vijaya sampath presentation (2)

8/8/2019 Vijaya Sampath Presentation (2)

1/15

Theme: Lead Corporate India - Role of Company Secretary

37th National Convention of Company Secretaries

Integrity, Ethics & Governance

Vijaya Sampath

5 November 2009


2/15


2

Two facets of governance :From Lehman to Satyam 2008-09

CORPORATE SCANDAL

Board, auditors, topmanagement accountable :disgrace and jail sentences forsenior promoters &management

Impairment to shareholders,employees, lenders &reputation

Speedy state intervention :liquidation prevented

Temporary dent in reputationfor India and governance

Continues under newmanagement

FINANCIAL MELTDOWN

No personal / criminalliability on Board, auditors ortop management

Financial community and

general public also affected

Trillion dollar bailoutsovernight by governments inUS & Europe to othercompanies post collapse

Global crisis : cascadingeffect on entire community

Tenure : 1840 - 2008


3/15


3

Organization Stakeholders

Board of Directors

Managem

en

t

Public

Supp

liers

Enforcem

ent&regulatory

authorities

CreditorsShareholders

Promoters

Business

partn

ers

Custome

rs

Staff/E

mp

loyees


4/15


4

What needs correction

Level of responsibility of BoardsLevel of responsibility of Boards

Boards followed accepted standards for functioning: all testsBoards followed accepted standards for functioning: all tests

passed:passed:

-- Composition : size, age, diversityComposition : size, age, diversity

-- Skills and experienceSkills and experience

-- AttendanceAttendance

-- CommitteesCommittees-- Internal control systemsInternal control systems

-- IndependenceIndependence

-- Access to information : volume perhaps but quality questionableAccess to information : volume perhaps but quality questionable

Failure due to lack of knowledge, negligence, incompetence orFailure due to lack of knowledge, negligence, incompetence or

collusion: Can a Board take shelter under business judgment rulecollusion: Can a Board take shelter under business judgment rule Board and management replaced : new facesBoard and management replaced : new faces

Rules, process, procedures and norms cannot override vigilant orRules, process, procedures and norms cannot override vigilant or

involved Directors.involved Directors.


5/15


5

Conflicting stakeholder expectations

Owners and strategic investors: Long term financial and businessOwners and strategic investors: Long term financial and business

successsuccess Retail shareholder: Short term market cap gains and dividendsRetail shareholder: Short term market cap gains and dividends

Lenders: Security of their loansLenders: Security of their loans

Business managers: Direction, guidance and counsel on strategyBusiness managers: Direction, guidance and counsel on strategy

and policy.and policy.

Staff and employees: Continuing career growth & development :Staff and employees: Continuing career growth & development :

Integrity & value systems.Integrity & value systems.

Customers: Products, services & support : high quality at the rightCustomers: Products, services & support : high quality at the right

price.price.

Business partners: Confidence on Good to do business withBusiness partners: Confidence on Good to do business with Suppliers: Business continuity and sanctity of contractsSuppliers: Business continuity and sanctity of contracts

Community: Business commitment meeting its corporate socialCommunity: Business commitment meeting its corporate social

responsibility, values and integrityresponsibility, values and integrity


6/15


6

Making good Boards great

Fighting the wrong battle if procedure rules tightened and humanFighting the wrong battle if procedure rules tightened and human

elements ignoredelements ignored

Board effectiveness : critical requirementsBoard effectiveness : critical requirements

-- fearless independencefearless independence

-- engages with senior managementengages with senior management

-- functions as a team : chemistry and communicationfunctions as a team : chemistry and communication-- cycle of respect, trust and candorcycle of respect, trust and candor

-- open and constructive dialogueopen and constructive dialogue

-- fluid portfolio of roles : no typecastingfluid portfolio of roles : no typecasting

-- individual accountabilityindividual accountability

--

evaluation of performance and effectivenessevaluation of performance and effectiveness

TransitionActive direction

Conscience keeperCrony of Promoter


7/15


7

Ideal qualities

Asks the hard questions, constructive dissentAsks the hard questions, constructive dissent

Works well with othersWorks well with others Provides valuable inputs objectivelyProvides valuable inputs objectively

Available when neededAvailable when needed

Alert, inquisitive and involvedAlert, inquisitive and involved

Contributes to discussions constructivelyContributes to discussions constructively Actively seeks information from management : probes asActively seeks information from management : probes as

requiredrequired

Prepares for attending meetings : active engagementPrepares for attending meetings : active engagement

