Financial Sector Assessment Program (FSAP) of IMF

The Executive Board of the International Monetary Fund (IMF) has approved making financial stability assessments under the Financial Sector Assessment Program (FSAP) a regular and mandatory part of the Fund’s surveillance for members with systemically important financial sectors. While participation in the FSAP program has been voluntary for all Fund members, the Executive Board’s decision will make financial stability assessments mandatory for members with systemically important financial sectors under Article IV of the Fund’s Articles of Agreement.

The decision adopted on September 21, 2010 to raise the profile of financial stability assessments under the FSAP for members with systemically important financial sectors is recognition of the central role of financial systems in the domestic economy of its members, as well as in the overall stability of the global economy. It is a major step toward enhancing the Fund’s economic surveillance to take into account the lessons from the recent crisis, which originated in financial imbalances in large and globally interconnected countries.

The FSAP provides the framework for comprehensive and in-depth assessments of a country’s financial sector, and was established in 1999, in the aftermath of the Asian crisis. FSAP assessments are conducted by joint IMF-World Bank teams in developing and emerging market countries, and by the Fund alone in advanced economies. FSAPs have two components, which may also be conducted in separate modules: a financial stability assessment, which is the responsibility of the IMF and, in developing and emerging market countries, a financial development assessment, and the responsibility of the World Bank.

These mandatory financial stability assessments will comprise three elements:

 1) An evaluation of the source, probability, and potential impact of the main risks to macro-financial stability in the near term, based on an analysis of the structure and soundness of the financial system and its interlinkages with the rest of the economy;

 2) An assessment of each countries’ financial stability policy framework, involving an evaluation of the effectiveness of financial sector supervision against international standards;

3) An assessment of the authorities’ capacity to manage and resolve a financial crisis should the risks materialize, looking at the country’s liquidity management framework, financial safety nets, crisis preparedness and crisis resolution frameworks.

A total of 25 jurisdictions were identified as having systemically important financial sectors, based on a methodology that combines the size and interconnectedness of each country’s financial sector. They are in alphabetical order: Australia, Austria, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, Italy, Japan, India, Ireland, Luxembourg, Mexico, the Netherlands, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. This group of countries covers almost 90 percent of the global financial system and 80 percent of global economic activity. It includes 15 of the Group of 20 member countries, and a majority of members of the Financial Stability Board, which has been working with the IMF on monitoring compliance with international banking regulations and standards. Each country on this list will have a mandatory financial stability assessment every five years. Countries may undergo more frequent assessments, if appropriate, on a voluntary basis. The methodology and list of jurisdictions will be reviewed periodically to make sure it continues to capture the countries with the most systemically important financial sectors that need to be covered by regular, in-depth, mandatory financial stability assessments.

The FSAP program has been a key tool for analysing the strengths and weaknesses of the financial systems of IMF member countries. However, the recent crisis has made clear the need for mandatory and regular assessments of financial stability for countries with large and interconnected financial systems. Financial instability can have a major impact on economic activity and job creation. Regular stability assessments of systemically important financial sectors should contribute to a deeper the public understanding of the risks to economic stability arising from the financial sector.

India: BIS Confirms Huge Offshore Rupee Market

The BIS has published a paper on offshore foreign exchange markets. According to Table 7 of this paper, 52% ($10.8 billion) of the total rupee forward and forex swap market ($20.8 billion) is offshore and only 48% ($10.0 billion) is onshore.

The same table provides data about 2007 as well – only 30% ($3.6 billion) of the rupee forward and forex swap market was offshore. In just three years, the offshore market has tripled in size! A footnote in the table cautions us that the mandatory reporting of trades in the rupee (and several other emerging market currencies) following its reclassification of these currencies as major currencies would have increased the reported size of the offshore markets.

According to the BIS Paper, the offshore markets are even bigger for the Chinese renminbi (63% is offshore but much of that is in Hong Kong) and the Brazilian real (82% is offshore). The paper argues that offshore non deliverable markets in the Brazilian real, Chinese renminbi and Indian rupee are now so large that “adding an offshore deliverable money and bond market may not represent a large change.”

