Corporate governance vs.

Corporate crime
S. N. Mahapatra  Sanjay Pandey 
Faculty, SGRRITS, Dehradun
Asstt. Secy. ICAI, New Delhi
Corporate Governance
In today’s environment corporate Governance is not a luxery but a
dire necessity to locate and weed out corporate crime.
ndia has had a rich tradition of
governa nce st anda rd from an

cient times. The consistent prac- tice of “Dharma” or righteousness in conduct has been a key command- ment in the
scriptures. Accountabil- ity to society at large and to its sub- sets has been a prescribe norm though it may not always have re-
ceived the level of compliance that it deserved. Same standard and eth- ics is required in corporate sector, which is not yet
seen truly. When Corporate Governance Guru Adrian Cadbury former chairman of Cadbury Schweppes authored the new
corporate code it promptly be- came benchmarks for corporate UK and widely applauded and consid- ered as “Bible” in
Corporate Govern- ance. The Confederation Indian In- dustries (CII), SEBI and Kumar Mangalam Committee which frame
the guide line to bring transparency in the corporate sector is still to be a reality. With increase of corporate crime in India and
in abroad must be baffling the mind of the people who

have frame all these rules and regu- lations. When Infosys, ICICI and other Indian Companies listed in American stock
exchange it was widely appreciated by the captains of Indian industries because these com- panies complied to USA’s GAAP
and Security Exchange Commission (SEC) code of conduct. We used to appreciate Generally Accepted Ac- counting
Principle (GAAP) for its transparency in accounting but do you think the credibility of GAAP is still prevailing after Enron
scam? It was shameful how the Arthur Andersen external auditor of Enron manipulated the document, being the external
auditor its role was to check the manipulation instead of that it helped the company to hide the docu- ment. If I here quote the
case of HLL’s inside trading, A. F. Ferguson and Tata Finance, UTI (Later on these case will be analyzed in the paper) and
many more are definitely a setback to our Corporate Govern- ance. Day by day, this corporate crime is increasing and the
Corpo- rate Governance draft code is now becoming a mere document.

Corporate Governance: What

does it mean?

Corporate Governance as a con- cept has received increasing attention in recent years and there appears to be some lack
of clarity at least in popular perception as to what exactly is covered under this expression. The draft report of the Kumar
Mangalam Birla Committee on Corporate Gov- ernance defines; the fundamental objective of Corporate Governance is the
“enhancement of long-term shareholder value while, at the same time, protecting the interests of other stakeholders.” The
Cadbury commit- tee defines Corporate Governance in the UK as the system by which com- panies are directed and
controlled. Thus placing the Board of Directors of a company in the centre of the gov- ernance system. Corporate Govern-
ance is a relationship among stakeholders that is used to determine and control the strategic direction and performance of
organization. Good Corporate Governance means maximizing long-term shareholder value in a legal and ethical manner,
ensuring fairness, courtesy and dig- nity in all transactions within and

outside the company with customers, employees, investors, partners, com- petitors, the government and society. Every
CEO in the country is now engaged in a search for a code of conduct that will enable his corpo- ration to achieve these
goals. Y. H. Malegaon, 65, Managing partner, S. B. Billimoria & Co and one of the early champions of governance in
India says good governance means that the board agrees to being ac- countable to the shareholder and as a result takes on
the responsibility of directing and controlling manage- ment. Governance goes beyond ex- ternal shareholder. As
responsible citizen, organizations need to widen their linkages with issues of social development, especially in the areas
of education, health, environment and community development.

Let us discuss the new govern- ance charter finalized by 15-member committee on corporate governance appointed
by the Securities & Ex- change Board of India (SEBI) headed by Kumar Mangalam Birla, the Chairman of the Aditya
Birla Group and the report submitted in other countries.

The draft report of the Kumar Mangalam Birla Committee on Corporate Governance

 The board of a company should

have an optimum combination of executive and non-executive director, with 50 per cent of the board comprising the non-
ex- ecutive directors.

 To avoid potential conflict of in-

terest it is desirable that the fi- nancial institutions maintain an arm’s – length relationship with the company by not
seeking a seat on the board.

 The chairman’s role in principle

should be different from that of
the CEO.
 A qualified and independent au-
dit committee should be setup.
 The board should setup a remu-

neration committee to determine the policy specific remunera- tion-packages for executive di- rectors.

 The board should clearly define

the role of the management.
 The management must make

disclosures to the board relating to all material, financial and commercial transactions.

Cadbury Code:

The code was prescribed by the Cadbury Committee setup in 1991 under the chairmanship of Sir Adrian Cadbury at
the instance of the Landon stock exchange to look into the financial aspects of the Corpo- rate Governance.

Board of Directors:

The Board holds regular meet- ings in alternate months. The roles of chairman and chief executive have been separate
since 1991. In addition to the chairman and other executive directors, the board includes several non-executive directors who
are in- dependent of the company, who do not participate in stock option schemes or qualify for pension ben- efits; normally,
non-executive direc- tors serve for no more than six years.
Audit Committee:

The committee functions to en- sure as far as possible that the an- nual accounts, the interior statement, and any
other major financial state- ments put out in the name of the Board follow generally accepted ac- counting principles and
give affair and meaningful account of the group’s affairs.

Nominate Committee:

The committee function are to make recommendations to the board about future appointments of non- executive
directors and of the chair-

man and the chief executive, and to consider recommendations from the chief executive to the Board about future
appointments of executive di- rectors.

Remuneration Committee:

The committee’s principal & functions are to authorize the remu- neration, business, and other benefits of executive
directors, and to grant awards under the courtaulds Long- Term Incentive Scheme.

Financial and Accounting Stand-

ards:

A comprehensive financial and accounting standards manual setting out the principles of and minimum standards
for effective financial con- trol, and defining financial and ac- counting policies to be applied throughout courtaulds.
Compliance with the policies and procedures set out in the manual is reviewed on a regular basis by external and inter-
nal audit.

We have seen the draft code of corporate governance laid down the strict guideline to bring better gov- ernance in the
corporate sector. The charter is almost same in all the coun- ties with some differences but does it able to teach ethics to our
corpo- rate. All these code looks good on paper but the question is success of Corporate Governance. With rise in corporate
crime in recent past both in India and in abroad put a question mark to our “Corporate Governance” the buzzword of modern
business world. The dawn of the twenty first century saw the rising corporate crime. Let us analyze some of these cases and
check it how far these com- panies complied with the draft code.