Corporate Governance Exam Paper

Games Directors tour While analysing the Reality of scorecardroom we utter many games and simulated military operations often diligent by managing directors so that they dont lose source. Some such games were anyiance, coalition, lobbying, sc armongering, record rolling and so forth Here as well as studyity of cast were near and full whizs of Bright so e routineu everyybody chose to stay letup about what is going on. Under-reserving Like we recount in the HLL case under(a)-reserving is a tactic used by tightens entirely in the long run it loafert pinch companies from collapsing. Role of self-directed directors The question ar commutative directors really independent has been issue of debate for ages.In the case the graphic symbol compete by independent directors is insignificant. Also it is impugn open whether independent directors were present and in the government issue advised by police force or non. visit Committee The case dialogue about KPMG a nd the arguable role it vie but what about the audit delegacy, was it existent, if so how was it functioning. Its composition and leaders needs attention. employment Most of the cases of be frauds, falsifying records, deceiving sh beholders and unsuccessful person rest upon the habit of the balance canvas and the tactics used to fudge the data.Ex Enron The association needs to take inspiration from secures uniform GSK, Infy, and tata which serve as examples of good CG. GSK * prexy of placard is independent director on with 5 separates in in add-in. hydrofoil is valued Infosys * Creating wealth legally and ethically Tata * One of the giants and still fascinating judicature * In sync with the values * very(prenominal) elaborate code of conduct Board composition and anatomical structure One of the study f law of nature ways in the carte structure is everyone was quiet about the go storm dominated by great power and status of Bright. on that point should be aroun d independent directors with might to question the acts and deeds and the adjacent structures argon recommended. European Two layer work Sh beholders Supervisory card executive director bill of fare forethought Employees and staff The supervisory board overlooks functions of executive board and can question and alter the function This model is preferred over unitary board. Chinese model Here we see the social movement of the state as a unanimous also takes society into account along with sh beholders Board Leadership One of the major causes of the downfall was the role played by Bright.He was forceful and rigid and thus not a true leader. The features desired for a leader atomic number 18 Integrity The ability to differentiate among right and incorrect and govern in a manner that it is morally correct and sustainable independence The board was like a dumbbell/puppet with no or very less degree of independence idea The creativity moldiness not enumerate out in f orm of manipulation and fraud but the bet edgeent of the firm Character He essential be ethical and strong character character A leader must be flexible and open to new ideas and suggestions. The personality is the holistic perspective.Communication skills, good listener, motivator etc. Board level randomness desire CG was not in place and thither was no give-up the ghost information pathway. The board did not check or evidence the actions. Control systems The case clearly shows infringement of many acts and laws. The board was not conforming to the supervisory work. The attend system was not in place. Auditors at fault In cases like Enron and worldcom it has been seen that the external auditors ar able to flee away leaving the high society in distress. Usually on that point are tie ups between management and auditors, around innate planttlement that leads to uch actions. Role of internal audit committee is arguable. The keep company should birth gone to auditors li ke Delloitte who are received and tested. Risks that should be considered Financial risk. Operational, obligingness, Business four aspects of CG Internal controller, risk management, behavioural brass instrument, independence Sarbax oxley act This is one of the landmark acts that came in 2002 after Enron and Worldcomm It says criminal and civil penalties for forms and bill frauds, certificate for internal audits and annual publish is to submitted by all public and cloistered listed companies.Also introduce PCAOBA (Public company accounting inadvertence board of America) Was criticized for high cost of compliance CG is a operate by which companies are directed and control conduct Many attempts squander been make to define CG and this one by Cadbury is one of the near comprehensive . Cadburys exposition Corporate governance is the system by which companies are directed and controlled. The boards of directors are trustworthy for the governance of their companies. The s hareholders role in governance is to appoint the directors and the auditors to converge themselves that an appropriate governance structure is in place.The responsibilities of the board include setting the companys strategic aims, providing the leadership to chuck them into effect, supervising the management of the business and inform to shareholders on their stewardship. The boards actions are subject to laws, regulations and the shareholders in general meeting. microphone and Minnow Corporate Governance is a process of governing and directing the exercise of any company and the major actors touch on are directors, management, society and shareholders CG is basically to overlook, monitor, control and direct the functioning of the management.For this we have phase and the code of conduct. Some acts, laws and norms facilitate this process of governance. Scope from least to highest Society Media and solicit Shareholders Regulatory bodies Contractual Stakeholders Auditors Gover nance and Management (Diagram) As it is clear that the scope of CG is very wide. It is essential that CG is acceptable and answerable to many. Functions of the board Majorly there are four functions of the board depending upon the conformity to past or exist and the performance expected for future.The four functions are accountability, strategy locution, supervising and monitoring and constitution making Matrix The accountability along with monitoring and supervising is the conformance authority i. e. to past or existing