Corporate Governance

Investors seek confidence on

Business; (well managed &
Profitable)

Annual reports & accounts of

business give true and fair view

CG
High-profile corporate collapses
Barings Bank: (lack of internal control
& supervision)
Enron: largest bankruptcy in US
history, in 2000 it showed a profit of
US$ 979 million, setting-up of SPEs- risk
uncovered, Andersen failed to question
the directors, in December 2001 they
filed bankruptcy.

Corporate Governance
Parmalat: Italian Milk Co, failed on Bond
payments, on account of false accounts,
misleading investors and regulators; the
founder, Calisto Tanzi, given ten years
sentence by court.
Satyam: Reported over stated profits,
sold to Tech Mahindra in 2009, in March it
was combined with Tech.

CG
RBS: 2008 caught up in toxic asset
scandal, Sir Fred Goodwin, CE of the
bank followed an aggressive policy of
acquisition purchasing ABN Amro on
high price. Excessive remuneration
for directors, poor management,
governance and culture made it
prone to failure.

Corporate Governance
Academic Point of View: Dealing with problems
that result from the separation of ownership and
control OECD
Shleifer et al., 1997 definition CG deals with the
ways in which suppliers of finance to corporations
assure themselves of getting a return on their
investment. How do the suppliers of finance get
managers to return some of the profits to them? How
do they make sure that managers do not steal the
capital they supply or invest it in bad projects? How
do suppliers of finance control managers? (p.737)

 See also McKinseys & Company

report (2001) for governance models

Corporate Governance
Developed and Developing Countries View Point: The
difference comes in evolution of the system and procedures
required to implement it; various countries are at various
stages.
Narrow Vs Broad Perceptions: FT 1997, Corporate
Governance is defined narrowly as the relationship of
a company to its shareholders or, more broadly, as its
relationship to the society.
Friedman CG is to conduct a business in accordance with
the owners or shareholders desires, which generally will be
to make as much money as possible conforming basic
rules of the society embodied in law and local customs.

 OECD CG refers to the private and

public institutions, including laws,
regulations and accepted business
practices, which together govern the
relationship in a market economy,
between corporate managers and
entrepreneurs on one hand and
those who invest resources in
corporations, on the other.

Assignment
Based on the discussion, discuss
some more corporate failures due to
Corporate Governance issues.