Comparative Corporate Governance
Economic Views of the Company and its Governance
Professor John Paterson
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Economic views of the firm
An outsider to the field of economics would probably take it for granted that economists have a highly developed theory of the firm. After all, firms are engines of growth of modern capitalistic economies, and so economists must surely have fairly sophisticated views of how they behave. In fact, little could be further from the truth.
Oliver Hart
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The basic questionWhy do firms exist?Appear to contradict resource allocation by price mechanism—the marketTechnological requirements—scale and efficiency demands organisation……but much could be achieved by sub-contracting
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Why the basic question matters
For corporate governance, the answer has implications for:
Who is integral to the firmNature of relationship with other actorsRole in governance
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CoaseMarket and organisation are alternative methods of coordinating productionThe firm is chosen when there is a cost of using the price mechanismLong-term contract to obey directions (employment) or provide goods (supply) replaces need to discover price for every transaction
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Coase (2)A firm consists of a system of relationships which come into existence when the direction of resources is dependent on the entrepreneurDivision between market and organisation is determined by calculation of efficiencyFact of direction distinguishes contract of service from contract for services
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Alchian and DemsetzDispute Coase’s idea that the basic characteristic of the firm is directionPower is exercised in the same way in the firm as in the marketFocus is instead on the team use of inputs and the central role of one party in the contractual arrangements of all other inputs
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Alchian and Demsetz (2)
Questions then become:What is team production?Why does it lead to emergence of a firm?
Answer lies in the metering problemEnsuring rewards related to productivity
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Alchian and Demsetz (3)Classical economics assumes productivity creates reward automaticallyFor A & D it is the system of reward that produces the level of productivityTeam production makes metering difficultLeads to the appointment of a specialist monitor
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Alchian and Demsetz (4)
To ensure monitor does not shirk, they are given a bundle of rights:to be a residual claimant to observe input behaviour to be the central party common to all contracts with inputs to alter the membership of the team to sell these rights
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Alchian and Demsetz (5)
What happens if ownership is diversified?Monitoring transferred to managersShareholders retain right to revise membership of management group, to take major decisions affecting company, and to sell shares if unhappy with other decisions
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Alchian and Demsetz (6)Accounts for market for corporate controlFirm is a highly specialised surrogate market (a nexus of contracts)Shareholders confirmed as residual claimants
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Jensen & Meckling
Focus is up.
The Sarbanes-Oxley Act (SOX) aims to improve accuracy and reliability of corporate disclosures. For telecom companies, SOX compliance can help address revenue leakages through initiatives to analyze sources of loss and strengthen internal controls. Telecom companies can leverage SOX to optimize processes, accelerate revenue assurance programs, and enhance transparency in financial reporting.
The document discusses the Sarbanes-Oxley Act and its implications for telecom companies. It requires executives to certify financial reports, establishes oversight of auditors, and aims to increase accuracy and reliability of corporate disclosures. For telecom companies, complying with SOX can help reduce revenue leakages, align data flows, and accelerate initiatives to plug leakage points.
The document discusses corporate governance and ownership structures. It describes how most companies are initially owned by entrepreneurs or small partnerships but may later become publicly traded. This can cause ownership and management to become separated, creating potential conflicts. The document outlines different corporate governance models, including shareholder wealth maximization which aims to maximize returns for shareholders, and stakeholder models which also consider other groups. It describes the roles of boards, managers, markets and regulators in corporate governance systems.
How to set up an investment advisor and arranger in the ukCummings
An investment advisor and arranger in the UK can generally be set up as a limited company or limited liability partnership. It is important to seek tax advice on the appropriate structure. If the firm will conduct regulated activities, authorization from the Financial Services Authority is required. The application process takes 4-6 months and requires demonstrating adequate resources, appropriate systems and controls, approved individuals, and necessary qualifications. Setting up involves incorporation costs, preparing founding documents, the application fee, introducing compliance systems, and obtaining legal and tax advice. Ongoing costs include maintaining regulatory capital and making quarterly financial reports.
The document discusses the Sarbanes-Oxley Act of 2002, which established new regulations and standards for all US public company boards, management, and public accounting firms following several major corporate and accounting scandals. It details how the Act increased costs for public companies through requirements for internal controls, financial reporting, and auditor oversight. While intending to improve ethics, the costs also incentivized some companies to minimally comply rather than fully implement stronger ethics and controls. Violating the Act carries substantial civil and criminal penalties. Overall, the Sarbanes-Oxley Act established new legal and ethical standards for public companies following a loss of trust in financial markets.
The Sarbanes-Oxley Act of 2002 was created in response to major corporate and accounting scandals to increase corporate accountability and enhance financial disclosures. It established the Public Company Accounting Oversight Board to oversee audits of public companies. Key provisions require CEOs and CFOs to certify financial reports, ban auditors from providing non-audit services, require audit committee independence, and provide whistleblower protection to strengthen corporate responsibility and integrity. The Act aims to restore investor confidence through heightened transparency and accuracy in financial reporting.
The Securities and Exchange Commission has been entrusted with a significant corporate compliance regulatory function, which has been expanded by seminal legislation in the recent past such as the Sarbanes-Oxley (“SOX”) and Dodd-Frank Acts. This webinar discusses board fiduciary duties and the tension between state corporate law standards and federal law. Board composition, independence, structure and processes (including best practices in regard to committees) are analyzed. Specifically, director independence is discussed as is audit committees and related requirements, regulations and exemptions. NASDAQ and the NYSE also have similar requirements for director independence and those are also discussed. The webinar also covers disclosure matters related to SOX compliance, including timing and content of an issuer's periodic disclosures. Both the legal requirements and best practices related to disclosure procedures and internal controls under SOX are examined. Means of controlling the costs of SOX, especially for smaller public companies, are also discussed, including trends in the industry related to high regulatory compliance costs. Finally, the applicability and best practices for privately held companies and SOX are considered.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/securities-law-compliance-2020/
The document summarizes the OECD Principles of Corporate Governance, which provide guidance to improve corporate governance frameworks and address issues like:
1) The rights of shareholders and stakeholders and ensuring equitable treatment of shareholders.
2) The responsibilities of boards to provide strategic guidance and oversight while respecting shareholders' ownership rights.
3) The need for transparency and disclosure to establish trust between corporations and investors.
The Sarbanes-Oxley Act (SOX) aims to improve accuracy and reliability of corporate disclosures. For telecom companies, SOX compliance can help address revenue leakages through initiatives to analyze sources of loss and strengthen internal controls. Telecom companies can leverage SOX to optimize processes, accelerate revenue assurance programs, and enhance transparency in financial reporting.
The document discusses the Sarbanes-Oxley Act and its implications for telecom companies. It requires executives to certify financial reports, establishes oversight of auditors, and aims to increase accuracy and reliability of corporate disclosures. For telecom companies, complying with SOX can help reduce revenue leakages, align data flows, and accelerate initiatives to plug leakage points.
The document discusses corporate governance and ownership structures. It describes how most companies are initially owned by entrepreneurs or small partnerships but may later become publicly traded. This can cause ownership and management to become separated, creating potential conflicts. The document outlines different corporate governance models, including shareholder wealth maximization which aims to maximize returns for shareholders, and stakeholder models which also consider other groups. It describes the roles of boards, managers, markets and regulators in corporate governance systems.
How to set up an investment advisor and arranger in the ukCummings
An investment advisor and arranger in the UK can generally be set up as a limited company or limited liability partnership. It is important to seek tax advice on the appropriate structure. If the firm will conduct regulated activities, authorization from the Financial Services Authority is required. The application process takes 4-6 months and requires demonstrating adequate resources, appropriate systems and controls, approved individuals, and necessary qualifications. Setting up involves incorporation costs, preparing founding documents, the application fee, introducing compliance systems, and obtaining legal and tax advice. Ongoing costs include maintaining regulatory capital and making quarterly financial reports.
The document discusses the Sarbanes-Oxley Act of 2002, which established new regulations and standards for all US public company boards, management, and public accounting firms following several major corporate and accounting scandals. It details how the Act increased costs for public companies through requirements for internal controls, financial reporting, and auditor oversight. While intending to improve ethics, the costs also incentivized some companies to minimally comply rather than fully implement stronger ethics and controls. Violating the Act carries substantial civil and criminal penalties. Overall, the Sarbanes-Oxley Act established new legal and ethical standards for public companies following a loss of trust in financial markets.
The Sarbanes-Oxley Act of 2002 was created in response to major corporate and accounting scandals to increase corporate accountability and enhance financial disclosures. It established the Public Company Accounting Oversight Board to oversee audits of public companies. Key provisions require CEOs and CFOs to certify financial reports, ban auditors from providing non-audit services, require audit committee independence, and provide whistleblower protection to strengthen corporate responsibility and integrity. The Act aims to restore investor confidence through heightened transparency and accuracy in financial reporting.
