GROUP IVCORPORATE GOVERNANCE

Corporate Governance may be defined as a set of systems,

processes and principles which ensure that a company is

governed in the best interest of all stakeholders. It is the

system by which companies are directed and controlled.

Corporate Governance

Concept

• Adequate disclosures and effective decision

making to achieve corporate objectives.

• Transparency in business transactions;

• Statutory and legal compliances;

• Protection of shareholder interests;

• Commitment to values and ethical conduct of

business.

History of Corporate Governance

At independence, India inherited one of the world’s poorest economies but one which had a factory sector accounting for a tenth of the national product; four functioning stock markets with clearly defined rules governing listing, a well-developed equity culture if only among the urban rich; and a banking system replete with well-developed lending norms and recovery procedures. In terms of corporate laws and financial system.

Corporate functioning comprising of :

1.The Companies Act, 1956

2. Monopolies and Restrictive Trade Practices Act, 1969 (replaced by new

Competition Law)

3. Foreign Exchange Management Act, 2000

4. Securities and Exchange Board of India Act, 1992

5. Securities Contract Regulation Act, 1956

6. The Depositories Act, 1996

7. Arbitration and Conciliation Act, 1996

8. SEBI Code on Corporate Governance

Committees have been set up over the years to legislate the concept called ‘corporate governance’.

Desirable Code of Corporate Governance (1998)Committee on Corporate Governance under the

Chairmanship of Shri Kumar Mangalam Birla (1999).Naresh Chandra Committee (2002).

ACCOUNTABILITY FAIRNESS

TRANSPARENCY RESPONSIBILITY

Principles of Corporate Governance

The corporate governance seek to achieve following objectives:

Structured boardBalanced boardTransparencyEffectivenessDevelopment

Objectives

Monitor the functioning of management

ControlStrategiesMotivationMitigating riskSecured environment.

Cont..

Benefits of Corporate Governance

Benefits to the Organisation

Benefits to the shareholders

Benefits to the economy

Benefits to the Non-profit organisation

•Avoid Scandals•Encourage Growth•Expedite Auditing and Tax Procedures•Increase Donations and Reputation

COMPOSITION AND BALANCE OF THE BOARD

REMUNERATION AND REWARD OF THE DIRECTORS

RELIABILITY OF FINANCIAL REPORTING

BOARD’S RESPONSIBILITY FOR RISK MANAGEMENT AND INTERNAL CONTROL

SHARE HOLDER’S RIGHT AND RESPONSIBILITY

CORPORATE SOCIAL RESPONSIBILITY AND BUSINESS ETHICS

Provisions under listing

Agreement

Independent director

Code of Conduct

Non-Executive Directors

Audit Committee

Disclosure of Accounting Treatment

Whistle Blower Policy

Mandatory Provisions:

Subsidiary Companies

Disclosure of Contingent Liabilities

Report on Corporate Governance

Review of Information by Audit Committee

Periodical Review by Independent Director

The Board

Remuneration Committee

Shareholder Rights

Mechanism for evaluating non-

executive Board

Members

Training of Board

Members

Whistle Blower Policy

Audit qualifications

Non- Mandatory Provisions:

CASE STUDY

A Leading global consulting and IT service CompanyNearly 55,000 employeesBusiness was spread over 55countriesServed over 558 global companiesChairman Mr. Ramalinga RajuWon “Golden Peacock Award”First Indian Internet Company tobe listed on NASDAQ

About Satyam

Accounting Fraud of Rs 7800 crore Past seven years Accounting books were cooked

-Profits were Inflated-Understated liability and overstated Debt-Accrued Interest(which was non-existent) -Gap in the Balance Sheet had risen due to Inflated

Profits On January 7,2009, Raju wrote a letter addressing the Board members and the SEBI, informing them the inflated cash , faked profit margins and accounting malpractices and also stated his resignation

CORE OF SCAM

Criminal charges were brought against Mr.Raju, including: criminal conspiracy, breach oftrust, and forgery

Indian authorities arrested Mr. Raju, Mr.Raju’s brother, B. Ramu Raju, its formermanaging director, Srinivas Vdlamani, thecompany’s head of internal audit, and its CFOon criminal charges of fraud.

CONSEQUENCES

Satyam’s shares fell to 11.50 rupees on January10, 2009, their lowest level since March 1998,compared to a high of 544 rupees in 2008

What happened in this scam..

• Various businessman & politicians had siphoned around $600 million US dollars from a scheme that was floated by the Government of India meant to benefit the poor cobblers of Mumbai.

• The accused created a fictitious cooperative society of cobblers to take advantage of government loans through various schemes.

People involved in this scam..

Sohin Daya

Saddrudin Daya

Rafique Tejani

Kishore Signapurkar

Abu Asim Azmi

Maharashtra State Finance Corporation, Citibank, Dena Bank, Saraswat Co-operative Bank, etc.

People affected by the scam..

The poor Cobblers of Mumbai.

Government of India.

The Banks whose officials were involved in the scam.

Politicians, bureaucrats and top shoe manufacturers in Maharashtra.

Conclusion

India is a country riddled with corruption. The Cobbler Scam cost the government $600 million. Though the media high lightened all the aspects of the Cobbler Scam, the trial is yet pending in court and the accused out on bail. Hence, the media pressure on the Government to take quick action against those on the charge sheet was not as strong as it should have been.The investigation files now continue to gather dust while justice has yet not been delivered after more than a decade.

April 1992:Exposure of the scam

Sucheta dalal , a veteran

columnist,exposed the scam in The Times of India

Mehta was alleged to dip illegally into the banking system

of finance of his stock buyin.

He exploited the loopholes in the financial system

through the Ready Forward Deal and

Bank Receipts

Bank of Karad and The Metropolitan Co-operative Bank were involved in

this scam

Banks were left with BR’s of no

value; and banking system lost

Rs.4000 crores

The Downfall…

Arrested by CBI on Nov’92 charged with 72 criminal offences and over 600 civil action suits

Also accused of offering Rs 1 cr to former PM PV Narsimha Rao,tocover up the scandal

A decade later , Mehta died in a hospital , with 27 cases still pending against him

The story that broke 20 years ago still haunts many in

the stock market ;

• Many blame the scam for slower reforms

• It created distrust amongst the regulators and brokers

• This encouraged the formulation and development of a new corporate bond market.

THANK YOU!