CORPORTAE GOVERNANCE PRINCIPLES OF CORPORTAE GOVERNANCE ELEMENTS FAILURE SEBI CLAUSE 49

1. Corporate
Governance
• Corporate governance is
something altogether
different from the daily
operational management
activities enacted by a
company’s executives.
• It is a system of direction
and control that dictates
how a board of
directors governs and
oversees a company.

2. Corporate governance is a system of rules,
policies, and practices that dictate how a
company’s board of directors manages and
oversees the operations of a company;
Corporate governance includes principles
of transparency, accountability, and
security.
Poor corporate governance, at best, leads
to a company failing to achieve its stated
goals, and, at worst, can lead to the
collapse of the company and significant
financial losses for shareholders.

3. PRINCIPLES
OF
CORPORATE
GOVERNANCE
• https://www.businessro
undtable.org/policy-
perspectives/corporate-
governance/principles-
of-corporate-
governance
• https://corporatefinanc
einstitute.com/resource
s/knowledge/other/cor
porate-governance/

4. ELEMENTS OF GOOD CORPORATE
GOVERNANCE
• RULE OF LAW
• TRANPARENCY
• RESPONSIVENESS
• CONSENSUS ORIENTED
• EQUITY
• EFFECTIVENESS & EFFICIENCY
• RESPONSIBILITY AND ACCOUNTABILITTY
• FAIRNESS
• PARTICIPATION
• CODE OF ETHICS
• AUDIT COMMITTEE
• BOARD MEETING
• https://www.cambridgetrust.com/insights/investing-economy/six-essential-elements-of-effective-corporate-gove
• https://smallbusiness.chron.com/key-elements-corporate-governance-57244.html

5. FAILURE OF
CORPORATE
GOVERNANCE
A systemic failure of corporate
governance means the failure
of the whole set of regulatory,
market, stakeholder, and
internal governance.
Businesses need to ensure they
remain disciplined, transparent,
independent, accountable for
their actions, responsible, and
fair.

6. Panfilii Popa in the journal paper Failure of Corporate Governance – Intention or
Negligence proffered that some of the governance issues faced by companies
that inevitably lead to corporate governance failures are:
Ineffective governance mechanisms, for example, lack of board committees
Non-independent board and audit committee members
Intentional misleading of the Board by management to protect themselves after
evading and bypassing internal controls
Under qualified board members

7. https://www.financialdirector.co.uk/2019/03/29/10-reasons-for-corporate-failure/
https://www.thehumancapitalhub.com/articles/The-Failure-Of-Corporate-Governance-
And-Its-Impact-On-Business
Ignorance by regulators,
auditors, analysts of the
financial results, and red
flags.
Management
who exhibit ineptitude
Dereliction of the
procedures stipulated in
internal regulations
Insufficient attention
paid to risk management
Inconsistent distribution
of duties and
responsibilities
The inefficiency of
internal audit
Influencing the external
auditors to express an
audit opinion
inconsistent with reality.
Poor ethical leadership
lack of integrity fraud Corruption

8. • Corporate governance
failures have resulted in
massive problems faced by
the companies over the
years. A couple of examples
of corporate governance
failures which forced
businesses and government
authorities to rethink their
stance on corporate
governance are :
 ENRON
 SATYAM

9. ENRON
• The Enron scandal, which broke out in October 2001,
eventually led to the bankruptcy of the Enron
Corporation, an American energy company based in
Houston, Texas. It was the largest bankruptcy
reorganization in American history at that time.
• The primary reason for the failure of Enron was
attributed to an audit failure. The problem faced by
Enron was despite having structures and mechanisms
in place for good corporate governance. Nobody
flaunted and flouted these rules and regulations! The
board of directors turned a blind eye to open violation
of the code. Particularly, when it allowed the CFO to
serve in special purpose entities(SPEs). The auditors
failed to prevent suspect and questionable accounting.
The auditors did not even examine the SPE
transactions.
• Enron shareholders filed a $40 billion lawsuit after the
company’s stock price fell. It achieved a high of
US$90.75 per share in mid-2000, plummeted to less
than $1 by the end of November 2001. On December 2,
2001, Enron filed for bankruptcy under Chapter 11 of
the United States Bankruptcy Code.

11. As a result of the scandal, the US government
introduced new regulations and legislation to
expand the accuracy of financial reporting for
public companies.
The Sarbanes-Oxley Act was introduced as a
result of the Enron scandal.
It increased penalties for destroying, altering,
or fabricating records in federal investigations
or for attempting to defraud shareholders.
It also increased the accountability of audit
firms to remain unbiased and independent of
their clients

12. Satyam
• Satyam began facing problems from December the 16th, 2008.
Its chairman Mr Ramalinga Raju, in a surprise move announced
a $1.6 billion bid for two Maytas companies. He wanted to
deploy the cash available for the benefit of investors. Raju’s
family promoted and controlled the two companies.
• The share prices plunged 55% voicing concern towards
Satyam’s poor corporate governance. They overturned the
decision in 12 hours. This resulted in the resignation of several
independent directors of the firm. Thus, this resulted in a
further fall in the share prices of Satyam.
• On 7th January 2009 B Ramalinga Raju, the founder of Satyam
Computer Services, confessed to a Rs 7,000-crore balance
sheet fraud . He had hidden it from the IT company’s board,
employees and auditors for several years. He revealed in his
confession that his attempt to buy Maytas companies was his
last attempt to “fill fictitious assets with real ones”.