UK: Six Principles for Bribery Prevention

The United Kingdom’s Ministry of Justice released its “Consultation on guidance about commercial organizations preventing bribery (section 9 of the Bribery Act 2010)”. The stated purpose of this document is to provide guidance, as required under section 9 of the Act, to “support businesses in determining the sorts of bribery prevention measures they can put in place.” Businesses covered by the UK Bribery Act can be convicted of a criminal offence if they fail to prevent bribery on their behalf. However, the Act provides that if the organization can show that it has adequate bribery prevention procedures in place, such “adequate procedures” are a defense to a prosecution.

The Consultation lists “Six Principles for Bribery Prevention” which the Ministry of Justice believes are good international practices for such adequate procedures and is designed to assist businesses in determining what bribery prevention procedures they can put in place.

The Six Principles are designed to be result oriented and to allow a flexible approach to ethics and compliance. US practitioners will observe this is in contrast to the US approach, which is much more rules based. The UK approach is to allow each company to tailor its policies and procedures so that they are proportionate to the nature, scale and complexity of its activities. Clearly there is a huge variety of circumstances; small and medium sized organizations will, for example, face different challenges compared to large multi-national enterprises. As a result, the detail of how each company addresses these principles will vary, but the outcome should always be robust with effective anti-bribery systems and controls.

Norwegian Bank Files Individual Securities Suit Against Citibank

The phenomenon of large institutional investors electing to pursue their own claims was a characteristic of many of the lawsuits arising from the corporate scandals during the last decade. Though these kinds of cases had seemed to have died down for a while, the New York lawsuit against Merrill and the Norges suit suggest that the individual lawsuits may be back – and that large institutional investors may be considering them in preference to class actions.

Norway's central bank has sued Citigroup Inc. over alleged misstatements about the company's financial condition during a two-year period leading up to and during the global financial crisis, and which it claims caused it to buy Citi shares at inflated prices.

Norges Bank claims that it lost more than $735 million on its investments in Citigroup common stock and more than $100 million on its investments in Citi bonds and preferred shares. The stocks and bonds were purchased between January 2007 and January 2009, according to the lawsuit.

The lawsuit, filed in Manhattan federal court Sept. 17, alleges that Citi made a series of misstatements about its financial health, particularly its exposure to subprime mortgages and other toxic assets.

Norges Bank isn't the first to say Citi made misleading statements about its exposure risky subprime assets. In July, Citi settled such claims brought against it by the Securities and Exchange Commission. U.S. District Judge Ellen Segal Huvelle previously raised concerns about that $75 million settlement, though she said Friday she would sign off on it after both sides agreed to add changes to the bank's disclosure policies.

The Abu Dhabi Investment Authority is another investor trying to recoup losses. It is seeking arbitration over its November 2007 investment of $7.5 billion in mandatory convertible notes, which could lead to billions in losses for the Middle Eastern investor.

The Norges bank lawsuit alleges Citi "made numerous untrue statements to investors" about the risk of its loans and subprime-related securities. It "did not disclose Citi's full exposure to subprime-related risk, and did not take write-downs in a timely manner that reflected the deteriorating value of those assets. Thus, throughout the Relevant Period, Citi's earnings and capital position were continually overstated because they did not take into account the degree of loss Citi would incur as a result of declining market conditions."

Like the SEC, the Norges Bank lawsuit said Citi's financial statements valued the bank's subprime securitized asset exposure at $24 billion at the beginning of 2007. "It was not until Nov. 4, 2007 that Citi revealed an additional $43 billion in CDO-related exposures, and yet another $10.5 billion came to light in January 2008," the lawsuit said. It alleges that Citi made "made untrue statements of material fact and omitted to state material facts."

Norwegian bank's lawsuit also alleges that Citi violated various accounting rules, including when it reduced its reserve for loan losses as a percentage of loans in 2006 and 2007, and that it overstated the value of mortgage-related securities. The amount banks keep in reserve is a contentious issue. The suit also says Citi "overstated its capital adequacy."

