1. A Brief History ofA Brief History of
Corporate GovernanceCorporate Governance
Dr Safdar A ButtDr Safdar A Butt

2. CG as field of studyCG as field of study
 CG has existed for as long as companies haveCG has existed for as long as companies have
existed.existed.
 But as a field of study it is less than 70 years old.But as a field of study it is less than 70 years old.
 Last 40 years:Last 40 years:
 A lot of activity in this field.A lot of activity in this field.
 Codes, reports and laws have come out.Codes, reports and laws have come out.
 Number of research papers and theories haveNumber of research papers and theories have
evolved.evolved.

3. Corporate Wrongs -1Corporate Wrongs -1
 Loss of ethicsLoss of ethics
 Earnings became every thing.Earnings became every thing.
 Ineffective boards, smart executives.Ineffective boards, smart executives.
 Huge remunerations for executive directors.Huge remunerations for executive directors.
 Greed leading to disparity among seniorGreed leading to disparity among senior
managers and other employees.managers and other employees.

4. Corporate Wrongs - 2Corporate Wrongs - 2
 Short term goals and considerations.Short term goals and considerations.
 Collusion between directors and auditors.Collusion between directors and auditors.
 Pressure from institutional investorsPressure from institutional investors
 Loss of interest by small investors in bigLoss of interest by small investors in big
companies.companies.
 In Pakistan, family control of companies.In Pakistan, family control of companies.

5. Some Scandals in USA -1Some Scandals in USA -1
 WorldComWorldCom
 Overstatement of profits by $3.8 billionOverstatement of profits by $3.8 billion
 Adelphia CommunicationsAdelphia Communications
 Illegal loan to founderIllegal loan to founder
 EnronEnron
 Gross misuse of power by directorsGross misuse of power by directors
 Waste Management Inc.Waste Management Inc.
 Overstatement of earnings by $17 billion over 6 yrsOverstatement of earnings by $17 billion over 6 yrs

6. Some Scandals in USA - 2Some Scandals in USA - 2
 TycoTyco
 Evasion of sales tax on personal purchases.Evasion of sales tax on personal purchases.
 Peregrine SystemsPeregrine Systems
 Overstatement of earnings by $100 million.Overstatement of earnings by $100 million.
 Imclone SystemsImclone Systems
 Insider trading by CEOInsider trading by CEO
 Rite AidRite Aid
 Accounting and securities fraud.Accounting and securities fraud.

7. Some Scandals in UKSome Scandals in UK
 BCCIBCCI
 Improper accounting and policiesImproper accounting and policies
 Barings BankBarings Bank
 Ineffective internal controls, $1.4 billion lossIneffective internal controls, $1.4 billion loss
 Mirror GroupMirror Group
 Gross misappropriation of funds including pensionsGross misappropriation of funds including pensions
 Polly PeckPolly Peck
 Diversion of funds to personal use.Diversion of funds to personal use.

8. Some Scandals in PakistanSome Scandals in Pakistan
 Crescent BankCrescent Bank
 Islamic Investment BankIslamic Investment Bank
 Bankers EquityBankers Equity
 Pakistan Steel MillsPakistan Steel Mills
 Indus BankIndus Bank

9. Evolution of CGEvolution of CG
 Cadbury Report 1992, UKCadbury Report 1992, UK
 Greenbury Report 1995, UKGreenbury Report 1995, UK
 Hampel Report 1998, UKHampel Report 1998, UK
 Combined Code 1998, UKCombined Code 1998, UK
 Turnbull Report 1999, UKTurnbull Report 1999, UK
 OECD Principles of CG, 1999OECD Principles of CG, 1999

10. Organization for economic andOrganization for economic and
cooperation and developmentcooperation and development
(OECD) Principles(OECD) Principles
 Rights of shareholders must be protected.Rights of shareholders must be protected.
 All shareholders to be treated equitably.All shareholders to be treated equitably.
 All stakeholders to be allowed to play due role.All stakeholders to be allowed to play due role.
 Timely and accurate disclosures.Timely and accurate disclosures.
 Accountability and responsibility of directors.Accountability and responsibility of directors.

11. More ReportsMore Reports
 Basle Committee Guidelines 1999 (banks)Basle Committee Guidelines 1999 (banks)
 Myners Report 2001, UKMyners Report 2001, UK
 Cromme Report 2002, GermanyCromme Report 2002, Germany
 Higgs Review 2003, UK (INEDs)Higgs Review 2003, UK (INEDs)
 Smith Report 2003, UK (Audit committees)Smith Report 2003, UK (Audit committees)
 Revised Combined Code, 2003, UKRevised Combined Code, 2003, UK
 Kings Reports 1994, 2000, 2009, South AfricaKings Reports 1994, 2000, 2009, South Africa
 Sarbanes Oxley Act 2002, USASarbanes Oxley Act 2002, USA

12. CG Related International BodiesCG Related International Bodies
 World Bank and IMFWorld Bank and IMF
 Global CG ForumGlobal CG Forum
 International CG NetworkInternational CG Network
 Commission on public trust and privateCommission on public trust and private
enterprise.enterprise.

13. The Two PerspectivesThe Two Perspectives
 CG problem in WestCG problem in West
 CG problem in PakistanCG problem in Pakistan

14. Thank you.Thank you.
S A ButtS A Butt