• Government auditors
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 90
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91. Duties Of An Auditor
Defined under section 227(1A) of the companies Act 1956
• Whether loans and advances made by the company on the basis of security
have been properly secured.
• Whether transaction of the company which are represented merely by book
entries are not prejudicial to the interest of the company
• Where the company is not an investment company within the meaning of
section 372 or a banking company, whether so much of the assets of the
company as consist of shares, debentures, and other securities have been sold
at a price less than that at which they were purchased by the company
• Whether loans and advances made by the company have been shown as
deposits.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 91
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92. Duties Of An Auditor
Defined under section 227(1A) of the companies Act 1956
• Whether personal expenses have been charge to revenue account
In other words auditor is responsible for
• Verifying that the statement of accounts are drawn up on the basis of the
books of business
• Verifying that the statement of accounts are drawn up on the basis of the
books exhibit a true and fair state of affairs of the business
• Confirming that the management has not exceeded the financial/
administrative powers vested in it by the articles of association of the
company and /or resolution of shareholders
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 92
mba,email:1966patel@gmail.com
93. Responsibilities Of Auditors
As per standard auditing practices (2),
• He is responsible for forming and expressing his opinion on the
financial statements.
• He determine whether the relevant information is properly
disclosed in the financial statements by comparing the financial
statements with the underlying accounting records and others
source data.
• He has to insure that his work involves exercise of judgment
• He is not expected to perform duties which fall outside the
scope of his competence.
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 93
mba,email:1966patel@gmail.com
94. Banks And Corporate Governance
• Merchant banking
• NBFC
• NABARD
• IDBI
• EXIM bank
Protecting the interest of depositors becomes a matter of
paramount importance to banks
Managerial misadventures in banks
Regulating banks more tightly
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 94
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95. CG in Banks
• Banking become more complex and diversified
• Even regulated set up is there, countries had
faced a lot mis governance over a period of time
• Protecting the interest of depositors
• Large number of depositors in India
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 95
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96. Sound Corporate Governance Practices
• Establishing strategic objectives and a set of corporate values that are communicated
throughout the banking organization
• Setting and enforcing clear lines of responsibility and accountability Through out the
organization
• Ensuring that board members are qualified for their positions, have a clear
understanding of their role in corporate governance and are not subject to undue
influence from management or outside concerns
• Ensuring that there is a appropriate oversight by senior management
• Effectively utilising the work conducted by internal and external auditors, in recognition
of the important control function they provide
• Ensuring that compensation approaches are consistent with the banks ethical values,
objectives, strategy and control environment
• Conducting corporate governance in a transparent manner
IASC- international accounting standards committee
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 96
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97. Ganguly Committee Recommendations
Working group of directors of banks financial institutions, known as the ganguly
committee
• Board should be more contemporarily professional by inducting technical and
specially qualified personnel
• Directors should fulfill certain “fit and proper” norms
• Certain criteria adopted for public sector banks such as the age of director
being between 35 and 65, that he/she should not be a member of parliament,
state legislature etc and may adopted for private bank also
• Selection of directors could be by a nomination committee of the board. RBI
also might compile a list of eligible candidate
• The banks may enter into a “deed of covenant” with every non executive
director, delineating his /her responsibilities and making him/her abide by
them
• Need based training should be imparted to the directors to equip them
govern the banks properly
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 97
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98. Ganguly Committee Recommendations
Ganguly committee has suggested the formation of
committees of the board
Nomination committee
Audit committee
Shareholder redressal committee
Supervisory committee
Risk management committee
by Dr.Rajesh Patel,Director, nrv
05/10/12 03:40 AM 98
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