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Describe the Non-Shareholder Ways in Which Company Management Is Controlled and Governed

Autor:   •  November 13, 2018  •  1,067 Words (5 Pages)  •  297 Views

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When Maxwell started to get into financial difficulties he started moving funds from the pension fund into his privately owned companies. This pattern of plundering the pension fund became common practice. Lastly, his media empire finally collapsed when it was discovered that 450 million had been stolen from the employee’s pension fund.

B) The Enron case

CEO Jeffrey Skilling had a way of hiding the financial losses of the trading business and other operations of the company; it was called mark-to-market accounting. This technique used when trading securities where you measure the value of a security based on its current market value, instead of its book value. This can work well for securities, but it can be disastrous for other business. The mark-to-market practice led to schemes that were designed to hide the losses and make the company appear to be more profitable than it really was.

At Enron’s peak, its shares were worth $90.75, but after the company declared bankruptcy on December 2, 2001 they plummeted to $0.67 by January 2002.

5). Read Illustration 3.5 on page 72 of Solomon’s book. Disucss the critical view of corporate governance presented therein. Do you agree with this point of view?

- Some people feel that corporate governance mechanisms slow down decision-making and stifle entrepreneurship.

- I do no agree with this point of view because CG encourage company to perform splitting because it can avoid abuse of power.

- A recent survey revealed that corporate governance codes and guidelines is limiting shareholder value. Their expenditure on corporate governance was not adding much value for shareholders.

- I do no agree with this point of view because company with high CG is worth more. Stakeholders are more willing to pay premum for the company.

- They felt that their efforts to communicate more effectively with institutional investors were being wasted.

- I do no agree with this point of view because before the client invest, they will do research and read at the annual report or other materials provided by the company.

- CG is reducing the risks of potentially huge losses to shareholders.

- I agree with this point of view because it can be seen in the recent focus on improving internal control systems and risk management practices.

6). Read illustration 3.6 on pg74. Discuss the cynical views of corporate governance presented therein. Do you agree with the point of view?

Yes, I agree with the point of view.

- Chairman and CEO determine their own remuneration

- Focuses on their own interest first

- Companies are avoiding tax – cheating

- Profit first – despite their attempts to look socially responsible

- Improper info given by auditors – window dressing to look more profitable

- No transparency - Individual shareholders have no enough info to hold corporate management accountable

- Institutional investors have resources but not enough interest to involved in company’s corporate governance

- They focuses on profit


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