Friday, March 8, 2019

Corporate Governance Exam Paper

Games Directors play While analysing the Reality of Boardroom we utter many games and t char movementerizationics often employed by managing reignors so that they get int lose function. Some such games were alliance, coalition, lobbying, sc atomic number 18mongering, log rolling and so forth Here also majority of BOD were near and dear matchlesss of shining so e genuinelybody chose to stay quiet about what is going on. Under-reserving Like we give tongue to in the HLL content under-reserving is a tactic used by firms that in the long run it cant s crystallize companies from collapsing. Role of self-sufficing directors The question Are independent directors really independent has been topic of controversy for ages.In the case the role played by independent directors is insignificant. Also it is suspect whether independent directors were present and in the number advised by virtue or non. Audit Committee The case talks about KPMG and the moot role it played still what a bout the audit committee, was it existent, if so how was it functioning. Its stem and leadership needs attention. Manipulation Most of the cases of bill frauds, falsifying records, deceiving shareowners and nonstarter rest upon the manipulation of the balance sheet and the tactics used to outwit the data.Ex Enron The ac confederation needs to take inspiration from firms like GSK, Infy, and tata which serve as examples of good CG. GSK * Chairman of batting order is independent director along with 5 others in in neck along. Transparency is valued Infosys * Creating wealth legally and estimablely Tata * One of the giants and still fascinating governance * In sync with the set * Very elaborate code of conduct Board composition and social social organisation One of the major flaw ways in the instrument panel structure is everyone was quiet about the rising storm dominated by power and status of Bright.There should be both(prenominal) independent directors with ability to q uestion the acts and kit and caboodle and the conserveing structures are recommended. European Two Tier perplex Shareholders supervisory batting order Executive dining table steering 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 come up the presence of the state as a whole also takes purchase order into account along with shareholders Board Leadership One of the major causes of the dilapidation was the role played by Bright.He was forceful and rigid and thus not a true leader. The features desired for a leader are impartiality The ability to differentiate between right and wrong and govern in a manner that it is morally correct and sustainable Independence The board was like a dummy/puppet with no or very less degree of independence Intellect The creativity must not come out in form of manipulation and fraud but the betterment of the firm Character He must be ethical and strong character Personality A leader must be flexible and open to new ideas and suggestions. The personality is the holistic perspective.Communication skills, good listener, inducement etc. Board level information Desired CG was not in place and there was no authorise information pathway. The board did not check or authenticate the actions. Control musical arrangements The case clearly shows intrusion of many acts and laws. The board was not conforming to the supervisory work. The control clay was not in place. Auditors at fault In cases like Enron and worldcom it has been seen that the out-of-door auditors are able to flee away leaving the company in distress. Usually there are tie ups between management and auditors, some inside settlement that leads to uch actions. Role of internal audit committee is arguable. The company should withdraw gone to auditors like Delloitte who are reliable and tested. Risks that should be considered fis cal risk. Operational, shape, Business Four aspects of CG Internal control, risk management, behavioural governance, 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 compliances and accounting frauds, certificate for internal audits and annual report is to submitted by all worldly concern and private listed companies.Also introduce PCAOBA (Public company accounting oversight board of America) Was criticized for eminent cost of compliance CG is a exploit by which companies are direct and controlled Many attempts make up been made to define CG and this one by Cadbury is one of the most comprehensive . Cadburys definition Corporate governance is the system by which companies are directed and controlled. The boards of directors are responsible for the governance of their companies. The shareholders role in governance is to appoint the directors and the auditors to satisfy themselves that an impound governance structure is in place.The responsibilities of the board include setting the companys strategic aims, providing the leadership to put them into effect, administrate the management of the ances undertake and reporting to shareholders on their stewardship. The boards actions are subject to laws, regulations and the shareholders in general meeting. Mike and Minnow Corporate Governance is a process of governing and directing the performance of any company and the major actors problematical are directors, management, society and shareholders CG is basically to overlook, monitor, control and direct the functioning of the management.For this we have BOD and the code of conduct. Some acts, laws and norms facilitate this process of governance. Scope from to the lowest degree to highest Society Media and Press Shareholders