Norges Bank, through its investment arm, manages about $443 billion in assets on behalf of Norway's finance ministry. Last year, seven Norwegian municipalities and the bankruptcy estate of Terra Securities ASA sued Citigroup over the sale of more than $115 million in derivatives in 2007, claiming the notes were misrepresented as safe, conservative investments. That lawsuit is pending.

There are a number of interesting aspects to this case. The first is that the bank concluded that notwithstanding the existence of the shareholder class action lawsuit, its interests were better served by proceeding separately from the class. The other thing about the lawsuit is the sheer size of the claimed losses – its losses alone are far greater than the collective investor losses in most securities class action lawsuits.

The massive size of Norges’s claimed losses explains its desire to pursue litigation, but the initiation of a separate suit can only be explained either by Norges’s assumption that it will fare better separately than within the class, or perhaps that it will pay lower fees – or perhaps both.

The magnitude of Norges Bank’s claimed losses may be sufficiently unusual to raise a question whether there may be other investors similarly motivate to pursue separate lawsuits – there simply are going to be few individual investors in few circumstance with losses of that magnitude. Of course, there is always the possibility of smaller investors with smaller losses getting into the act, which they might do if they too believe they will fare better separately rather than within the class.

USA: NYSE Commission on Corporate Governance

Last year the New York Stock Exchange formed a commission the purpose of which was to develop a set of core corporate governance principles. The Commission's report has been published and sets out ten principles of corporate governance and further guidance.  For complete report see here (pdf).

Millennium Development Goals

The UN Summit on the Millennium Development Goals concluded with the adoption of a global action plan to achieve the eight anti-poverty goals by their 2015 target date and the announcement of major new commitments for women's and children's health and other initiatives against poverty, hunger and disease.

The Millennium Development Goals (MDGs) are the most broadly supported, comprehensive and specific development goals the world has ever agreed upon. These eight time-bound goals provide concrete, numerical benchmarks for tackling extreme poverty in its many dimensions. They include goals and targets on income poverty, hunger, maternal and child mortality, disease, inadequate shelter, gender inequality, environmental degradation and the Global Partnership for Development.

Adopted by world leaders in the year 2000 and set to be achieved by 2015, the MDGs are both global and local, tailored by each country to suit specific development needs. They provide a framework for the entire international community to work together towards a common end – making sure that human development reaches everyone, everywhere. If these goals are achieved, world poverty will be cut by half, tens of millions of lives will be saved, and billions more people will have the opportunity to benefit from the global economy.

The eight MDGs break down into 21 quantifiable targets that are measured by 60 indicators.

·         Goal 1: Eradicate extreme poverty and hunger

·         Goal 2: Achieve universal primary education

·         Goal 3: Promote gender equality and empower women

·         Goal 4: Reduce child mortality

·         Goal 5: Improve maternal health

·         Goal 6: Combat HIV/AIDS, malaria and other diseases

·         Goal 7: Ensure environmental sustainability

·         Goal 8: Develop a Global Partnership for Development

At the midpoint in MDG timeline, great progress has already been made. Reducing absolute poverty by half is within reach for the world as a whole. With the exception of Sub-Saharan Africa and South Asia, primary school enrolment is at least 90 percent. Malaria prevention is expanding, with widespread increases in insecticide-treated bed-net use among children under five in sub-Saharan Africa. In 16 out of 20 countries, use has at least tripled since around 2000. One point six billion people have gained access to safe drinking water since 1990.

Alongside the successes are an array of goals and targets that are likely to be missed unless more action is taken urgently: about one quarter of all children in developing countries are considered to be underweight and are at risk of long-term effects of undernourishment; more than 500,000 prospective mothers in developing countries die annually in childbirth or of complications from pregnancy; in Sub-Saharan Africa, the proportion of people living on just over a dollar a day is unlikely to be cut in half. Additionally, in middle income countries like Mexico, Brazil, Romania, Macedonia, and Indonesia, inequality has also led to ‘pockets of poverty’ – socially-excluded groups that will need specific attention if their countries are to reach the MDGs.

