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121.
Kodak decided that traditional film and prints would continue to dominate through the 1980s and that photo finishers, film retailers, and, of course, Kodak itself could expect to continue to occupy their longheld positions until l990. Kodak was right and wrong. The quality of digital cameras greatly improved. Prices plunged because the cameras generally followed Moore's Law, the famous prediction by Intel co-founder Gordon Moore in the l960s that the cost of a unit of computing power would fall by 50 percent every eighteen to twenty-four months. Cameras began to be equipped with what the industry called removable media - those little cards that hold the pictures - so pictures were easier to print or to move to other devices, such as computers. Printers improved. Their costs dropped, too. The Internet caught the popular imagination, and people began emailing each other pictures rather than print them. Kodak did little to ready itself for the onslaught of digital technology because it consistently tried to hold on to the profits from its old technology and underestimated the speed with which the new would take hold. Kodak decided it could use digital technology to enhance film, rather than replace it. Instead of preparing for the digital world, Kodak headed off in a direction that cost it dearly. ln 1988, Kodak bought Sterling Drug for $5.1 billion. Kodak had decided it was really a chemicals business, not a photography company. So, Kodak reasoned, it should move into adjacent chemical markets, such as drugs. Well, chemically treated photo paper really isn’t that similar to hormonal agents and cardiovascular drugs. The customers are different. The delivery channels are different. Kodak lost its shirt. lt sold Sterling in pieces in 1994 for about half the original purchase price. George M. C. Fisher was the new CEO of Kodak in 1993. Fisher’s solution was to hold on to the film business as long as possible, while adding a technological veneer to it. For instance, he introduced the Advantix Preview camera, a hybrid of digital and film technology. Users took pictures the way they always had, and the images were captured on film. Kodak spent more than $500 million developing Advantix, which flopped.
Fisher also tried to move Kodak’s traditional retail photo-processing systems into digital world and in this regard installed tens of thousands of image magic kiosks. These kiosks came just as numerous companies introduced inexpensive, high-quality photo printers that people could use at home, which, in fact, is where customers preferred to view their images and fiddle with them. Fisher also tried to insert Kodak as an intermediary in the process of sharing images electronically. He formed partnerships that let customers receive electronic versions of their photos by e-mail and gave them access to kiosks that let them manipulate and reproduce old photographs. You don't need Kodak to upload photos to your computer and e-mail them. Fisher also formed a partnership with AOL called "You've Got Pictures." Customers would have their film developed and posted online, where friends and family could view them. Customers would pay AOL $7 for this privilege, on top of the $9 paid for photo processing. However sites like Snapfish were allowing pictures to be posted online free. Fisher promised early on, that Kodak's digital-photography business would be profitable by 1997. lt wasn't. ln 1997 Philippe Kahn lead the advent of cell phone camera. With the cell phone camera market growth Kodak didn't just lose out on more prints. The whole industry lost out on sales of digital cameras, because they became just a feature that was given away free on cell phones. Soon cameras became a free feature on many personal computers, too. What had been so profitable for Kodak for so long- capturing images and displaying them- was going to become essentially free.
In 1999 Fisher resigned and Carp became the new CEO. In 2000, Carp‘s first year as CEO, profit was about flat, at $l.4l billion. Carp, too, retired early, at age fifty-seven. Carp had pursued Fisher's basic strategy of "enhancing" the film business to make it last as long as possible, while trying to figure out some way to get recurring revenue from the filmless, digital world. But the temporizing didn't work any better for Carp than it had for Fisher. Kodak talked, for instance, about getting customers to digitize and upload to the Internet more of the 300 million rolls of film that Kodak processed annually, as of 2000. Instead, customers increasingly skipped the film part. ln 2002, sales of digital cameras in the United States passed those of traditional cameras-even though Kodak in the mid-I990s had projected that it would take twenty years for digital technology to eclipse film. The move to digital in the 2000s happened so fast that, in 2004, Kodak introduced a film camera that won a "camera of the year" award, yet was discontinued by the time Kodak collected the award. Kodak staked out a position as one of the major sellers of digital cameras, but being "one of" is a lot different from owning 70 percent to 80 percent of a market, as Kodak had with film, chemicals, and processing. In 2002 competition in the digital market was so intense that Kodak lost 75 percent of its stockmarket value over the past decade, falling to a level about half of what it was when the reporter suggested to Carp that he might sell the company. As of 2005, Kodak employed less than a third of the number who worked for it twenty years earlier. To see what might have been, look at Kodak’s principal competitors in the film and paper markets. Agfa temporized on digital technology, then sold its film and paper business to private-equity investors in 2004. The business went into bankruptcy proceedings the following year, but that wasn't Agfa's problem. lt had cashed out at a halfway reasonable price.
[1] As per the passage which of the following statements truly reflects the real theme of' the passage?
(1) Moore’s law predicted that cost per unit of computing power would exhibit a standard deviation of 25% per annum.