The Securities and Exchange Commission has been entrusted with a significant corporate compliance regulatory function, which has been expanded by seminal legislation in the recent past such as the Sarbanes-Oxley (“SOX”) and Dodd-Frank Acts. This webinar discusses board fiduciary duties and the tension between state corporate law standards and federal law. Board composition, independence, structure and processes (including best practices in regard to committees) are analyzed. Specifically, director independence is discussed as is audit committees and related requirements, regulations and exemptions. NASDAQ and the NYSE also have similar requirements for director independence and those are also discussed. The webinar also covers disclosure matters related to SOX compliance, including timing and content of an issuer's periodic disclosures. Both the legal requirements and best practices related to disclosure procedures and internal controls under SOX are examined. Means of controlling the costs of SOX, especially for smaller public companies, are also discussed, including trends in the industry related to high regulatory compliance costs. Finally, the applicability and best practices for privately held companies and SOX are considered.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/securities-law-compliance-2020/
The document summarizes the OECD Principles of Corporate Governance, which provide guidance to improve corporate governance frameworks and address issues like:
1) The rights of shareholders and stakeholders and ensuring equitable treatment of shareholders.
2) The responsibilities of boards to provide strategic guidance and oversight while respecting shareholders' ownership rights.
3) The need for transparency and disclosure to establish trust between corporations and investors.
BACK TO P r e s id i k 0 f I,, Tikofi &I A s s o c i a.docxwilcockiris
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Governance in the Spotlight: What the
Sarbanes-Oxley Act Means for You
F
ollowing a wave of high-profile corporate business and
governance scandals, Congress passed the Public
Company Accounting Reform & Investor Protection Act
of 2002 (Public Law 107-240), better known as the Sarbanes-
Oxley Act. This legislation contains the most sweeping and
comprehensive set of public-company
governance, financial and accounting
reforms enacted in more than 30 years.
The Sarbanes-Oxley Act, intended to
protect investors and renew public trust in
corporations and their boards, set the stage
for even broader reforms promulgated by
the stock exchanges and other business
and investor protection groups.
These emerging requirements and
standards are widely perceived as
governance "best practices" for both for-
profit and not-for-profit organizations
alike. Attorneys, consultants and
governance experts agree that it is only a
matter of time before the Sarbanes
legislation and the rules and regulations
designed to implement it. will be broadly
applied to not-for-profit governance and
used as the yardstick against which board
performance and accountability are
measured.
S a r b a n e s a t a G l a n c e
While the Sarbanes-Oxley Act leaves
many questions unanswered and allows
federal agencies broad discretion in
enforcing its requirements with publicly-
held companies, the following provisions
are applicable to nonprofit organizations:
• The role of independent directors and
their representation on audit and other key
board committees
• Executive compensation and loan
arrangements
• New disclosure requirements for
changes affecting the company's financial
status and the adequacy of company
financial statements and controls
• Detailed codes of ethics, business
conduct and comprehensive conflict-of-
interest policies.
Each of these areas is discussed in
more detail below.
Independent directors. Independent
directors arc the linchpin of many of the
public-company reforms. To be
considered "independent." directors must
be tree of relationships with the
company/organization or its management
that might influence their decisions.
Relationships affecting director
independence include employment,
vendor, or consulting arrangements, as
well as indirect links through family,
business or charitable organizations in
which the board member may hold an
officer or director position.
Sarbanes-Oxley and the related rules
of stock-listing organizations (such as the
New York Stock Exchange) sharpen the
focus on the role of independent directors
by specifying governance oversight
activities in which only independent
direetors should be involved. For example.
independent directors must meet together
at regular intervals without eithe.
BACK TO P r e s id i k 0 f I,, Tikofi &I A s s o c i a.docxikirkton
BACK TO P r e s i
d i k 0 f I,
, Tikofi &
I A s s o c i a t e s , C h i c a g o , 111.
( 7 7 3 ) 2 6 8 - 8 0 0 6 ^
M a r y T o t t e n , P r e s i d e n t ,
T o t t e n & A s s o c i a t e s ,
Oak P a r k , 111.
( 7 0 8 ) 3 8 3 - 1 1 1 5
Governance in the Spotlight: What the
Sarbanes-Oxley Act Means for You
F
ollowing a wave of high-profile corporate business and
governance scandals, Congress passed the Public
Company Accounting Reform & Investor Protection Act
of 2002 (Public Law 107-240), better known as the Sarbanes-
Oxley Act. This legislation contains the most sweeping and
comprehensive set of public-company
governance, financial and accounting
reforms enacted in more than 30 years.
The Sarbanes-Oxley Act, intended to
protect investors and renew public trust in
corporations and their boards, set the stage
for even broader reforms promulgated by
the stock exchanges and other business
and investor protection groups.
These emerging requirements and
standards are widely perceived as
governance "best practices" for both for-
profit and not-for-profit organizations
alike. Attorneys, consultants and
governance experts agree that it is only a
matter of time before the Sarbanes
legislation and the rules and regulations
designed to implement it. will be broadly
applied to not-for-profit governance and
used as the yardstick against which board
performance and accountability are
measured.
S a r b a n e s a t a G l a n c e
While the Sarbanes-Oxley Act leaves
many questions unanswered and allows
federal agencies broad discretion in
enforcing its requirements with publicly-
held companies, the following provisions
are applicable to nonprofit organizations:
• The role of independent directors and
their representation on audit and other key
board committees
• Executive compensation and loan
arrangements
• New disclosure requirements for
changes affecting the company's financial
status and the adequacy of company
financial statements and controls
• Detailed codes of ethics, business
conduct and comprehensive conflict-of-
interest policies.
Each of these areas is discussed in
more detail below.
Independent directors. Independent
directors arc the linchpin of many of the
public-company reforms. To be
considered "independent." directors must
be tree of relationships with the
company/organization or its management
that might influence their decisions.
Relationships affecting director
independence include employment,
vendor, or consulting arrangements, as
well as indirect links through family,
business or charitable organizations in
which the board member may hold an
officer or director position.
Sarbanes-Oxley and the related rules
of stock-listing organizations (such as the
New York Stock Exchange) sharpen the
focus on the role of independent directors
by specifying governance oversight
activities in which only independent
direetors should be involved. For example.
independent directors must meet together
at regular intervals without eithe ...
This document discusses creating a shareholders trust in India to offset management control. It proposes establishing a trust under the Indian Trust Act of 1882, with management acting as trustees and shareholders as beneficiaries. This would make management impartial and accountable to shareholders. Currently, shareholders have little power while management has full control. A trust could guarantee shareholders a return and prevent losses, while making management answerable. It would give investors greater rights and encourage more investment in companies.
The SEC has increased its scrutiny of the private equity industry since 2012 when many firms were required to register under Dodd-Frank. The SEC is focusing on seven key areas: 1) ensuring robust compliance programs, 2) clarity in limited partnership agreements regarding fees and expenses, 3) oversight of "zombie" managers, 4) proper allocation of expenses in separate accounts, 5) disclosure of operating partner costs, 6) avoidance of improperly shifting general expenses to funds, and 7) transparency around all fees charged. Private equity firms can expect more regulatory actions and should proactively improve their compliance programs, policies and disclosures in these areas.
Assess the ethical requirements as outlined in the Sarbanes-Oxley Act-.docxbickerstaffinell
Assess the ethical requirements as outlined in the Sarbanes-Oxley Act, indicating whether or not you believe the requirements are adequate to ensure integrity in financial accounting and reporting activities. Suggest improvements that may be needed while providing support for your rationale.
Solution
The main points that are included in the act which will improve the corporate governance and reduce the accounting scandals that had happened in the past like enron and worldcom:
1) Corporate Responsibility in Financial Reporting: The act requires that principal executive and financial officers certify that they have reviewed the findings of annual or quarterly reports, and find the statements within to be accurate and free of any material errors.This makes the management highly responsible for the both internal and external audit and they have to see there is no errors the process followed.
2) Conflicts of Interest: illegal for any issuer to extend or maintain credit in the form of a personal loan to directors or executive officers of that issuer. This indicates that the directors can not act as they want and take loans fot themselves for the company they are shareholders
3) Code of Ethics Requirement:T o promote \"honest and ethical conduct; full, fair, accurate, timely and understandable disclosure in periodic reports;\" and \"compliance with applicable governmental rules and regulations.
4) Real Time Disclosures: Any material change in financial condition or operations must be quickly and urgently disclosed by the issuer in easy to understand terms. Thsi makes the shareholders to trust and develop integrity towards the management and increases the accountability of the management as well as shareholders
5) Whistleblower Protections:The employees of publicly traded companies who provide evidence of fraud are afforded protections against reprisals and discrimination. If an employee feels he has been retaliated against for reporting violations, he can seek relief by filing a complaint with the Secretary of Labor. As they are one who involved in day to day operations and know better than the investors what is wrong going on in the company. They will ensure that if something is cookin up by the management can be made public and they will be given protection.
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The document provides an overview of the Sarbanes-Oxley Act of 2002 (SOX) which was passed in response to major corporate accounting scandals to increase transparency and prevent fraud. SOX established new regulations and oversight for public companies, accounting firms, and management. It created the Public Company Accounting Oversight Board to regulate audits and required companies to comply with standards around financial disclosures, internal controls and corporate governance. SOX also increased penalties for financial misconduct and expanded requirements for corporate responsibility and financial disclosure.