The global economic crisis also threatens to destabilize progress, as a better future for the world’s most vulnerable people could fall victim to contraction of trade, remittances, capital flows and donor support. At a time when investing in development is more vital than ever to ensure social stability, security and prosperity, donor governments are called upon to renew rather than revoke their commitment to reaching the MDGs.

At the international level, UNDP works with the UN family to advance the Global Partnership for Development. At the national level, UNDP works in close collaboration with UN organizations to:

1.      Raise awareness of MDGs and advocate for countries and sub-national regions to adopt and adapt MDGs.

2.      Provide leadership and UN coordination to develop capacity in countries to assess what is needed to achieve the MDGs, to conceptualize policies and to design strategies and plans. For this purpose, UNDP organizes consultations and training, conducts research, develops planning and information management tools.

3.      Provide hands-on support to countries to scale up implementation of initiatives to achieve the MDGs, in areas such as procurement, human resources and financial management.

4.      Assist countries to report on their progress.

For Millennium Development Goals: 2010 Progress Chart see here (pdf).

SEBI Order on MCX Stock Exchange

SEBI has issued a detailed order rejecting the application of MCX-SX to commence trading in several exchange segments. SEBI’s conclusion is based on a legal analysis (a fairly intensive one for a regulator) of various issues as well its assessment of whether the applicant is a ‘fit and proper’ for the grant of a licence.

In September 2008, MCX-SX had been recognized as a stock exchange by SEBI with the condition that the promoters need to dilute their stake within a year’s time. When MCX-SX was formed, its promoters MCX and FTIL owned 51% and 49%, respectively, in it. Their stake came down to 37% and 33.9%, respectively, after the divestment of shares.

The firm got an extension of another year when the deadline for divestment lapsed last September. When SEBI renewed its recognition of MCX-SX as a stock exchange, it inserted a new condition that the bourse won’t be eligible to introduce any new class of contracts until shareholding norms are complied with.

This new condition, says the exchange, made it more difficult for it to find new investors, since such entities were willing to invest only after the bourse received approvals for operating in other segments. But SEBI would give approval for new segments only after the promoter stake was diluted. Given this challenge, the bourse had to resort to an unconventional method of capital restructuring, it said.

According to the capital restructuring exercise approved by the Bombay high court, the holdings of all shareholders came within permissible limits. However, the bourse issued 617.1 million warrants to MCX and 562.5 million warrants to FTIL. This arrangement allowed the promoters to gradually sell the warrants when the markets were conducive and valuations were agreeable. When the warrants are converted into equity shares by outside shareholders, the bourse’s equity base will expand and the promoters’ stake will fall below the 5% limit depending on the extent of conversion. The promoters can then convert warrants still in their possession into shares to keep their stake at 5%.

After getting court approval for this exercise, MCX-SX had written to SEBI on 7 April seeking to trade in new products. SEBIs Thursday order disposed of this application.

The reasons for SEBI’s conclusion have been summarised in the order as follows:

a. The concentration of economic interest in a recognised stock exchange in the hands of two promoters is not in the interest of a well-regulated securities market.

b. The Applicant is not fully compliant with the MIMPS Regulations as substitution of shares by warrants is an attempt to work around the requirements of Regulation 8 of the same and the same is not a mode recognised as falling within the scope of the said Regulations.

c. The Applicant has been dishonest in withholding material information on arrangements regarding the ownership of shares of its shareholders and therefore has not adhered to fair and reasonable standards of honesty that should be expected of a recognised Stock Exchange.

d. The Applicant has failed to ensure compliance with Regulation 8 of the MIMPS Regulations as its two promoters (FTIL and MCX) are persons acting in concert and cannot hold more than 5% in the equity shares of a recognised stock exchange.

e. The Applicant is instrumental to buyback transactions that are illegal under the SCR Act and cannot be considered to have adhered to fair and reasonable standards of integrity that should be expected of a recognised Stock Exchange.

