ROLE OF BOARD OF DIRECTORS IN CORPORATE GOVERNANCE

With the fiasco of Satyam and Sahara in India and the Enron, Worldcom, Permalet, the
multinational newspaper group Hollinger Inc. Newyork Stock Exchange and many more
debacles in the world, there is a need to pay more attention on the quality of corporate
governance. The role and responsibilities of Board of Directors has emerged as an important
issue in examining the causes of collapses. This has created much debate on what actually is the
role of directors in directing and managing their companies. Though Cadbury Committee on
Corporate Governance submitted their report in December 1992 but nothing significant as far as
concepts, regulations and their implementations are concerned has changed despite of
globalization of businesses and increase in public participation in stock markets. This is the right
time to review the role of board of directors and to overhaul the corporate governance in the
country.

 A board of directors is a body of elected or appointed members who jointly oversee the
activities of a company. The Board of directors is the formal link between the shareholders of an
organization and the managers entrusted with day today functioning of the organization (Monks
et al, 1995).A board's activities are determined by the powers, duties, and responsibilities
delegated to it or conferred on it by an authority outside itself. These matters are typically
detailed in the organization's bylaws. Boards of Directors consist of two types of directors -
executive and non-executive. The responsibilities of the executive directors include, setting the
company’s strategic objectives, providing the leadership to put them into effect, supervising the
management of the business and reporting to shareholders on their stewardships. Non-executives
are appointed on a part-time basis and perform various duties including (in some cases) acting as
the company’s chairperson and sitting on various key committees: The Nominations Committee,
the Remuneration Committee, the Audit Committee. The bylaws commonly also specify the
number of members of the board, how they are to be chosen, and when they are to meet. The law
places directors in fiduciary relationship with shareholders. The fundamental responsibility of the
individual corporate director is to represent the interests of the shareholders as a group. This
responsibility obligates directors to act with care in fulfilling their responsibilities, to be loyal to
the corporation, and not to allow personal interests to function to the detriment of the
shareholders they represent. If shareholders ever doubt that a director has properly performed his
duties, they may file a lawsuit. The board's key purpose is to ensure the company's prosperity by
collectively directing the company's affairs, whilst meeting the appropriate interests of its
shareholders and stakeholders. By law, the board of directors has a duty and responsibility for
governing the corporation. The Board owes its loyalty to the corporation itself whose best
interests must be guide for all its decisions. The board has the responsibility of enhancing the
economic efficiency and competitiveness of the corporation as well as orienting its operations
towards growth and survival. The Board must therefore direct the business of the organization
with fairness and due regard to shareholders’ value and stake in the enterprise. It is incumbent
upon the board to ensure that timely, accurate and complete reports on all relevant aspects of the
organization are issued to all stakeholders. In this regard the Board must put in place the system
of reporting with standards of disclosure that are fully consistent with international accounting
practices. In order to be fair to its stakeholders, the corporation must live to its duty of
transparency and open full disclosure. Key Roles of BODs The role of the Board in creating an
environment where a corporation can succeed is the key to future success of the business. The
board should work to ensure that it builds a united, cohesive and coordinated team working
towards the main goal of attaining desired corporate performance. Directors have a duty to look
after the company and its business in a proper manner. There is need for greater control over
corporate entities due to the increasing concern about corporate failures and the need for better
monitoring.
The key roles of BODs in corporate governance are as follows:
a) Establish vision, mission and values
b) Determine the company's vision and mission to guide and set the pace for its current
operations and future development.
c) Determine the values to be promoted throughout the company.
d) Determine and review company goals.
e) Determine company policies
f) Set strategy and structure
g) Review and evaluate present and future opportunities, threats and risks in the external
environment and current and future strengths, weaknesses and risks relating to the
company.
h) Determine strategic options, select those to be pursued, and decide the means to
implement and support them.
i) Determine the business strategies and plans that underpin the corporate strategy.
j) Ensure that the company's organizational structure and capability are appropriate for
implementing the chosen strategies.
k) Delegate to management Delegate authority to management, and monitor and evaluate the
implementation of policies, strategies and business plans.
l) Determine monitoring criteria to be used by the board.
m) Ensure that internal controls are effective.
n) Communicate with senior management.
o) Exercise accountability to shareholders and be responsible to relevant stakeholders
p) Ensure that communications both to and from shareholders and relevant stakeholders are
effective.
q) Understand and take into account the interests of shareholders and relevant stakeholders.
r) Monitor relations with shareholders and relevant stakeholders by gathering and evaluation of
appropriate information.
s) Promote the goodwill and support of shareholders and relevant stakeholders.
t) Other roles Selecting, compensating, monitoring and, when necessary, replacing key executives
and overseeing succession planning.
 u) Aligning key executive and board remuneration with the longer term interests of the company
and its shareholders.
v) Ensuring a formal and transparent board nomination and election process.
w) Monitoring and managing potential conflicts of interest of management, board Members and
shareholders, including misuse of corporate assets and abuse in related party transactions.
Overseeing the process of disclosure and communications.
x) Monitoring the effectiveness of the company’s governance practices and making changes as
needed

