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MBA Corporate Governance And Responsibility Essay Example for Free
MBA Corporate Governance And business EssayWhy did it take 10 years to bring forth Harshad Mehta to justice? What weaknesses in the financial markets allowed such abexercising to succeed?Harshad Mehtas scam was one which involved huge magnitudes, which is why it probably came into timid in the first place.1 Scams of smaller magnitude atomic number 18 happening al well-nigh everyday at the Bombay germinate Exchange but not coming to light. in that respect are many causal agencys for this. Some of the major reasons are briefly discussed below.The Indian businesses have traditionally being family owned. Owing to c at a timentration of money in a few hands, most hoi polloi have c at a timentrated on survival and security due to which the risking sweet entrepreneurial skill has not developed much. Being family owned businesses, a lot of insider and sensitive instruction is often available to the owners and their relatives even though the company is technically a separate legal entity. attached this insider information and the relatively weak legal machinery, it is easy for the insiders to manipulate prices of stocks by large buying or selling.The reason bug outlined above in addition gives rise to the herd mentality i.e. if bulk activity is seen on a stock on a particular day in a particular response people seem to trust it quickly believing that some one with insider and reliable information is performing upon it. This is what helped Harshad Mehta in pulling off the scam. Further, in that location are hardly any checks and balances on the end use of loans given by banks and other financial institutions. They seem to be satisfied by the reputation of the borrower and once they are convinced that he screw return the money, the end use of the aforesaid(prenominal) whether for speculation or any other activity is hardly looked into.It took as long as ten years to bring Harshad Mehta to justice due to the combination of many systemic failures an d procedural lacuna. originally, it is difficult to pin point in such a huge market as to where the first default or br each(prenominal) of honor took place. Further, there are many procedural approvals that must be taken before the regulator can take any concrete action. The countrys civil procedure process is quite relax too, with many appeals available before an wrongdoer is finally convicted. Therefore, even high profile cases such as these often take several years before finally being disposed off.How can morality in the boardroom be monitored and controlled?Ethics, in the first place, is a rather complicated and complex issue. There is no straightjacket formula as variant situations would demand different measures. In the boardroom, where money is at stake, and everyone has their own business to mind, it is probably even more difficult. This has been a subject of considerable debate, and there are certain measures which companies should full generally apply, with specif ic variations in accordance with the particular situation at hand. Some of these general principles are briefly discussed below.2 Firstly, there has to be strict avoidance of concentration of primal powers and functions in a few hands. As can be seen from the Maxwell Affair of 1991, too many responsibilities in different areas of management are likely to be fatal to the company. Further, the delegation of power must not be absolute. Power corrupts, and absolute power corrupts absolutely. There should be checks and balances right upto the top level. At the top most level, where it is difficult to have checks and balances in a vertical hierarchy, the same should be had using a plane structure. Strong ethical base and principles must come in from the top and trickle down to the bottom. It is important that these principles are insisted upon, no occasion how bad a situation a company is in. They should be introduced as non-negotiable to every new employee who joins, so that when he c limbs the ranks in the corporate ladder, he is equally insistent roughly such principles. Gradually, a strong ethical culture is built.Is there a discernible deviation among Enrons fraud and Madoffs appeal to elite investors?There is quite a discernible unlikeness between Enrons fraud and Madoffs appeal to elite investors. Enrons fraud was a make water case of lack of watchful auditing and poor accounting practices. The profits were terribly overstated and the accounts were shown to pose a rosy picture of the state of affairs of the company. The true state of affairs was not revealed to the shareholders and other stakeholders in the company. The auditors were cleverly deceived, and they too didnt do any follow up action.3 Madoffs case is a much more complex one than Enron. Madoffs case has largely been seen as one which could neer be expected, and therefore no laws are in place to remedy such a situation. foreign Enrons case, which can be foreseen, Madoffs case was all overl y unique and innovative. Enrons case has been foreseen by the law makers, due to which many laws are in place to keep in check of the same.Firstly, there are accounting standards and conventions which must be adhered to by all companies. Second, all companies are statutorily require to get their accounts audited so as to doubly determine that they reflect a true and fair side of the affairs of the company. Although it has been said in a landmark decision, that an auditor is a watchdog and not a bloodhound, it can be said that the auditors failed to do an upto-the mark job in Enron and hence the scandal.4 However, in comp allowe contrast, Madoffs case is so unexpected that there are no laws which effectively deal with such a situation. He used his reputation of being an expert at the Wall Street and a continued promise to offer secured and steady returns to swindle many high net worth individuals of millions of dollars. such(prenominal) an exercise of personal confidence is diffic ult for the law to stop. Now, in retrospect, of course there are laws which mandatary certain disclosures in case of any broker or person dealing on others behalf in the stock market. Further, there are investor awareness and know-your-rights campaigns by the regulator. Thus, another importance difference between the two scandals which essentially flows from the main difference is the solutions that they demand are very different from each other.What steps would you take as an independent director on the board of a company where you had reason to believe that fraudulent or unethical activities were being carried out by the high-profile company leader?First of all, being an independent director, there is a great amount of responsibility on my shoulder to ensure that such policies are pushed for, which make it near to impossible for fraudulent or unethical activities to be carried out by any individual in the company. However, if this was to happen, there would be a series of measur es I would sample to take.Firstly, it would be important to get the whole Board of Directors, or as far as it whitethorn be practicable, into confidence so as to ensure that the top level management is not divide on such an important issue. Once this is done, it is important to have an internal conference with the suspected offender about his objectionable activities. It is important at this stage to consider all possible solutions to the problem, as forthright action against such a person should be the last resort, given that such information is curiously sensitive, and it would adversely affect the reputation of the company, if it were to get leaked.Therefore, it is also important that only so many people are made aware of such a situation as are required. It is essential that the matter not be lingered, and damage control be the top most priority. Again, every possible election should be explored including plea bargaining and settlement through mediation or negotiation.5The suspected offender should also be taken into confidence that full disclosure would be in his best interests too. No nemesis or action should be immediately taken against him, as then he might attempt to conceal the substance of the matter, which would be yieldually then take a long time to be fathomed. Any severe action contemplated should be taken only once the issue has been fully resolved.Finally, once the issue has been resolved, there should be a fall back to see why such an event happened, and what can the company do in future to prevent it. The offender should not be let off lightly, as this may go on to set a bad example. At the same time, the best interests of the company in the long run must be kept in mind.REFERENCESAnonymous, Harshad Mehta A poop to Remember f. www.casestudy.co.in (Last Visited 25 July, 2010).Anonymous, list Biscayne Connection in Madoff Scandal, Key Biscayne Times, 23 July, 2010.Cathy Thomas, hindquarters the Enron Scandal, TIME Magazine, June 2002 .Kevin MacDonald, Is the Madoff Scandal Problematic?, Occidental Quarterly Online, July 2010.Stephanie Maier, How global is good corporate validation?, EIRIS Report, Aug 2005.1 Anonymous, Harshad Mehta A Scandal to Remember c.f. www.casestudy.co.in (Last Visited 25 July, 2010).2 Stephanie Maier, How global is good corporate governance?, EIRIS Report, Aug 2005.3 Cathy Thomas, Behind the Enron Scandal, TIME Magazine, June 2002.4 Kevin MacDonald, Is the Madoff Scandal Problematic?, Occidental Quarterly Online, July 2010.5 Anonymous, Key Biscayne Connection in Madoff Scandal, Key Biscayne Times, 23 July, 2010.