The issue is quite likely to go up in appeal. The exchange has the option to either take it up with Securities Appellate Tribunal (SAT) or go for a writ petition in the high court. The order suffers from a fundamental defect. The MIMPS regulations apply only to exchanges which are not corporatized and demutualised. They did not apply to the NSE and to the OTCEI, they do not apply to MCX-SX also.

Highlights from Education at a Glance 2010

Highlights from Education at a Glance 2010 is a companion publication to the OECD’s flagship compendium of education statistics, Education at a Glance. It provides easily accessible data on key topics in education today, including: education levels and student numbers, economic and social benefits of education, education spending, the school environment (hours of instruction, class size, etc.) and school choice and parent voice.Highlights from Education at a Glance 2010 is an ideal introduction to the OECD’s unrivalled collection of internationally comparable data on education and learning.

To download this book see here (pdf).

We're still in a recession: Warren Buffett

Billionaire investor Warren Buffett said the US economy remains in recession, disputing this week's assessment by a leading arbiter of economic activity that the downturn ended more than a year ago. "We're still in a recession," Buffett told CNBC television in an interview broadcast on Thursday.

"We're not gonna be out of it for a while, but we will get out." On Monday, the National Bureau of Economic Research said the world's largest economy ended an 18-month recession in June 2009, but cautioned that its assessment did not mean normal activity had resumed.

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In Praise of Inflation

James Surowiecki the author of the ‘Wisdom of the crowds’ and the outstanding financial columnist for the New Yorker writes in defence of inflation In Praise Of Inflation, which is worthy of a read:

“This intuitive prejudice against inflation may not be purely rational, but in normal times it’s beneficial: it encourages sober habits and discourages quick fixes. But, in times of crisis, other policies may succeed where pure rectitude can’t. After the Second World War, when the U.S. was struggling beneath a huge pile of debt, higher inflation helped shrink the real national debt to manageable proportions. And, in times when people are reluctant to take risks, a little inflation can help grease the skids. In doing this, though, inflation helps debtors and spenders at the expense of creditors and savers. It’s easy to see why this makes us uncomfortable. It seems to reward those who have behaved recklessly, and to punish those who played by the rules, saving their money and living frugally. But the economy doesn’t exist, in the end, to reward virtue and punish vice. It exists to maximize our well-being, and, currently, doing that may require helping the undeserving and irresponsible, if only because there are so many of them. Boosting inflation isn’t the right policy, but it may just be the correct one. ”

Read the full piece at the New Yorker.

USA: SEC proposes increased disclosure for public companies' short-term borrowing

The Securities and Exchange Commission has published for consultation proposed new rules the purpose of which is to increase the disclosure provided by public companies in respect of short-term borrowing.

The SEC's proposal would shed a greater light on a company's short-term borrowing practices, including what some refer to as balance sheet "window-dressing." The proposed rules are aimed to enable investors to better understand whether amounts of short-term borrowings reported at the end of reporting periods are consistent with amounts outstanding throughout the reporting periods.

"Under these proposed rules, investors would have better information about a company's financing activities during the course of a reporting period — not just a period-end snapshot," said SEC Chairman Mary L. Schapiro. "Investors would be better able to evaluate the company's ongoing liquidity and leverage risks."

Further information is available in the SEC's press release, available here.

Right of First Refusal

The Ruia’s had one with Hutch. Mukesh Ambani used this to scotch Anil Ambani’s deal with MTN. And more recently ONGC has claimed the same right in the Vedanta-Cairn deal. Yes, I am talking ROFR or the Right of First Refusal also known as preemption right or in other forms a tag-along drag-along right.

ROFR’s are commonly used across corporate India, especially in joint ventures. They were considered legally valid till a Delhi High court decision in 2005 and more importantly a Bombay High Court decision this year ruled that ROFRs are in fact not legally valid. Those decisions were based on the premise that Section 111A of the Companies Act 1956 provides “That shares or debentures and any interest therein of a company shall be freely transferable”.