(2) Popularity of removable media and internet lead to high demand for computers.
(3) Kodak managers were able to predict the flow of digital technology and their critical value drivers.
(4) Kodak did not have a vision to plough back the profits from old technology to research and development in new technology.
[2] Which of the following statements is not true?
I. Kodak bought sterling drug as a strategic choice for a chemical business as it was
already in the business of chemically treated photo paper.
II. The chemical business was in sync with the existing business of Kodak running across the customer segment, delivery channels and the regulatory environment.
III. Kodak committed a mistake by selling sterling in pieces at a loss of 50%.
IV. Kodak’s diversification attempt with purchase of sterling to strengthen its core business and shift to digital world was a shift from its strategic focus.
(1) Only I and II
(2) Only II and III
(3) Only III and IV
(4) Only I, II, III[3] Kodak lost a big piece of its market share to its competitors because of the following best explained reason.
I. When Carp became the CEO the digital Technology eclipsed film technology business and further Carp had been with the company for twenty nine years and had no background in technology.
II. Carp in 2004 introduced a film camera that won camera of the year award, yet it was discontinued by the time Kodak collected the award.
III. Kodak moved from traditional retail photo processing systems into digital world installing several thousands of image magic kiosks that failed to deliver real benefits to the customers.
IV. Phillipe Kahn led the advent of cell phone camera and Kodak lost out on the print business and ability to share images became a free feature with no additional charge.
(1) I and II
(2) II and III
(3) I and IV
(4) III and IV
[4] Arrange the given statements in the correct sequence as they appear in the passage.
I. Kodak lost to its competitors a big pie of its market share.
II. Kodak ventured into chemical business to strengthen its digital technology business.
III. Kodak downsized its workforce drastically.
IV. Kodak tied up with business firms for photo processing.
(1) I, II, III, IV
(2) III, IV, II, I
(3) II, IV, I, III
(4) I, III, II, IV[5] Match the following :: 1 Intel a Preview cameras that helped users to immediately see the pictures taken 2 Fisher b Photo processing, developing and posting online photos 3 AOL c Lead to insolvency of digital technology business 4 Agfa d Price of technology product reduces to half every year or two
(1) 1-d, 2-a, 3-b, 4-c
(2) 1-a, 2-d, 3-c, 4-b
(3) 1-c, 2-b, 3-a, 4-d
(4) 1-d, 2-c, 3-a, 4-b
asked in IIFT
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122.
"All raw sugar comes to us this way. You see, it is about the color of maple or brown sugar, but it is not nearly so pure, for it has a great deal of dirt mixed with it when we first get it."
"Where does it come from?" inquired Bob.
"Largely from the plantations of Cuba and Porto Rico. Toward the end of the year we also get raw sugar from Java, and by the time this is refined and ready for the market the new crop from the West Indies comes along. In addition to this we get consignments from the Philippine Islands, the Hawaiian Islands, South America, Formosa, and Egypt. I suppose it is quite unnecessary to tell you young men anything of how the cane is grown; of course you know all that."
"I don't believe we do, except in a general way," Bob admitted honestly. "I am ashamed to be so green about a thing at which Dad has been working for years. I don't know why I never asked about it before. I guess I never was interested. I simply took it for granted."
"That's the way with most of us," was the superintendent's kindly answer. "We accept many things in the world without actually knowing much about them, and it is not until something brings our ignorance before us that we take the pains to focus our attention and learn about them. So do not be ashamed that you do not know about sugar raising; I didn't when I was your age. Suppose, then, I give you a little idea of what happens before this raw sugar can come to us."
"I wish you would," exclaimed both boys in a breath.
"Probably in your school geographies you have seen pictures of sugar-cane and know that it is a tall perennial not unlike our Indian corn in appearance; it has broad, flat leaves that sometimes measure as many as three feet in length, and often the stalk itself is twenty feet high. This stalk is jointed like a bamboo pole, the joints being about three inches apart near the roots and increasing in distance the higher one gets from the ground."
"How do they plant it?" Bob asked.
"It can be planted from seed, but this method takes much time and patience; the usual way is to plant it from cuttings, or slips. The first growth from these cuttings is called plant cane; after these are taken off the roots send out ratoons or shoots from which the crop of one or two years, and sometimes longer, is taken. If the soil is not rich and moist replanting is more frequently necessary and in places like Louisiana, where there is annual frost, planting must be done each year. When the cane is ripe it is cut and brought from the field to a central sugar mill, where heavy iron rollers crush from it all the juice. This liquid drips through into troughs from which it is carried to evaporators where the water portion of the sap is eliminated and the juice left; you would be surprised if you were to see this liquid. It looks like nothing so much as the soapy, bluish-gray dish-water that is left in the pan after the dishes have been washed."
"A tempting picture!" Van exclaimed.
