Corporate Governance and Ethics Corporate governance is a hot topic and a serious challenge across the globe to institutions,

governments, courts, business and finance professionals, academics and for students pursuing management and legal studies. Moralists, Ethicists and philosophers have also been trying to work through the maze of vague and ambiguous governance concepts, theories and practices to make sense of the corporate and legal speak and regulatory apparatus and its purpose. The study of intentionality, the necessity of virtue and vice, the nuances of law and justice, the ubiquitous phenomena of reinforcing each others slippery moral turpitudes on the dictum everyone is doing it is on the rise. The current financial crises have given us foundational challenges to negotiate the corporate world of financial engineering, quantitative machinations brought on by technologically driven wizardry in addition to the age old greed and fraud variety of malfeasance.
The purpose of this course is to facilitate learning through collaborative team work and interaction to understand the dynamics of corporate governance at work. This includes knowing about principles, practices and structures of diverse corporate governance standards. Since governance is a generic aspect of how we conduct the affairs in a variety of organizations- government, business and philanthropic we will try to develop a general understanding of the process of governing. That requires knowing conditions some of which will have to deal with uncertainties of profit and loss, existing and ever-evolving legal and regulatory requirements, political and cultural conditions and, the ethical and equity constraints. We will examine these and other challenges facing shareholders/owners, officers and managers, board of directors and a number of stakeholders including labor, community and country- a tall order indeed! The current financial crises are primarily the result of greed, fraud, and lack of oversight, unsustainable compensations and lack of compliances with agencies credited with oversight. Flawed internal and external audits, financial engineering and reporting fashioned to mislead have come to, all but, destroy the wealth of nations, organizations and individuals. We will also address responsibilities, shareholder activism, legacy planning, comparative aspects of

Corporate Governance and Ethics PGPM, Term 5 Prof. Mangalam Srinivasan Great Lakes Institute of Management

governance and regulations internationally and the status of the current movements toward reform. Corporate failures that nearly brought the global financial meltdown have contributed to the intense scrutiny of governance, the quality if controls within corporate governance structures, the lack of accountability, fiduciary and other responsibilities of the board and ultimately the considerable harm that may accrue due to economic growth and social stability nationally and internationally. Financial Reforms Paul Volcker, former Federal Reserve Bank Chairman was brought in as Chairman of Presidents Economic Recovery Advisory Board had contributed to the Volcker Rule as a part of the Dodd-Frank Act aimed at containing and reforming the 2007-2010 financial crisis. The Rule essentially aims at restricting speculative investments which he believed played a large part in the meltdown. According to Volcker, market inefficiencies, unjustified irrational expectations and techniques of modern finance caused the structure to collapse. Unsustainable rewards, credit rating agencies questionable work and inadequate regulations, derivatives used to diffuse and minimize risk, shortsighted policies pretty much completed the job of ushering in chaos. According to Volcker, the absence of a disciplined international monetary system sustained the mayhem. Many examples, notably, China with its huge dollar assets and the Eurozone countries with their own disparate levels of wealth, debt burdens, social programs and traditions offer huge challenges to reforms. Chinas accumulation of low interest US securities has kept the US going with cheap credit and crushing budget deficit. Under the weight of these deplorable conditions the housing bubble built on questionable and unconditional. money flows to unqualified borrowers turned the American dream of owning a home to a nightmare of the epoch and in its wake a global onslaught on economies around the world. Volcker credits public policy specifically, the financial practices for helping to sustain imbalances. His verdict: In the end, the build-up in leverage, the failure of credit discipline, the opaqueness of new kinds of securities and derivatives 0f new kinds of securities and derivatives such as credit default swaps helped facilitate, to a dangerous extent accommodation to the underlying imbalances-

Corporate Governance and Ethics PGPM, Term 5 Prof. Mangalam Srinivasan Great Lakes Institute of Management

Shadow banking system- the non-depository banks, hedge funds, insurers, money market funds and other largely non-regulated entities- their growth (between 2000-2008), the size and scope intensified the crisis and severely wounded the world economy.

Proprietary Trading for the banks themselves, proprietary bets, derivative contracts etc, were rampant. According to one account reads as follows: --the bets can be derived from anything meaning anything. These are highly leveraged bets which customers never understood. Fees were very high; banks made bewildering profits from these transactions. The chief culprits were Anglo-Americans and they made their bets from New York and London. The timeframes and differences aided the collaborative quick time bets to take place. Computer inputs offered creative platforms for high risk hedge fund activities. Furthermore, Many who bought into it had limited understanding; they just hoped that they might win. No one understood the product including many experts. Many finance officials of cities, municipalities and administrators of pension funds etc invested heavily and some became bankrupt to the magnitude of tens of billions Example: Jefferson County Alabama filed bankruptcy on a sewer project and tax payers lost 2 billion dollars. Wall Street had a sexy name for it: This brand of derivative business was called solution business. Bankers went as missionaries preaching the gospel of solutions to many cities in America and Europe. Many agencies, regulators, shareholders were asleep at the wheel as if by a spell. These narratives include the examples that we are familiar with: JP Morgan- Italy entered into a swap. The details were not put on a financial statement. Derivatives are not listed. In the case of Italy no one Greece entered into the largest deal with Goldman-Sachs which made hundreds of millions of dollar at sixteen percent interest. Iceland went bankrupt

Corporate Governance and Ethics PGPM, Term 5 Prof. Mangalam Srinivasan Great Lakes Institute of Management

Ireland was in near collapse Spain and Portugal are not out of the woods Current reforms are focusing on setting capital and liquidity disciplines and standards which are difficult tasks to accomplish given the vastly differing outlooks and due to the presence of lobbies.

Corporate Governance and Ethics PGPM, Term 5 Prof. Mangalam Srinivasan Great Lakes Institute of Management