'MBA Corporate Governance And Responsibility Essay\r'

'Why did it way out 10 years to bring Harshad Mehta to justice? What calorie-freenesses in the financial markets allowed much(prenominal) abuse to succeed?\r\nHarshad Mehta’s scam was one which involved wide magnitudes, which is wherefore it belike came into light in the first place.[1] Scams of little magnitude ar happening almost chance(a) at the Bombay Stock Exchange but non coming to light. There argon umpteen reasons for this. almost of the major reasons are briefly discussed below.\r\nThe Indian businesses ca-ca traditionally being family owned. Owing to concentration of bullion in a few hands, most masses have concentrated on survival and certificate due to which the risking loving entrepreneurial skill has not developed much. Being family owned businesses, a handle of insider and sensitive information is of cristal available to the owners and their relatives til now though the society is technically a dissolve legal entity. Given this insider informa tion and the relatively weak legal machinery, it is easy for the insiders to manipulate prices of bloodlines by braggy buying or selling.\r\nThe reason outlined to a higher place also gives rise to the herd mentality i.e. if intensity activity is seen on a stock on a particular day in a particular re consummation; people seem to confide it quickly believing that some one with insider and legitimate information is acting upon it. This is what helped Harshad Mehta in pulling transfer the scam. Further, at that place are hardly any checks and balances on the end use of loans given by banks and some other financial institutions. They seem to be satisfied by the temper of the borrower and once they are convinced that he ordure return the money, the end use of the similar whether for speculation or any other activity is hardly looked into.\r\nIt took as foresightful as ten years to bring Harshad Mehta to justice due to the conspiracy of numerous an(prenominal) systemic fa ilures and procedural lacuna. Firstly, it is difficult to flag point in much(prenominal) a huge market as to where the first default or breach of law took place. Further, at that place are many procedural approvals that moldiness be taken beforehand the regulator can take any concrete action. The country’s civil procedure growth is quite slow too, with many appeals available before an offender is finally convicted. Therefore, even high compose slips such as these often take several(prenominal) years before finally being given up off.\r\nHow can ethics in the boardroom be monitored and controlled?\r\nEthics, in the first place, is a rather knotty and complex edit. There is no straightjacket shape as different situations would demand different measures. In the boardroom, where money is at stake, and e trulyone has their own business to mind, it is probably even more difficult. This has been a subject of tidy debate, and in that location are certain measures which companies should generally apply, with particularised variations in accordance with the particular situation at hand. Some of these general principles are briefly discussed below.[2]\r\n Firstly, there has to be strict avoidance of concentration of crucial creators and functions in a few hands. As can be seen from the Maxwell Affair of 1991, too many responsibilities in different areas of way are potential to be fatal to the companionship. Further, the delegation of power must(prenominal) 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 use a horizontal structure.\r\n Strong ethical solution and principles must come in from the top and carry down to the bottom. It is substantial that these principles are insisted upon, no case how badly a situati on a company is in. They should be introduced as non-negotiable to either new employee who joins, so that when he climbs the ranks in the corporate ladder, he is as insistent about such principles. Gradually, a sanitary ethical culture is built.\r\nIs there a tangible difference between Enron’s tarradiddle and Madoff’s appeal to elite investors?\r\nThere is quite a discernible difference between Enron’s shammer and Madoff’s appeal to elite investors.\r\n Enron’s fraud was a clear case of lack of active auditing and poor accounting practices. The profits were terribly over stird and the accounts were shown to pose a rosy picture of the state of affairs of the company. The received state of affairs was not revealed to the shareholders and other stakeholders in the company. The auditors were cleverly deceived, and they too didn’t do any follow up action.[3]\r\n Madoff’s case is a much more complex one than Enron. Madoff’s case has largely been seen as one which could never be expected, and therefore no laws are in place to remedy such a situation. Unlike Enron’s case, which can be foreseen, Madoff’s case was completely unique and innovative. Enron’s case has been foreseen by the law gain groundrs, due to which many laws are in place to keep in check of the same.\r\nFirstly, there are accounting standards and conventions which must be adhered to by all companies. Second, all companies are statutorily required to guide their accounts audited so as to doubly ensure that they reflect a true and fair view of the affairs of the company. Although it has been utter 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]\r\n However, in complete contrast, Madoff’s case is so unexpected that there are no laws which in effect deal with such a situation. He utilize his reputation of being an expert at the smother Street and a continued promise to lead secured and steady returns to swindle many high mesh worth someones of millions of dollars. Such an exercise of personal office is difficult for the law to stop. Now, in retrospect, of course there are laws which mandate certain disclosures in case of any broker or person traffic on some other’s behalf in the stock market. Further, there are investor mindfulness and know-your-rights campaigns by the regulator.\r\n Thus, another importance difference between the two scandals which fundamentally flows from the main difference is the solutions that they demand are very different from each other.\r\nWhat 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?\r\nFirst of all, being an in dependent director, there is a great amount of responsibility on my shoulder to ensure that such policies are pushed for, which make it near to im attainable 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 measures I would attempt to take.\r\nFirstly, it would be valuable to get the whole Board of Directors, or as out-of-the-way(prenominal) as it whitethorn be practicable, into confidence so as to ensure that the top level management is not divided on such an important issue. Once this is done, it is important to have an internal assembly with the suspect offender about his objectionable activities. It is important at this stage to consider all possible solutions to the problem, as open action against such a person should be the last resort, given that such information is particularly sensitive, and it would adversely affect the reputation of the company, if it were to get leake d.\r\nTherefore, 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 ill-use control be the top most priority. Again, every possible option should be explored including plea negociate and settlement through mediation or negotiation.[5]\r\nThe suspected offender should also be taken into confidence that full disclosure would be in his scoop up interests too. No threat or action should be immediately taken against him, as then he might attempt to conceal the substance of the matter, which would be eventually then take a long time to be fathomed. Any severe action contemplated should be taken only once the issue has been fully resolved.\r\nFinally, 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 unplowed in mind.\r\nREFERENCES\r\nAnonymous, â€Å"Harshad Mehta: A dirt to imagine” f. www.casestudy.co.in (Last Visited 25 July, 2010).\r\nAnonymous, â€Å" pick up Biscayne Connection in Madoff Scandal”, Key Biscayne Times, 23 July, 2010.\r\nCathy Thomas, â€Å"Behind the Enron Scandal”, TIME Magazine, June 2002.\r\nKevin MacDonald, â€Å"Is the Madoff Scandal debatable?”, Occidental Quarterly Online, July 2010.\r\nStephanie Maier, â€Å"How global is rock-steady corporate establishment?”, EIRIS Report, Aug 2005.\r\n[1] Anonymous, â€Å"Harshad Mehta: A Scandal to Remember” c.f. www.casestudy.co.in (Last Visited 25 July, 2010).\r\n[2] Stephanie Maier, â€Å"How global is good corporate governance?”, EIRIS Report, Aug 2005.\r\n[3] Cathy Thomas, â€Å"Behind the Enron Scandal”, TIME Magazine, June 2002.\r\n[4] Kevin MacDonald, â€Å"Is the Madoff Scan dal Problematic?”, Occidental Quarterly Online, July 2010.\r\n[5] Anonymous, â€Å"Key Biscayne Connection in Madoff Scandal”, Key Biscayne Times, 23 July, 2010.\r\n'