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The importance of corporate governance
Mortgage crisis of 2008
Analyze corporate governance
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The following is an essay which discusses the issue of whether Shareholders should have a say on Executive Compensation. Corporate governance can be defined as a set of procedures by which an organisation is regulated. The framework ensures transparency and accountability in business dealings whilst taking into account stakeholders’ interests. Executive Compensation, a formerly marginalised topic in British society and corporate world, has been brought to the frontline of British society by extensive media coverage, due to the subprime mortgage disaster which caused the collapse of some banks, most notably, RBS and Lehman Brothers. In a post recession world, Government regulators have enforced more regulations and demanded for more transparency …show more content…
Shareholders defined as people who have shares in the company have the primary goal to maximize their investments. Neate reports that the profits of the company “dropped by $1.5 billion, however the Chief will get a $3.3 billion cash bonus” (The Guardian, 2013). Shareholders want to maximize their interests and according to corporate governance, Managers are accountable for their actions and they should have shareholders’ interests at heart; an opposite of this is illustrated in this article. This situation explicitly suggests that Shareholders revolted because pay and performance were not linked together with Executive pay. Profits have fallen which means that there could be a reduction in dividends given to the shareholder. Shareholders and Board members should reward Managers for success, not failure. If Managers meet set targets and increase the profits of the company, they should have an increase in pay to reflect their actions and vice versa if a Manager does not meet targets. Shareholders must have a say on Executive pay as an incentive must be in place to guarantee the maximization of profits, the main goal of a …show more content…
The argument assumed in this paragraph is a case whereby the Shareholders implement a pay with performance wage. If an Executive keeps exceeding profits of the previous year thereby maximizing dividends of the shareholders whilst increasing pay, a case of managerial hubris might develop. The CEO develops an aggressive expansion strategy and a risk appetite which results in investing in high risk stocks which produce high returns but are volatile and unstable. This case occurs as the Executive wants to please the shareholders goal of the continual surge of dividends, whilst increasing their prestige and pay as it gets harder and harder to surpass the previous year profits. A report by Manigent justifies the previous assertion by concluding that the aggressive expansion of RBS “in relation to poor decision making in relation to risk” caused the downfall of the bank.RBS acquisition of ABN AMRO contributed towards the downfall of both banks (Manigent, 2013). RBS already operating with a high leverage were exposed to the subprime market and gained toxic debts and assets from ABN whilst having an unrealistic integration plan. Most importantly, to address the statement put forward, this takeover was purely fuelled by managerial rather than strategic ambitions. The CEO, Fred Goodwin, who was over
Nonprofit executive compensation should be within a range that generously rewards the executive for meeting goals and a job well done while not taking away from the nonprofits ability to meet the needs that it serves. A good leader has not met the duties of the job if they spend extremely high amounts on travel and office supplies or personal equipment without fairly compensating their staff or while reducing benefits to the cause. When government funds are secured for a cause or people give to a charity, people often assume that the money is going directly to the cause. It is understandable that the charity has business expenses including staff compensation but there is something that doesn't feel right when you see leadership of the
As noted in the case, their initial payout ratio was 15%. However, when they considered increasing their dividends, they wanted the payout ratio to be 25% to 30%. The issue at hand is whether or not they can keep a consistent payout even with their drop in sales and earnings in 2003. T...
CEO compensation has been a heated debate for many years recently, and it can be argued that they are either overpaid or that there payment is justified by the amount of work they do and their performance. To answer the question about whether CEO compensation is justified it must be looked at by the utilitarian viewpoint where the good of many outweighs the good of one. It is true that many CEO’s are paid an exorbitant amount of money; however, their payment is justified by the amount of money that they bring back to the company and the shareholders. There are many factors that impact the pay that the CEO receives according to Shah et.al CEO compensation relies on more than just the performance of the CEO, there are a number of factors that play a rule in the compensation of the CEO including the fellow people who help govern the corporation (Board of Directors, Audit Committee), the size of the company, and the performance that the CEO accomplishes (2009). In this paper the focus will be on the performace aspect of the CEO.
When new competitors enter the market, they will have high costs of production due to the lack of economies of scale.... ... middle of paper ... ... The employees’ earnings and promotions were determined in direct proportion to their individual compensation towards the company’s success.
In contrast , the shareholder theory organisations or organisation's decision-makers only have the responsibility to their shareholders by increasing the organisation profits and should only make the decisions to increase as much as possib...
This report gives the brief overview of the concept of corporate governance, its evolution and its significance in the corporate sector. The report highlights various key issues and concerns that are faced by the organizations while effectively implementing and promoting Corporate Governance.