No hidden agendas or vested groupsNo hidden agendas or vested groups

Responsible only to the organizationResponsible only to the organization

Not disruptive in pursuit of statutory responsibilities butNot disruptive in pursuit of statutory responsibilities but

constructive in individual accountabilityconstructive in individual accountability

Able to strike a balance between governance oversight andAble to strike a balance between governance oversight and

providing constructive advise / supportproviding constructive advise / support


8/15


8

Ability to add value


9/15


9

Going Global

Urge to change emerging statusUrge to change emerging status

Growth stagnating in mature marketsGrowth stagnating in mature markets

Shareholder base becoming more institutional and internationalShareholder base becoming more institutional and international

Listing in multiple jurisdictionsListing in multiple jurisdictions

Business going global : inbound and outbound consolidationBusiness going global : inbound and outbound consolidation

International acquisitions and opportunitiesInternational acquisitions and opportunities

Fungibility of suppliers : products and servicesFungibility of suppliers : products and services

Global movement in factors of production : capital, people, assetsGlobal movement in factors of production : capital, people, assets

Dismantling of state monopolies : in many emerging economiesDismantling of state monopolies : in many emerging economies

Shifting economic power from mature to high growth marketsShifting economic power from mature to high growth markets

Optic fiber and capital markets link what geographic boundaries kept apartOptic fiber and capital markets link what geographic boundaries kept apart


10/15


10

Positives of good governance

Easier access to global markets : Acceptability factorEasier access to global markets : Acceptability factor Increased investor and lender confidence, goodwillIncreased investor and lender confidence, goodwill

Higher valuations and market capsHigher valuations and market caps

Improved checks and balances : reduces organizational riskImproved checks and balances : reduces organizational risk

exposureexposure

Company performance : effectiveness & efficiency of businessCompany performance : effectiveness & efficiency of business

operationsoperations

Building a universal culture of values, integrity and transparencyBuilding a universal culture of values, integrity and transparency


11/15


11

Positives of good governance

Institutionalize best practices and create next practiceInstitutionalize best practices and create next practice

Supports informed decision making at management andSupports informed decision making at management and

Board levelBoard level

Identifies and exploits areas of risk based advantageIdentifies and exploits areas of risk based advantage

Attracts talent : preferred employer of choiceAttracts talent : preferred employer of choice

Allows proactive risk stewardship not reactive defenseAllows proactive risk stewardship not reactive defense

Enables independent directors to decide with comfort andEnables independent directors to decide with comfort and

confidenceconfidence


12/15


12

Issues

Impact of globalization and financial crisis since 2000Impact of globalization and financial crisis since 2000

Information asymmetry : different stages of economicInformation asymmetry : different stages of economic

developmentdevelopment

Internal opaqueness : aspirations Vs expectationsInternal opaqueness : aspirations Vs expectations

Increasing participation / intervention of overseas investorsIncreasing participation / intervention of overseas investors Independent director: shift from periphery to center stageIndependent director: shift from periphery to center stage

Enforcement and monitoring mechanisms : internal & externalEnforcement and monitoring mechanisms : internal & external

Establishing and maintaining consistent high standardsEstablishing and maintaining consistent high standards

Risk Vs EntrepreneurshipRisk Vs Entrepreneurship

Board dynamics managementBoard dynamics management


13/15


13

Concerns & Challenges

Substance over form : paradigm shiftSubstance over form : paradigm shift Giver or taker : who bears more blameGiver or taker : who bears more blame

Cultural and organizational differences : unity in diversityCultural and organizational differences : unity in diversity

Conflicting expectations from stakeholdersConflicting expectations from stakeholders Level of care and diligence: early warning signalsLevel of care and diligence: early warning signals

Universal values & standards : common meeting groundUniversal values & standards : common meeting ground

Emphasis on profitability : surviving in hyper competitionEmphasis on profitability : surviving in hyper competition Speedy results : ends Vs meansSpeedy results : ends Vs means


14/15


14

Challenges

Higher exposure to risk: dawn of class action suits

Liability of directors: D&O policy

Disclosure requirements Vs confidentiality for competitiveness

Real time disclosures: how much and when and to whom

Exception report: Is acknowledgement deemed acceptance

Insider trading regulations: knowledge of price sensitive information

Joint venture agreements

Exercise of affirmative rights

Quorum requirements for Board and shareholder meetings

Restrictions on transfer of shares in public companies

Put and call options at pre determined formula


15/15

Thank you!

vijaya sampath presentation (2)

Documents