Professional Documents
Culture Documents
Corporate Goverance
Corporate Goverance
» Environment
» Loss of moral fibre of corporations
» Business environment characterized by need to compete with the new
economy
» Boards
» Fundamental weaknesses in business models sought to be compensated
by adoption of aggressive accounting practices
» Ignored ethics and value systems when a much hyped business strategy
failed to deliver as expected results.
» Incompetence of board members and overriding of audit committees
» Managements
» Stock option heavy compensation structures
» Bonus linked to short-term revenue growth, EPS and stock price
» An inability to accept failure
» Excessive focus on beating the street
2
What went wrong in the recent past ?
» Auditors
» Aggressive interpretation of accounting standards
» Independence compromised to obtain lucrative consulting assignments
» Employees
» Compensation linked to stock-price movement
» Large disparity between the highest and lowest paid employee
» Culture of greed promoted within the organization by management
» Manipulative accounting practices
» Analysts
» Ever-greening of reports with an eye on investment banking assignments
» Pressurized managements to beat quarterly estimates
» Investors
» Short term focus of investors
3
Global Reactions
» Regulatory reactions
» NYSE/NASDAQ Rules
» Clause 49 of listing agreement in India
» Corporate reactions
» Focus on fundamentals of business models
» Focus on strengthening internal controls and information systems
» Stock options
» Enhanced disclosures in M&A and Annual Reports
» Guidance
» Focus on critical accounting policies
» Aggressive journalism
» Accounting/Governance was the main story for months
4
Key Themes of Current Reforms
» Independent directors and audit committees have enlarged
responsibilities
» Stricter independence standards for audit committees
» Board effectiveness and integrity targeted by regulators, politicians
and the media
» Compensation structures are under attack
» CEO/CFO certifications
» Improvement in processes as effectiveness of internal controls need to be
certified
» Improved processes and controls have connected the board to the day to
day functioning of the company
» Real time disclosure and shortened deadlines
» Auditor independence
» Repeal of self regulation for the auditing profession
» Analyzing the analysts
5
Corporate Governance
6
What is the Current Status on Corporate Governance
Practices?
» Insistence on forms and structures
» Overarching regulations and regulatory overkill
» Inadequate number of strong independent directors
» Large liabilities for corporations and officers
» Has the pendulum swung too far?
» For the first time in the decade-long history of the Index of Economic
Freedom, the United States is no longer among the Top 10 “Most
Free Countries”
» Wall Street Journal and the Heritage Foundation “Index of Economic
Freedom”
» India is not even in the list of Top 10
7
What is the Current Status on Corporate Governance Practices?
8
Strengthening capital markets through corporate
governance
» Improving the tone at the top
» Code of ethics - Not an annual exercise….talk about and
demonstrate the company's ethical standards again and again
» Get colleagues, business heads to speak about core values
» Make ethics part of the company’s DNA
» When someone does commit an ethical violation, a company should
move to fix the problem and remedy the harm as quickly as possible.
» It also has to take appropriate action against the offending employee -
swiftly and firmly, even if the offending employee is a star performer
» Hold all of your managers accountable for setting the right tone.
» That means disciplining or even firing them when they have failed to
create a culture of compliance
9
Strengthening capital markets through corporate
governance
10
Thank You