PE Expense Allocation Article (00299582x9ED28)John T. Araneo
The SEC has increased scrutiny of private equity firms' expense allocation practices in recent years. It has identified several types of expenses that potentially involve conflicts of interest, including broken deal fees, portfolio monitoring fees, and legal/compliance expenses of the PE firm. The SEC views unclear or absent disclosures around expense allocation as breaches of fiduciary duty. It has brought numerous enforcement actions against large PE firms for improperly allocating expenses without sufficient disclosure, resulting in large fines. Going forward, PE firms must enhance their disclosures around expense allocation policies and implement robust compliance programs to avoid regulatory penalties from the SEC.
The document discusses the Sarbanes-Oxley Act (SOX) passed in 2002 in response to several major corporate accounting scandals. SOX aimed to restore confidence by requiring stricter financial disclosures, independent audits of internal controls, corporate fraud accountability, and protections for whistleblowers. Key aspects of SOX include CEO/CFO certification of financial reports, management assessment of internal controls, auditor oversight, and analysis of potential conflicts of interest for securities analysts.
This document discusses key concepts related to mergers and acquisitions from an MBA course. It includes types of mergers such as horizontal, concentric, vertical, and conglomerate mergers. It also discusses the steps to a successful merger and the goals of mergers. The document provides details on the merger process, creating synergy between merging companies, reasons for divesture, and rules related to employee stock ownership plans (ESOPs).
US/ Canada cross-border tax planning could be impacted by the recent finalization of Section 385 regulations by the IRS and Treasury Department. Because most of these new rules apply with an effective date reaching back to April 5, 2016, it is imperative that Canadian companies with U.S. activities assess their potential impact and develop a strategy for managing their exposure to these rules.
1. The document outlines the conceptual framework for financial reporting established by the FASB. The framework consists of three levels: the objective of financial reporting, fundamental qualitative characteristics and elements, and concepts for recognition, measurement, and disclosure.
2. It describes the key components of each level, including the basic objective to provide useful information to investors and creditors, qualitative characteristics like relevance and faithful representation, and defined elements like assets, liabilities, and equity.
3. Basic assumptions and principles are also discussed, such as the monetary unit and historical cost assumptions, as well as the revenue and expense recognition principles. An exception for the cost constraint is noted.
The document discusses mergers and acquisitions from multiple perspectives:
- It outlines some of the key advantages and disadvantages of mergers and acquisitions, such as allowing shareholders to own a piece of a larger company or potential clashes of company cultures.
- It then explains different types of mergers and acquisitions like vertical, horizontal, conglomerate, and circular combinations.
- Next, it introduces a five stage model of mergers and acquisitions that includes corporate strategy development, organizing for acquisitions, deal structuring, post-acquisition integration, and post-acquisition audits.
- It also discusses how synergies can be created through mergers and acquisitions by improving financial performance, providing
How to set up an investment manager in the uk cummings finalCummings
To set up an investment manager in the UK, a firm must first decide whether to establish as a limited company or limited liability partnership (LLP). The choice depends on factors like taxation, management, and employees. Both require authorization from the Financial Conduct Authority (FCA), which regulates investment management. The application process takes 4-6 months and involves demonstrating adequate resources, controls, approved staff, and qualifications. Setting up costs can include incorporation, legal agreements, FCA application fees, systems, and ongoing compliance and reporting requirements. Seeking professional advice is recommended when establishing an investment manager in the UK.
This document provides an overview of hedge fund activism and analyzes the abnormal returns and benefits for shareholders. It includes definitions of hedge funds and activist shareholders. Historically, legislation like Dodd-Frank and Sarbanes-Oxley fueled more active investing by hedge funds by limiting banks and increasing disclosure. The document discusses the "Wolf Pack" tactic used by some hedge funds to delay disclosure of their stakes in target companies. While some research has found benefits to target firms, others argue benefits do not extend to all stakeholders. The analysis will examine abnormal returns for different hedge fund investment strategies and whether shareholders overall benefit from activist investments.
The Diamond Datascram Diaries: Diamond Datascram DominancePolsinelli PC
Diamond Datascram Inc. is well-funded by private equity and considering going public and global. The company has caught on like fire and competition for top talent is becoming fierce! Polsinelli’s Labor and Employment attorneys will be joined by colleagues in the Securities & Corporate Finance and Employee Benefits & Executive Compensation practices to address issues common to companies in a strategic growth stage.
Avoiding Costly Fines: A 2013 Guide to Compliance MandatesSage HRMS
For more than 30 years, Sage has been a leader in the development of Human Resource Management Systems (HRMS) software. Thousands of midsized businesses nationwide have implemented our popular Sage HRMS solutions. From those experiences, we’ve learned that compliance is one of the top challenges facing any human resources department. It can be difficult to stay on top of all of the state and federal workforce laws, regulations, and reporting requirements.
It’s up to HR to ensure that hiring, discipline, and termination practices are compliant with the law. Otherwise, you could put your company at risk of incurring fines, penalties, and employee lawsuits. And mistakes can be costly. More than one-third of private companies surveyed by Chubb Insurance had experienced an employment-law event (EEOC charge filed or employee lawsuit), at an average cost of $74,400 per incident.
Sage created this guide to help you stay informed about the latest workforce compliance laws and regulations that may affect your organization. Staying abreast of current mandates enables you to communicate with and train management and employees so that the company is not at risk of expensive employee lawsuits. As with all issues with legal circumstances, the use of this material is not a substitute for the advice of a lawyer and when in doubt or for advice with respect to any specific human resources mandate please contact your lawyer. Additionally, this material is provided for informational purposes only and not for the purpose of providing legal advice.
Corporate restructuring involves changes to a company's ownership, structure, or operations. There are several forms of restructuring, including expansion, diversification, collaboration, spinning off business units, and mergers, amalgamations, and acquisitions. Mergers involve one company acquiring another, while amalgamations combine two companies into a new entity. Acquisitions occur when one company gains control of another. Determining the appropriate exchange ratio of shares is a key part of mergers and amalgamations. The process also requires approval from boards of directors, shareholders, creditors, and sometimes courts or regulatory bodies. Diversification grows a company through new products or services, while disinvestment sells non-profitable business units to focus resources.
How to set up an investment manager in the UKCummings
To set up an investment manager in the UK, several steps must be taken. First, the entity must be established as either a limited company or limited liability partnership (LLP). Tax implications should be considered in choosing the structure. Next, the entity requires authorization from the Financial Conduct Authority (FCA), which regulates investment management activities. The FCA application process takes 4-6 months and involves demonstrating adequate financial resources, appropriate systems and controls, approved individuals, and required qualifications. Setting up costs can include incorporation, legal agreements, FCA application fees, systems, and ongoing regulatory reporting requirements. Seeking professional advice is recommended when establishing an investment manager in the UK.
How financial reporting for public companies has changed since the E.pdfpristiegee
How financial reporting for public companies has changed since the Enron scandal in 2001.
Solution
Enron Scandal 2001
Enron a global Gas and Energy company incorporated in Omaha Nebraska and once
distinguished as the Nation’s 7th largest company. Listed on Forbs Fortune 500 as being among
the wealthiest companies listed on the stock exchange. Through this accumulation of “wealth”
Enron at one point held a robust market valuation, which was higher other large global
companies like AT&T. Many would call Enron a company that was “too big to fail”; this was
due to the company’s reported revenue milestone accomplishment of 100 billion dollars.
But what made the Enron scandal so compelling was the fact that it brought down accounting
giant Arthur Andersen too. It was a truly amazing situation, a conflation of corporate
wrongdoing which would change the accounting world forever.
Changes In Financial Reporting and Other Changes due to Enron Scandal 2001
SOX includes several gatekeeper provisions:
Requiring a company’s board of directors to have an Audit Committee composed solely of
independent directors.
Making the Audit Committee responsible for the appointment, compensation, and oversight of
the outside auditor and for establishing procedures for the confidential, anonymous submission
by company employees of concerns about accounting or auditing practices.
Creating a new agency, the Public Company Accounting Oversight Board (PCAOB), to
strengthen the outside audit function. The PCAOB sets standards involving auditing, quality
control, ethics, and audit reports and has authority to inspect, investigate, and discipline
registered public accounting firms.
Requiring attorneys who practice before the Securities and Exchange Commission (SEC) to
report material violations of the securities laws to a company’s chief legal officer or chief
executive officer. If those officers do not respond in an appropriate manner, the attorney is then
required to report the violations to the Audit Committee of the board or to another committee
composed solely of independent directors.
Enhance Regulatory Protections
Federal and state securities regulators and self-regulatory organizations play an important and
necessary role in corporate governance. They wield a broad and powerful array of sanctions, and
their enforcement actions serve as a strong deterrent against wrongdoing. The SEC’s
enforcement priorities, reflected in public speeches by its Commissioners and staff, help shape
corporate conduct.
Increase in Regulations after Sarbanes Oxley
The Sarbanes-Oxley Act initiated stringent regulations. The Act was composed of sixty-six
sections, some long and others short. Each section dealt with a different part of the reporting
cycle (Schaeffer, 2006). These sections are contained within eleven titles, primarily dealing with
the issue of internal control. The eleven titles of SOX are as follows: Public Company
Accounting Oversight Board, auditor independence, corporate respo.
