Corporate Governance

Legal Compliance
The Organizational Sentencing Guidelines (OSG) form the basis for
punishing organizations guilty of criminal violations of federal law in the
US. The OSG make it clear that the board plays a pivotal role in
compliance.
Among other things, the OSG require that "the organization's governing
authority shall be knowledgeable about the content and operation of
the compliance and ethics program and shall exercise reasonable
oversight with respect to the implementation and effectiveness of the
compliance and ethics program. The failure to meet these standards is
likely a breach of the board member's fiduciary obligations
 The Sarbannes-Oxley Act, 2002
• Also known as the SOX Act of 2002 and the Corporate Responsibility
Act of 2002, it mandated strict reforms to existing securities
regulations and imposed tough new penalties on lawbreakers
• The act took its name from its two sponsors—Sen. Paul S. Sarbanes
(D-Md.) and Rep. Michael G. Oxley (R-Ohio).
• Sarbanes–Oxley or SOX, is a United States federal law that set new or
expanded requirements for all U.S. public company boards,
management and public accounting firms. A number of provisions of
the Act also apply to privately held companies, such as the wilful
destruction of evidence to impede a federal investigation.
 The Sarbannes-Oxley Act, 2002
• Section 302 : Officers who sign off on financial statements that they know to be
inaccurate are subject to criminal penalties, including prison terms.
• Section 404 : requires that management and auditors establish internal controls
and reporting methods to ensure the adequacy of those controls
• Section 802 : contains the three rules that affect recordkeeping. The first deals
with destruction and falsification of records. The second strictly defines the
retention period for storing records. The third rule outlines the specific business
records that companies need to store, which includes electronic communications
• Sarbanes-Oxley now requires that the audit committee take "direct
responsibility" for appointing, evaluating, and firing, if necessary, the outside
auditor. This establishes a relationship that ought to encourage more candid
communications by auditors and much more effective oversight by the
independent directors.
 Corporate Governance in India
• SEBI had constituted a Committee on Corporate Governance
under the Chairmanship of Shri Kumar Mangalam Birla,
Member, SEBI Board to promote and raise the standard of
Corporate Governance in respect of listed companies.
• The SEBI Board in its meeting held on January 25, 2000
considered the recommendation of the Committee and
decided to make the amendments to the listing agreement in
pursuance of the decision of the Board.
• Clause 49: Constitution of the Board of Directors; Audit
Committee.
 Definitions of Financial Wrongdoings
• Misdemeanour:
A minor wrongdoing, attracting less than one year in prison and a fine.
• Felony:
A crime regarded in the US and many other judicial systems as more
serious than a misdemeanour and that can involve more than one year
in prison, like murder, rape, serious assault that causes serious bodily
harm, promoting prostitution, kidnapping, theft arson drug crimes.
• Securities Fraud:
The illegal activity of providing false information to someone so that
they will invest in something, it includes insider trading.
 Definitions of Financial Wrongdoings
• Securities Fraud
Securities fraud is illegal or unethical activity carried out involving
securities or asset markets in order to profit at the expense of others. .
Securities fraud can also include false information, pump-and-dump
schemes, or trading on insider information. It is a felony that can
attract prison sentences and fines…the Wolf on Wall Street—pump and
dump!
Corporate Governance
Whistle-Blower Policy
 Whistle Blower Policy and Corporate
Governance
• Why do people blow the whistle? Research covering a large number
of whistleblowers has come up with these reasons:
• Primarily for moral reasons---to make the world a better place to live in, for
public health, safety, justice and altruism. The case of Edward Banarzi of
Deutsche Bank
• With the overall increase in absolute wealth globally, individuals are willing to
rise above the loyalty to their superiors\friends\group\tribe for the greater
good.
• The increasing inequality of income globally and therefore a sense of injustice
has led to perceptible increase in the number of whistle blowers. This is aided
by social media, easier access to public data, like the RTI Act in India and the
increased interest in investigative journalism globally.
• Out of vendetta or to make money.
 Whistle Blower Policy and Corporate
Governance
• What is a Whistleblower’s Function?
• In the Holland, they are called the “bell-ringers”, in Germany, they are called
the “lighthouse keepers”, in Africa, they are called “public sentinels”, because
they are defending the people.
• They are the opposite of the “mythical monkeys”—it is the duty of an
ethically sensitive person to see evil, hear what the evil-doer is saying and
speak to the world of the evil being perpetrated. The case of the Hansford
Nuclear Waste dump.