Pradeep Shetty

Umesh Rajan
Komal Shah
Vaibhav Vesukar
 Corporate Governance
means What???
At its most basic level –

The interaction of a company’s management, board directors

and shareholders to direct and control the company and to
ensure that all financial stakeholders (shareholders and
creditors) receive their fair share of the company’s earnings
and assets means corporate governance .
Why do we need Corporate
Governance ???
Factors Influencing Corporate
Governance
 Corporate Governance and
S E BI

• SEBI protects the interests of investors in securities and

promotes the development of the securities market through
appropriate regulation.
• Ensures essential pre - requisite for the integrity and
credibility of capital market players .
• Contributes to the development of a vibrant economy and
robust capital markets
When do we need Corporate
Governance ?

6
 Standard & Poor’s an
Audit Firm
Standard & Poor’s has established a capability to objectively benchmark and
compare a company’s corporate governance practices including:
Corporate Governance Scores and Evaluations
• Interactive analytical process
• Holistic focus on financial stakeholders; emphasis on shareholders

Enhanced Analytical Initiative for S &P credit ratings

• Rated companies screened to assess management behaviours and identify cases where enhanced governance analysis
could help for a more robust credit rating opinion
• Selected companies will have additional Governance Assessments conducted
• Creditor focus

Enterprise Risk Management Initiative

• Focus on support to credit ratings
• Key sectors: banks, insurance companies, energy (trading emphasis)
 Standard & Poor’s
Corporate Governance :
Company Scoring Criteria
Ownership Structure & External Influences
– Transparency of Ownership
– Concentration and influence of ownership
– Influence of external stakeholders
Shareholder Rights and S take holder Relations
– Voting and shareholder meeting procedures
– Ownership rights and takeover defences
– Stakeholder R elations
Transparency, Disclosure and Audit
– Content of public disclosure
– Timing of, and access to, public disclosure
– The audit process
Board Structure & Effectiveness
– Board structure and independence
– Role and effectiveness of board
– Board /executive compensation
 Case Study : Galleon
Group

Galleon hedge fund partner Raj Rajaratnam is been escorted by FBI agents
after being taken into custody
 The company
• Galleon Group was one of the largest hedge funds in the world before
announcing its closure in October 2009 .
• The firm was at the center of a 2009 insider trading scandal that resulted in
investors pulling capital from the firm rapidly. Galleon is head quartered in
New York City.
• The firm was founded by Raj Rajaratnam , was the story that dreams are
made of.
• Rajaratnam, 52 ,a graduate of the University of Pennsylvania’s Wharton School,
was identified this year by Forbes as the 559 th richest person in the world, with
a net worth of $ 1.3 billion. Galleon Partners is based in Manhattan and has
offices in London, Singapore, Mumbai, and Menlo Park, California
• The firm is named for the galleon, a large sailing ship used from the 16th
to 18th centuries in Europe.
 The Scam
• Raj Rajaratnam and former directors at a Bear Stearns Cos. hedge fund were
among six people charged in a $ 20 million insider trading scheme by the U.S.
Securities and Exchange Commission.

• The S E C’s complaint said that Rajaratnam didn’t deserve his reputation for
“genius trading strategies” or “astute study of company fundamentals or
marketplace trends” but that it was a simple case of Raj Rajaratnam cultivating a
network of high-ranking corporate executives and insiders, and then tapping into
this ring to obtain confidential details about quarterly earnings and takeover
activity.
• Apparently, Rajaratnam conspired with Intel Capital treasury department
managing director Rajiv Goel and Anil Kumar, a director of Mc Kinsey & Co
and indulged in insider – trading transactions over three years starting in
January2006 .
 The Scam..cont
Rajaratnam traded in 2 0 0 6 and 2 0 0 7 on leaks from insiders at Polycom , Moody’s
Investors Services Inc. and M arket Street Partners. A Moody’s analyst offered news about
Hilton , and the Market Street Partners source provided tips about Google, prosecutors said.
Rajaratnam earned $ 1 2 .7 million on the leaks and gave a confidential government informant
inside information on other companies in return, they said.

Goel, who had been working in the treasury of Intel, the world’s biggest chipmaker, passed along
news about Clearwire Corp. that he learned from investments made by Intel, and Rajaratnam earned
about $ 5 7 9 , 0 0 0 . 0 0 profits, prosecutors said. In return,Rajaratnam is alleged to have
placed profitable trades for the benefit of Goel in a personal brokerage account maintained by Goel
at Charles Schwab.

The scam was all about having access to company’s confidential information and Galleon traded
accordingly in order to make ma x imum profits, which is against law.