Company Walt Disney World Prior to completing this assignment, .docxtemplestewart19
Company: Walt Disney World
Prior to completing this assignment, review your prior research and course submissions related to the company you selected for research in Week 2’s Environmental Scanning interactive assignment. Ensure that you have incorporated the feedback you received from your previous submissions. In your Final Project this week, you will pull the various elements you’ve created together to aid your creation of a Strategic Plan. From the perspective of an executive with the firm, your supervisor has tasked you with creating a strategic plan to grow the business over the next three years using this
Strategic Plan Template
and here is an
Example Strategic Plan
using the template. Continue to access the Mergent Ashford University Library online database which offers company financials, descriptions, history, property, subsidiaries, officers, and directors and the Business Insights database. (View the
Getting Started With Mergent
and
Business Insights: Global
documents for suggested methods of searching Ashford University Library databases generally as well as specific advice for searching these two databases).
Your strategic plan must be future-oriented and must
Describe the company, the company’s history and its 4Ps (Product, Price, Place, and Promotion).
Examine the company’s mission statement and assess its impact on the organization’s activities.
Explain the current situation of the organization in the market (industry, market, and general environment analysis).
Add your SWOT analysis (strengths, weaknesses, opportunities, and threats) of your chosen company here. Evaluate areas that offer opportunities for
Choose three or four areas from your SWOT analysis and assess why the areas you have chosen are essential to your strategic plan
Summarize the results of your Environmental Scan and Porter’s 5 Forces.
Evaluate the degree to which they aid in conceptualizing the company’s competitive position in its marketplace.
Assess the company’s international performance in light of Cultural Barriers, Monetary Exchange Rates, and Political Instability.
Assess the financial performance and condition of the
Operational budget: Research and assess the company’s operational budget.
Assess the performance in terms of key performance indicators.
In your analysis, be sure to include profitability ratios relevant to your analysis.
Debt to Equity ratio
Debt to Assets ratio
Based on the data, evaluate the overall current financial condition of the company.
Support your analysis by referring to the company data
Create a three year end trend analysis
Assess how your Operational Budget analysis affects your three-year strategic plan.
Recommend an organizational structure in terms of the organizational design as defined in Abraham (2012) section 2.6.
Assess the impact of the strategic plan on the organizational culture.
Strategic Goals: Create measurable core strategic goals for each of the.
Company OverviewCompany A has hired your team because you are.docxtemplestewart19
Company Overview:
Company A has hired your team because you are experts in defining a process and delivering projects on time. Company A has only been in business for ten years, and they have experienced a large turnover in the project management area;which has prompted senior leadership to investigate.
Senior leadership has determined that Project Managers are frustrated with the amount of required documentation, which has impacted their ability to successfully manage projects. In addition, project budgets are coming in over budget, and projects are being delivered late, also resulting in PMs' inability to meet performance guidelines.
A recent review of the current process has determined that Company A has spent between 30-40% of its total project budget on projects' overhead costs to include project management costs, which are typically between 20-25%. Project Management overhead includes the PM's time to manage the project, attend meetings, and develop the required documentation.
Company A has hired your team to create a new project management process to meet the strategic goals and ensure the project meets the financial objectives.
Goals of the new process
The company must have a view into total life cycle project costs to include what has been spent to date, baseline budget, any changes to the budget, remaining budget, and cost of the project at completion
The company must have a view into the project activities to include what has been completed, what is remaining
The company must have a view into project status issues, risks, any changes to dates
.
More Related Content
Similar to Comparative Corporate GovernanceEconomic Views of the Co.docx
BACK TO P r e s id i k 0 f I,, Tikofi &I A s s o c i a.docxwilcockiris
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Governance in the Spotlight: What the
Sarbanes-Oxley Act Means for You
F
ollowing a wave of high-profile corporate business and
governance scandals, Congress passed the Public
Company Accounting Reform & Investor Protection Act
of 2002 (Public Law 107-240), better known as the Sarbanes-
Oxley Act. This legislation contains the most sweeping and
comprehensive set of public-company
governance, financial and accounting
reforms enacted in more than 30 years.
The Sarbanes-Oxley Act, intended to
protect investors and renew public trust in
corporations and their boards, set the stage
for even broader reforms promulgated by
the stock exchanges and other business
and investor protection groups.
These emerging requirements and
standards are widely perceived as
governance "best practices" for both for-
profit and not-for-profit organizations
alike. Attorneys, consultants and
governance experts agree that it is only a
matter of time before the Sarbanes
legislation and the rules and regulations
designed to implement it. will be broadly
applied to not-for-profit governance and
used as the yardstick against which board
performance and accountability are
measured.
S a r b a n e s a t a G l a n c e
While the Sarbanes-Oxley Act leaves
many questions unanswered and allows
federal agencies broad discretion in
enforcing its requirements with publicly-
held companies, the following provisions
are applicable to nonprofit organizations:
• The role of independent directors and
their representation on audit and other key
board committees
• Executive compensation and loan
arrangements
• New disclosure requirements for
changes affecting the company's financial
status and the adequacy of company
financial statements and controls
• Detailed codes of ethics, business
conduct and comprehensive conflict-of-
interest policies.
Each of these areas is discussed in
more detail below.
Independent directors. Independent
directors arc the linchpin of many of the
public-company reforms. To be
considered "independent." directors must
be tree of relationships with the
company/organization or its management
that might influence their decisions.
Relationships affecting director
independence include employment,
vendor, or consulting arrangements, as
well as indirect links through family,
business or charitable organizations in
which the board member may hold an
officer or director position.
Sarbanes-Oxley and the related rules
of stock-listing organizations (such as the
New York Stock Exchange) sharpen the
focus on the role of independent directors
by specifying governance oversight
activities in which only independent
direetors should be involved. For example.
independent directors must meet together
at regular intervals without eithe.
BACK TO P r e s id i k 0 f I,, Tikofi &I A s s o c i a.docxikirkton
BACK TO P r e s i
d i k 0 f I,
, Tikofi &
I A s s o c i a t e s , C h i c a g o , 111.
( 7 7 3 ) 2 6 8 - 8 0 0 6 ^
M a r y T o t t e n , P r e s i d e n t ,
T o t t e n & A s s o c i a t e s ,
Oak P a r k , 111.
( 7 0 8 ) 3 8 3 - 1 1 1 5
Governance in the Spotlight: What the
Sarbanes-Oxley Act Means for You
F
ollowing a wave of high-profile corporate business and
governance scandals, Congress passed the Public
Company Accounting Reform & Investor Protection Act
of 2002 (Public Law 107-240), better known as the Sarbanes-
Oxley Act. This legislation contains the most sweeping and
comprehensive set of public-company
governance, financial and accounting
reforms enacted in more than 30 years.
The Sarbanes-Oxley Act, intended to
protect investors and renew public trust in
corporations and their boards, set the stage
for even broader reforms promulgated by
the stock exchanges and other business
and investor protection groups.
These emerging requirements and
standards are widely perceived as
governance "best practices" for both for-
profit and not-for-profit organizations
alike. Attorneys, consultants and
governance experts agree that it is only a
matter of time before the Sarbanes
legislation and the rules and regulations
designed to implement it. will be broadly
applied to not-for-profit governance and
used as the yardstick against which board
performance and accountability are
measured.
S a r b a n e s a t a G l a n c e
While the Sarbanes-Oxley Act leaves
many questions unanswered and allows
federal agencies broad discretion in
enforcing its requirements with publicly-
held companies, the following provisions
are applicable to nonprofit organizations:
• The role of independent directors and
their representation on audit and other key
board committees
• Executive compensation and loan
arrangements
• New disclosure requirements for
changes affecting the company's financial
status and the adequacy of company
financial statements and controls
• Detailed codes of ethics, business
conduct and comprehensive conflict-of-
interest policies.
Each of these areas is discussed in
more detail below.
Independent directors. Independent
directors arc the linchpin of many of the
public-company reforms. To be
considered "independent." directors must
be tree of relationships with the
company/organization or its management
that might influence their decisions.
Relationships affecting director
independence include employment,
vendor, or consulting arrangements, as
well as indirect links through family,
business or charitable organizations in
which the board member may hold an
officer or director position.
Sarbanes-Oxley and the related rules
of stock-listing organizations (such as the
New York Stock Exchange) sharpen the
focus on the role of independent directors
by specifying governance oversight
activities in which only independent
direetors should be involved. For example.
independent directors must meet together
at regular intervals without eithe ...
This document discusses creating a shareholders trust in India to offset management control. It proposes establishing a trust under the Indian Trust Act of 1882, with management acting as trustees and shareholders as beneficiaries. This would make management impartial and accountable to shareholders. Currently, shareholders have little power while management has full control. A trust could guarantee shareholders a return and prevent losses, while making management answerable. It would give investors greater rights and encourage more investment in companies.
The SEC has increased its scrutiny of the private equity industry since 2012 when many firms were required to register under Dodd-Frank. The SEC is focusing on seven key areas: 1) ensuring robust compliance programs, 2) clarity in limited partnership agreements regarding fees and expenses, 3) oversight of "zombie" managers, 4) proper allocation of expenses in separate accounts, 5) disclosure of operating partner costs, 6) avoidance of improperly shifting general expenses to funds, and 7) transparency around all fees charged. Private equity firms can expect more regulatory actions and should proactively improve their compliance programs, policies and disclosures in these areas.
