1 GLOBAL CORPORATE GOVERNANCE

2

3 GOVERNANCE SCANDALS 2001: Enron Corp. (Fastow – CFO, Lay – Chairman and CEO, and Skilling – CEO) creation of off-the-books partnerships, aggressive accounting to conceal huge debt and increase profits, enabling executives to reap benefits investor loss estimated to total $64.2 Billion equity de-listed January : Arthur Anderson LLP (SEC alleges entire firm) auditor for Enron didn’t realize shredding documents in an investigation was illegal Fall 2002 all state licenses revoked from company mainly broken up and sold to competitors (26,000 employees)

4 2003: Tyco Int’l Ltd. (Kozlowski – CEO and Swartz – CFO) took $600 Million from company ($430 Million in fraudulent stock sales) $2 Billion in erroneous accounting (restate results back to 1998) $2 Million birthday party for wife of Kozlowski; $38,000 backgammon table; $17,000 traveling toiletry box; $15,000 umbrella stand; $6,300 sewing basket; $6,000 shower curtain; $3,000 bed sheets loan forgiveness for around fifty employees 2003: Parmalat Spa (Tanzi family, BOA, and Deliotte & Touche) announcement of debt roughly $15 Billion (8 times the reported amount) exaggerated revenues and profits declared insolvent late 2003 largest bankruptcy in Europe GOVERNANCE SCANDALS

5 2007: Duke’s Fuqua School of Business exam cheating scandal, working in groups for individual projects 34 students punished, 15 suspended $50,000 loss in tuition and a laptop per student 56% admit cheating during exams 2009: Satyam (chairman Ramalinga Raju) earnings restatement World Bank had banned Satyam from doing business with it for 8 years due to inappropriate payments to the World Bank's staff taken over by Mahindra Group GOVERNANCE SCANDALS

6 WHAT IS CORPORATE GOVERNANCE? Set of structures that provide boundaries for the firm’s operations participants in corporate activities managers, directors, workers, suppliers of capital returns to participants constraints under which participants operate Emphasis on ensuring that suppliers of capital get a return on their investment

7 COMPLEXITY REGULATORS BANKS MINORITY CREDITORS MINORITY CREDITORS EXECUTIVES MINORITY SHAREHOLDERS MINORITY SHAREHOLDERS CONTROLLING SHAREHOLDERS CONTROLLING SHAREHOLDERS Bonding Board of Directors Law Ownership Concentration Executive Compensation Monitoring EMPLOYEES Stock Market Debt Market

8 COMPLEXITY REGULATORS BANKS MINORITY CREDITORS MINORITY CREDITORS EXECUTIVES MINORITY SHAREHOLDERS MINORITY SHAREHOLDERS CONTROLLING SHAREHOLDERS CONTROLLING SHAREHOLDERS Bonding Board of Directors Law Ownership Concentration Executive Compensation Monitoring POLITICIANS EMPLOYEES Stock Market Debt Market

9 WHY DO WE CARE? Good Investor Protection Good Investor Protection Lower Cost of Capital Lower Cost of Capital More informed & developed capital markets More informed & developed capital markets Better Capital Allocations Better Capital Allocations Faster Economic Growth Faster Economic Growth

10