Business/Corporate

Governance &
Ethics
 What is corporate/business
Governance ?
• System of rules, Practices and Process

• Balancing the interests of many Stakeholders in

the company.

• shareholders, management, customers,

suppliers, financiers, government and the
community.
Four Pillars of Corporate /Business
Governance

Accountability Transparency

Responsibility
Fairness
 Principles of Business/Corporate
governance
• Rights and equitable treatment of shareholders

• Interests of other stakeholders

• Role and responsibilities of the board

• Integrity and ethical behavior

• Disclosure and transparency

Framework
Why Business/Corporate
governance matters?
• Enhances the performance of the company

• Enhances access to the capital

• Enhances long term prosperity

• Provides barrier to corrupt dealing

• Impact society as a whole ( Better companies

, Better Societies)
 Business Ethics
• Trade off between pursuing economic
objective and its social obligations

• Trust( Supplier, Customer, Employee)

•If the company is able to maintain trust

Relationship with all stakeholders, then we
call
that company an ethical company.
 Unethical Practices
• Bribery

• Insider trading

• Conflict of interest

• Unfair Discrimination

• Political Donation and Gifts

• Accumulation of profit by illegal means

PUBLIC SECTOR BANKS
AND GOVERNANCE
• country’s public sector bank’s governance is
known to be fragile.

• Weak governance has led to :

 Low productivity
 Erosion of profitability
 Deterioration of credit quality
 DIFFICULTIES
•

• Dual regulation by the finance ministry and the

BSP
• Politically-induced lending, leading to bad-loan
accretion
• Faulty process of appointing boards of
directors
• Short average tenure of top management and
delays in appointing senior executive.
• Wide compensation differentials with private
banks.
 REMEDIES
• Instilling more transparency.
• Reinforcing a culture of good governance.
• Upgrading technology and skill-set.
• Bank’s should focus on an agenda which
increases long term value through better
governance.
 SEC
• The SEC is the regulator of securities
in the country.
• It also overlooks corporate governance
in
PI.
• It has a set of guidelines and norms to
regulate all listed companies.
 Introduction:
• Enron was an American energy, commodities and
services company.
• Enron was the 6th/7th largest company in the
world, according to gross revenue.
• Claimed revenue of nearly $101 billion during the
year 2000.
• Went bankrupt on 2nd December, 2001.
 How did Enron get so big?
• Enron, took advantage of the deregulated energy market.

• The reason that Enron was allowed to grow big, was

that they manipulated their share prices.

• Spent nearly $6 million on campaigns for George W

Bush.
 Summary of the crash:
• Over valued stocks.

• Profits and share prices didn’t match.

• Went bankrupt.
 Causes of the downfall:

• Mark to Market accounting.

• Overvalued stocks, due to the

mark to market accounting.

• Hiding/transferring debt, using

Special Purpose Entities, so that
it wouldn't appear on the Enron
balance sheet.
Stock Price Timeline
 Governance issues?
• The board of directors--direction?

• Insider trading/Conflict of
interest-- High stakes

• Gambling employees
money-- Unacceptable.
 About the scam:

• Enron admitted, that they had overstated

the company’s earning by $57 million.

• Enron officials, who knew about the fraud,

had sold their own shares, when the price was
high, and had finished most of the money they
made by selling them.
 Aftermath:
• Enron's shareholders lost $74 billion.

• $2billion, was lost from the

employee’s pension fund.

• 20,000 were unemployed.

• Arthur Andersen was shut down.

"Mr. Duncan, Enron robbed the
bank. Arthur Andersen provided
the getaway car, and they say
you were at the wheel."