ROLE OF AUDITOR IN CORPORATE GOVERNANCE

Corporate governance refers to the way a company directs and controls its institutional systems,
ethics and accounts. It focuses on promoting transparency and fairness within establishments and
organizations by monitoring performance and ensuring accountability. In that regard, external
auditors serve as one of the primary protectors of corporate governance in any organization. In
keeping with the 2002 Sarbanes–Oxley Act, external audits are required of most publicly listed
companies.

Represent Interest of Shareholders

One of the primary roles of external auditors in corporate governance is protecting the interests
of shareholders. This is possible because external audition reports are conducted independent of
the company’s influence. External auditors report the state of a company's finance and attest to
the validity of financial reports that may have been released. They ensure that the board receives
accurate and reliable information. The board may also question the auditors' views and
assessment on the appropriateness of the accounting principles used by a company.

Promote Accountability

External auditors may introduce measures and policies designed to compel accountability in the
workplace. For instance, auditors could recommend penalties for officers who manipulate
financial statements by inflating figures or cooking accounting numbers. Penalties for such acts
could include stripping the manager of his position or his compensation, such as reducing annual
bonuses, and even pensions.

Risk Assessment and Mitigation Planning

External auditors help promote corporate governance by conducting period risk assessment.
Auditors review the security measures that a company has in place against corporate fraud or
corruption. In addition to assessing potential risks, auditors also analyze the overall risk tolerance
of the company as well as the efforts the company has made toward mitigating risks. For
instance, if a company or government agency has an under-performing whistleblower system,
efforts may be made to improve this.

Crisis Management

External auditors can help ensure good corporate governance by developing efficient crisis-
management plans to be used in the event of allegations of fraud or corruption. The plan
typically involves assigning responsibilities to different administrative officials. This way, if the
company becomes involved in a financial crisis, officials have an active plan that they can use in
sustaining confidence among investors. Crisis-management plans may also include control
measures that are to be used with the media and law-enforcement officials.

Maintain Strong Relationship with Regulators

The efforts of an external auditor help foster a good relationship with regulators. Most regulators
are supportive of companies and agencies that appear to have transparent operations. External
auditors evaluate the organization of a company for compliance with regulations. Regulators are
also more likely to trust company disclosures after an auditor attests to them

ROLE OF SEBI IN CORPORATE GOVERNANCE

SEBI sets governance standards in which the securities market must operate, protecting the rights
of issuers and investors. SEBI has power to investigate circumstances where the market or its
players have been harmed and can enforce governance standards with directives. An appeal
process in place ensures accountability and transparency. SEBI may terminate from the securities
list any company that does not comply with its governance standards and regulations.

ROLE OF GOVERNMENT IN CORPORATE GOVERNANCE

the Government through its various departments has to ensure that it restores public confidence
in the economy by taking effective action in the form of reformed regulatory systems, improved
auditing, to ensure economic vitality the Government has to play a central role in providing and
promoting an enabling environment for businesses to thrive.

An important aspect in this area is for the Government to provide relevant infrastructure and
basic services that companies can utilise in carrying out their business. Poor road networks,
erratic water and electricity supplies always negatively affect the establishment and growth of
businesses.

