How to make Changes when triggared by external crisis

Market crisis may  wake up regulatory bodies, and they start tightening the screws till next big scam breaks.

Here we look at major reforms in some of the fast growing economies  of the world

Reforms in USA:

 July 2010  saw President Barack Obama signing  Dodd-Frank Wall Street Reform and Consumer 

Protection Act.. The aim  was to control the Wall Street's misdeeds. That was a 2300-page 

document which provided for severe actions against all possible financial frauds and everyone 

expected it to prevent frauds like AIG, Lehman. Democratic party believed that the law dealt with 


much awaited reforms to stop the large scale financial corruption that had caused the global 

economic crash in 2008.  

In the words of president,the reforms represented the strongest consumer financial protections in 

history of USA. This act is yet to result in action to realize what was intended. The opinions are 

divided on the outcome between too much and choking too good to be true. six years   down the 

lane the initiative  was almost dead and remained as testimony   that anyone trying to control and 

rewrite wall street rules will face sure death.
It is worth while to look at other nations who tried similar reforms

Brazil:

This south American Country  is part of the six nations group- BRICS Which consists of emerging

economic power and it was host to the 6th BRICS summit. In 2016 Brazilian economy is facing its

worst recession in three decades following a drop in prices for oil, iron ore and soya. In 2015, the 

economy shrank by 3.8%, its worst drop since 1981 and Inflation reached 10.7%. Unemployment 

increased to 9% in 2015 and predicted to go into double figures. Brazil’s currency lost a third of its 

value against the dollar in 2015. 

Ms. Rousseff's who faced  ouster and the  impeachment moves had added fuel to the fire.The  2016

Olympics was feather in the cap but  it did very little to lift the economy up. 

Brazil is hence being described  as modern day tragedy with its slow decline from its high point. 

The rise and fall of this country is pretty similar to that of its once famous football glory and many

of the world class football heroes which Brazil produced. Garincha rose from the depths of extreme

poverty to become one of the greatest Brazilian football players in Brazil’s history.

Rising from nothing, Garincha started playing professionally at the age of 19. He lived in the worst

conditions as well as the best. Brazil's  economy is now much like its football heroes.

Lava Jatz in Portuguese language means car wash, and is also the nickname for one of Brazil's 

largest Corruption scam , as investigations which opened up a web of corruption in Brazil's 

Petrobras, as well as a host of financial and political problems. It was unearthed in 2014, but 

estimated to have been creeping in over past 10 years.

The scandal consisted of corporate sector bribing senior Petrobras officials and other public offices 

to get inflated contracts with the state oil company. The case came to light  when inquiry was 

started to trace the movement of billions of Brazilian real abroad. Petrobras, incurred  loss of $34.8 

billion, in 2015 the largest in the company’s history. The reasons attributed were  the decline in oil 

prices around the world, the depreciation of the Brazilian currency . 

Petrobras scandal had to trigger the changes in  corporate governance rules which in turn  changes to


the ways business is managed.  Brazil is to have new laws for conduct of state-owned enterprises 

(SOE) which  include mandating more independent directors, a ban on ministers being directors, 

and requirement of audit committees. A new national governance code developed by eleven  capital 

markets organizations and is based on the Brazilian Institute of Corporate Governance (IBGC) code 

incorporating a comply-or-explain approach for listed companies .

European Union:

Europe is emerging out of the its biggest recession in eighty  years’ time, and EU is taking measures to deal with massive financial restructuring and new initiatives involving the banking union, capital markets union and the deepening of economic and monetary union that should fundamentally change the economic and business environment. Each of these measures is expected to make Europe’s financial and business dealings robust, efficient and competitive.

Volkswagen is not only the biggest German car maker but is also global brand  .It  provided 270000 jobs directly and  many more indirectly.  The Hollywood comedy movies had Herbie as the main character starring Beetle of Volkswagen. Volkswagen  sold over  600,000 cars in the United States which was  6 percent of its  global sales. 

All that hard earned fair name and reputation got ruined and the company was facing$18 billion in penalties from US Environmental Protection Agency and had to pay the price for the scandal over rigged emissions tests. Even the strong German economy got shaken up by the scam. What could be the driver for this company and its leadership to willingly breach integrity and ethical business practices and commit this fraud on governments and its customers?

Volkswagen remained as one of the top ranking brand in the world but had blackened its fair name by forcing itself into admitting that 11 million of its vehicles were equipped with cheat software that was used to rig emissions tests. This was not like other scandals where one person's greed destroyed many other interest groups. The outcome of the scandal was that it again brought ethical and governance questions to the surface. 

It proves the hypothesis that dishonesty and greed is not confined to one culture or few nations. In February 2016 the European Commission, the executive arm of the EU's 28 member states, announced the new emission limits adopting more realistic pollution monitoring based on real road conditions instead of laboratory tests.The proposals contained major flaws which were negotiated by car-makers in camera angering environmentalists and they are expected to react with a major action to block the new limits at the European Parliament.

India:

In India Dalal street is a single lane narrow street unlike 11 Wall Street where NYSC is and that is the location for the Indian stock exchange which was established in 1875 and is as much power centric as Wall street. It is the first and fastest exchange in Asia with median trade speed of 6 microseconds. It is world’s 11^th largest stock exchange and can boast of having over 5500 companies listed. It also has been hunting ground for greedy brokers who have repeatedly took undue advantage of the loopholes in the rules and the system.

Nearly 24 years ago the BSE investment community was taken for a ride by one rogue individual broker nick named as big-bull and subsequently in 2001 another huge scam by leading broker dealt a body blow and drowned the nation’s investors and Stock market in a total mess. Since then the market regulators and the law makers have been trying regulate and bring in reforms.

The lack of political will has so far let down the innocent common citizen by denying the strong governance and properly well-defined transparent reporting arrangements that are needed to establish and drive and monitor stock exchange operations without chaos. India’s major reforms are in the area of liberalizing foreign direct investment and the economic growth of 7 % is being fueled by reforms in company law, employment laws.

Japan:

Japan is not insulated from corporate scandals and even the 140-year-old Toshiba was tempted to inflate profits to the tune of billions. Olympus corporation the biggest camera maker had hired a  British CEO and he was hired soon for questioning suspicious accounting. In Japanese culture one never questions seniors. 

This along with loose governance standards helped corporate crisis during low economic growth, and has led to the development of new corporate governance and stewardship codes and an amended Company Law that took effect in June 2015. Impact of the governance changes are expected to be seen starting in 2016. The focus is on gender diversity,by the appointment of independent women directors. The government has set a gender diversity target of 30% by 2020 for all layers of management. Japan is very strong in adhering to status quo and change comes slowly. Hence, any attempt to change set things will face resistance