Common governance problems noticed in various

corporate failures
Definition
Corporate failure refers to companies operations following its
inability to make profit or bring in enough revenue to cover
its expenses. This can occur as a result of poor management
skills, inability to compete or even sufficient marketing.
In other words we can say that a systematic failure of
corporate governance means the failure of the whole set of
regulatory, major stakeholder and internal governance which
has largely contributed to the on- going financial crisis.
It doesn’t happen overnight and there are several warning
signs which a firm must take note of order to avoid such
failures. Some of the governance issues faced by the firms
which eventually lead to governance failures are as follows:-
 Non- independent board and audit committee
members.
 Ineffective governance mechanisms.
 Ignorance by regulators, auditors, analysts.
 Inadequately qualified members.
 Mismanagement of internal control.

 Common factors of corporate failure reated to

major scandal:-
  Management incompetence.
 Non observance of the procedures stipulated in internal
regulations.
 Insufficient attention paid to risk management.
 Inconsistent distribution of duties and responsibilities.
 Inefficiency of internal audit.
 Ignorance showed to signals provided by external audit.
 Influencing the external auditors to express an audit
opinion inconsistent with reality.

Following are the various problems noticed in

various major scandal:-
 Misleading financial statement.
 Non compliance with disclosure norms.
 Family owned business.
 Over expansion and diversification.
 Financial distress.

Role of other member in committing fraud

 Companies act provides clear instructions for
maintaining and updating share registers in reality
minority shareholders have often suffered from
irregularities in share transfers and registrations either
deliberate or unintentional.
 Sometimes non-voting preferential shares are used by
promoters to channel funds and deprive minority
 One of the big problem with Indian corporate
governance is that too many listed companies and
directors follow the letter of law rather than spirit.
 Directors remuneration must be evaluated.
 The use of stock options or rewards linked to short term
share price performance led to aggressive earnings
management to achieve target share practices.
 Poorly designed reward package.
 Trading did not deliver the earnings target, aggressive or
even fraudulent accounting tended to be occur.

Principal suggestion to minimise the

effect of corporate governance:-
 Recognise that good governance is not just about
compliance.
 Clarify the board’s role in strategy.
 Monitor organisational performance.
 Understand that the board employ CEO.
 Recognise that the governance of risk is a board
responsibility.
 Ensure the directors have the information they need.
 Build and maintain an effective governance
infrastructure.
 Appoint a competent chair.
 Build a skill based board.
 Evaluate board and director performance and pursue
opportunities for improvement.