A recent judgement by a divisional bench of the Bombay High Court in  Messer Holdings Limited v. Shyam Madanmohan Ruia upholding the validity of agreements like ‘right of first refusal’ between promoters of unlisted firms and strategic investors, has come as a big relief for both companies and private equity funds which invest in these firms. The court ruled that such arrangements do not violate Section 111A of the Companies Act, which holds that that shares and debentures of companies must be freely transferable.

This is a reversal of an earlier judgement in Western Maharashtra Development Corporation Ltd. v. Bajaj Auto Ltd by single bench of the same court in March that had deemed any restriction on free transfer of shares as illegal, and by extension ‘first right of refusal’, or ROFR, and other agreements that strategic stakeholders like private equity investors enter into with promoter groups.

Under ROFR, a private equity fund, planning to exit the company, is obliged to give the promoters an opportunity to buy the shares before the shares can be sold to a third party. Many corporates , unlisted as well as some listed ones, have such agreements with large shareholders.

In addition, there are other agreements such as tag along and drag along. Tag along right is a contractual obligation that protects a minority shareholder (usually in a venture capital deal) in case the promoter is selling out. In such an event, the minority shareholder has the right to join the transaction and sell his or her minority stake in the company. In a drag along, arrangement, the minority shareholder has the right to force the majority shareholder to join in the sale of a company.

The Division Bench of the Bombay High Court has analysed and interpreted the provisions of Section 111A of the Act. In brief, the Division Bench held that:

·         A company or all shareholder of the company need not have to be a party to a shareholder’s agreement and that such an agreement need not be embodied in the Articles for it to be enforceable on contracting parties.

·         If arrangement by a particular shareholder relating to his own shares by way of pledge or preemption was to be restricted by the Company, then there ought to be an express provision in that behalf in the Articles.

·         The sweep of Section 111A of the Act was intended mainly to restrict the right of Directors of the Company to refuse transfer of shares. It is not intended to and does not affect the right of shareholders to deal with their specific shares or to enter into any consensual arrangement or agreement regarding their shares (by way of pledge, pre-emption, sale or otherwise).

·         The shareholder has freedom to transfer his shares on terms defined by him, such as Right Of First Refusal (ROFR), provided the terms are consistent with other regulation

·         The fact that shares of a public company can be subscribed and there is no prohibition for invitation to the public to subscribe to shares, unlike in the case of a private company, does not curtail the right of the shareholder of a public company to arrive at consensual agreement which is otherwise in conformity with the extant regulations and the governing laws.

·         The legal provision of Section 111A of the Act does not expressly restrict or take away the right of shareholders to enter into consensual arrangement or agreement in respect of shares held by them. The expression “freely transferable” in Section 111A of the Act does not mean that the shareholder cannot enter into private arrangement with the third party (proposed transferee) in relation to specific shares. 

     

The decision will put to rest an uncertainty created by the decision of the Single judge of the Bombay High Court in case of Western Maharashtra Development Corporation Limited vs. Bajaj Auto Limited (2010), where it was held that in case of a “public company”, its shares are freely transferrable under the Act even if the Articles of Association (the Articles) contain restrictive provisions relating to transfer of shares.

In view of the Division Bench decision, existing arrangements in Articles of public companies which contains restrictions on transfer of shares and debentures such as ROFR, Tag-along rights, Drag-along rights and similar other arrangements can continue to be enforceable.

New Zealand: The Financial Markets Authority

The Financial Markets (Regulators and KiwiSaver) Bill was introduced in Parliament earlier this week and provides for the creation of the new financial regulator, the Financial Markets Authority (FMA), and sets out its objective, functions and powers.

The Financial Markets Authority (FMA) will consolidate functions currently fragmented across the Securities Commission, the Ministry of Economic Development, including the Government Actuary, and NZX.A key focus of the FMA will be on visible, proactive, and timely enforcement.

It will enforce securities, financial reporting, and company law as they apply to financial services and securities markets. It will also regulate and oversee, trustees, auditors, financial advisers and financial service providers including people who offer investments.