Regulatory bodies Contractual Stakeholders Auditors Governance and Management (Diagram) As it is clear that the scope of CG is very wide. I t is all important(p) 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 existing and the performance expected for future.The four functions are accountability, strategy verbalism, supervising and supervise and policy making Matrix The accountability along with observe and supervising is the accordance part i. e. to past or existing situation. The policy making and strategy formulation comes under the performance part with digest on future value. Usually it is seen that independent directors are forced to conformance because they precisely understand what is going on. strategical Formulation * This is the most crucial step of governance There must be shared spatial relation according to which governance and management abide * It involves SWOT, PEST, Porter analysis and asking of crucial questions of long term strategic importance * It is important to have helicopter v ision balanced of long and short term * San Tzu turn over the mind alike of your enemy 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 office * Accountability is to have proper system wherein respective people are accountable for any error or aberration * Only the top management is not accountable but usually is held responsible. Normative How board thinks directors should spend their time How directors actually do spend their time social intercourse between functions Strategy formulation Policy making supervision and monitoring Accountability Roles Agents and Stewards Agency surmisePrincipal shareholders contract with agents seek self interest It says that it is not possible that agents take care of other money with as lots vigilance of vow. They seek personal i nterest and detrimental effect on shareholders Stewardship theory Owners chose and elect stewards(directors) who play the role of stewards Contrary to agency 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 Companys present to publicBy means of all these functions and roles the board makes an effort towards fair and equitable statistical 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 fantastic acquisition using pension funds leading to bankruptcy cant of credit and commerce international Cadbury report 1992 best practices suggested How to implement it? For a company to enter in stock commercialize it has to that it follow s Cadbury suggestions Corporate governance is directly think to market valuation of a company.Better managed companies are valued more. Enron failure 2001 unseasonable accounting policies creation of special purpose entities to conceal losses ebullient executive compensation Worldcom 2002 The BOD did not oppose the ambitious investment of Worldcom in fiber optic cables and infrastructure to become a market leader (a short term goal). This led to huge losses when the bang up for dot com ended. Measures to check such scenarios * eviscerate BOD accountable to stakeholders * gift changes in structure * Clearly explain the responsibilities of Board Make them lively board in giving a leadership to the company * Make the BOD to meet more frequently listed company at to the lowest degree 4 times a twelvemonth * Lay pot an schedule about what must be discussed Placing constraints, checks on management power including the chief executive officer Eg SKF micro finance chief ope rating officer was sacked as he is no good There should be separation of position of chairman and CEO Ensuring a sound system of internal control and proper apocalypse of financial information and executive compensation Auditors are continuing from 20 years Approaches to strengthen 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 further then one law for all companies reduces tractableness In 1998 CII name a committee under Rahul bajaj to create guidelines for cg which is only voluntary. Only 0. 1% adopted them. Voluntary Purely legal procession Cg code Code a set of practices, guidelines which are expected to be followed by the companies 2 come ones for cg code 1) Principle based lay down broad principles comply or explain principles link it with listing.Make the companies which are not adopting explain why they are not adopting 2) Rule based approach comply or get 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 go to 4 meetings, so they agree with whatever the companies say to earn comfy money or else they would be removed from the board.CG in India * The issue of CG has come up mainly in the wake up economic reforms characterized by liberalization, privitization and globalization. * The way foreign investments is CG * The last 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 made it mandatory for companies to follow recommendations by Kumara M B committee * Then Naresh Chandra committee is appointed by the .. Indian Code Inspired by Cadbury code, 1992 * CII code 1998 (voluntary compliance coul d not make much difference) Implementation 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. appointment 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 Case of satyam First biggest and most shocking cheat involving . Modus operandi of the scam * Super user login to some employees * Entering fake invoices * Boost revenues and gain * Falsified bank statements * Falsified interest income Role of board in satyams case Overlooking the reports The board said ok to all proposals by raju to direct funds to acquire lands in hyd Directors had a salary of rs 12 lakh annually

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