INTRODUCTION
After decades’ dramatically expansion, the Loewen Group Inc, the second largest death care company in North America, went downhill abruptly in 1998. Compared with those in 1997, its net income decreased from $42.7 million to $599 million in deficit, meanwhile, its long-term debt due in one year increased by more than 2000%, from $43.5 million to $874.1 million, and total liabilities exceeded the total assets by $326.8 million (in US dollar). Because Loewen could not get out of its financial crises, in June 1999 the company had to file for bankruptcy protect.
ANALYSIS
As to the causes of the company’s bankruptcy, some people blamed the accounting principle the company used; many others attributed the business failure to the risky expansion strategy the company adopted. I agree that the company’s management should take the lion’s share of blame, however, the board of directors and shareholders should take the other shares. That is, the company’s bad corporate governance made Loewen out of the business.
Corporate governance, as OECD defined in 1999, “ is the system by which corporations are directed and controlled.” Three participants involve in this system, the board, managers and shareholders. The system distributes rights and responsibilities among the participants in the corporation, regulates and monitors their conducts as per standard principles and procedures. Corporate governance arise whenever a company’s ownership separates from management, because managers, as Adam Smith mentioned in his “ The Wealth of Nations”, can not well expected to watch over shareholders interests as serious as over their own. As such, the board is introduced to make sure the management works on the best interests of the company in the long run by monitoring and regulating managers’ performance on behalf of shareholders. If the board does not response or only wants to be pacifist in case the management does wrong, the shareholders’ interests will be inevitably damaged as what happened in Loewen’s case.
There are some examples we can take from Loewen’s to demonstrate how the management fails to fulfill its commitment to the shareholders:
• Used improper accounting practice
Loewen used an improper accounting practice to book its pre-need sales. After the customers made a down payment, Loewen started to recognize the customers’ purch...
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...hairman and CEO, who may have his own interests other than other shareholders.
Good corporate governance practices would have helped to solve the issues:
• Align the company’s accounting principles to make sure they are in compliance with GAAP and the law.
• The independent compensation committee would review the compensation packages granted to the management to make sure they were reasonable.
• Review and guild the company’s strategy, major action plan and risk policy. In Loewen’s case, the risky acquisition strategy would have been rejected.
• By adding up the number of independent directors, enhancing transparency, hiring an outside CEO, to make the board separate from the influence of the management, and ensure the shareholders be informed about the company real situation.
CONCLUSION
Because the exist of principle-agent issues, companies need good corporate governance to make
each participant devote its own responsibilities. A conscientious independent board is essential in protecting shareholders and company’s interest.
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[3] Baseball then expanded itself and moved on to integrating young men of “means and social positions.” In the 1850’s, baseball had a tremendous power that engaged many people from the East Coast part of the country. It got artisans, tradesmen, and shipwrights to form teams and play against each other. These teams of working men played against other teams that were made up of socialites. Within these club teams, though, there was a lot of disagreement because the people who used to partake in these games were mainly from the New York and Massachusetts areas. There were many discrepancies between the New York rules and the Massachusetts rules. This then led to the founding of the National Association of Baseball Players on March 10, 1858.
As it can be seen from this year’s inventory shrinkage table, there has been a large amount of theft within the business. 75% of this comes from customer theft. The business does tag and register all equipment, however on it’s own it isn’t effective as large portions of items are still being stolen. Secondly the business does not provide accurate and reliable financial information. As it can be seen, 22% of inventory shrinkage cases are from administrative errors and 30% of cash shrinkage also occurred because of administrative errors. Thirdly the business has a large exposure to risk. They have large amounts of assets stolen (75% customer theft), no overdraft facility which makes it harder to pay expenses and unexpected expense. The business also has only one administrative officer which makes the business more prevalent to fraud. The business does have insurance to cover this however, the damage may not suffice the fine print on the policy. Overall, neither of these criteria have been met which means that Rankins does not have effective financial control over their
Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash.
Maximize the interaction with in the group to facilitate unity of the three individual groups (management and workloads)
As a faithful follower and player of American Baseball, this topic was of extreme interest to me. The origins and history of a lifestyle that I have dedicated the overwhelming majority of my life to has always caught my attention. Baseball, being America’s national sport, is a crucial illustration to understand when discussing the overall societal circumstances at that time. One of baseball’s most important tasks was integrating the sport and allowing people of every ethnicity to have a chance to play the sport at an equal playing field. Although we now know that the efforts to desegregate baseball were ultimately a success, to what extent were the efforts a direct success during that time period? Did the unification of different ethnicities in America’s national sport have an effect on the amount of time desegregat...
external and focus on moneymaking. The responsibilities and decisions of a chief executive officer may seem daunting, how...
African-American baseball players had been a part of professional baseball when it was first starting in the 1880s. Some black players had signed a contract already with their team, but the International League banned blacks from signing anymore. Blacks that were already under contract were able to finish until it was up, but they were not allowed to renew it. Ever since that, Major League Baseball was a segregated sport until the late 1940s. The major league owners had conspired together and wrote what was called a “gentlemen's agreement” to keep black players out of the game. This did not stop African-Americans from achieving their goal of playing baseball. They organized their own teams and played “pickup games” with anyone that ...
Chang, S. Suk, D. Failed takeovers, methods of payment, and bidder returns, Financial Review. 33 (2), May 1998.
The current circumstances have made us re-think about the governance of our company. To resolve certain issues like spread of our businesses, incompetent management, improper structure and high attrition rate has been addressed here. The strategic options evaluated are Divesting from some of the businesses, Re structuring the management by giving generalised top management or using specialized management. The options are evaluated on the basis of cash position, future projection, Repute preservation and efficient functioning of management. On the basis of these, I recommend to divest from irrelevant and non-performing businesses. This will ensure company’s smooth running and sustained profitability.
The purpose of preparing the consolidated financial statements is in order to combine the identifiable assets and liabilities (and contingent liabilities) and equity of two separate entities. At the date of acquisition assets and liabilities are measured at their fair value in order to ensure that assets are not overstated and liabilities
Confucius is known for stressing that human nature is intrinsically good. He stresses that human beings are born with the ability for differentiating between wrong and right. A person may not be aware from infancy which acts are tolerable and which acts are not, but all offspring feel shame, and once the children learn which deeds are bad or good, they have a normal tendency to consent of the former and criticize of the latter (Van and Bryan 27).
Among the study’s findings were that the deciding factor of the predictor of bankruptcy should not be only a few ratios, as the measure of a company’s financial solvency may differ as the firm’s situations differ. The important question is to which ratios are to be used and of those ratios chosen, which ratios are given priority weight.
Clarkson Lumber is a company experiencing rapid growth but with a constant cash flow crisis. This is not an unusual confluence, but it does require some financial decision-making. Their current state of under financing makes a number of their ratios look poor.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
K, . N., ER, w., DAVID, K., PAUL, M., WALTER, O., & EVANS, A. (2012). Corporate governance theories and their application to boards of directors: A critical literature review . Prime Journal of Business Administration and Management (BAM), 2(12)(2251-1261), 782-787.