Prof. Ajay Garg – 24thMarch 2012

A workshop on Ethics and Governance was conducted by Prof. Ajay Garg on 24thMarch 2012. The issues discussed in the workshop included the board of director’s functions and issues associated with them, the SEBI guidelines corporate governance, parallel between the US and Indian guidelines on corporate governance, difference between the corporate structure of US and Indian companies and lastly Enron scam. The basic function of board of directors of any company is to protect the shareholders rights. Because of differencein the concept of ownership and management of a company there is a need to protect the rights. A person is appointed to the board of directors by the management of the company. This person has to be as independent as possible from the company i.e. he shouldn’t have any financial or any other kind of interest either directly or indirectly in the company. The directors are not involved in the day to day management of the company but being independent they have the right to ask pointed questions to the management regarding any decision it takes. Also since they don’t involve in day to day management they are not liable to criminal proceedings. However it is observed that there forms a cross membership of board of directors meaning that A can be on the board of company owned by B who is on the board of a company of owned by C who is on the board of the company owned by A and thus the
purpose of having an independence board gets defeated. Also many guidelines on the good corporate governance given by SEBI are similar to those given by SEC in US. However there exist a basic difference between the corporate structure of US companies and Indian companies. In US companies the ownership of companies is more widely distributed i.e. the promoters own comparatively less owner ship which is in stark contrast with the structure of Indian companies. This renders some of the guidelines useless. The workshop ended with the discussion on the fall of Enron. Even with the strong compliance guidelines by the US SEC there many corporate frauds happened in US implying that for better governance it is the internal motivation to follow good practices that going to bring a change rather than stronger guidelines.

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