Corporate Governance &

Finance
UK-USA-India
Harshad Mehta Scam
Enron
Satyam Computers
Worldcom
Kingfisher Airlines
Reebok India Tyco
Sahara India

Polly Peck International

Bank of Credit Commerce International
Maxwell
Various Committees & Codes
Regulatory Frameworks
Legal Frameworks
 Cadbury Report (1992)
Greenbury Committee (1995)
Hampel Committee (1998)
Higgs Report (2003)
Combined Code (2006)
Revision of Combined Code (2008)
UK Corporate Governance Code 2012
UK Corporate Governance Code 2014
UK Corporate Governance Code 2016
Confederation of Indian Industry - Desirable Code on CG 1998
Kumar Mangalam Birla Committee - SEBI- 2000
Justice V. Bala Krishna Eradi Committee -2000
Naresh Chandra Committee (2002)
Naresh Chandra Committee (2003)
Narayanmurthy Committee (2003)
J.J Irani Committee Recommendations (2005)
MCA Voluntary Guidelines on CG (2009)
Clause 49 of Listing Agreement Sarbanes-Oxley Act 2002
Clause 35 B of Listing Agreement Dodd Frank Act 2010
Companies Act 2013

Cadbury Committee Report

UK Corporate Governance Code
Companies Act 2006
Polly Peck International (PPI)

Textile

Year of Formation - 1940

Year of Failure - 1990

Headquartered in London

CEO - Asil Nadir

Polly Peck International (PPI)

Incorporated in 1940 as a small fashion house

Struggled in 1970s & took over by Asil Nadir as CEO in July

1980

Nadir bought 58% shares of the company

Expanded rapidly in 1980s and went onto became the

constituent of FTSE 100 index

Collapsed in 1991 and led to a reform of UK Company Law &

Corporate Governance Code.
 Asil Nadir

Man Behind the Collapse

Born in Cyprus

Studied Economics in Istanbul University

Purchased a Small British Textile Company (Polly Peck) in late 1980s

CEO of Polly Peck

Was listed 38th on Sunday Times Rich List in 1990s

During that time he was the wealthiest individual in Turkish

Republic of Northern Cyprus. Also had the business assets in that
region.
 1982
1989
Uni-Pac Packaging Industry Ltd
Voyager Kibris Ltd. Del Monte Fresh Fruit Division
Sunzest Trading Ltd. from RJR Nabisco
(Northern Cyprus)
1984
1983
Santana INC. Vestel Electronics InterCity PLC (Turkey)
InterCity PLC Sansui (Japan)
1987
Palmon (UAE)
 Over GBP 1 Billion
From 100 Banks

Highly Leveraged

Transactions to
secret accounts

In Northern Cyprus & Turkey

 Company’s
Assets worth
GBP 25 Million
were
secretly
GBP 58 Million registered in
Turkish Subsidiary GBP 141 Million was paid out
Nadir’s name in
Northern
in 60 separate transactions
Cyprus
Loans Liabilities Assets

Debtors
XXX
(Loan)
 Expenditure Revenue

Interest on XX
Loans

Loans

Net Profits XXX

Liabilities Assets
Debtors XXX
(Loan)
Interest
 Governance Issues at PPI
Over - leveraged

No checks & balance

Sham accounting practices

Power in the hands of 1 person

How Big was Enron !
What Arthur Anderson did !
 Governance Issues at PPI
Hiding of Debts - Special Purpose Entities

Conflict of Interest

Fraud & Mis-reporting - Mark to Market Accounting

Unethical Behaviour

Failure of External Auditors

 Post Enron
▸ The crisis and collapse of Enron sparked a wide-ranging re-examination
of corporate governance around the world.

▸ In terms of the U.S. “model” of corporate governance, Enron exposed

the fact that the various elements of this system were not
functioning together in a complementary fashion.

▸ The Enron board failed to protect the integrity of financial

disclosure, despite the presence of fourteen members of which only
two were insiders.

▸ Gatekeepers such as the auditing firm of Arthur Anderson

critically failed as an effective interface between management and
investors.
Established in 1987

9% market share

Listed on NYSE, DOW, EURONEXT

 The Man Behind
B. Ramalinga Raju
(CEO & Chairman -
Satyam Computers)

Born in 1954 (Andhra

Pradesh)

Founded Satyam
Computers in 1987
Portfolio Diversification
Manipulation of Accounts
Promotor’s Shares
Consequently…
An attempt to revive
 Disastrous Revelation
January 2009

Accounting fraud of over INR. 7800 Crores

The books were cooked from past 7 years

Inflated profits

Understated Liabilities & Overstated Debts

Accrued interest
 Balance Sheet
As on September 2008
Impact on Auditors !
 Governance issue at Satyam

Weak mechanism for monitoring the actions

Dubious role of Independent Directors

Power in the hands of ONE

Failure at all 3 levels of auditing

Prominent Regulations on
CG
Clause 49 of Listing Agreement Sarbanes-Oxley Act 2002
Clause 35 B of Listing Agreement Dodd Frank Act 2010
Companies Act 2013

Cadbury Committee Report

UK Corporate Governance Code
Companies Act 2006
 SOX 2002

Mandate that requires senior management to certify the accuracy of the reported financial
Sec. 302 statement

A requirement that management and auditors establish internal controls and reporting
Sec. 404 methods on the adequacy of those controls.

Contains the three rules that affect record keeping.

The first deals with destruction and falsification of records.

The second strictly defines the retention period for storing records.
Sec. 802
The third rule outlines the specific business records that companies need to store, which includes
electronic communications.
UK Corporate Governance
Code 2016
 Clause 49
Listing Agreement
Part I - Board of Directors
Part II- Audit Committees
Part III- Subsidiaries Companies
Part IV- Disclosures
Part V- CEO/CFO certification
Part VI- Report on CG
Part VII- Complaince
Annexure I D - Non-Mandatory Requirements
 Clause 49
Listing Agreement
Annexure - 1 A
 Clause 35 B
Listing Agreements