14. • The government reacted to the fraud by overhauling the regulatory
framework.It introduced the new Companies Act 2013, which fixed
liabilities of auditor and independent directors, among other
changes.
• In 2014, market regulator SEBI amended Clause 49 of listing
guidelines to improve corporate governance
• https://www.shivajicollege.ac.in/sPanel/uploads/econtent/b51b5a400087b29682f63a6a6319ef
2f.pptx

15. Effects of
corporate
governance
failure
Loss of Shareholder
Confidence and Trust
Difficulty Raising Capital
Increased Government
Oversight
No-Risk Management

16. These
issues
may,
however,
be
overcome
by:
Increasing Diversity
Appointing Competent
Board Members
Evaluating Board
Performance
Prioritizing Risk
Management
External Audit

17. https://www.thehumancapitalhub.com/articles/The-Failure-Of-Corporate-Governance-
And-Its-Impact-On-Business
Bad corporate governance could cripple even the best businesses.
A systemic failure of corporate governance means the failure of the whole set of
regulatory, market, stakeholder, and internal governance.
Businesses need to ensure they remain disciplined, transparent, independent,
accountable for their actions, responsible, and fair.
In the absence of effective governance, companies will no doubt feel the consequences
either financially, legally, or incur reputational harm.
Good corporate governance plays a key role in enhancing the integrity and efficiency of
companies, as well as the financial markets in which the company operates.
Poor corporate governance weakens a company's potential and can open the way for
financial difficulties and fraud.

18. CONSEQUENCES OF
CORPORATE
GOVERNANCE
https://www.acc.com/resource-library/top-ten-issues-corporate-governance-practices-
india
COLLAPSE OF
THE
CORPORATIONS
PROSECUTION
OF TOP
EXECUTIVES
CLASS-ACTION
LAW SUITS
TERMINATION
OF CONTRACTS
STRIPPING OF
AWARDS
FALL IN STOCK
PRICES
HIGH COST OF
BORROWING
FUNDS
LOSS OF
GOODWILL
JOB LOSSES
LOSS TO THE
CREDITORS

19. CASES OF
FAILURE OF
CORPORATE
GOVERNANCE
• https://thecsrjournal.in/corpo
rate-governance-failures-
india/
• https://www.srcc.edu/sites/d
efault/files/B.Com(Hons)_Se
m%206_Paper%20No.6.1%20
Auditing%20and%20Corporat
e%20Governance_Week4_Ar
una%20Jha.pdf
• https://taxguru.in/company-
law/fall-giants-corporate-
governance-failures.html

20. REGULATORY FRAMEWORK
OF CORPORATE GOVERNANCE
IN INDIA
• We all are aware of Satyam scam which is the India’s Biggest corporate scam.
• The scam is all about corporate governance and it is regarded as the ‘Debacle of the
Indian Financial System’.
• Ever since this scam the concern for good corporate governance has increased
phenomenally.
• The Cadbury Committee defined Corporate Governance as “the system by which
companies are directed and controlled” in its report called Financial Aspect of Corporate
Governance published in the year 1992.
• In general words Corporate Governance means set of rules and regulations by which an
organization is governed, controlled and directed.
• It is conducted by the Board of Directors or the concerned committee for the benefit of
the company’s stakeholders.
• https://youtu.be/avFOwFeD37k

21. • IN ORDER TO ENSURE GOOD CORPORATE GOVERNANCE IN INDIA MANY REGULATORY
FRAMEWORKS ARE INTRODUCED.
• The Companies Act, 2013
• Securities and Exchange Board of India (SEBI) guidelines
• Standard Listing Agreement of Stock Exchanges
• Accounting standards issued by the ICAI (Institute of Chartered Accountants of India)
• Secretarial standards issued by ICSI (Institute of Company Secretaries of India)
• FOR MORE DETAILS CLICK ON THE BELOW LINK
• HTTPS://BLOG.IPLEADERS.IN/CORPORATE-GOVERNANCE/

22. SEBI GUIDELINES AND
CLAUSE 49
https://www.sebi.gov.in/media/press-releases/oct-2004/clause-49-of-the-
listing-agreement-revised_15777.html

23. CLAUSE 49(1) PRINCIPLES
RIGHTS OF
SHAREHOLDERS
RIGHTS OF
STAKEHOLDERS
DISCLOSURE AND
TRANSPARENCY
DUTIES AND
RESPONSIBILITIES
OF THE BOARD

24. CLAUSE
49(II)
BOARD OF
DIRECTORS
COMPOSITION
OF THE BOARD
INDEPENDENT
DIRECTORS
NON-EXECUTIVE
DIRECTORS
COMPENSATION
AND
DISCLOSURES
CODE OF
CONDUCT

25. • CLAUSE 49 (II) (D)BOARD
MEETINGS AND
COMMITTEE MEMBERSHIP
MEETINGS
COMMITTEE MEMBERSHIP
WHISTLE BLOWER POLICY

26. CLAUSE 49
(iii) AUDIT
COMMITTEE
COMPOSITION
MEETINGS
POWERS OF AUDIT
COMMITTEE
ROLE OF AUDIT
COMMITTEE

27. CLAUSE 49
(IV) NOMINATION
AND
REMUNERATION
COMMITTEE
(V) SUSSIDIARY
COMPANY
(VI) RISK
MANAGEMENT
(VII) RELATED
PARTY
TRANSACTIONS
(VIII) DISCLOSURES
(IX) CEO/CFO
CERTIFICATION
(X) REPORT ON
CORPORATE
GOVERNANCE
(XI) COMPLIANCE