"I know it. Sugar isn't very attractive during its process of preparation," agreed Mr. Hennessey. "The sweet liquid left after the water has been extracted is then poured into vacuum pans to be boiled until the crystals form in it, after which it is put into whirling machines, called centrifugal machines that separate the dry sugar from the syrup with which it is mixed. This syrup is later boiled into molasses. The sugar is then dried and packed in these burlap sacks such as you see here, or in hogsheads, and shipped to refineries to be cleansed and whitened."
"Isn't any of the sugar refined in the places where it grows?" queried Bob.
"Practically none. Large refining plants are too expensive to be erected everywhere; it therefore seems better that they should be built in our large cities, where the shipping facilities are good not only for receiving sugar in its raw state but for distributing it after it has been refined and is ready for sale. Here, too, machinery can more easily be bought and the business handled with less difficulty."[1] Which one of the following is not a essential condition for setting up sugar refining plants?
A. Facilities for transportation of machinery
B. Facilities for import of raw material
C. Facilities for transportation of finished products
D. Proximity to the raw material sources[2] Which of the following is the correct sequence of sugar preparation process?
A. Cutting → Crushing → Evaporation → Boiling → Whirling.
B. Boiling → Crushing → Evaporation → Whirling → Cutting.
C. Cutting → Boiling → Evaporation → Crushing → Whirling.
D. Whirling → Crushing → Boiling → Evaporation → Cutting.[3] Which of the following statements, as per the paragraph, is incorrect?
A. Sugar in its raw from is brownish in colour due to the presence of dirt
B. After evaporation, cane juice looks bluish – gray in colour
C. Molasses is obtained as a bye-product from the process of sugar production
D. Cane plantation and sugar production process is widely and equally spread across the countries.asked in IIFT
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123.
The broad scientific understanding today is that our planet is experiencing a warming trend over and above natural and normal variations that is almost certainly due to human activities associated with large-scale manufacturing. The process began in the late 1700s with the Industrial Revolution, when manual labor, horsepower, and water power began to be replaced by or enhanced by machines. This revolution, over time, shifted Britain, Europe, and eventually North America from largely agricultural and trading societies to manufacturing ones, relying on machinery and engines rather than tools and animals.
The Industrial Revolution was at heart a revolution in the use of energy and power. Its beginning is usually dated to the advent of the steam engine, which was based on the conversion of chemical energy in wood or coal to thermal energy and
then to mechanical work primarily the powering of industrial machinery and steam locomotives. Coal eventually supplanted wood because, pound for pound, coal contains twice as much energy as wood (measured in BTUs, or British thermal units, per pound) and because its use helped to save what was left of the world's temperate forests. Coal was used to produce heat that went directly into industrial processes, including metallurgy, and to warm buildings, as well as to power steam engines. When crude oil came along in the mid- 1800s, still a couple of decades before electricity, it was burned, in the form of kerosene, in lamps to make light replacing whale oil. It was also used to provide heat for buildings and in manufacturing processes, and as a fuel for engines used in industry and propulsion.
In short, one can say that the main forms in which humans need and use energy are for light, heat, mechanical work and motive power, and electricity which can be used to provide any of the other three, as well as to do things that none of those three can do, such as electronic communications and information processing. Since the Industrial Revolution, all these energy functions have been powered primarily, but not exclusively, by fossil fuels that emit carbon dioxide (CO2).
To put it another way, the Industrial Revolution gave a whole new prominence to what Rochelle Lefkowitz, president of Pro-Media Communications and an energy buff, calls "fuels from hell" - coal, oil, and natural gas. All these fuels from hell come from underground, are exhaustible, and emit CO2 and other pollutants when they are burned for transportation, heating, and industrial use. These fuels are in contrast to what Lefkowitz calls "fuels from heaven" -wind, hydroelectric, tidal, biomass, and solar power. These all come from above ground, are endlessly renewable, and produce no harmful emissions.
Meanwhile, industrialization promoted urbanization, and urbanization eventually gave birth to suburbanization. This trend, which was repeated across America, nurtured the development of the American car culture, the building of a national highway system, and a mushrooming of suburbs around American cities, which rewove the fabric of American life. Many other developed and developing countries followed the American model, with all its upsides and downsides. The result is that today we have suburbs and ribbons of highways that run in, out, and around not only America s major cities, but China's, India's, and South America's as well. And as these urban areas attract more people, the sprawl extends in every direction.
All the coal, oil, and natural gas inputs for this new economic model seemed relatively cheap, relatively inexhaustible, and relatively harmless-or at least relatively easy to clean up afterward. So there wasn't much to stop the juggernaut of more people and more development and more concrete and more buildings and more cars and more coal, oil, and gas needed to build and power them. Summing it all up, Andy Karsner, the Department of Energy's assistant secretary for energy efficiency and renewable energy, once said to me: "We built a really inefficient environment with the greatest efficiency ever known to man."
