Elements of good corporate governance and failure of corporate governance and its consequences

1. Elements of Good
Corporate
Governance,
Failure of
Corporate
Governance and
It’s
Consequences.
By :- Raj Kumar Yadav
MBA 3rd Sem.
DDUGU

2. Corporate
Governance
Corporate governance is the system of rules,
practices, and processes by which a firm is
directed and controlled.
Corporate governance essentially involves
balancing the interests of a company's
many stakeholders, such as shareholders,
senior management executives, customers,
suppliers, financiers, the government, and
the community.

3. Elements of
Good Corporate
Governance.
• Direction
• Independence of directors
• Effective Risk Management
• Organization
• Stakeholder Relations
• Transparency
• Corporate Citizenship
• Self-Evaluation

4. Direction
Making strategic decision and discussing current and future concerns of the company are
tactics of this elements.
Company mission and vision statements stem from the governance role of business.
These statements provide a sense of purpose and illustrate primary motives for the
company’s business activities.

5. Independence of directors
The Board of Directors plays a key role in company
oversight, including
• driving long-term strategic vision, and
• appointingand overseeing the Chief Executive Officer.
Having a majority of non-executive independent
directors will help avoid prejudice and conflicts of
interest between the boards and the management

6. Effective Risk Management
 Risk, or enterprise risk management, is the process of identifyingpotentialhazardsto
the business and acting to reduce or eliminatetheirfinancialimpact.
6
GRC is in part a response to the "silo mentality,"as it has become disparaginglyknown. That is, each
department within a company can become reluctant to share informationor resources with any other
department. This is seen as reducing efficiency, damaging morale, and preventing the developmentof a
positive companyculture.

7. Organization
A stolid structure and organization
within the company is essential to
fluidity implementing and
disappearing corporate governance
objectives.
Monitor all there dealings,
interactions and transactions
effectively.
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Stakeholder Relation
Corporate governance encompasses a
business accountability to each of its
stakeholder’s groups.

8. Auditor independence and transparency
Auditors should be independent (with no financial
interest in a company) with the majority of their
revenues derived from audit activities, not
consultation services.
Accounting issues should be handled in a transparent manner,
with complete, detailed information and reports always
available to the board and measures put in place to prevent
recurrence of any questionable findings.
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9. Self-Evaluation
 Mistake will be made,
no matter how well
you manage your
company.
 Regular self-
evaluation to identify
and mitigate brewing
problems.
9

10. The Failure of Corporate
Governance and Its Impact on
Business
• When this key governance
mechanism is missing it can
lead to ineffective or total
failure of a business (Walker
Review,2009)

11. When does corporate governance fail?
Ineffective governance
mechanisms, for
example, lack of board
committees
committees
Non-independent board
and audit committee
members
Intentional misleading
of the Board by
management to protect
themselves after
evading and bypassing
internal controls
Underqualified board
members
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

12. Consequences of
failure of
Corporate
Governance
Loss of Shareholder Confidence
and Trust
Difficulty Raising Capital
No-Risk Management
Increased Government Oversight
3/1/20XX

13. 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.

15. CONCLUSION
 Corporate governance is critical issue faced by all companies. The
above cases highlight the fact that poor corporate governance can lead
to a downfall of the largest companies. Regulatory bodies have
increased their scrutiny on the firms are under increased scrutiny by
regulatory bodies which increases the importance of good governance.
Digital solutions can help firms implement a robust governance
mechanism to help significantly reduce risk of governance failure.
 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.

16. 3/1/20XX