BUSINESS/CORPORATE WHY BUSINESS/CORPORATE

GOVERNANCE & ETHICS GOVERNANCE MATTERS?

• Enhances the performance of the
WHAT IS CORPORATE/BUSINESS company
GOVERNANCE?
• Enhances access to the capital
 System of rules, Practices and
Process • Enhances long term prosperity
 Balancing the interests of many • Provides barrier to corrupt dealing
Stakeholders in the company.
• Impact society as a whole ( Better
 Shareholders, management,
companies , Better Societies)
customers, suppliers, financiers,
government and the community.
BUSINESS ETHICS
FOUR PILLARS OF CORPORATE
• Trade off between pursuing
/BUSINESS GOVERNANCE
economic objective and its social
 Accountability obligations
 Transparency
• Trust (Supplier, Customer,
 Responsibility Employee)
 Fairness
• If the company is able to maintain
PRINCIPLES OF trust relationship with all
BUSINESS/CORPORATE stakeholders, then we call that
GOVERNANCE company an ethical company.

• Rights and equitable treatment of UNETHICAL PRACTICES

shareholders • Bribery
• Interests of other stakeholders • Insider trading
• Role and responsibilities of the board • Conflict of interest
• Integrity and ethical behavior • Unfair Discrimination
• Disclosure and transparency • Political Donation and Gifts
• Accumulation of profit by illegal
FRAMEWORK
means

PUBLIC SECTOR BANKS AND

GOVERNANCE
• Country’s public sector bank’s
governance is known to be fragile.
 • Weak governance has led to : INTRODUCTION: ENRON
 Low productivity
 Erosion of profitability • Enron was an American energy,
 Deterioration of credit quality commodities and Services
Company.
• Enron was the 6th/7th largest
DIFFICULTIES company in the world, according
• Dual regulation by the finance to gross revenue.
ministry and the BSP • Claimed revenue of nearly $101
billion during the year 2000.
• Politically-induced lending, leading
• Went bankrupt on 2nd December,
to bad-loan accretion
2001.
• Faulty process of appointing boards
of directors HOW DID ENRON GET SO BIG?
• Short average tenure of top • Enron took advantage of the
management and delays in deregulated energy market.
appointing senior executive.
• The reason that Enron was allowed
• Wide compensation differentials to grow big, was that they
with private banks. manipulated their share prices.
• Spent nearly $6 million on
REMEDIES campaigns for George W Bush.

• Instilling more transparency.

• Reinforcing a culture of good SUMMARY OF THE CRASH
governance. • Overvalued stocks.
• Upgrading technology and skill-set. • Profits and share prices didn’t match.
• Banks should focus on an agenda • Went bankrupt.
which increases long term value
through better governance.
CAUSES OF THE DOWNFALL
SEC
• Mark to Market accounting.
• The SEC is the regulator of securities
in the country. • Overvalued stocks, due to the mark
to market accounting.
• It also overlooks corporate
governance in PI. • Hiding/transferring debt, using
Special Purpose Entities, so that it
• It has a set of guidelines and norms
wouldn’t appear on the Enron
to regulate all listed companies.
balance sheet.
GOVERNANCE ISSUES? 1. Which is NOT TRUE about the
needs for corporate governance?
• The board of directors--direction?
• Insider trading/Conflict of interest--  To avoid mismanagement
High stakes  To enable companies operate more
efficiently, to improve access to
• Gambling employees money--
capital, mitigate risk and safeguard
Unacceptable. stakeholders
 To increase the accountability of
ABOUT THE SCAM your company and to avoid massive
disasters before they occur
• Enron admitted that they had
 To analyze of an organization's
overstated the company’s earnings operations and maintenance of
by $57 million. systems of internal controls can
• Enron officials, who knew about the help detect and prevent various
forms of fraud and other
fraud, had sold their own shares,
accounting irregularities.
when the price was high, and had
finished most of the money they
2. Who runs the company operations
made by selling them.
for large companies?
 Shareholders
 Board of Directors
AFTERMATH:  External auditors
• Enron's shareholders lost $74 billion.  Stakeholders