Without adequate basic services and infrastructure corporates are then forced to develop their
own which is usually beyond their budgets. It then compromises on the quality of products or
services that they send to the markets and their profit margins are eroded. Consequently their
investment into proper corporate governance systems is reduced which can eventually affect the
overall business performance. If the Government provides basic services that corporates can
utilise it is indirectly contributing towards good corporate governance of which the benefits are
well known. If the government demonstrates the good values and ethics through the companies it
has controlling stakes in, it is easier for other private players to emulate. It also gives the
Government credibility when it assesses the compliancy level of other corporates and can easily
press companies to provide adequate explanations for non-compliancy because it would be
walking the talk.

The role of government in corporate governance goes beyond the crafting of rules and
regulations to the active involvement of government in evaluating whether these regulations are
encouraging economic growth, promoting the protection of investors, shareholders and the
public at large. The government should be in a position to assess if the voluntary corporate
governance codes are bringing sanity to corporates. If the results predict a positive impact then
the government through its various departments has to make it a priority to encourage corporates
to adopt some principles of the Zim Code over and above other rules and regulations.

The Government should ensure the ease of doing business by assessing the validity of its
regulations in order to reduce red tapes in the formal sector. Excessive regulations have created
room for corruption and underhand deals which makes the cost of operating businesses in the
country very high. It will take effective Government action in the form of prosecutions and jail
sentences to end corruptions at all levels. Government should also consider reducing the time
and cost required to start a business and acquiring the necessary permits so as to reduce
corruption.

A very important role for the government even outside the guidelines of the Zim Code is that of
being a law enforcer. When companies get into disputes or when scandals occur the expectation
is for the government to ensure justice prevails, the guilty are punished and the innocent are
vindicated. This is such an important aspect which can then give substance to corporate
governance. Government responses to scandals should be well considered and effective.
Corporate leaders involved in scandals should be given fair trials and upon gathering enough
incriminating evidence they should be given sufficient jail time as well as paying fines. But when
the Government constantly turns a blind eye on corporate scandals it gives the impression that
anyone can get away with anything and these impressions last long in the public’s mindsets.
Prosecution send a message to the broader public, no wonder Voltaire argued, “In this country, It
is well to kill from time to time an admiral to encourage the others.”The task of Government is to
restore corporate integrity and market confidence, even if it means ‘killing’, without stifling the
dynamism that underlies a strong economy.
 GROWTH OF CORPORATE GOVERNANCE IN INDIA

Corporate governance concept emerged in India after the second half of 1996 due to economic
liberalization and deregulation of industry and business. With the changing times, there was also
need for greater accountability of companies to their shareholders and customers. The report of
Cadbury Committee on the financial aspects of corporate Governance in the U.K. has given rise
to the debate of Corporate Governance in India.

Need for corporate governance arises due to separation of management from the ownership. For
a firm success, it needs to concentrate on both economical and social aspect. It needs to be fair
with producers, shareholders, customers etc. It has various responsibilities towards employees,
customers, communities and at last towards governance and it needs to serve its responsibilities
at the best at all aspects.

The “corporate governance concept” dwells in India from the Arthshastra time instead of CEO at
that time there were kings and subjects. Today, corporate and shareholders replace them but the
principles still remain same, unchanged i.e. good governance.

20th century witnessed the glossy of Indian Economy due to liberalization, globalization, and
privatization. Indian economy for the 1st time here was together with world economy for
product, capital and lab our market and which resulted into world of capitalization, corporate
culture, business ethics which was found important for the existence of corporation in the world
market place.

Corporate governance has existed since past but it was in different form. During Vedic times
kings used to have their ministers and used to have ethics, values, principles and laws to run their
state but today it is in the form corporate governance having same rules, laws, ethics, values, and
morals etc which helps in running corporate bodies in the more effective ways so that they in the
age of globalization become global giants. Several Indian Companies like PepsiCo, Infuses, Tata,
Wipro, TCS, and Reliance are some of the global giants which have their flag of success flying
high in the sky due to good corporate governance.

Toady, even law has a great role to play in successful and growing economy. Government and
judiciary have enacted several laws and regulations like SEBI, FEMA, Cyber laws, Competition
laws etc and have brought several amendments and repeal the laws in order that they don’t act as
barrier for these corporate bodies and developing India. Judiciary has also helped in great way by
solving the corporate disputes in speedy way.