The economy is always changing, and new ideas continue to be created, tested, and integrated into the financial world. Before World War II, wealthy families owned most companies and businesses. The families, or select wealthy individuals, dominated the economy and the rest of the population had little to no involvement in it. Takeovers, or buyouts of other companies were done in small scales, because the families lacked the funding to takeover larger companies. However, after the War the opportunities to participate in the economy slowly expanded. As the American communities began to recover, the economy slowly began to prosper once again. People began to invest more in companies, and buy shares in larger corporations, which allowed them to have some control over the management’s decisions. The old notion that companies were mostly family owned began to fade out; the owners were growing old and wanted to “avoid estate taxes and retain family control”. This left two options for them: either to make their family corporation in an initial public offering (IPO), or to have a larger company takeover. Neither of these options allowed the family to maintain complete control over their business. When Henry Kravis, Jerome Kohlberg, and George Roberts, began their careers in economics, they slowly began to utilize their own ideas and strategies, and eventually formed their own company. They reintroduced something called the leveraged buyout (LBO), a practice sparsely utilized by investors in the 1950’s, which later became the most popular form of takeover during the time. This buyout became the “third option” for the previously family owned companies to continue owning the business, but there were many other aspects included. These three...
Managers’ decisions on determining the size and time of a company’s next dividend payment are also important for both companies and shareholders. They will affect the company to distribute an appropriate amount of dividends at the right time. This essay will discuss whether theories of dividend payment, such as the dividend irrelevance and signalling effects, are applicable in the real world. It will then describe some key factors that managers should consider when deciding the time and size of a company’s next dividend payment. Finally, it will conclude with the significance of a company’s decision on dividend payments.
It is concluded that neither of the above proposals are adequate in that any practical benefit that results from the proposal such as employee and shareholder engagement are outweighed by the theoretical impact of increasing the overlap of the organs which would alter the structure of company law. The legal side of directors’ remuneration appears to be sufficient with the directors’ duties legislation acting as an efficient preventative measure for the problems that directors’ remuneration creates. Furthermore, shareholders already must approve several payments as such this could be strengthened to tackle the issue and employees are to some extent taken care of within s172 as such it is these sections that need development rather than directors’ remuneration.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
The end of 2001 and the start of 2002 saw the end of a period of magnified share prices and booming businesses. All speculations of misrepresentation came to light and those firms which once seem unconquerable were now filing for bankruptcy. Within this essay, I shall discuss the corporate governance mechanisms and failures which led to the Enron scandal resulting in global corporate governance reforms being encouraged.
Trimming fat and reducing management layers is inevitable. However, boosting shareholder wealth by stepping on the stakeholders is immoral and unethical. While it is hard to say definitively what the right answer here was, we can examine some of Kidder’s principles of resolving ethical dilemmas to evaluate the decisions made. For example, ends-based thinking, which refers to doing what is best for the masses, was clearly not accounted for in this decision making process. Shareholders and senior management seemed to be the benefactors in CSC’s example. Furthermore, the care-based thinking principle also seems to have been neglected in this decision making process. I would find it difficult to imagine that senior leaders contemplated their proposed behaviors as if they were the object rather than the agent, and consulted their feelings before determining that 40% of the workforce must fall into the category of not meeting expectations (Hughes et al., 2014). Overall, CSC’s decisions were clearly not entirely moral or
Remuneration management is defined as the sum received for an employment or service delivered, this includes the money received on a monthly basis as well as benefits given as rewards (investopedia,para.1 ). Individualism need to be taken into account when implementing these remuneration structures or reward schemes, equal pay plays a role in balancing earnings among the diverse workforce (Shen, Chanda, D’Neetto and Monga,2009,p.241). The Woolworth’s Holdings uphold remuneration policies which have the purpose of making sure to attract and hold on to the best talent, that they are congruent with the strategies of the company and are the determinants of performance during the short and long phases. The policy considers the board members and the employees. This policy manages employees of the company by giving...
Job satisfaction includes challenging work, interesting job assignments, equitable rewards, competent supervision, and rewarding careers. The quality of work life and psychological rewards from employment are very important. It is doubtful, however, whether many of us would continue working were it not for the money we earn. This paper establishes the definition of compensation, overview of compensation philosophy, critical components of a compensation strategy, and an example of an effective compensation practice. (www.indiana.edu/~busx420/Book.../chap09.doc)
There has been a drive towards corporate governance which has been driven by a greater need for shareholder protection. If investors feel well cushioned then there is a higher chance that t...