csr ppt_failure cg
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Corporate governance is the set of processes,customs, policies, laws, and institutions affecting the
way a corporation is directed, administered or
controlled.
The principal stakeholders are the shareholders,
management, and the board of directors.
Other stakeholders include
labor(employees), customers, creditors
(e.g., banks, bond holders), suppliers,
regulators, and the community at large.
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Corporate governance is about owners and themanagers operating as the trustees on behalf of
every shareholderlarge or small.
- Narayana N. R. Murthy
Chief Mentor
Infosys Technologies Limited
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The ownership structure
Determines, to a considerable extent, how a
Corporation is managed and controlled.
The structure of company boards
The board of directors is responsible for
establishing corporate objectives, developingbroad policies and selecting top-level executives
to carry out those objectives and policies.
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The financial structure
Proportion between debt and equity, hasimplications for the quality of governance.
The institutional environment
Corporate governance mechanisms are economic
and legal institutions and often the outcome of
political decisions.
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Independent directors need significant empowerment
Principle of trusteeship - appropriate protection for
minority shareholders
Committees of boards may not have high
effectiveness
Quality of Management Discussion and Analysis in
annual reports is moderate
Audit committee skill-sets may need to be enhanced Corporate Social Responsibility - not yet top of mind
for Indian corporates
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Demand for information
Monitoring costs
Supply of accounting information
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Table : Recent financial irregularities
Company Country What went wrong
Ahold NL earnings overstated
Enron USAinflated earnings, hid
debt in SPEs
Parmalat Italy false transactionsrecorded
Tyco USA
looting by CEO,
improper share deals,
evidence of tampering
and falsifying businessrecords
WorldCom USAexpenses booked as
capital expenditure
Xerox USAaccelerated revenue
recognition
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The Enron scandal, revealed in October 2001, eventually led
to the bankruptcy of the Enron Corporation, an American
energy company based in Houston, Texas, and the dissolution
of Arthur Andersen, which was one of the five largest auditand accountancy partnerships in the world. Enron was
attributed as the biggest audit failure.
Enron was formed in 1985 by Kenneth Lay after merging
Houston Natural Gas and InterNorth. Jeffrey Skillingdeveloped a staff of executives that, through the use of
accounting loopholes, special purpose entities, and poor
financial reporting, were able to hide billions in debt from
failed deals and projects.
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CFO Andrew Fastow and other executives not only misled
Enron's board of directors and audit committee on high-risk
accounting practices, but also pressured Andersen to ignore
the issues. Arthur Andersen was charged with and found guilty of
obstruction of justice for shredding the thousands of
documents and deleting e-mails and company files that tied
the firm to its audit of Enron.
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Shareholders lost nearly $11 billion when Enron's stock price,
which hit a high ofUS$90 per share in mid-2000, plummeted
to less than $1 by the end of November 2001.
The U.S. Securities and Exchange Commission (SEC) beganan investigation, and rival Houston competitor Dynegy
offered to purchase the company at a fire sale price.
The deal fell through, and on December 2, 2001, Enron filed
for bankruptcy under Chapter 11 of the United StatesBankruptcy Code.
Enron's $63.4 billion in assets made it the largest corporate
bankruptcy in U.S. history.
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Enron had recently faced
several serious operational challenges,
namely logistical difficulties in running
a new broadband communications trading
unit, and the losses from constructing
the Dabhol Power project, a large power
plant in India
Credit rating downgrade
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It was the largest bankruptcy in U.S. history and resulted in
4,000 lost jobs. Nearly 62% of 15,000 employees' savings
plans relied on Enron stock that was purchased at $83 in early2001 was worthless.
Dynegy Inc. unilaterally disengaged from the proposed
acquisition of the company and Enron's credit rating fell to
junk status.
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http://en.wikipedia.org/wiki/File:EnronStockPriceAug00Jan02.jpg -
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Chairman and CEO: Good practice is to separate the roles of the
Chairman of the Board and that of the CEO. In Enron, Mr Kenneth
Lay was both the Chairman and CEO.
Audit Committee: It not only oversees the work of the auditorsbut is also expected to independently inquire into the workings of
the organisation and bring lapses to the attention of the full board.
The Board assigned the Audit and Compliance Committee an
expanded duty to review the transactions, but the Committee
carried out the reviews only in a cursory way. Independence and conflicts of interest:Good governance requires
that outside directors maintain their independence and do not
benefit from their board membership other than remuneration.
Otherwise, it can create conflicts of interest.
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Flow of information: A board needs to be provided with important
information in a timely manner to enable it to perform its roles. In
the Enron situation, the directors are pleading ignorance of the
murky deals as a way of excusing themselves of the liability. Too many directorships: Being a director of a company takes time
and effort. Good governance, therefore, suggests that an individual
sitting on too many boards looks upon it only as a sinecure for he
or she will not have the time to do a good job. Mr Raymond
Troubh, one of the directors, is a Director of 11 public companies.It shows that time, effort and ability of the director will be divided
to different other companies.
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SATYAM SCAM
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INTRODUCTION
Satyam Computer Services Ltd. is a consulting and
information technology services company based inHyderabad, India
India's fourth-largest IT services firm
The company offers information technology (IT)services spanning various sectors, and is listed on the
New York Stock Exchange and Euro next
It is considered as an icon among the IT companies
and at one point had over a billion dollar revenue
The Satyam Computer Services scandal was publicly
announced on 7 January 2009
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SCAM.
Raju and his family held below 10% of the
companys equity
Raju allegedly used accounts opened in thenames of relatives to divert money and carry out
insider trading
Siphoning off funds from Satyam into Maytas
Infra, Maytas Properties and various 325 firms
floated by Mr. B Ramalinga Raju
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Contd.
Its financial statements for years were totally
false and cooked up
Never had Rs 5064 crore (US$ 1.05Billion)shown as cash for several years.
Its liability was understated by $1.23Billions
The Debtors were overstated by 400millions plus
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SAD RESULTS Satyam employees face a bleak future
Satyam employees were told that there is no
assurance if they will receive salaries beyondJanuary
The Sebi had in December given a clean chit to
Satyam in the probe on violation of corporate
governance law
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CONCLUSION
Irrespective of 9% stake, a man could do a scam.
A complete failure of Corporate Governance.
To avoid this, a company needs to strictly followa proper system of corporate governance and
rotating the auditors for every couple of years
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Ironically, Satyam means "truth" in Sanskrit, but
Raju's admission -- accompanied by his
resignation -- shows the company had beenfeeding investors, shareholders, clients and
employees a steady diet ofasatyam (or untruth),
at least regarding its financial performance.
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