It is expected that legislation establishing the FMA will be passed this year, and it will be up and running early in 2011. A copy of the Bill is available here.

Whistleblower Sues Moody's for $15M in Defamation Suit

A whistleblower is an employee who reports company misconduct and legal violations, such as fraud or financial malfeasance. Whistleblowers are offered protections by a number of state and federal laws, therefore it is imperative that the company does not violate the law when a whistleblower sues the business. Besides the obvious legal risks, a poorly handled whistleblower case can create a public relations nightmare.

A recent case involving Moody's Corporation illustrates such a case. Eric Kolchinsky, a former Moody's analyst criticized the company after facing a demotion and suspension. Kolchinsky alleges the demotion came as a result to his complaints over illegal internal business practices. Kolchinsky is now suing Moody's and its CEO in a defamation suit.

Eric Kolchinsky, the former Moody's Corp. analyst who criticized the company after allegedly being demoted and then suspended for complaining internally about its practices, sued the firm, its credit-ratings unit and chief executive officer for defamation. Kolchinsky claims that Moody's was falsifying ratings information and committing securities fraud in the process.

Kolchinsky alleges that after his complaints, Moody's made false statements to "undercut his credibility and portray him as disgruntled, potentially unstable and unprofessional," according to the complaint in a civil suit filed today in federal court in Manhattan, Bloomberg reports. Kolchinsky, 39, is seeking at least $15 million dollar for damage to his professional reputation.

This case illustrates why it is important to have procedures in place to allow grievances to be raised internally, without fear of retribution by the company. In addition, once an employee has made such a complaint, it is imperative that the company follow all applicable whistleblower laws to avoid making an already bad situation exponentially worse.

Can E - Learning Replace Classroom Learning?

Online Learning or e - learning clinched a business of $50 billion with some 3.5 million students benefiting from it in 2006 and the figures are only leaping. A report by Ambient Insight Research suggests that in 2009, 44 per cent of post-secondary students in the USA were taking some or all of their courses online, and projected that this figure would rise to 81 per cent by 2014.  In a couple of decades, it is touted to touch a trillion dollars, when third world countries are expected to wipe out rural illiteracies though online education, and with a laptop costing just Rs. 1500 in India it’s no longer a dream. The Letter "e" in e-learning does not stand for just electronic in today's context. As the learned author Luskin puts it, it is interpreted to mean exciting, energetic, enthusiastic, extended, excellent, and educational in addition to "electronic".

With more and more youngsters using the internet these days, online education has found a worldwide acceptance due to its flexibility. In many developing nations e-learning has not only been welcomed in formal educational institutes but is also adopted by the administration as a method of imparting education. This seems to be a blessing of the new-generation technology which makes teaching possible anytime and anywhere.

But the popularity of e-learning has raised many questions regarding the relevance of traditional classroom teaching in the new world and whether teachers teaching in schools and colleges are gradually becoming dispensable. What about the existence of the text books? Can e-learning companies take over the publishing companies? Does that mean our classrooms are going to turn obsolete?

Well the basic answer to all these questions is that the key areas of framing a course and its execution are the same be it a formal classroom teaching or online teaching. The basic factor in the both the cases is the effective learning. Learning is not a passive experience. Instructors do not teach, they help people to learn. The primary responsibility for the learning experience rests with the student who must be motivated to be an effective learner. Both classroom teaching and online teaching need to have a systematic approach to a course.

Classroom learning stands for formal learning for it has stated objectives and gives fixed results. Some kinds of e-learning also give formal education and learning experiences online. Online learning is boosting up because of its flexibility. In many contexts, online coaching is self-paced and the learning sessions are available 24x7. Learners are not bound by a specific day and time to physically attend classes. Most online learning environments are accessible from a standard internet connection and typically require average home computer system requirements. Students often correspond and share ideas with other students taking the same course via e-mail and correspond with instructor/mentors for clarification of concepts. Group discussions can be mediated by the instructor and facilitated in real time via any of several chat services. One of the major benefits of completing a course online is that you can fit it around your work schedule, and when you have a spare hour you can log on and do a bit more of your training. In the developing countries context, online coaching is all the more relevant, not only for reaching out to the rural illiterate mass through technology, but also for higher levels of learning.