Beginning in the second half of the twentieth century, a scientific understanding began to emerge that an excessive accumulation of largely invisible pollutants-called greenhouse gases - was affecting the climate. The buildup of these greenhouse gases had been under way since the start of the Industrial Revolution in a place we could not see and in a form we could not touch or smell. These greenhouse gases, primarily carbon dioxide emitted from human industrial, residential, and transportation sources, were not piling up along roadsides or in rivers, in cans or empty bottles, but, rather, above our heads, in the earth's atmosphere. If the earth's atmosphere was like a blanket that helped to regulate the planet's temperature, the CO2 buildup was having the effect of thickening that blanket and making the globe warmer.
Those bags of CO2 from our cars float up and stay in the atmosphere, along with bags of CO2 from power plants burning coal, oil, and gas, and bags of CO2 released from the burning and clearing of forests, which releases all the carbon stored in trees, plants, and soil. In fact, many people don't realize that deforestation in places like Indonesia and Brazil is responsible for more CO2 than all the world's cars, trucks, planes, ships, and trains combined - that is, about 20 percent of all global emissions. And when we're not tossing bags of carbon dioxide into the atmosphere, we're throwing up other greenhouse gases, like methane (CH4) released from rice farming, petroleum drilling, coal mining, animal defecation, solid waste landfill sites, and yes, even from cattle belching.
Cattle belching? That's right-the striking thing about greenhouse gases is the diversity of sources that emit them. A herd of cattle belching can be worse than a highway full of Hummers. Livestock gas is very high in methane, which, like CO2, is colorless and odorless. And like CO2, methane is one of those greenhouse gases that, once released into the atmosphere, also absorb heat radiating from the earth's surface. "Molecule for molecule, methane's heat-trapping power in the atmosphere is twenty-one times stronger than carbon dioxide, the most abundant greenhouse gas.." reported Science World (January 21, 2002). “With 1.3 billion cows belching almost constantly around the world (100 million in the United States alone), it's no surprise that methane released by livestock is one of the chief global sources of the gas, according to the U.S. Environmental Protection Agency ... 'It's part of their normal digestion process,' says Tom Wirth of the EPA. 'When they chew their cud, they regurgitate [spit up] some food to rechew it, and all this gas comes out.' The average cow expels 600 liters of methane a day, climate researchers report."
What is the precise scientific relationship between these expanded greenhouse gas emissions and global warming? Experts at the Pew Center on Climate Change offer a handy summary in their report "Climate Change 101. " Global average temperatures, notes the Pew study, "have experienced natural shifts throughout human history. For example; the climate of the Northern Hemisphere varied from a relatively warm period between the eleventh and fifteenth centuries to a period of cooler temperatures between the seventeenth century and the middle of the nineteenth century. However, scientists studying the rapid rise in global temperatures during the late twentieth century say that natural variability cannot account for what is happening now." The new factor is the human factor-our vastly increased emissions of carbon dioxide and other greenhouse gases from the burning of fossil fuels such as coal and oil as well as from deforestation, large-scale cattle-grazing, agriculture, and industrialization.
“Scientists refer to what has been happening in the earth‟s atmosphere over the past century as the 'enhanced greenhouse effect'", notes the Pew study. By pumping man-made greenhouse gases into the atmosphere, humans are altering the process by which naturally occurring greenhouse gases, because of their unique molecular structure, trap the sun‟s heat near the earth‟s surface before that heat radiates back into space.
"The greenhouse effect keeps the earth warm and habitable; without it, the earth's surface would be about 60 degrees Fahrenheit colder on average. Since the average temperature of the earth is about 45 degrees Fahrenheit, the natural greenhouse effect is clearly a good thing. But the enhanced greenhouse effect means even more of the sun's heat is trapped, causing global temperatures to rise. Among the many scientific studies providing clear evidence that an enhanced greenhouse effect is under way was a 2005 report from NASA's Goddard Institute for Space Studies. Using satellites, data from buoys, and computer models to study the earth's oceans, scientists concluded that more energy is being absorbed from the sun than is emitted back to space, throwing the earth's energy out of balance and warming the globe."[1] Which of the following statements is correct?
(I) Greenhouse gases are responsible for global warming. They should be eliminated to save the planet
(II) CO2 is the most dangerous of the greenhouse gases. Reduction in the release of CO2 would surely bring down the temperature
(III) The greenhouse effect could be traced back to the industrial revolution. But the current development and the patterns of life have enhanced their emissions
(IV) Deforestation has been one of the biggest factors contributing to the emission of greenhouse gases
Choose the correct option:
A. I and II
B. II and III
C. II, III, and IV
D. III and IV[2] Which of the following statements is incorrect?
A. Natural and controlled greenhouse effect is good for earth
B. As a measure to check global warming, prevention of destruction of forests needs to be given priority over reduction in fuel emission
C. Greenhouse gases trap the sun‟s heat from radiating back into the space making the earth surface warmer
D. It is for the first time in human evolution that the global temperatures have started to witness a shift[3] Increasing warming of earth has been due to:
(I) Increased manual intervention in the manufacturing process
(II) The fallout of mechanization of production
(III) Industrial revolution
(IV) Over reliance on non- replenishible energy sources
Choose the correct option:
A. I, II, and IV
B. I, III and IV
C. I, II, III, and IV
D. II, III, and IV[4] Which of the following according to the passage are the features of “fuels from heaven”?
(I) Replenishability
(II) Storability
(III) Cost-effectiveness
(IV) Harmlessness
A. I and II
B. II and III
C. III, and IV
D. I and IV
asked in IIFT
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124.
