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 Transparency Responsibility 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 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 "Mr. Duncan, Enron robbed the bank. Arthur Andersen provided the getaway car, and they say you were at the wheel."