• $2billion, was lost from the 3. Which is the BEST definition for
employee’s pension fund. Corporate Governance?
• 20,000 were unemployed.  A system of law and sound
approaches by which corporations
• Arthur Andersen was shut down. are directed and controlled
focusing on the internal and
external corporate structures with
"Mr. Duncan, Enron robbed the bank. the intention of monitoring the
Arthur Andersen provided the getaway actions of management and
car and they say you were at the wheel." directors and thereby mitigating
agency risks which may stem from
the misdeeds of corporate officers.
 A part of regulatory and market
mechanisms, the roles and
relationships between a company
management, its board directors, its
shareholders and other stakeholders,
and the goals for which the
corporation is governed
 Essentially involves balancing the to improve company practices and
interests of a company's many also promotes social good by
stakeholders, such as shareholders, reinvesting in the local community.
senior management executives,  To ensure this accountability,
customers, suppliers, financiers, the directors must be accessible to
government, and the community. shareowner inquiry concerning their
 Refers to the way a corporation is key decisions affecting the
governed. It is the technique by company's strategic direction.
which companies are directed and  Any information about a company.
managed. It means carrying the both financial and non financial
business as per the stakeholders' should be easily made available and
desires understood by the public.
 The structure of a
4. Which are elements for the needs corporation/governance
of good governance? determines the efficiency and
 Control environment accuracy of the flow of information
 Good board practices through and from a corporation.

 Well-defined shareholders
 Transparent disclosure 7. "A good corporate citizen is
increasingly seen as one that is
 All of the above non-discriminatory, non-
exploitative and responsible with
regard to environmental and
5. 1. a) Financial information human rights issues. Above
disclosed statement refers to the element of
2. b) Non-financial information corporate governance”
disclosed  Accountability
3. c) Financial prepared according  Transparency
to International Financial Reporting
Standards (IRS) The point above  Regulatory framework
suitable for need of good governance:  Business ethics and social
 Control environment responsibility
 Board commitment
 Well-defined shareholders
8. Which of the answers below
 Transparent disclosure explain the elements of corporate
governance for Administrative
Structure?
6. Which is the BEST explanation for
administrative structures?  Corporate governance encompasses
rules as well as the framework of
 By initiating recycling efforts and relationships and processes designed
reducing waste and pollution. Good to ensure that company managers
corporate governance identifies ways
 and directors act in the interests of 11. What can poor corporate
the company and, ultimately, governance lead to?
shareholders.  Flailing Economy
 When employees understand  Firings
management strategies and are
allowed to monitor the company  Financial difficulties
financial performance, they  New Board members
understand their roles within the
company.
12. What is the biggest difference
 Dishonesty between management between a Board of Directors and
and board of members, or board Audit Committee?
members and shareholders,
weakens the health of corporation  Number of people
governance.  Pay scale
 A company is likely to experience  Age requirements
indirect economic benefits such as
 One has independent or outside
improved productivity and corporate
reputation by taking those factors directors
into consideration.
9. An audit committee must be 13. stakeholder is someone who _____
appointed to prevent any  Wants to see the company s bottom
irregularities and fraud lies with line.
management. Who should be the
 Answers to the board of directors.
members for the audit committee?
 Has a vested interest in a
company's success
 A lawyer
 Is hired to do a specific job.
 An accountant
 Shareholder (preferred share)
14. Corporate governance can involve
 An Architect merging the roles of_____ and the
____
10. Which is NOT the roles of the  CFO/ President
audit committee?
 COO/ Vice President
 Review the work of internal audit
 President / Vice President
 Review the system of internal
 CEO/ Chairman of the Board
control.
 Appropriate resources are
15. Effective corporate governance
committed to companies.
included all of the following
 May launch special investigations EXCEPT:
 Fairness
 Effectiveness
 Residual Income capital, mitigate risk and safeguard
stakeholders
16. ___is a safeguard to ensure  To increase the accountability of
fiduciary responsibility. your company and to avoid massive
disasters before they occur
 Audits
 To analyze of an organization's
 Personal reports
operations and maintenance of
 End-of-year financial ledgers systems of internal controls can
 A presidential system help detect and prevent various
forms of fraud and other
accounting irregularities.
17. A shareholder is____
 Someone who is vested in the 20. What is it means by good board
company's success practices?
 Someone who sits on the board of  Board of Directors clearly defined
trustees roles and authorities.
 Someone who profits from the  Planning appropriate Board
bottom line procedures
 Someone who is worried about the  Director remuneration in line with
carbon footprint of a company best practice
 All of the above

18. All of the following are

characteristics of effective reward
and incentive systems, except:
 Performance measures are clear and
highly visible.
 The structure is fixed to assure
employees of consistency.
 The compensation system is
perceived as fair and equitable.
 Objectives are well understood, and
broadly accepted.

19. Which is NOT TRUE about the

needs for corporate governance?
 To avoid mismanagement
 To enable companies operate more
efficiently, to improve access to