145x Filetype PPT File size 0.08 MB Source: www.oecd.org
Corporate Governance and Capital Markets Source: A McKinsey Survey of Global Investors 2 What went wrong in the recent past? » Environment » Loss of moral fibre of corporations » Business environment characterized by need to compete with the new economy » Boards » Fundamental weaknesses in business models sought to be compensated by adoption of aggressive accounting practices » Ignored ethics and value systems when a much hyped business strategy failed to deliver as expected and articulated to Wall Street » Incompetence of board members and overriding of audit committees » Managements » Stock option heavy compensation structures » Bonus linked to short-term revenue growth, EPS and stock price » An inability to accept failure » Excessive focus on beating the street 3 What went wrong in the recent past ? » Auditors » Aggressive interpretation of accounting standards » Independence compromised to obtain lucrative consulting assignments » Employees » Compensation linked to stock-price movement » Large disparity between the highest and lowest paid employee » Culture of greed promoted within the organization by management » Manipulative accounting practices » Analysts » Ever-greening of reports with an eye on investment banking assignments » Pressurized managements to beat quarterly estimates » Investors » Short term focus of investors 4 Global Reactions » Regulatory reactions » SOX » NYSE/NASDAQ Rules » Clause 49 of listing agreement in India » Corporate reactions » Focus on fundamentals of business models » Focus on strengthening internal controls and information systems » Stock options » Enhanced disclosures in MD&A and Annual Reports » Guidance » Focus on critical accounting policies » Aggressive journalism » Accounting/Governance was the main story for months » Glorification of the whistleblower » Time Magazine’s Person of the Year 5 Key Themes of Current Reforms » Independent directors and audit committees have enlarged responsibilities » Stricter independence standards for audit committees » Enhanced role of the whistle blower » Board effectiveness and integrity targeted by regulators, politicians and the media » Compensation structures are under attack » New level of discipline brought to SEC reporting and under Clause 49 » CEO/CFO certifications » Improvement in processes as effectiveness of internal controls need to be certified » Improved processes and controls have connected the board to the day to day functioning of the company » Real time disclosure and shortened deadlines » Auditor independence » Repeal of self regulation for the auditing profession » Analyzing the analysts 6
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