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GLOBAL CORPORATE GOVERNANCE

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GOVERNANCE SCANDALS

2001: Enron Corp.

(Fastow – CFO, Lay – Chairman and CEO, and Skilling – CEO) creation of off-the-books partnerships, aggressive accounting to

conceal huge debt and increase profits, enabling executives to reap benefits

investor loss estimated to total $64.2 Billion equity de-listed January 2002

2002: Arthur Anderson LLP (SEC alleges entire firm) auditor for Enron didn’t realize shredding documents in an investigation was illegal Fall 2002 all state licenses revoked from company mainly broken up and sold to competitors (26,000 employees)

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2003: Tyco Int’l Ltd. (Kozlowski – CEO and Swartz – CFO) took $600 Million from company ($430 Million in fraudulent stock sales) $2 Billion in erroneous accounting (restate results back to 1998) $2 Million birthday party for wife of Kozlowski; $38,000 backgammon

table; $17,000 traveling toiletry box; $15,000 umbrella stand; $6,300 sewing basket; $6,000 shower curtain; $3,000 bed sheets

loan forgiveness for around fifty employees

2003: Parmalat Spa (Tanzi family, BOA, and Deliotte & Touche) announcement of debt roughly $15 Billion (8 times the reported amount) exaggerated revenues and profits declared insolvent late 2003 largest bankruptcy in Europe

GOVERNANCE SCANDALS

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2007: Duke’s Fuqua School of Business exam cheating scandal, working in groups for individual

projects 34 students punished, 15 suspended $50,000 loss in tuition and a laptop per student 56% admit cheating during exams

2009: Satyam (chairman Ramalinga Raju) earnings restatement World Bank had banned Satyam from doing business with it

for 8 years due to inappropriate payments to the World Bank's staff

taken over by Mahindra Group

GOVERNANCE SCANDALS

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WHAT IS CORPORATE GOVERNANCE?

Set of structures that provide boundaries for the firm’s operations participants in corporate activities

managers, directors, workers, suppliers of capital

returns to participants constraints under which participants operate

Emphasis on ensuring that suppliers of capital get a return on their investment

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COMPLEXITY

REGULATORSREGULATORS

BANKSBANKS

MINORITY CREDITORSMINORITY

CREDITORS

EXECUTIVESEXECUTIVES

MINORITY SHAREHOLDERS

MINORITY SHAREHOLDERS

CONTROLLING SHAREHOLDERSCONTROLLING

SHAREHOLDERS

Bonding

Board of Directors

Law

Ownership Concentration

Executive Compensation Monitoring

EMPLOYEESEMPLOYEES

Stock Market

Debt Market

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COMPLEXITY

REGULATORSREGULATORS

BANKSBANKS

MINORITY CREDITORSMINORITY

CREDITORS

EXECUTIVESEXECUTIVES

MINORITY SHAREHOLDERS

MINORITY SHAREHOLDERS

CONTROLLING SHAREHOLDERSCONTROLLING

SHAREHOLDERS

Bonding

Board of Directors

Law

Ownership Concentration

Executive Compensation Monitoring

POLITICIANSPOLITICIANS

EMPLOYEESEMPLOYEES

Stock Market

Debt Market

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WHY DO WE CARE?

Good Investor Protection

Lower Cost of Capital

More informed & developed capital

markets

Better Capital Allocations

Faster Economic Growth

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