I suggest that the essential character of the Trade Cycle and, especially, the regularity of time-sequence and of duration which justifies us in calling it a cycle, is mainly due to the way in which the marginal efficiency of capital fluctuates. The Trade Cycle is best regarded, I think, as being occasioned by a cyclical change in the marginal efficiency of capital, though complicated and often aggravated by associated changes in the other significant short period variables of the economic system.
By a cyclical movement we mean that as the system progresses in, e.g. the upward direction, the forces propelling itupwards at first gather force and have a cumulative effect on one another but gradually lose their strength until at a certain point they tend to be replaced by forces operating in the opposite direction; which in turn gather force for a time and accentuate one another, until they too, having reached their maximum development, wane and give place to their opposite. We do not, however, merely mean by a cyclical movement that upward and downward tendencies, once started, do not persist for ever in the same direction but are ultimately reversed. We mean also that there is some recognizable degree of regularity in the time-sequence and duration of the upward and downward movements. There is, however, another characteristic of what we call the Trade Cycle which our explanation must cover if it is to be adequate; namely, the phenomenon of the „crisis‟ the fact that the substitution of a downward for an upward tendency often takes place suddenly and violently, whereas there is, as a rule, no such sharp turning-point when an upward is substituted for a downward tendency. Any fluctuation in investment not offset by a corresponding change in the propensity to consume will, of course, result in a fluctuation in employment. Since, therefore, the volume of investment is subject to highly complex influences, it is highly improbable that all fluctuations either in investment itself or in the marginal efficiency of capital will be of a cyclical character.
We have seen above that the marginal efficiency of capital depends, not only on the existing abundance or scarcity of capital-goods and the current cost of production of capital-goods, but also on current expectations as to the future yield of capital-goods. In the case of durable assets it is, therefore, natural and reasonable that expectations of the future should play a dominant part in determining the scale on which new investment is deemed advisable. But, as we have seen, the basis for such expectations is very precarious. Being based on shifting and unreliable evidence, they are subject to sudden and violent changes. Now, we have been accustomed in explaining the „crisis‟ to lay stress on the rising tendency of the rate of interest under the influence of the increased demand for money both for trade and speculative purposes. At times this factor may certainly play an aggravating and, occasionally perhaps, an initiating part. But I suggest that a more typical, and often the predominant, explanation of the crisis is, not primarily a rise in the rate of interest, but a sudden collapse in the marginal efficiency of capital. The later stages of the boom are characterized by optimistic expectations as to the future yield of capital goods sufficiently strong to offset their growing abundance and their rising costs of production and, probably, a rise in the rate of interest also. It is of the nature of organized investment markets, under the influence of purchasers largely ignorant of what they are buying and of speculators who are more concerned with forecasting the next shift of market sentiment than with a reasonable estimate of the future yield of capital-assets, that, when disillusion falls upon an overoptimistic and over-bought market, it should fall with sudden and even catastrophic force. Moreover, the dismay and uncertainty as to the future which accompanies a collapse in the marginal efficiency of capital naturally precipitates a sharp increase in liquidity-preference and hence a rise in the rate of interest. Thus the fact that a collapse in the marginal efficiency of capital tends to be associated with a rise in the rate of interest may seriously aggravate the decline in investment. But the essence of the situation is to be found, nevertheless, in the collapse in the marginal efficiency of capital, particularly in the case of those types of capital which have been contributing most to the previous phase of heavy new investment. Liquidity preference, except those manifestations of it which are associated with increasing trade and speculation, does not increase until after the collapse in the marginal efficiency of capital. It is this, indeed, which renders the slump so intractable.[1] Which of the following does not describe the features of cyclical movement?
A. There is a cyclical change in the marginal efficiency of capital
B. The movement once starts in upward or downward direction does not get reversed
C. The time pattern and the duration of economic movements are recognizable
D. It is caused by the economic force working in opposite direction[2] Marginal efficiency of the capital does not depend on which of following factors?
A. Demand and supply of capital goods
B. Cost of production of capital goods
C. Expectations regarding future return from capital goods
D. Availability of capital[3] Which of the following explains the phenomenon of crisis?
I. A sudden collapse in the marginal efficiency of capital
II. Increase in the rate of interest causing the decline in investments
III. A sudden and violent substitution of upward movement by a downward tendency
IV. Decline in the liquidity preference of the investors
A. I & II
B. I, II, and III
C. I, II, and IV
D. II, III, and IVasked in IIFT
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125.