However e-learning is not without its flaws. Here only motivated students who are matured enough to take the responsibility of their studies on their own can do well. Unmotivated students either end up not doing anything or not finishing their course which means nothing but a waste of time. Other than this adequate computer knowledge in students and proper interaction between the learner and the instructor is mandatory which in most cases prove to be a weakness. Many people still think classroom teaching the best mode of education.

Classroom training under the right conditions is still one of the most effective training methods available. Classroom time should be dedicated to organized case study, team problem solving, and labs that re-enforce concepts learned thru self-study. The classroom training experience should be enjoyable and productive. None of the systems can completely replace the other and online learning in no way can be thought to replace formal classroom teaching completely. E-learning best complements the already existing education system. The perfect classroom teaching should be followed by a successful completion of web-based course and online group assignments to make the learners more competent to face the competitive world outside. Learning highly depends on the individual's motivation to learn. So it still comes down to the effort that the students put into their education that ultimately determines how much they will retain and how beneficial the overall experience was to their future career.

Toddlers and CEOs

Monday's Financial Times struck a very interesting chord with toddlers and CEOs.  Author Lucy Kellaway treated readers to an extended comparison of toddlers and CEOs. A sample:

Both groups tend to swagger round with a wide-legged gait.  Both say "mine" a lot and are exceedingly bad at sharing.  Both have short attention spans.  Both lack common sense and have issues with listening.  CEOs and toddlers are also hazy about the existence of other human beings, tending to view them as objects.  They both inspire fear in the hearts of their handlers.  And anyone who has observed how toddlers behave on aircraft will realise why it is a good idea for CEOs to travel in private jets. 

Some good toddler and CEO traits are:

• Toddlers are full of energy and enthusiasm. You can't beat a toddler who is really into something and going for it 100 per cent.
• Toddlers are natural risk-takers. They throw themselves into climbing down the banisters in the boldest, bravest fashion.
• Toddlers are persistent. When told not to smear jam on a DVD, they will wait a couple of minutes and then do it again.
• Toddlers are inquisitive. They will not be fobbed off with a stock reply but go on asking "why? why? why?"

·      Toddlers are creative. Their felt-tip drawings on walls and sofas betray the liveliest imagination.

·       Toddlers have great interpersonal skills. They are good at thawing the hardest heart with hugs and sloppy kisses.

Kallaway adds more qualities: that two-year-olds are "assertive and jolly good at saying no.  They are not hamstrung by inhibitions...They are good at making decisions." 

The toddler theory of leadership says that good leaders have the right skills already, the trick is to avoid dulling their edges with too many civilised niceties picked up along the way.

ACGA report on number of independent directors in Asia - Rules and Recommendations

An independent director has no material relationship with the company in which he or she serves as director. An independent director cannot be employed or have a family member employed by the company. Such directors are important because they bring unbiased opinions regarding the company's decisions and diverse experience to the company's decision-making process.

The Asian Corporate Governance Association (ACGA) has published a useful overview of the rules and recommendations regarding independent directors in Hong Kong, China, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. For example in Hong Kong as per the rule the board should consist of at least three independent directors and the recommendation of ACGA is at least one third of the board should be independent directors.   Full report.

Basel Committee agrees higher global minimum capital standards

At its 12 September 2010 meeting, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced a substantial strengthening of existing capital requirements and fully endorsed the agreements it reached on 26 July 2010.

The Committee's package of reforms will increase the minimum common equity requirement from 2% to 4.5%. In addition, banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirements to 7%. This reinforces the stronger definition of capital agreed by Governors and Heads of Supervision in July and the higher capital requirements for trading, derivative and securitisation activities to be introduced at the end of 2011. For further information see here.