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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