The most important task is revitalizing the institution of independent directors. The independent directors of a company should be faithful fiduciaries protecting, the long-term interests of shareholders while ensuring fairness to employees, investor, customer, regulators, the government of the land and society. Unfortunately, very often, directors are chosen based of friendship and, sadly, pliability. Today, unfortunately, in the majority of cases, independence is only true on paper.
The need of the hour is to strengthen the independence of the board. We have to put in place stringent standards for the independence of directors. The board should adopt global standards for director-independence, and should disclose how each independent director meets these standards. It is desirable to have a comprehensive report showing the names of the company employees of fellow board members who are related to each director on the board. This report should accompany the annual report of all listed companies.
Another important step is to regularly assess the board members for performance. The assessment should focus on issues like competence, preparation, participation and contribution. Ideally, this evaluation should be performed by a third party. Underperforming directors should be allowed to leave at the end of their term in a gentle manner so that they do not lose face. Rather than being the rubber stamp of a company‟s management policies, the board should become a true active partner of the management. For this, independent directors should be trained in their in their in roles and responsibilities. Independent directors should be trained on the business model and risk model of the company, on the governance practices, and the responsibilities of various committees of the board of the company. The board members should interact frequently with executives to understand operational issues. As part of the board meeting agenda, the independent directors should have a meeting among themselves without the management being present.
The independent board members should periodically review the performance of the company‟s CEO, the internal directors and the senior management. This has to be based on clearly defined objective criteria, and these criteria should be known to the CEO and other executive directors well before the start of the evolution period. Moreover, there should be a clearly laid down procedure for communicating the board‟s review to the CEO and his/her team of executive directors. Managerial remuneration should be based on such reviews.
Additionally, senior management compensation should be determined by the board in a manner that is fair to all stakeholders. We have to look at three important criteria in deciding managerial remuneration-fairness accountability and transparency. Fairness of compensation is determined by how employees and investors react to the compensation of the CEO. Accountability is enhanced by splitting the total compensation into a small fixed component and a large variable component. In other words, the CEO, other executive directors and the senior management should rise or fall with the fortunes of the company. The variable component should be linked to achieving the long-term objectives of the firm. Senior management compensation should be reviewed by the compensation committee of the board consisting of only the independent directors. This should be approved by the shareholders. It is important that no member of the internal management has a say in the compensation of the CEO, the internal board members or the senior management.
The SEBI regulations and the CII code of conduct have been very helpful in enhancing the level of accountability of independent directors. The independent directors should decide voluntarily how they want to contribute to the company. Their performance should decide voluntarily how they want to contribute to the company. Their performance should be appraised through a peer evaluation process. Ideally, the compensation committee should decide on the compensation of each independent director based on such a performance appraisal.
Auditing is another major area that needs reforms for effective corporate governance. An audit is the Independent examination of financial transactions of any entity to provide assurance to shareholder and other stakeholders that the financial statements are free of material misstatement. Auditors are qualified professionals appointed by the shareholders to report on the reliability of financial statements prepared by the management. Financial markets look to the auditor‟s report for an independent opinion on the financial and risk situation of a company. We have to separate such auditing form other services. For a truly independent opinion, the auditing firm should not provide services that are perceived to be materially in conflict with the role of the auditor. These include investigations, consulting advice, sub contraction of operational activities normally undertaken by the management, due diligence on potential acquisitions or investments, advice on deal structuring, designing/implementing IT systems, bookkeeping, valuations and executive recruitment. Any departure from this practice should be approved by the audit committee in advance. Further, information on any such exceptions must be disclosed in the company‟s quarterly and annual reports.
To ensure the integrity of the audit team, it is desirable to rotate auditor partners. The lead audit partner and the audit partner responsible for reviewing a company‟s audit must be rotated at least once every three to five years. This eliminates the possibility of the lead auditor and the company management getting into the kind of close, cozy relationship that results in lower objectivity in audit opinions. Further, a registered auditor should not audit a chief accounting office was associated with the auditing firm. It is best that members of the audit teams are prohibited from taking up employment in the audited corporations for at least a year after they have stopped being members of the audit team.
A competent audit committee is essential to effectively oversee the financial accounting and reporting process. Hence, each member of the audit committee must be 'financially literate‟, further, at least one member of the audit committee, preferably the chairman, should be a financial expert-a person who has an understanding of financial statements and accounting rules, and has experience in auditing. The audit committee should establish procedures for the treatment of complaints received through anonymous submission by employees and whistleblowers. These complaints may be regarding questionable accounting or auditing issues, any harassment to an employee or any unethical practice in the company. The whistleblowers must be protected.
