Course Objectives Explain What is Corporate GovernanceDefine
Corporate GovernanceExplain What is a CorporationDescribe the
Features of a CorporationExplain What is Good Corporate
GovernanceExplain the Sarbanes Oxley ActDescribe the Role of
Government in Corporate GovernanceDescribe the World Bank
Directives for Corporate GovernanceExplain the Factors Directing
Corporate BehaviorDescribe the Emerging Best Practices of Corporate
GovernanceExplain What is Corporate Social ResponsibilityExplain
the Role of Board of Directors in Corporate GovernanceDescribe the
Benefits of Corporate GovernanceList the Principles of Corporate
GovernanceList the Rules of Corporate Governance
Slide 3
Introduction Look at the news that made headlines in all the
leading newspapers across the world. Let us see what really
happened.
Slide 4
Introduction Satyam Computers is a reputed software firm of
India with around 185 Fortune 500 companies as customers and
operations in 66 countries. Satyam Computers had on December 16,
2008 announced that it will acquire two group firms: Maytas
Properties Maytas Infra
Slide 5
Introduction The Board of Directors of Satyam had approved the
founder, Byrraju Ramalinga Raju's proposal to buy 51% stake in
Maytas Infra and 100% in Maytas Properties. The total outflow for
both the acquisitions were expected to be US$ 1.6bn comprising of
US$ 1.3 bn for 100% stake in Maytas Properties and US$ 0.3 bn for
51% stake in Maytas Infra.
Slide 6
Introduction This is the point that sparked a row over alleged
violation of corporate governance laws. The deal was not profitable
to the investors. Hence, after this announcement, the investors
started raising a hue and cry. The promoters decided to inflate the
revenue and profit figures of Satyam. Hence, the company had a huge
gap in its balance sheet.
Slide 7
Introduction So, Satyam Computers Services Ltd. got involved in
a multimillion dollar accounting fraud which ultimately led to a
huge face loss for the entire Indian IT industry. The involvement
of the reputed external agency like Price Waterhouse Coopers (PWC)
in the scandal made the entire episode a nightmare for the
regulatory bodies, the government and the employees of the
organization.
Slide 8
Introduction Therefore, it is very critical that every
corporate should follow the norms of good corporate governance. The
objective of corporate governance is the prevention of such scams
in businesses which have a huge bearing not only on the immediate
shareholders but also on the morale of the larger stakeholder
groups.
Slide 9
Introduction Let us learn about Corporate Governance in detail.
Corporate Governance is basically a detailed disclosure of
information and an account of an organizations financial situation,
performance, ownership and governance, relationship with
shareholders and commitment to business ethics and values.
Slide 10
What is Corporate Governance? Corporate Governance refers to
the way a corporation is governed. It is the technique by which
companies are directed and managed. It means carrying the business
as per the stakeholders desires. It is actually conducted by the
board of Directors and the concerned committees for the companys
stakeholders benefit. It is all about balancing individual and
societal goals, as well as, economic and social goals.
Slide 11
Corporate Governance Definition It is interesting to note that
the definition of corporate governance changes in different
cultural contexts. For example: Let us look at a definition
provided by the Center of European Policy Studies or CEPS. CEPS
define corporate governance as: The whole system of rights,
processes and controls established internally and externally over
the management of the business entity with the objective of
protecting the interests of the stakeholders.
Slide 12
Evolution of Corporations 2 1 3 Let us now look at the
evolution of corporations into the form we know today. To begin
with, in the earlier times, the educational and religious
corporations were given considerable independence and perpetual
existence to evade the all encompassing power of the king. Later,
corporations were set to address states specific needs like
establishing colonies during the colonial era. Initially,
corporations were characterized by a few wealthy people who
negotiated amongst themselves, invested capital and worked towards
maximizing profits.
Slide 13
What is Good Corporate Governance? Corporate Governance is the
art of directing and controlling the organization by balancing the
needs of the various stakeholders. This often involves resolving
conflicts of interest between the various stakeholders and ensuring
that the organization is managed well meaning that the processes,
procedures and policies are implemented according to the principles
of transparency and accountability.
Slide 14
Sarbanes Oxley Act Corporate Governance has been in the news
for the last decade or so following a spate of scandals that
engulfed companies like Enron which led to their collapse because
of mismanagement. This prompted regulators all over the world to
implement various acts and rules to check irresponsible corporate
behavior that would mar the prospects of the corporations and cause
harm to their shareholders and stakeholders. Acts like the Sarbanes
Oxley Act were passed to enforce greater oversight over
corporations and ensure that they did not overreach themselves in
their relentless pursuit of profits. Indeed, it can be said that
the Enron debacle was a wakeup call for corporate America to set
its house in order.
Slide 15
The Role of the Government: Legislation and Regulation Another
important consideration is the choice of going after the
corporation or people, who have been involved in the misconduct. A
rather fair and objective view of this issue, is that if the
organization has a proper system of safeguards and checks in
systems and processes and if the misconduct profits just one
person, in this case even the corporate becomes a victim. For such
situations, a single person can be accused of embezzlement and
liable for prosecution. However, if the fraud is at a larger level
involving more people, the situation becomes complex, whether to
hold liable the board members and senior leaders for failing to
ensure the prevention.
Slide 16
Community members want jobs which would give them a decent
income or wage as well as which challenges their ingenuity and
creativity. They need goods and services which are of a decent
quality Expectations of the Community from the Corporate The
following are the various expectations that the community has from
the corporate: Community members also want their share of interest
in the corporation either as an employee, shareholders, suppliers,
creditors or just as neighbors. They want a safe and healthy work
environment.
Slide 17
Impact of Corporate Behavior The corporate behavior tends to
have a direct or sometimes an indirect impact on the economic state
of the countries and communities they operate in. Any lack or
deficiency in the corporate governance structures has a potential
to threat the stability of financial structures globally. The very
recent examples were the economic crisis in US, Brazil and Asia in
1998 and the ever continuing financial meltdown of the current
times.
Slide 18
Best Practice #1 Best Practice #2 Best Practice #3 Emerging
Best Practices of Corporate Governance Best Practice #1 In the wake
of the crisis, several proposals aimed at introducing greater
transparency and accountability from the corporate have been set in
motion. These include the Dodd-Frank Act or the legislation that
has been passed in the US to monitor the accounting and business
practices of the banks and corporate.
Slide 19
Principles of Corporate Governance The following are the
principles of good corporate governance: Ethical Approach -
organizational image, culture, society Caring for Stakeholders
Though some have greater importance than others Balanced Objectives
- Agreement of goals by all interested parties Equal Participation
of Each Party - Roles of key players such as:
owners/directors/staff Existence of Proper Decision-making Process
Decisions should reflect all other principles and give due
importance to all stakeholders Accountability and Transparency - to
all stakeholders
Slide 20
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Corporate Governance. Register Today and Get Access to 5 FREE
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