Corporate bodies have their aim, values, motto, ethics and principles etc which guide them to the
ladder of success. Big and small organizations have their magazines annual reports which reflect
their achievements, failure, their profit and loss, their current position in the market. A few
companies have also shown awareness of environment protection, social responsibilities and the
cause of upliftment and social development and they have deeply committed themselves to it.
The big example of such a company can be of Deepak Fertilizers and Petrochemicals
Corporation Limited which also bagged 2nd runner up award for the corporate social
responsibility by business world in 2005.

Under the present scenario, stakeholders are given more importance as to shareholders, they even
get chance to attend, vote at general meetings, make observations and comments on the
performance of the company.

Corporate governance from the futuristic point of view has great role to play. The corporate
bodies in their corporate have much futuristic approach. They have vision for their company, on
which they work for the future success. They take risk and adopt innovative ideas, have futuristic
goals, motto, and future objectives to achieve. With increase in interdepence and free trade
among countries and citizens across the globe, internationally accepted corporate governance
standards are of paramount importance for Indian Companies seeking to distinguish themselves
in global footprint. The companies should always keep improving, enhancing and upgrading
themselves by bringing more reliable integrated product and service quality. They should be
more transparent in their conduct.

RISE AND FALL OF ARTHUR ANDERSON

Arthur Andersen LLP, based in Chicago, is an American holding company. Formerly one of
the "Big Five" accounting firms (along with PricewaterhouseCoopers, Deloitte Touche
Tohmatsu, Ernst & Young, and KPMG), the firm had provided auditing, tax, and consulting
services to large corporations. By 2001 it had become one of the world's largest multinational
companies.

In 2002, the firm voluntarily surrendered its licenses to practice as Certified Public Accountants
in the United States after being found guilty of criminal charges relating to the firm's auditing of
Enron, an energy corporation based in Texas, which filed for bankruptcy in 2001. In 2005, the
Supreme Court of the United States unanimously reversed Arthur Andersen's conviction due to
serious errors in the trial judge's instructions to the jury that convicted the firm.

The former consultancy and outsourcing practice of the firm separated from the firm's
accountancy practice in 1987, split from Andersen Worldwide in 2000, and renamed itself
Accenture. It continues to operate.

Born 30 May 1885 in Plano, Illinois, and orphaned at the age of 16, Arthur E. Andersen began
working as a mail boy by day and attended school at night, eventually being hired as the assistant
to the comptroller of Allis-Chalmers in Chicago. In 1908, after attending courses at night while
working full-time, he graduated from the Kellogg School at Northwestern University with a
bachelor's degree in business.[3] That same year, at age 23, he became the youngest CPA in
Illinois.
The firm of Arthur Andersen was founded in 1913 by Arthur Andersen and Clarence DeLany as
Andersen, DeLany & Co. The firm changed its name to Arthur Andersen & Co. in 1918. Arthur
Andersen's first client was the Joseph Schlitz Brewing Company of Milwaukee. In 1915, due to
his many contacts there, the Milwaukee office was opened as the firm's second office.

Andersen had an unwavering faith in education as the basis upon which the new profession of
accounting should be developed. He created the profession's first centralized training program
and believed in training during normal working hours. He was generous in his commitment to
aiding educational, civic and charitable organizations. In 1927, he was elected to the Board of
Trustees of Northwestern University and served as its president from 1930 to 1932. He was also
chairman of the board of certified public accountant examiners of Illinois.

Reputation

Andersen, who headed the firm until his death in 1947, was a zealous supporter of high standards
in the accounting industry. A stickler for honesty, he argued that accountants' responsibility was
to investors, not their clients' management. During the early years, it is reputed that Andersen
was approached by an executive from a local rail utility to sign off on accounts containing
flawed accounting, or else face the loss of a major client. Andersen refused in no uncertain
terms, replying that there was "not enough money in the city of Chicago" to make him do it. For
many years, Andersen's motto was "Think straight, talk straight."

Arthur Andersen also led the way in a number of areas of accounting standards. Being among the
first to identify a possible sub-prime bust, Arthur Andersen dissociated itself from a number of
clients in the 1970s. Later, with the emergence of stock options as a form of compensation,
Arthur Andersen was the first of the major accountancy firms to propose to the FASB that stock
options should be included on expense reports, thus impacting on net profit just as cash
compensation would.

