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    Vaishnavi Venkatesan
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    This document discusses the concept and need for corporate governance. It provides definitions of corporate governance from various committees and emphasizes transparency, accountability, ethics and fairness. It outlines factors affecting corporate governance and discusses the scope of corporate governance including board structure and procedures. The document also examines corporate fraud cases in India like Satyam, and corporate failures like IL&FS, Bhushan Steel and Jet Airways as evidence for the need for stronger governance regulations. Finally, it discusses norms of good governance and compares governance needs for different types of companies like private, public and government firms.

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    This document discusses the concept and need for corporate governance. It provides definitions of corporate governance from various committees and emphasizes transparency, accountability, ethics and fairness. It outlines factors affecting corporate governance and discusses the scope of corporate governance including board structure and procedures. The document also examines corporate fraud cases in India like Satyam, and corporate failures like IL&FS, Bhushan Steel and Jet Airways as evidence for the need for stronger governance regulations. Finally, it discusses norms of good governance and compares governance needs for different types of companies like private, public and government firms.

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    38 views30 pages

    Corpoaret Governance - Need

    Uploaded by

    Vaishnavi Venkatesan
    This document discusses the concept and need for corporate governance. It provides definitions of corporate governance from various committees and emphasizes transparency, accountability, ethics and fairness. It outlines factors affecting corporate governance and discusses the scope of corporate governance including board structure and procedures. The document also examines corporate fraud cases in India like Satyam, and corporate failures like IL&FS, Bhushan Steel and Jet Airways as evidence for the need for stronger governance regulations. Finally, it discusses norms of good governance and compares governance needs for different types of companies like private, public and government firms.

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    © All Rights Reserved
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    of 30

    Corporate Governance

    Need for Corporate Governance


    Corporate Frauds and need for regulation
    Case studies on Corporate collapses
    Concept

    Constitutionalism vis-a- vis Constitution – Fundamental

    Governance vis-a- vis Government – Civil

    Governance vis-à-vis Management- Corporate

    Object - Fairness and Accountability vis-a-vis Decision and Control


     A company is a juristic entity which has independent existence from its members

     BOD may not match their interest with other stakeholders

     BOD- Principle of Natural Justice and audi alteram parterm


    Need
    1. Transparency

    2. Accountability

    3. Empowerment

    4. Ethics

    5. Fairness

    Factors Affecting Corporate Governance


    Definitions

     Can not give a complete definition . It concerns management’s power,


    responsibility, influence and accountability
     Cadbury Committee, UK ,1991 – It is the system by which companies are directed
    and controlled
    i. Fulfilment of long term goals of the owners
    ii. Protection of interest of employees, local community, environment
    iii. Interest of customer and suppliers
    iv. Proper compliance
     James D. Wolfensohn (Ninth President World Bank)- “Corporate Governance is
    about promoting corporate fairness, transparency and accountability”

     N.R. Narayana Murthy Committee, 2003


    Corporate Governance is the acceptance by management of the absolute rights of
    shareholders as the true owners of the corporation and of their own role as trustees on
    behalf of the shareholders.
    It is about commitment to values, about ethical business conduct and about making a
    distinction between personal and corporate funds in the management of a company.”
    Scope

    1. Structuring of Boards – Appointment, removal, independent directors

    2. Board Procedure – Fairness- meetings- , compliance

    3. Corporate Democracy- informed shareholders, participation, disclosure

    4. Administrative Autonomy – Auditors, Shareholders


     Definition
     Company
    Section 2(20)- “ A company means a company formed and registered under the Companies Act or
    any previous Law.”

     Body Corporate/ corporation


    Section 2 (11)- A company incorporated outside India but does not include;
    A co-operative society
    Any other body corporate as Central Govt. notified (but not being a company defined under this Act)

    Need to derive meaning from the features of company


    Lifting the Corporate Veil

     Meaning
    Members are directly liable in case of ultra vires activities

     members can not take shield of Corporate personality for unjust results
     Personal responsibility and no application of Limited Liability

     Determination of enemy character


    Corporate Frauds and need for regulation
    Harshad Mehta Scam, 1991

    Used The Banking System Banks- lend each other money- ready forward agreement
    which is basically a bank receipt which is backed by some collateral