Any related-party transaction should require prior approval by the audit committee, the full board and the shareholders if it is material. Related parties are those that are able to control or exercise significant influence. These include; parentsubsidiary relationships; entities under common control; individuals who, through ownership, have significant influence over the enterprise and close members of their families; and dey management personnel.
Accounting standards provide a framework for preparation and presentation of financial statements and assist auditors in forming an opinion on the financial statements. However, today, accounting standards are issued by bodies comprising primarily of accountants. Therefore, accounting standards do not always keep pace with changes in the business environment. Hence, the accounting standards-setting body should include members drawn from the industry, the profession and regulatory bodies. This body should be independently funded.
Currently, an independent oversight of the accounting profession does not exist. Hence, an independent body should be constituted to oversee the functioning of auditors for Independence, the quality of audit and professional competence. This body should comprise a "majority of non-practicing accountants to ensure independent oversight. To avoid any bias, the chairman of this body should not have practiced as an accountant during the preceding five years. Auditors of all public companies must register with this body. It should enforce compliance with the laws by auditors and should mandate that auditors must maintain audit working papers for at least seven years.
To ensure the materiality of information, the CEO and CFO of the company should certify annual and quarterly reports. They should certify that the information in the reports fairly presents the financial condition and results of operations of the company, and that all material facts have been disclosed. Further, CEOs and CFOs should certify that they have established internal controls to ensure that all information relating to the operations of the company is freely available to the auditors
and the audit committee. They should also certify that they have evaluated the effectiveness of these controls within ninety days prior to the report. False certifications by the CEO and CFO should be subject to significant criminal penalties (fines and imprisonment, if willful and knowing). If a company is required to restate its reports due to material non-compliance with the laws, the CEO and CFO must face severe punishment including loss of job and forfeiting bonuses or equity-based compensation received during the twelve months following the filing.[1] The problem with the independent directors has been that:
I. Their selection has been based upon their compatibility with the company management
II. There has been lack of proper training and development to improve their skill set
III. Their independent views have often come in conflict with the views of company management. This has hindered the company‟s decision-making process
IV. Stringent standards for independent directors have been lacking
A. I and II only
B. I, II, and III only
C. II, II, and IV only
D. I, II, IV only[2] Which of the following, according to author, does not have an impact on effective corporate governance?
A. Increased role and importance of independent directors
B. Increased compensation to independent directors
C. Not hiring audit firms for other services
D. Stringent monitoring and control of related party transactions[3] To improve the quality and reliability of the information reported in the financial statements:
I. Accounting standards should keep pace with the dynamic business environment
II. There should be a body of internal auditors to oversee the functioning of external auditors
III. Reports should be certified by key company officials
IV. Accounting standards should be set by a body comprising of practicing accountants only and this body should be funded from a corpus built up from the contributions made by the companies.
A. I, and II
B. II, and III
C. I, and III
D. I, III, and IV[4] Which of the following may not help in improving in the accountability of management to the shareholders?
A. A third party assessment of the performance of independent directors
B. Rotation of audit partner
C. Increasing the fixed component in the salary structure of the management
D. Laying down a proper procedure for handling complaints regarding unethical practices[5] The author of the passage does not advocate:
A. Increased activism of independent directors
B. Measures to improve the independence of auditors
C. Framing the accounting standards in the light of changing business conditions
D. Active intervention by the regulators in the day-to-day functioning of the companyasked in IIFT
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126.
In the early 1950s, a plague clouded the American landscape. A mysterious virus stalked the nation’s youth like a silent, invisible killer. For generations, it had been devouring young lives. But in the previous
three decades the number of its victims had increased dramatically. Those it did not kill, it left hopelessly paralyzed and deformed. Mewspaper artists sometimes depicted the disease as a dragon. Its common name was infantile paralysis, or poliomyelitis, or simply polio.
Polio struck every summer, turning strong bodies into crumpled ones, leaving in its wake withered limbs in steel braces and straps. It was simply expected when the children returned to school each fall that a friend or classmate would have been lost to polio over the summer. Everyone knew a victim - if not in their own family, it was the boy down the street or one on the next street. By the early 1950s, some 50,000 cases per year were being reported, and 1952 alone saw 59,000 new cases.
But in April of 1955 a miracle occurred. It came in the form of an announcement that a vaccine had been discovered that could actually prevent polio. With completion of a series of research field tests, the news media hailed it as the most dramatic breakthrought in the history of medical research.
The hero of the day; the man slew the polio dragon, was a shk young doctor named Jonas Salk. Stories of
his heroic effort to perfect his vaccine filled the newspapers. In the months prior to final development of the vaccine, Salk had pushed himself to the limits of human endurance. Realizing he was close to a breakthrough, he worked seven days a week, often up to 20 or 30 hours at a time without sleep. He often skipped meals. the public lionized him for his efforts. But that was not the case among those in those scientific community. Behind the scenes, unknown to the public, Salk was being vilified by his peers. At one point some leading scientists even tried to stop distribution of his life-saving vaccine.