By the 1980s, standards throughout the industry fell as accountancy firms struggled to balance
their commitment to audit independence against the desire to grow their burgeoning consultancy
practices. Having established a reputation for IT consultancy in the 1980s, Arthur Andersen was
no exception. The firm rapidly expanded its consultancy practice to the point where the bulk of
its revenues were derived from such engagements, while audit partners were continually
encouraged to seek out opportunities for consulting fees from existing audit clients. By the late-
1990s, Arthur Andersen had succeeded in tripling the per-share revenues of its partners.

Predictably, Arthur Andersen struggled to balance the need to maintain its faithfulness to
accounting standards with its clients' desire to maximize profits, particularly in the era of
quarterly earnings reports. Arthur Andersen has been alleged to have been involved in the
fraudulent accounting and auditing of Sunbeam Products, Waste Management, Inc, Asia Pulp &
Paper, the Baptist Foundation of Arizona, WorldCom, as well as the infamous Enron case,
among others.

Two of the last three Comptrollers General of the US General Accounting Office (now the
Government Accountability Office) were top executives of Arthur Andersen.
Andersen Consulting and Accenture

The consulting wing of the firm became increasingly important during the 1970s and 1980s,
growing at a much faster rate than the more established accounting, auditing, and tax practice.
This disproportionate growth, and the consulting division partners' belief that they were not
garnering their fair share of firm profits, created increasing friction between the two divisions.

In 1989, Arthur Andersen and Andersen Consulting became separate units of Andersen
Worldwide Société Coopérative. Arthur Andersen increased its use of accounting services as a
springboard to sign up clients for Andersen Consulting's more lucrative business.

The two businesses spent most of the 1990s in a bitter dispute. Andersen Consulting saw a huge
surge in profits during the decade. The consultants, however, continued to resent transfer
payments they were required to make to Arthur Andersen. In August 2000, at the conclusion of
International Chamber of Commerce arbitration of the dispute, the arbitrators granted Andersen
Consulting its independence from Arthur Andersen, but awarded US$1.2 billion in past
payments (held in escrow pending the ruling) to Arthur Andersen, and declared that Andersen
Consulting could no longer use the Andersen name. As a result, Andersen Consulting changed its
name to Accenture on New Year's Day 2001 and Arthur Andersen meanwhile now having the
right to the Andersen Consulting name rebranded itself as "Andersen".

Four hours after the arbitrator made his ruling, Arthur Andersen CEO Jim Wadia suddenly
resigned. Industry analysts and business school professors alike viewed the event as a complete
victory for Andersen Consulting. Jim Wadia would provide insight on his resignation years later
at a Harvard Business school case activity about the split. It turned out that the Arthur Andersen
board passed a resolution saying he had to resign if he didn't get at least an incremental US$4
billion (either through negotiation or via the arbitrator decision) for the consulting practice to
split off, hence his quick resignation once the decision was announced.

Accounts vary on why the split occurred — executives on both sides of the split cite greed and
arrogance on the part of the other side. The executives on the Andersen Consulting side
maintained breach of contract when Arthur Andersen created a second consulting group, AABC
(Arthur Andersen Business Consulting) which competed directly with Andersen Consulting in
the marketplace. AABC grew quickly, most notably its healthcare and technology practices.
Many of the AABC firms were bought out by other consulting companies in 2002, most notably,
Deloitte (especially in Europe), Hitachi Consulting, PwC Consulting, which was later acquired
by IBM, and KPMG Consulting, which later changed its name to BearingPoint.

Enron scandal

Main article: Enron scandal

Following the 2001 scandal in which energy giant Enron was found to have reported $100bn in
revenue through institutional and systematic accounting fraud, Andersen's performance and
alleged complicity as an auditor came under intense scrutiny. The Powers Committee (appointed
by Enron's board to look into the firm's accounting in October 2001) came to the following
assessment: "The evidence available to us suggests that Andersen did not fulfill its professional
responsibilities in connection with its audits of Enron's financial statements, or its obligation to
bring to the attention of Enron's Board (or the Audit and Compliance Committee) concerns about
Enron's internal contracts over the related-party transactions".[12]

On June 15, 2002, Andersen was convicted of obstruction of justice for shredding documents
related to its audit of Enron, resulting in the Enron scandal. Although the Supreme Court
reversed the firm's conviction, the impact of the scandal combined with the findings of criminal
complicity ultimately destroyed the firm. Nancy Temple (in the firm's legal department) and
David Duncan (lead partner for the Enron account) were cited as the responsible managers in this
scandal because they ordered subordinates to shred relevant documents.