    Diversion of funds – Fake Bank Receipts with no security

    took advantage of the many loopholes in the banking system and use of funds from
    inter-bank transactions
     Satyam Scam , 2009
    Manipulation in gap between actual operating profit and the one reflected in the
    books of account
    Burden to maintain goodwill –
    Role of Auditor (Price Waterhouse)- Fraudulent Reporting

    https://www.researchgate.net/publication/282331448_Corporate_Accounting_Fraud_A_Case_Study_of_Satyam_Comput
    ers_Limited/link/561496d708ae983c1b40a0d4/download
    The Punjab and Maharashtra Bank scam
     BOD of the PMC bank has given huge loan to the Housing Development and
    Infrastructure Ltd (HDIL) and its group entities.
     This fraud case is related to transfer of 70% of the total credit facilities of the PMC
    bank to HDIL and its associated companies.
     Now the total NPA of the bank has grown to 73%. Now the Enforcement Directorate
    (ED) has sealed the assets of the HDIL group and the trustees of PMC Bank and
    criminal proceedings have begun.
     It is found that around 21,049 bank accounts were opened by bogus names to conceal
    44 loan accounts. The bank's software was also tampered to conceal these loan
    accounts.
     https://www.business-standard.com/about/what-is-pmc-bank-crisis
    Corporate Debacles in India
    Bhushan Steel
     Unexpected decline in business- the company experienced glory to grief
     The company’s total debts stand at Rs. 46,062 crore that have again choked
    India’s banking system.
     Company promoters blame these defaults on a global recession, poor regulation
    and sheer bad luck.
     Banks are backing risky bets on promoters comfortable growing their businesses
    on borrowed money. (LOI)
     https
    ://www.hindustantimes.com/business-news/npa-crisis-the-rise-and-fall-of-bhusha
    n-steel-in-the-great-indian-debt-trap/story-GHrvRRFIBsMLXKJzbqvaFN.html
    IL&FS (Infrastructure Leasing & Financial Services)
     defaulted its loans
     There was sudden rise in the NPA of the company in one year from Rs.410 crores
    to Rs.816 crores was surprisingly high.
     Mismanagement of Funds
     Company files for bankruptcy.
     https://www.ilfsindia.com/claim-management/
    Jet Airways
     http://www.jetir.org/papers/JETIR2007188.pdf
     Network expansion- Purchase of Air Sahara for $500 million in cash. ●
    Rebranding it as "Jet Lite"
     Fluctuations in the global crude prices
     Fall of Indian rupee - - soaring fuel costs
     Jet was given loans of far higher value than the collateral provided
     Filed for Bankruptcy
    Business and Ethcis
     Norms of Corporate Governance

     Ensuring Good Governance

     Ideal Governance
    Norms of Corporate Governance

     Fair Leadership

     Board Appointments

     Compliance

     Communication

     Accountability
     Risk Management

     Assessment – Review, disclosure, shareholder participation

     Cultural and structural balance


    Ideal Governance

     Necessary Freedom to the management

     Interest of shareholders- admin and finance

     System of check and Balance

     Maximization/optimization of wealth but not through only to achieve profit


     optimization of wealth
    Economic Growth v. Financial Growth
    Need for Governance in Different Forms of Companies
    Private Limited Company

     The Companies Act and SEBI Listing Agreement focus on corporate governance


    aspects of public listed companies- protection of share holders
     Corporate governance includes rights of investors, financial institutions,
    customers, suppliers, employees and society
     Appointment of Board of Directors- generally appoint directors from within the
    subsidiary organization, vicinity
     Rules and Performance of Board of Directors-Self Assessment and less
    supervision
     Risk Management & Internal Controls- Auditors
    Banking Companies

     Socialism in India- protection of all stake holders


     Ensuring fair administration and compensation
     Board Independency and accountability
    • Effective Risk Management
    • Capital provision- Utility
    • Accountability – Role of Auditor- fair communication
     Types of Banking – Cooperative to Nationalise- missing corporate governance
     Government Control – not only procedure established but due process
     Risk Management Committee
     Audit Committee
     Compensation Committee- Remuneration and claims
    Public Limited Companies

     Major applicability of Laws

     Stakeholder Protection
    Government Companies

     Need to function within National planning

     Government Control – AOA


    • Composition of BOD
    • Nomination of officials on BOD- Link between company and Govt.
    • Restrictions on Powers
    • Approvals
     Need to encourage governance though disinvestment take place- Govt. check is
    inevitable
     Organizational control- Doctrine of corporate personality and ultra vires
     Accountability – Govt or BOD

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