Corporate Governance and Capital Markets
     Source: A McKinsey Survey of Global Investors
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     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
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     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
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     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
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     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
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