Corporate Governance
Identify the corporate governance problems leading up to the corporate scandals of the early 21st century. Which of these problems might McBride fall prey to if Hugh does not accept your proposed solution?
Corporate governance has provided its fair share of publicity over the past decade. Most of which was a result of foul practices on the part of management, while some was due to a genuine interest in investor well being. Many issues of corporate governance have led to many of the scandals that have been publicized in recent years. Below is list of many of these practices and how they subsequently affect business on a global scale. This list is by no means exhaustive but I do believe it provides significant information as to why some of the scandals of recent years have occurred.
Management as owners vs. Management as representatives- This statement may seem one in the same but prior to 1990, management's duties and responsibilities where polar opposite to those of today. In the 1980's management was seen primarily as a "representative" of the entire business entity. As a result, stockholder and investor interests where junior to the needs of the overall business. Managers did not use assets in a manner is which stakeholders benefited. In fact, most management was inclined to underuse capacity. Companies with competitive advantages such as economies of scale or distribution networks simply did not use them to their fullest extent. This benefited the manager who had compensations packages that were based very loosely on metrics that can be easily manipulated. This metrics included revenue, earning per share, and sales growth (1). All management had to do was to simply alter assumptions within the annual report to "create" earnings or manipulate earnings as their compensation was not in the form of stock. For example, one method earnings can be created or manufactured is by manipulating the pension fund assumptions in the annual report. By "expecting" a higher growth rate within the pension fund, a company can contribute less overall fund the pension. These pension savings are then transferred to the bottom line as a profit increase, when in reality; the increase was a result of accounting gimmicks (2). Such was the case in the 1980's as many companies used these gimmicks to manipulate financial information. To be fair, the 1980's and prior decades where marked with economic uncertainties that created a sense of caution among businesses. This cautious attitude can reasonably attribute to the notion of unutilized capacity. However, this underused capacity was still a detriment to shareholders as costs per unit and overhead per unit increases due to this unused capacity. What would eventually ensure was a wave of hostile takeovers and proxy fights in an effort to better align corporate goals with those of its owners. Many investors who found companies with assets that where not utilized to their fullest potential would simply obtain a majority stake in the business and either sale or use those assets to generate profits or cash. Companies began to take notice and began to better align corporate objectives with owner objectives through the issuance of stock options.
Direct Appointments and the Board of Directors- the Board of Directors; seem to most, as an elite group of businessmen and women who offer their expertise to better aid the overall operations of the business franchise. This expertise, which many believe to be rare, will help the business navigate tumultuous economic uncertainty while generating earnings growth for years to come. In exchange for their expertise and service, they are appropriately compensated relative to their peers with similar background and knowledge. On the surface this form of corporate governance seems adequate. However, upon further examination, the Board of Directors is in many respects, nothing more than a face of the company. For one, the board only meets, at most, 10 times a year in many instances. These ten meetings usually don't consist of anything material in regards to the operations of the overall business (3). In fact, it is my opinion, that these meetings detract from shareholder wealth as many board members command high salaries but do not benefit the business. Additionally, the board is usually good friends with the CEO. In fact the CEO can be chairmen of the board! This presents a conflict of interest as the board does not want to "Bite the hand that feeds them." To further illustrate this point, on many instances the board is elected by the shareholders. The shareholders however defer to top executives as they believe they are closer...
Corporate Governance As some queries about corporate governance were there ever since 1932 - the period of Berle and Means, the expression of the concept of Corporate Governance was not found in English vocabulary until 25 years ago. However, in the previous two decades, matters relating to corporate governance have gained importance in academic literature as well as in public policy deliberations. Corporate governance came to be acknowledged as being synonymous
Corporate Governance Two different, yet related corporate governance definitions have been presented in this paper (Mallin, 2006: 3). Sometimes they cause confusions and controversy and ultimately affect the implementation of tightening of governance (Windsor, 2009). The 1992 Cadbury Report, which presented the major proposals for tightening governance, described governance as the system through which firms are managed, regulated and supervised (Cadbury, 1992: 15). The fundamental agency idea emphasizes that corporate governance has
Corporate Governance: A review of Literature What is Corporate Governance? Principles of Corporate Governance Theoretical foundations of corporate governance Agency theory Stewardship theory Stakeholder theory Post-Enron theories Corporate Governance: The changing trends Recent developments on regulatory front and research Corporate Governance: Relationship with market indicators Venture Capital Model: Impact on Corporate Governance Appendix I- Examples of Corporate Governing bodies This paper is a review of pertinent literature on corporate governance. Corporate governance addresses the control issues created due to the separation of ownership
Corporate Governance Sustainability During the last several years, the issue of corporate governance has been increasingly brought to the forefront. This is because the financial crisis exposed the weaknesses of the current system by: failing to protect the interests of stakeholders. In response to these challenges, various reports have been reexamined. One of the most notable is the King Report of 2002. It identified several different criteria that can be used
Corporate Governance in Harris Scarfe: Harris Scarfe Department Stores is a company that was founded in 1849 in Adelaide, South Australia and housed various major South Australian department stores. The history of the organization is traced to a period when the founding partners John C. Lanyon and George Peter Harris arrived in this region to institute an ironmongery and hardware business. In the initial years, the company carried out its business
Corporate Social Responsibility in Indian Pharmaceutical Industry An Exploratory Study Outlook of CSR in India History of CSR in India Philanthropy in Indian Society Modern Form of CSR in Indian Society Profile of Indian Pharmaceutical Industry Rationale for Selection CSR Activities by Indian Pharmaceutical Companies Major Influences Over CSR Activities Scope of CSR Activities Comparison of Indian & Western Pharmaceutical Companies This research paper is concerned with the recent practices of Indian pharmaceutical companies in the field of corporate social responsibility. For
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