Assess the ethical requirements as outlined in the Sarbanes-Oxley Act-.docxbickerstaffinell
Assess the ethical requirements as outlined in the Sarbanes-Oxley Act, indicating whether or not you believe the requirements are adequate to ensure integrity in financial accounting and reporting activities. Suggest improvements that may be needed while providing support for your rationale.
Solution
The main points that are included in the act which will improve the corporate governance and reduce the accounting scandals that had happened in the past like enron and worldcom:
1) Corporate Responsibility in Financial Reporting: The act requires that principal executive and financial officers certify that they have reviewed the findings of annual or quarterly reports, and find the statements within to be accurate and free of any material errors.This makes the management highly responsible for the both internal and external audit and they have to see there is no errors the process followed.
2) Conflicts of Interest: illegal for any issuer to extend or maintain credit in the form of a personal loan to directors or executive officers of that issuer. This indicates that the directors can not act as they want and take loans fot themselves for the company they are shareholders
3) Code of Ethics Requirement:T o promote \"honest and ethical conduct; full, fair, accurate, timely and understandable disclosure in periodic reports;\" and \"compliance with applicable governmental rules and regulations.
4) Real Time Disclosures: Any material change in financial condition or operations must be quickly and urgently disclosed by the issuer in easy to understand terms. Thsi makes the shareholders to trust and develop integrity towards the management and increases the accountability of the management as well as shareholders
5) Whistleblower Protections:The employees of publicly traded companies who provide evidence of fraud are afforded protections against reprisals and discrimination. If an employee feels he has been retaliated against for reporting violations, he can seek relief by filing a complaint with the Secretary of Labor. As they are one who involved in day to day operations and know better than the investors what is wrong going on in the company. They will ensure that if something is cookin up by the management can be made public and they will be given protection.
.
The document provides an overview of the Sarbanes-Oxley Act of 2002 (SOX) which was passed in response to major corporate accounting scandals to increase transparency and prevent fraud. SOX established new regulations and oversight for public companies, accounting firms, and management. It created the Public Company Accounting Oversight Board to regulate audits and required companies to comply with standards around financial disclosures, internal controls and corporate governance. SOX also increased penalties for financial misconduct and expanded requirements for corporate responsibility and financial disclosure.
PE Expense Allocation Article (00299582x9ED28)John T. Araneo
The SEC has increased scrutiny of private equity firms' expense allocation practices in recent years. It has identified several types of expenses that potentially involve conflicts of interest, including broken deal fees, portfolio monitoring fees, and legal/compliance expenses of the PE firm. The SEC views unclear or absent disclosures around expense allocation as breaches of fiduciary duty. It has brought numerous enforcement actions against large PE firms for improperly allocating expenses without sufficient disclosure, resulting in large fines. Going forward, PE firms must enhance their disclosures around expense allocation policies and implement robust compliance programs to avoid regulatory penalties from the SEC.
The document discusses the Sarbanes-Oxley Act (SOX) passed in 2002 in response to several major corporate accounting scandals. SOX aimed to restore confidence by requiring stricter financial disclosures, independent audits of internal controls, corporate fraud accountability, and protections for whistleblowers. Key aspects of SOX include CEO/CFO certification of financial reports, management assessment of internal controls, auditor oversight, and analysis of potential conflicts of interest for securities analysts.
This document discusses key concepts related to mergers and acquisitions from an MBA course. It includes types of mergers such as horizontal, concentric, vertical, and conglomerate mergers. It also discusses the steps to a successful merger and the goals of mergers. The document provides details on the merger process, creating synergy between merging companies, reasons for divesture, and rules related to employee stock ownership plans (ESOPs).
US/ Canada cross-border tax planning could be impacted by the recent finalization of Section 385 regulations by the IRS and Treasury Department. Because most of these new rules apply with an effective date reaching back to April 5, 2016, it is imperative that Canadian companies with U.S. activities assess their potential impact and develop a strategy for managing their exposure to these rules.
1. The document outlines the conceptual framework for financial reporting established by the FASB. The framework consists of three levels: the objective of financial reporting, fundamental qualitative characteristics and elements, and concepts for recognition, measurement, and disclosure.
2. It describes the key components of each level, including the basic objective to provide useful information to investors and creditors, qualitative characteristics like relevance and faithful representation, and defined elements like assets, liabilities, and equity.
3. Basic assumptions and principles are also discussed, such as the monetary unit and historical cost assumptions, as well as the revenue and expense recognition principles. An exception for the cost constraint is noted.
The document discusses mergers and acquisitions from multiple perspectives:
- It outlines some of the key advantages and disadvantages of mergers and acquisitions, such as allowing shareholders to own a piece of a larger company or potential clashes of company cultures.
- It then explains different types of mergers and acquisitions like vertical, horizontal, conglomerate, and circular combinations.
- Next, it introduces a five stage model of mergers and acquisitions that includes corporate strategy development, organizing for acquisitions, deal structuring, post-acquisition integration, and post-acquisition audits.
- It also discusses how synergies can be created through mergers and acquisitions by improving financial performance, providing
How to set up an investment manager in the uk cummings finalCummings
To set up an investment manager in the UK, a firm must first decide whether to establish as a limited company or limited liability partnership (LLP). The choice depends on factors like taxation, management, and employees. Both require authorization from the Financial Conduct Authority (FCA), which regulates investment management. The application process takes 4-6 months and involves demonstrating adequate resources, controls, approved staff, and qualifications. Setting up costs can include incorporation, legal agreements, FCA application fees, systems, and ongoing compliance and reporting requirements. Seeking professional advice is recommended when establishing an investment manager in the UK.
This document provides an overview of hedge fund activism and analyzes the abnormal returns and benefits for shareholders. It includes definitions of hedge funds and activist shareholders. Historically, legislation like Dodd-Frank and Sarbanes-Oxley fueled more active investing by hedge funds by limiting banks and increasing disclosure. The document discusses the "Wolf Pack" tactic used by some hedge funds to delay disclosure of their stakes in target companies. While some research has found benefits to target firms, others argue benefits do not extend to all stakeholders. The analysis will examine abnormal returns for different hedge fund investment strategies and whether shareholders overall benefit from activist investments.
The Diamond Datascram Diaries: Diamond Datascram DominancePolsinelli PC
Diamond Datascram Inc. is well-funded by private equity and considering going public and global. The company has caught on like fire and competition for top talent is becoming fierce! Polsinelli’s Labor and Employment attorneys will be joined by colleagues in the Securities & Corporate Finance and Employee Benefits & Executive Compensation practices to address issues common to companies in a strategic growth stage.
Avoiding Costly Fines: A 2013 Guide to Compliance MandatesSage HRMS
For more than 30 years, Sage has been a leader in the development of Human Resource Management Systems (HRMS) software. Thousands of midsized businesses nationwide have implemented our popular Sage HRMS solutions. From those experiences, we’ve learned that compliance is one of the top challenges facing any human resources department. It can be difficult to stay on top of all of the state and federal workforce laws, regulations, and reporting requirements.
It’s up to HR to ensure that hiring, discipline, and termination practices are compliant with the law. Otherwise, you could put your company at risk of incurring fines, penalties, and employee lawsuits. And mistakes can be costly. More than one-third of private companies surveyed by Chubb Insurance had experienced an employment-law event (EEOC charge filed or employee lawsuit), at an average cost of $74,400 per incident.
Sage created this guide to help you stay informed about the latest workforce compliance laws and regulations that may affect your organization. Staying abreast of current mandates enables you to communicate with and train management and employees so that the company is not at risk of expensive employee lawsuits. As with all issues with legal circumstances, the use of this material is not a substitute for the advice of a lawyer and when in doubt or for advice with respect to any specific human resources mandate please contact your lawyer. Additionally, this material is provided for informational purposes only and not for the purpose of providing legal advice.
Corporate restructuring involves changes to a company's ownership, structure, or operations. There are several forms of restructuring, including expansion, diversification, collaboration, spinning off business units, and mergers, amalgamations, and acquisitions. Mergers involve one company acquiring another, while amalgamations combine two companies into a new entity. Acquisitions occur when one company gains control of another. Determining the appropriate exchange ratio of shares is a key part of mergers and amalgamations. The process also requires approval from boards of directors, shareholders, creditors, and sometimes courts or regulatory bodies. Diversification grows a company through new products or services, while disinvestment sells non-profitable business units to focus resources.
How to set up an investment manager in the UKCummings
To set up an investment manager in the UK, several steps must be taken. First, the entity must be established as either a limited company or limited liability partnership (LLP). Tax implications should be considered in choosing the structure. Next, the entity requires authorization from the Financial Conduct Authority (FCA), which regulates investment management activities. The FCA application process takes 4-6 months and involves demonstrating adequate financial resources, appropriate systems and controls, approved individuals, and required qualifications. Setting up costs can include incorporation, legal agreements, FCA application fees, systems, and ongoing regulatory reporting requirements. Seeking professional advice is recommended when establishing an investment manager in the UK.
How financial reporting for public companies has changed since the E.pdfpristiegee
How financial reporting for public companies has changed since the Enron scandal in 2001.