situation. The policy making and strategy formulation comes under the performance sort out with focus on future value. Usually it is seen that independent directors are forced to conformance because they only sympathise what is going on. Strategic Formulation * This is the most crucial step of governance There must be shared diorama according to which governance and management subscribe * It involves SWOT, PEST, Porter analytic thinking and asking of cruci al questions of long term strategic splendour * It is important to have helicopter mess balanced of long and short term * San Tzu Think the mind alike of your antagonist Policy making * This comes from the strategic formulation * Policies are rules, regulation and procedures that must be followed and abided Supervision & monitoring This is the conformance part to check that everything is happening as per the policies and rules or not Accountability * Accountability is to have proper system wherein respective heap are accountable for any misapprehension or aberration * Only the surmount management is not accountable but usually is held responsible. Normative How board thinks directors should strike down their time How directors actually do take place their time Relation between functions schema formulation Policy making management and monitoring Accountability Roles Agents and Stewards Agency theoryPrincipal shareholders scale down with agents seek self interest It says th at it is not possible that agents take care of other capital with as much prudence of vow. They seek personal interest and noisome effect on shareholders Stewardship theory Owners chose and pick out stewards(directors) who play the role of stewards Contrary to effect theory it says owners vest their trust in directors who act as stewards of shareholders money. Along with the board the following roles are performed by the director Managing the board Managing the meeting Strategic leadership Cooperation between board and management lodges face to publicBy means of all these functions and roles the board makes an effort towards fair and good distribution of profit, ethical governance of firm and deters any unethical behaviour It lays clear rules, norms, laws and code of conduct to facilitate governance Maxwell communication 1991 Risky scholarship using pension funds hint to bankruptcy Bank of credit and duty international Cadbury trace 1992 best practices suggested How to use it? For a company to enter in stock securities industry it has to that it follows Cadbury suggestions Corporate governance is directly associate to market valuation of a company.Better managed companies are valued more. Enron failure 2001 faulty accounting policies creation of special purpose entities to disguise losses excessive executive honorarium Worldcom 2002 The BOD did not oppose the enterprising investment of Worldcom in fiber centre cables and infrastructure to become a market leader (a short term goal). This led to huge losses when the boom for shipping com ended. Measures to check such scenarios * break BOD accountable to stakeholders * make up changes in structure * Clearly explain the responsibilities of Board Make them active board in fully grown a leadership to the company * Make the BOD to meet more a great deal listed company at least 4 times a course * localize down an agenda about what must be discussed Placing constraints, checks on managemen t power including the chief operating officer Eg SKF micro finance CEO was sacked as he is no good There should be musical interval of position of chairman and CEO Ensuring a sound system of internal control and proper disclosure of financial information and executive compensation Auditors are inveterate from 20 years Approaches to streng thusly the CG 002 there was a proposal to change companies act 1956 2012 the bill was proposed in loksabha Very lengthy process to make a law But then one law for all companies reduces flexibility In 1998 CII institute a committee under Rahul bajaj to develop guidelines for cg which is only voluntary. Only 0. 1% choose them. Voluntary Purely legal onset Cg code legislation a set of practices, guidelines which are expected to be followed by the companies 2 preludees for cg code 1) Principle found lay down broad principles accept or explain principles link it with listing.Make the companies which are not adopting explain why they are not adopting 2) Rule based lift comply or film prosecuted in extreme cases companies are delisted. But then the shareholders are effected. Rule based approach is rigidity. The companies will try to outsmart the rules if they are rigid. Eg BJP chief Nitin Gadkari driver was shown as a director in a company. The directors get huge money for just care 4 meetings, so they agree with whatsoever the companies say to earn easy money or else they would be removed from the board.CG in India * The issue of CG has come up in general in the wake up frugal reforms characterized by liberalization, privitization and globalization. * The way foreign investments is CG * The pop off point in previous year * SEBI committee on CG headed by SHri Kumara Mangalam Birla submitted its report in Feb 2000 * Clause 49 in listing agreement with stock exchanges make it mandatory for companies to follow recommendations by Kumara M B committee * Then Naresh Chandra committee is appointed by the .. Indian Co de Inspired by Cadbury code, 1992 * CII code 1998 (voluntary compliance could not make much difference) performance 2005 all the companies above 3 crore revenues Audit committee * As an interface between the board and auditors atleast 3 members (NED) majority of independent directors * Looks after all the activities related to auditors i. e. fitting of reappointement of auditors * Reviewing of internal reports * Audit committee must meet 4 times a year * Gap should not be more than 4 months Disclosures Management discussions and analysis report * Related party transactions * Remuneration to NEDs Clause 49 campaign of satyam First biggest and most shocking short involving . Modus operandi of the scam * Super user login to some employees * Entering fake invoices * Boost revenues and winnings * Falsified bank statements * Falsified interest income Role of board in satyams case high-and-mighty the reports The board said ok to all proposals by raju to direct funds to take for g ranted lands in hyd Directors had a salary of rs 12 lakh annually