MBA Corporate Governance And Responsibility Essay

Why did it take 10 years to bring Harshad Mehta to justice? What weaknesses in the financial markets allowed such(prenominal)(prenominal) abuse to succeed?Harshad Mehtas scam was one which involved huge magnitudes, which is wherefore it probably came into light in the first place.1 Scams of smaller magnitude ar happening almost day-after-day at the Bombay Stock Exchange but non coming to light. There be some(prenominal) reasons for this. several(prenominal) of the major reasons are briefly discussed below.The Indian businesses have traditionally being family owned. Owing to concentration of specie in a few hands, most people have concentrated on survival and trade protection due to which the risking loving entrepreneurial skill has non developed much. Being family owned businesses, a mete out of insider and sensitive information is of ten dollar bill available to the owners and their relatives even though the family is technically a crock up legal entity. Given this insi der information and the relatively weak legal machinery, it is easy for the insiders to manipulate prices of stocks by mountainous buying or selling.The reason outlined above also gives rise to the herd mentality i.e. if mountain activity is seen on a stock on a particular day in a particular reaction people seem to trust it quickly believing that some one with insider and dependable(p) information is acting upon it. This is what helped Harshad Mehta in pulling off the scam. Further, in that respect are hardly any checks and balances on the end use of loans given by banks and other financial institutions. They seem to be satisfied by the reputation of the borrower and once they are convinced that he can return the money, the end use of the equal whether for speculation or any other activity is hardly looked into.It took as yen as ten years to bring Harshad Mehta to justice due to the combination of many systemic failures and procedural lacuna. Firstly, it is difficult to sig nal flag point in such a huge market as to where the first default or breach of law took place. Further, there are many procedural approvals that must(prenominal) be taken forrader the regulator can take any concrete action. The countrys civil procedure cognitive process is quite slow too, with many appeals available before an offender is finally convicted. Therefore, even high write cases such as these often take several years before finally being given over off.How can ethics in the boardroom be monitored and controlled?Ethics, in the first place, is a rather tangled and complex field. There is no straightjacket formula as different situations would demand different measures. In the boardroom, where money is at stake, and e realone has their own business to mind, it is probably even more difficult. This has been a subject of sizable debate, and there are certain measures which companies should generally apply, with specific variations in accordance with the particular situ ation at hand. Some of these general principles are briefly discussed below.2 Firstly, there has to be strict avoidance of concentration of important powers and functions in a few hands. As can be seen from the Maxwell Affair of 1991, too many responsibilities in different areas of centering are likely to be fatal to the fellowship. Further, the delegation of power must 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 utilize a horizontal structure. Strong ethical base and principles must come in from the top and drool down to the bottom. It is important that these principles are insisted upon, no matter how gloomy a situation a company is in. They should be introduced as non-negotiable to each new employee who joins, so that when he climbs the ranks in the corporate ladder , he is as insistent about such principles. Gradually, a strong ethical culture is built.Is there a discernible difference between Enrons artifice and Madoffs appeal to elite investors?There is quite a discernible difference between Enrons fraud and Madoffs appeal to elite investors. Enrons fraud was a clear case of lack of watchful auditing and poor accounting practices. The profits were terribly magnify and the accounts were shown to pose a rosy picture of the state of affairs of the company. The true state of affairs was not revealed to the shareholders and other stakeholders in the company. The auditors were cleverly deceived, and they too didnt do any follow up action.3 Madoffs case is a much more complex one than Enron. Madoffs 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 Enrons case, which can be foreseen, Madoffs case was completely unique and innovative. Enrons case has been forese en by the law makers, due to which many laws are in place to keep in check of the same.Firstly, there are accounting standards and conventions which must be adhered to by all companies. Second, all companies are statutorily required to get 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 said in a landmark decision, that an auditor is a guard dog and not a bloodhound, it can be said that the auditors failed to do an upto-the mark job in Enron and indeed the scandal.4 However, in complete contrast, Madoffs case is so unexpected that there are no laws which efficaciously deal with such a situation. He used his reputation of being an expert at the hem in Street and a continued promise to offer secured and steady returns to swindle many high profits worth individuals of millions of dollars. Such an exercise of personal confidence is difficult for the law to stop. Now, in retrospect, of course the re are laws which mandate certain disclosures in case of any broker or person transaction on another(prenominal)s behalf in the stock market. Further, there are investor awareness and know-your-rights campaigns by the regulator. Thus, another importance difference between the two scandals which essentially flows from the main difference is the solutions that they demand are very different from each other.What steps would you take as an independent director on the board of a company where you had reason to believe that fraudulent or wrong activities were being carried out by the high-profile company leader?First of all, being an independent 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 affirmable 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 serial publication of measures I would attempt to take.First ly, it would be important to get the whole Board of Directors, or as cold as it may 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 host 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 leaked.Therefore, 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 damage control be the top most priority. Again, every possible option should be explored including plea bargaining and settlement through mediation or negotiation.5The suspected offender should also be taken into confide nce that full disclosure would be in his trump out 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.Finally, once the issue has been resolved, there should be a fall back to see wherefore 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 kept in mind.REFERENCESAnonymous, Harshad Mehta A Scandal to Remember f. www.casestudy.co.in (Last Visited 25 July, 2010).Anonymous, anchor Biscayne Connection in Madoff Scandal, Key Biscayne Times, 23 July, 2010.Cathy Thomas, Behind the Enron Scandal, TIME Magazine, June 2002.Kevin MacDonald, Is the Madoff Scandal Prob lematic?, Occidental Quarterly Online, July 2010.Stephanie Maier, How global is approximate corporate government?, EIRIS Report, Aug 2005.1 Anonymous, Harshad Mehta A Scandal to Remember c.f. www.casestudy.co.in (Last Visited 25 July, 2010).2 Stephanie Maier, How global is good corporate governance?, EIRIS Report, Aug 2005.3 Cathy Thomas, Behind the Enron Scandal, TIME Magazine, June 2002.4 Kevin MacDonald, Is the Madoff Scandal Problematic?, Occidental Quarterly Online, July 2010.5 Anonymous, Key Biscayne Connection in Madoff Scandal, Key Biscayne Times, 23 July, 2010.