Salk’s fellow scientists in biological research considered him an outsider, intruding into their domain. In fact, in order to acquire funds for his research, Salk had to go outside normal channels. When he did so, scientists accused him of being a publicity hound. The research establishment was especially jealous of Salk’s relationship with Basil O’Connor, the man who supplied much of his funding. As president of the National Foundation for Infantile Paralysis, O’Connor held the purse strings to millions in research dollars. And he believed in Salk.
Basil O’Connor knew firsthand the devastating effects of the disease. His daughter had been stricken with polio. And when O’Connor was young man, Franklin Roosevelt had been his best friend and law partner, long before becoming president of the United Staes.O’Connor had seen polio turn an athletic young Roosevelt into a man unable to stand without leg braces and walking sticks.In Jonas Salk, O’Connor found someone who shared his outright hatred for the disease.
Viewed in retrospect, one might understand the opposition of biological research scientists to Salk’s method. He made many transgressions against traditional research. For one thing, the very efficacy of his vaccine toppled one of the most universally accepted (though erroneous) tenets of orthodox virology - the motion that an active virus could not be checked by its own dead viral bodies. That was precisely the path Salk chose to develop his vaccine.
For decades, traditional biologists had been waging what they considered a deliberate, correct, gentleman’s fight against polio with efforts focused on treatment rather than prevention. By contrast, Salk fought the dragon like a man possessed, seeking a final cure. He had grown up on the fringes of poverty and developed an attitude more humanist than scientific, a man unwilling to abide senseless rules in the face of a crisis. He flailed against the disease like a punch-drunk street fighter-and he landed a knockout blow. Finally, his success proved the greatest transgression of all against his fellow scientists. By the 1950s, researching polio was a very big business, and overnight, Salk made further efforts redundant. It was unheard of that an outsider, working independently;could accomplish what the nation’s top scientists with their great laboratories and countless millions of dollars could not. They expressed their bitterness in rather petty ways, even refusing to accept Salk into the National Academy of Science. The reason? Salk, they contended, was not really a scientist - only a technician.
The public never knew the depths of his colleagues’ resentment. It was almost a decade after his discovery before Salk himself would even discuss it. “The worst tragedy that could have befallen me was my success,” he told an interviewer. “I knew right away that I was through, that I would be cast out.”
But he was not through. With the polio dragon defeated, he launched a campaign to raise funds to construct the Salk Intitute for Biological Studies at Torrey Pines, California. He worked there, surrounded by bright, young scientists until his death at age eighty. Salk later became obsessed with finding a cure for the human immunodeficiency virus (HIV) that causes AIDS. Also until the day he died, he was trying to catch lightning in a test tube one last time. Perhaps a man is allotted only one miracle in his lifetime.
Today, research scientists work in the laboratories Jonas Salk built, searching for mew weapons in the fight against dragons that defy destruction: cancer, AIDS, Alzheimer’s, cerebral palsy, multiple sclerosis, and Parkinson’s. Among those scientists at Torrey Pines, waging gentlemanly wars against the microscopic enemies of man, perhaps a new maverick will emerge - a stubborn street fighter who will defeat the odds and capture the lightning that eluded Jonas Salk.[1] Which of the following statement is true?
(A) For a long time the efforts made by traditional biologists in the battle against polio had been a combination of finding cure for the polio patients as well as preventing the never occurrences.
(B) Within three years from the menace of polio reaching a new peak, the antidote for the deadly disease was discovered by a relatively lesser known person.
(C) Basil O’Connor had been a good friend of Theodore Roosevelt and his law partner.
(D) The scientists at Salk Institute for Biological Studies are currently doing research to invent medicines to ensue permanent cures for diseases like AIDS, cerebral palsy,. multiple stenosis etc.[2] Which of the following statement is false?
(A) A major proportion of the funds required for the research by Dr. Salk came from National Foundation for Infantile Paralysis, whose president Basil O’Connor ensured the requisite amount for him.
(B) The extent of the resentment of the colleagues’ of Dr. Salk over his achievement was known to the people almost thirty years after the invention of the vaccine against the disease.
(C) The top scientists of the country did not favour the entry of Dr. Salk into National Academy of Science on the ground of his lack of professional qualification with respect to medical and biological science.
(D) The driving reason behind the success of Dr Salk was the fact that he did not accept the framework developed by traditional virology research as foolproof, which was a key factor behind his success.[3] Match the following:
List I
i. Salk
ii. Polio
iii. Field tests
iv. HIV Research
List II
a. Dragon
b. Breakthrough
c. Torrey Pines
d. Vilified
(A) ii-c, iii-b, iv-a (B) 1-c, iii-c, iv-a (C) i-d, ii-a, iii-b. (D) ii-a, iii-c, iv-b.asked in IIFT
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