Solution
Enron Scandal 2001
Enron a global Gas and Energy company incorporated in Omaha Nebraska and once
distinguished as the Nation’s 7th largest company. Listed on Forbs Fortune 500 as being among
the wealthiest companies listed on the stock exchange. Through this accumulation of “wealth”
Enron at one point held a robust market valuation, which was higher other large global
companies like AT&T. Many would call Enron a company that was “too big to fail”; this was
due to the company’s reported revenue milestone accomplishment of 100 billion dollars.
But what made the Enron scandal so compelling was the fact that it brought down accounting
giant Arthur Andersen too. It was a truly amazing situation, a conflation of corporate
wrongdoing which would change the accounting world forever.
Changes In Financial Reporting and Other Changes due to Enron Scandal 2001
SOX includes several gatekeeper provisions:
Requiring a company’s board of directors to have an Audit Committee composed solely of
independent directors.
Making the Audit Committee responsible for the appointment, compensation, and oversight of
the outside auditor and for establishing procedures for the confidential, anonymous submission
by company employees of concerns about accounting or auditing practices.
Creating a new agency, the Public Company Accounting Oversight Board (PCAOB), to
strengthen the outside audit function. The PCAOB sets standards involving auditing, quality
control, ethics, and audit reports and has authority to inspect, investigate, and discipline
registered public accounting firms.
Requiring attorneys who practice before the Securities and Exchange Commission (SEC) to
report material violations of the securities laws to a company’s chief legal officer or chief
executive officer. If those officers do not respond in an appropriate manner, the attorney is then
required to report the violations to the Audit Committee of the board or to another committee
composed solely of independent directors.
Enhance Regulatory Protections
Federal and state securities regulators and self-regulatory organizations play an important and
necessary role in corporate governance. They wield a broad and powerful array of sanctions, and
their enforcement actions serve as a strong deterrent against wrongdoing. The SEC’s
enforcement priorities, reflected in public speeches by its Commissioners and staff, help shape
corporate conduct.
Increase in Regulations after Sarbanes Oxley
The Sarbanes-Oxley Act initiated stringent regulations. The Act was composed of sixty-six
sections, some long and others short. Each section dealt with a different part of the reporting
cycle (Schaeffer, 2006). These sections are contained within eleven titles, primarily dealing with
the issue of internal control. The eleven titles of SOX are as follows: Public Company
Accounting Oversight Board, auditor independence, corporate respo.
Similar to Comparative Corporate GovernanceEconomic Views of the Co.docx (20)
Company Walt Disney World Prior to completing this assignment, .docxtemplestewart19
Company: Walt Disney World
Prior to completing this assignment, review your prior research and course submissions related to the company you selected for research in Week 2’s Environmental Scanning interactive assignment. Ensure that you have incorporated the feedback you received from your previous submissions. In your Final Project this week, you will pull the various elements you’ve created together to aid your creation of a Strategic Plan. From the perspective of an executive with the firm, your supervisor has tasked you with creating a strategic plan to grow the business over the next three years using this
Strategic Plan Template
and here is an
Example Strategic Plan
using the template. Continue to access the Mergent Ashford University Library online database which offers company financials, descriptions, history, property, subsidiaries, officers, and directors and the Business Insights database. (View the
Getting Started With Mergent
and
Business Insights: Global
documents for suggested methods of searching Ashford University Library databases generally as well as specific advice for searching these two databases).
Your strategic plan must be future-oriented and must
Describe the company, the company’s history and its 4Ps (Product, Price, Place, and Promotion).
Examine the company’s mission statement and assess its impact on the organization’s activities.
Explain the current situation of the organization in the market (industry, market, and general environment analysis).
Add your SWOT analysis (strengths, weaknesses, opportunities, and threats) of your chosen company here. Evaluate areas that offer opportunities for
Choose three or four areas from your SWOT analysis and assess why the areas you have chosen are essential to your strategic plan
Summarize the results of your Environmental Scan and Porter’s 5 Forces.
Evaluate the degree to which they aid in conceptualizing the company’s competitive position in its marketplace.
Assess the company’s international performance in light of Cultural Barriers, Monetary Exchange Rates, and Political Instability.
Assess the financial performance and condition of the
Operational budget: Research and assess the company’s operational budget.
Assess the performance in terms of key performance indicators.
In your analysis, be sure to include profitability ratios relevant to your analysis.
Debt to Equity ratio
Debt to Assets ratio
Based on the data, evaluate the overall current financial condition of the company.
Support your analysis by referring to the company data
Create a three year end trend analysis
Assess how your Operational Budget analysis affects your three-year strategic plan.
Recommend an organizational structure in terms of the organizational design as defined in Abraham (2012) section 2.6.
Assess the impact of the strategic plan on the organizational culture.
Strategic Goals: Create measurable core strategic goals for each of the.
Company OverviewCompany A has hired your team because you are.docxtemplestewart19
Company Overview:
Company A has hired your team because you are experts in defining a process and delivering projects on time. Company A has only been in business for ten years, and they have experienced a large turnover in the project management area;which has prompted senior leadership to investigate.
Senior leadership has determined that Project Managers are frustrated with the amount of required documentation, which has impacted their ability to successfully manage projects. In addition, project budgets are coming in over budget, and projects are being delivered late, also resulting in PMs' inability to meet performance guidelines.
A recent review of the current process has determined that Company A has spent between 30-40% of its total project budget on projects' overhead costs to include project management costs, which are typically between 20-25%. Project Management overhead includes the PM's time to manage the project, attend meetings, and develop the required documentation.
Company A has hired your team to create a new project management process to meet the strategic goals and ensure the project meets the financial objectives.
Goals of the new process
The company must have a view into total life cycle project costs to include what has been spent to date, baseline budget, any changes to the budget, remaining budget, and cost of the project at completion
The company must have a view into the project activities to include what has been completed, what is remaining
The company must have a view into project status issues, risks, any changes to dates
.
Company Profile Assignment Select a business associa.docxtemplestewart19
Company Profile Assignment
Select a business association/organization and create a detailed profile.
Place yourself in the role of news reporter writing to an uninformed reader.
Detail the history of the company, who, when and how it started. Include information
Regarding whether the business began as one type of organization and changed over time.
Consider any and all relevant data: the who, what, where, how of the business.
Explain the business’ current situation: who runs it, if it has partners who are the general or limited partners? If it’s a corporation, is it “private” or public” or “non-profit”? Is it “closely-held” or “publicly-traded” corporation? Who is the CEO, the Chairman of the Board of Directors, how many individuals sit on the Board?
If the business is a corporation, what is the state of incorporation, when, ect.?
If the corporation is publicly traded”, where is the corporation listed? NASDAQ/ NYSE?
Anticipate any and all relevant questions that your reader may have regarding the organization.
I have intentionally remained vague as part of my performance evaluation of your work is assessing your ability to research and relate the critical operational characteristics as well as identify the important data.
Your Profile should be lengthy and detailed, although format is not critical-essay style or bullet points are entirely acceptable.
This is a critical skill set to develop as a business professional. In business, an individual must be aware of potential clients, customers as well as competitors in one’s respective field(s).
Attempt to secure what I refer to as a “tasty nugget” of information about the business. This is a more obscure or “fresh” fact about the company that will impress your reader/audience.
Developing this skill set will serve you well as you advance on your career in business.
Have some fun with it as well!
j/e/r
.
Company to use will be COSTCOPurpose of AssignmentTh.docxtemplestewart19
Company to use will be COSTCO
Purpose of Assignment
The purpose of this assignment is to allow students the opportunity to research a Fortune 500
company stock using the popular online research tool Yahoo Finance. The tool allows the student to
review analyst reports and other key financial information necessary to evaluate the stock value and
make an educated decision on whether to invest.
Assignment Steps
Resources: Yahoo Finance
Select a Fortune 500 Company from one of the following industries:
Pharmaceutical
Energy
Retail
Automotive
Computer Hardware
Manufacturing
Mining
Access Yahoo Finance and enter the company name.
Review the financial information and statistics provided for the stock you selected and answer the
following:
What is the ticker symbol of the company you chose?
What is the Current Stock Price?
What is the Market Cap for the stock you chose?
What is the Price to Earnings Ratio?
What is the Dividend and Yield?
What is the Enterprise Value?
What is the Beta?
Was there a Stock Split, and if so, when?
What was the closing stock price for the last 5 days?
What was the 52 Week High for this stock?
What is the Book Value per Share?
What type of rating are analysts recommending (i.e. buy, hold, etc.)?
What is the target price analysts are predicting for this stock?
What is the analyst's average revenue estimate for next year?
What are some of the significant news items and press releases made by the company over
the last year?
Explain in 700 words why you would or would not recommend investing in this stock.
Describe the relationship between the value of the stock and the price to earnings ratio.
What information does the Market Capitalization (Market Cap) and Beta provide to the
investors?
.
Company Target Corporation- Research and then describe yo.docxtemplestewart19
Company: '
Target Corporation'
- Research and then describe your company's(Company name given above) primary business activities. Include:
A brief historical summary,
A list of competitors,
The company's position within the industry,
Recent developments within the company/industry,
Future direction, and
Other items of significance to your corporation.