Because the U.S. Securities and Exchange Commission will not accept audits from convicted
felons, the firm agreed to surrender its CPA licenses and its right to practice before the SEC on
August 31, 2002—effectively putting the firm out of business. It had already started winding
down its American operations after the indictment, and many of its accountants joined other
firms. The firm sold most of its American operations to KPMG, Deloitte & Touche, Ernst &
Young and Grant Thornton LLP. The damage to Andersen's reputation also destroyed the firm's
international practices. Most of them were taken over by the local firms of the other major
international accounting firms.

The indictment also put a spotlight on the firm's faulty audits of other companies, most notably
Waste Management, Sunbeam, the Baptist Foundation of Arizona and WorldCom. The
subsequent bankruptcy of WorldCom, which quickly surpassed Enron as the biggest bankruptcy
in history (and has since been passed by the bankruptcies of Lehman Brothers and WaMu in the
2008 financial crisis) led to a domino effect of accounting and corporate scandals.

On May 31, 2005, in Arthur Andersen LLP v. United States, the Supreme Court of the United
States unanimously reversed Andersen's conviction because of serious errors in the trial judge's
jury instructions.[2] The Supreme Court held that the instructions were too vague to allow a jury
to find that obstruction of justice had occurred. The court found that the instructions were
worded in such a way that Andersen could have been convicted without any proof that the firm
knew it had broken the law or that there had been a link to any official proceeding that prohibited
the destruction of documents. The opinion, written by Chief Justice William Rehnquist, also
expressed skepticism of the government's concept of "corrupt persuasion"—persuading someone
to engage in an act with an improper purpose without knowing that the act is unlawful.

Demise

Since the ruling vacated Andersen's felony conviction, it theoretically left Andersen free to
resume operations. The damage to the Andersen name was so severe, however, that it has not
returned as a viable business even on a limited scale. There are over 100 civil suits pending
against the firm related to its audits of Enron and other companies. Even before voluntarily
surrendering its right to practice before the SEC, it had many of its state licences revoked. A new
verb, "Enron-ed", was coined by John M. Cunningham, the former Arthur Andersen Director in
the Seattle Office, to describe the demise of Arthur Andersen.
From a high of 28,000 employees in the US and 85,000 worldwide, the firm is now down to
around 200, based primarily in Chicago. Most of their attention is on handling the lawsuits and
presiding over the orderly dissolution of the company.

As of 2011, Arthur Andersen LLP has not been formally dissolved nor has it declared
bankruptcy. Ownership of the partnership has been ceded to four limited liability corporations
named Omega Management I through IV. Arthur Andersen LLP operated the Q Center
conference center in St. Charles, Illinois until it was sold to Dolce Hotels and Resorts in 2014.
The Q center is currently used for training, primarily for internal Accenture personnel, and other
large-scale companies.

Migration of partners and local offices to new firms

Many partners formed new companies or were acquired by other consulting firms. Examples
include:

 Accuracy which was founded in 2004 by a team of seven former partners and is
headquartered in Paris.
 Andersen Tax LLC which acquired the rights and changed their name from WTAS in
2014.[15]
 BearingPoint, formerly the US consulting unit spun off by KPMG, which purchased
Andersen business consulting practices in France and Spain
 Huron Consulting Group
 West Monroe Partners which was founded in 2002 by four former consultants, and is
based in Chicago.
 KPMG which absorbed the Computer Forensics division based in Cypress, CA and the
Boise, Kansas City, Philadelphia, Portland, Salt Lake City and Seattle offices, among
others
 Navigant Consulting which absorbed eleven partners in Chicago and Washington D.C.
 Management Solutions
 Perot Systems which absorbed six partners in the East
 Protiviti hired approximately 800 former workers
 SMART Business Advisory and Consulting which absorbed some of the Philadelphia
office
 jcba Limited which was founded by a partner from the aviation practice
 Grant Thornton International which absorbed the North Carolina, South Carolina, and
Tulsa offices.
 True Partners Consulting
 Portions of Andersen Audit practice merged with Deloitte and Ernst & Young.