- Include information from a variety of resources. For example:
Consult the Form 10-K filed with the SEC.
Review the Annual Report and especially the Letter to Shareholders
Explore the corporate website.
Select at least two significant news items from recent business periodicals.
- Submit a written report that is 7-8 pages long. The report should be well written with
cover page, introduction, the body of the paper (with appropriate subheadings), conclusion, and reference page.
References must be appropriately cited. Be sure to address all of the points in Section A above, using all of the resources listed in Section B. Format: Double-spaced, one-inch margins, using a 12-point Times New Roman font. Use APA format throughout.
.
company that has been victims of cyber breachers withing the past th.docxtemplestewart19
company that has been victims of cyber breachers withing the past three years.
COMPANY is
FACEBOOK
Include the following headings in your paper:
Company Name—type of company—brief history—Industry—Customers (consumer, business, or both)
Name of the exploit
How the exploit was caused
.
Company ProfileWhen it comes to fast, efficient, personalized se.docxtemplestewart19
Company Profile
When it comes to fast, efficient, personalized service, Tri-Arrow Printing is second to none. Locally owned and operated by Detroit natives, our team of 30 employees can help you create professional documents, signs, banners, and specialty products for business or personal use. With the assistance of our full-time marketing specialist and designer, Tri-Arrow Printing can help you produce unique advertising materials to effectively promote yourself or your business without breaking the bank. For clients seeking one-of-a-kind invitations, cards, calendars, or home wall décor, Tri-Arrow Printing can help you create distinctive designs that match your personality and style. Using high-tech production equipment, we offer same-day delivery on most orders.
Committed to the loyal community that has supported Tri-Arrow Printing for two generations, we support local nonprofits and arts organizations by designing and printing $500 worth of promotional materials each month. In addition, we offer local schools special pricing and packages so they can advertise and promote school cultural events.
Products and Services
Documents
· Full-color or black-and-white printing and copying
· Full-service or self-service printing options
· Manuals, brochures, résumés, and letterhead
· Business cards and postcards
· Direct mail marketing and advertising
· Calendars
· Invitations and cards
Banners, Signs, and Speciality Products
· Posters, signs, and banners
· Magnets
· Wall and car decals
· Vinyl lettering
· Indoor and outdoor finishes
· Full-color, photo quality
· Oversize and custom shapes available
Strategic Goals
· Increase $1.2 million annual gross sales by $300,000 this year and an additional $300,000 the following year.
· Expand into the photo printing market (mass printing such as senior photos and high-quality art pieces).
· Invest $100,000 in after-school programs in the area.
· Develop a scholarship program for local at-risk students who want to attend college in the areas of business or performing arts.
§ 2:3. General Restrictions on Freedom of Speech in Schools
References
The United States Supreme Court has recognized that "[t]he vigilant protection of constitutional freedoms is nowhere more vital than in the community of American schools."1 The Court has repeatedly noted the importance of First Amendment protection in the school context, although often at the same time recognizing the power of school officials to control conduct in the schools.2 The Court, in an oft-quoted statement, noted:
It can hardly be argued that either students or teachers shed their constitutional rights to freedom of speech or expression at the schoolhouse gate. This has been the unmistakable holding of this Court for almost 50 years … On the other hand, the Court has repeatedly emphasized the need for affirming the comprehensive authority of the States and of school officials, consistent with fundamental constitutional safeguards, to prescribe and contro.
company SephoraWrittenn papers include the following minimum el.docxtemplestewart19
company: Sephora
Writtenn papers include the following minimum elements:
Company Background
Evaluation of the Supply Chain Processes
Drivers of Supply Chain Performance
Network Design
Risk Mitigation within the Supply Chain
Forecasting Practices
Sales & Operations Planning
Inventory Management Practices
Use of Transportation
Decisions in Sourcing
Use of Information Technology for Supply Chain Optimization
Supply Chain Sustainability with Learning Outcomes & Recommendations
below is the example
.
COMPANY PRESENTATIONBy; 1IntroductionGlobal huma.docxtemplestewart19
COMPANY PRESENTATION
By;
1
Introduction
Global human resource management include following aspects:
Unify the companies culture in mergers
Management of personnel internationally
Enforcing global recruitment strategy
Managing expatriates
Onboarding process
Compensation strategies in international business
The international operations of the company required newly hired staff or expatriates who will move to abroad for international business operations. Global human resource management provides various aspects to facilitate personnel management system in international business operations. Global human resource management include management of personnel internationally, unify the companies culture in mergers, enforcing global recruitment strategy, managing expatriates, onboarding process and compensation strategies in international business. In this presentation, all these aspects of global HRM will be presented. We will also study the global recruitment strategy with reference to Japan recruiting system. One compensation strategy will also be suggested for international business operation along with the key strategies required to enhance ethical behavior, sound working conditions and labor relation.
2
Strategies to Unify Companies Culture
Identify cultural differences
Communicate differences
State cultural agenda
Encourage share values
Increase synergies
Communicate expectations
Set operating Model
Build trust
Mergers is an effective international strategy which merge two companies. Following are the check list steps that would be important to unify one company culture with other company.
Identify cultural differences: The corporate cultures are usually different from each other. While merging the operations, it is important to identify the major differences exist in the culture in order to settle these differences in best possible way.
Communicate differences: It is an important responsibility of manager to communicate differences in order to set a culture of compromise and adjustment with in two different cultures.
State cultural agenda: After merger, it is important to state cultural objective and agenda in order to clarify the cultural expectations and to set a unified behavioral norm and pattern.
Encourage share values: It is not good to throw everything of pre-existing culture and change everything after merger (Shrivastava, 1986). It is better to work on the base of common operating principles and use the concept of shared values as well as standardized process.
Increase synergies: The basic logic behind merger of two companies is to increase the synergies through efficient operations. By combining the operations and values of two companies, a greater sum can be achieve (Søderberg & Holden, 2002).
Communicate expectations: By communicating expectations of merger with employees, a unified cooperating culture can be set (Kumar, 2000).
Operating model: The operating model of the company will define the company structure.
Company Overview The section should include the company name,.docxtemplestewart19
Company Overview: The section should include the company name, the industry they are in and a general overview of the organization.
Challenges: Discuss the challenges the organization had that limited their profitability and/or competitiveness and how they planned to leverage Cloud Computing to overcome their challenges.
Solution
: Describe the organization’s Cloud Computing implementation and the benefits they realized from the implementation. What was the result of implementing Cloud Computing? Did they meet their objectives for fall short?
Conclusion: Summarize the most important ideas from the paper and also make recommendations or how they might have achieved even greater success.
.
Company NameCorporation Name Unilever PLCPoints to be written.docxtemplestewart19
Company Name/Corporation Name : Unilever PLC
Points to be written for
* Future Direction
* Other items of significance to your corporation
Write 1 page for each topic
there are 2 topics
so in total 2 pages i need
Check the attached document for references
APA Format Must
References must be appropriately cited
.
Company Name HereMemoToFromCCDate332020R.docxtemplestewart19
Company Name Here
Memo
To:
From:
CC:
Date: 3/3/2020
Re: How to Use This Memo Template
Select text you would like to replace, and type your memo. Use styles such as Heading 1-3 and Body Text in the Style control on the Formatting toolbar. To save changes to this template for future use, choose Save As from the File menu. In the Save As Type box, choose Document Template. Next time you want to use it, choose New from the File menu, and then double-click your template.
1
1
Page 2
Memorandum Format Tips and Suggestions
· Complete Memorandum using the template included in this email
· Use a Word document (or comparable word processing program)
· Do not indent paragraphs
· Avoid block (or page long) paragraphs
· One (1) inch margins (top, bottom, left and right)
· Justify your memorandum, right
· Memorandum should have single-spaced sentences
· Font: Use standard font such as TimesNewRoman
.
Company Name Operating Budget Q1[Prior Quarter]Budget Pro.docxtemplestewart19
Company Name: Operating Budget Q1
[Prior Quarter]
Budget Projection Next Q
Var +/-
Var %
Revenue
Sales Revenue
Interest Income
Investment Income
Other Income
TOTAL INCOME
[Prior Quarter]
Budget Projection Next Q
Var +/-
Var %
Costs and Expenses
Advertising
Health Insurance
Installation/Repair of Equipment
Inventory Purchases
Salaries
Supplies
Insurance
Rent/Lease Payments
Other Expenses
TOTAL EXPENSES
NET PROFIT/LOSS
Net Earnings Before Taxes (Gain or Loss)
Income Tax Expense
Net Earnings After Taxes
[Prior Q]
Proj. Q.
Change
Ratio Analysis (Choose a minimum of two)
Profitability Ratio
Liquidity Ratio
Solvency Ratio
Valuation Ratio
Leverage Ratio
.
Company Name XeroxExplain the governance structure of Xerox.docxtemplestewart19
Company Name: Xerox
Explain the governance structure of Xerox
Analyze the connection between business and society
Detail how this connection affects the corporate governance of the Xerox
Examine the future of corporate governance globally. How does Xerox compare with global trends?
Use one academic source and one outside. APA format.
.
Company is Disney+,country is from USA,country is to Greenla.docxtemplestewart19
Company is Disney+
,
country is from USA
,
country is to Greenland
(
Nuuk
),
product/service is Entertainment - Films - Television - Streaming Services
,
How
(
FDI/Export/License
)
: Wholly Owned Subsidiary ?
What is your distribution strategy?
Read Ch.16 and respond to the following questions. First
,
respond with the appropriate textual references. Then
,
find relevant and current external sources to actualize your response. Make sure to add the links in the appropriate cells.
.
Company is Disney+, country is from USA, country is to Greenland( Nu.docxtemplestewart19
Company is Disney+, country is from USA, country is to Greenland( Nuuk), product/service is Entertainment - Films - Television - Streaming Services, How (FDI/Export/License) is FDI/License.
Destination: Consider the product/service - Are there any
non-tariff barriers
?
Read Ch 7 and respond to the question. Add research sources by hyperlinking the cells where you write your response
.
Company is Disney+, country is from USA, country is to Greenland, pr.docxtemplestewart19
Company is Disney+, country is from USA, country is to Greenland, product/service is Entertainment - Films - Television - Streaming Services, How (FDI/Export/License) is FDI/License.
Consider the corruption trends in your destination country, what are your company's guidelines about corrupt practices?
.
Company is Disney+, country is from USA, country is to Green.docxtemplestewart19
Company is Disney+
,
country is from USA
,
country is to Greenland
(
Nuuk
),
product/service is Entertainment - Films - Television - Streaming Services
,
How
(
FDI/Export/License
)
is FDI/License.
What Bilateral agreements exist between the two countries?
Read Ch 9 and respond to the question. Add research sources by hyperlinking the cells where you write your response.
.
Company IntelWeve learned how big of an advantage that technol.docxtemplestewart19
Company: Intel
We've learned how big of an advantage that technology can be in today's business environment. Every major strategic management goal will make use of multiple types of technology during implementation. In this assignment, you will need to create a presentation for the upper management at your chosen course project business. The presentation will focus on suggesting two pieces of technology that you feel are essential to the implementation of your chosen strategic management goal. This presentation will be in PowerPoint and Below is a detailed breakdown of what should be included in the presentation. Remember that presentations need to engage the audience through visual and auditory means. Use PowerPoint's features to accomplish this.
Create a title slide.
Summarize the goal you are trying to accomplish and the value it will bring to the business.
Identify two pieces of technology that you believe are essential to you accomplishing your chosen strategic management goal.
What are the strengths and weaknesses of each technology?
Why is each of these pieces of technology important to the implementation and execution of your chosen goal?
Provide research that supports your technology choices.
Cite a minimum of
1 scholarly source
.
Include a final APA works cited slide.
Format the presentation so that it's engaging and employs advanced formatting features such as templates, transitions, charts, or video.
It's important to be informative while still being persuasive. Focus on explaining the use of the technology and the value that the technology will bring to the business if used correctly.
.
This presentation was provided by Rebecca Benner, Ph.D., of the American Society of Anesthesiologists, for the second session of NISO's 2024 Training Series "DEIA in the Scholarly Landscape." Session Two: 'Expanding Pathways to Publishing Careers,' was held June 13, 2024.
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
Denis is a dynamic and results-driven Chief Information Officer (CIO) with a distinguished career spanning information systems analysis and technical project management. With a proven track record of spearheading the design and delivery of cutting-edge Information Management solutions, he has consistently elevated business operations, streamlined reporting functions, and maximized process efficiency.
Certified as an ISO/IEC 27001: Information Security Management Systems (ISMS) Lead Implementer, Data Protection Officer, and Cyber Risks Analyst, Denis brings a heightened focus on data security, privacy, and cyber resilience to every endeavor.
His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
-------------------------------------------------------------------------------
Find out more about ISO training and certification services
Training: ISO/IEC 27001 Information Security Management System - EN | PECB
ISO/IEC 42001 Artificial Intelligence Management System - EN | PECB
General Data Protection Regulation (GDPR) - Training Courses - EN | PECB
Webinars: https://pecb.com/webinars
Article: https://pecb.com/article
-------------------------------------------------------------------------------
For more information about PECB:
Website: https://pecb.com/
LinkedIn: https://www.linkedin.com/company/pecb/
Facebook: https://www.facebook.com/PECBInternational/
Slideshare: http://www.slideshare.net/PECBCERTIFICATION
Gender and Mental Health - Counselling and Family Therapy Applications and In...PsychoTech Services
A proprietary approach developed by bringing together the best of learning theories from Psychology, design principles from the world of visualization, and pedagogical methods from over a decade of training experience, that enables you to: Learn better, faster!
How to Make a Field Mandatory in Odoo 17Celine George
In Odoo, making a field required can be done through both Python code and XML views. When you set the required attribute to True in Python code, it makes the field required across all views where it's used. Conversely, when you set the required attribute in XML views, it makes the field required only in the context of that particular view.
Temple of Asclepius in Thrace. Excavation resultsKrassimira Luka
The temple and the sanctuary around were dedicated to Asklepios Zmidrenus. This name has been known since 1875 when an inscription dedicated to him was discovered in Rome. The inscription is dated in 227 AD and was left by soldiers originating from the city of Philippopolis (modern Plovdiv).
A Visual Guide to 1 Samuel | A Tale of Two HeartsSteve Thomason
These slides walk through the story of 1 Samuel. Samuel is the last judge of Israel. The people reject God and want a king. Saul is anointed as the first king, but he is not a good king. David, the shepherd boy is anointed and Saul is envious of him. David shows honor while Saul continues to self destruct.
LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UPRAHUL
This Dissertation explores the particular circumstances of Mirzapur, a region located in the
core of India. Mirzapur, with its varied terrains and abundant biodiversity, offers an optimal
environment for investigating the changes in vegetation cover dynamics. Our study utilizes
advanced technologies such as GIS (Geographic Information Systems) and Remote sensing to
analyze the transformations that have taken place over the course of a decade.
The complex relationship between human activities and the environment has been the focus
of extensive research and worry. As the global community grapples with swift urbanization,
population expansion, and economic progress, the effects on natural ecosystems are becoming
more evident. A crucial element of this impact is the alteration of vegetation cover, which plays a
significant role in maintaining the ecological equilibrium of our planet.Land serves as the foundation for all human activities and provides the necessary materials for
these activities. As the most crucial natural resource, its utilization by humans results in different
'Land uses,' which are determined by both human activities and the physical characteristics of the
land.
The utilization of land is impacted by human needs and environmental factors. In countries
like India, rapid population growth and the emphasis on extensive resource exploitation can lead
to significant land degradation, adversely affecting the region's land cover.
Therefore, human intervention has significantly influenced land use patterns over many
centuries, evolving its structure over time and space. In the present era, these changes have
accelerated due to factors such as agriculture and urbanization. Information regarding land use and
cover is essential for various planning and management tasks related to the Earth's surface,
providing crucial environmental data for scientific, resource management, policy purposes, and
diverse human activities.
Accurate understanding of land use and cover is imperative for the development planning
of any area. Consequently, a wide range of professionals, including earth system scientists, land
and water managers, and urban planners, are interested in obtaining data on land use and cover
changes, conversion trends, and other related patterns. The spatial dimensions of land use and
cover support policymakers and scientists in making well-informed decisions, as alterations in
these patterns indicate shifts in economic and social conditions. Monitoring such changes with the
help of Advanced technologies like Remote Sensing and Geographic Information Systems is
crucial for coordinated efforts across different administrative levels. Advanced technologies like
Remote Sensing and Geographic Information Systems
9
Changes in vegetation cover refer to variations in the distribution, composition, and overall
structure of plant communities across different temporal and spatial scales. These changes can
occur natural.
Comparative Corporate GovernanceEconomic Views of the Co.docx
1. Comparative Corporate Governance
Economic Views of the Company and its Governance
Professor John Paterson
*
Economic views of the firm
An outsider to the field of economics would probably take
it for granted that economists have a highly developed theory of
the firm. After all, firms are engines of growth of modern
capitalistic economies, and so economists must surely have
fairly sophisticated views of how they behave. In fact, little
could be further from the truth.
Oliver Hart
*
The basic questionWhy do firms exist?Appear to contradict
resource allocation by price mechanism—the
marketTechnological requirements—scale and efficiency
demands organisation……but much could be achieved by sub-
contracting
*
Why the basic question matters
2. For corporate governance, the answer has implications for:
Who is integral to the firmNature of relationship with other
actorsRole in governance
*
CoaseMarket and organisation are alternative methods of
coordinating productionThe firm is chosen when there is a cost
of using the price mechanismLong-term contract to obey
directions (employment) or provide goods (supply) replaces
need to discover price for every transaction
*
Coase (2)A firm consists of a system of relationships which
come into existence when the direction of resources is
dependent on the entrepreneurDivision between market and
organisation is determined by calculation of efficiencyFact of
direction distinguishes contract of service from contract for
services
*
Alchian and DemsetzDispute Coase’s idea that the basic
characteristic of the firm is directionPower is exercised in the
same way in the firm as in the marketFocus is instead on the
team use of inputs and the central role of one party in the
contractual arrangements of all other inputs
*
3. Alchian and Demsetz (2)
Questions then become:What is team production?Why does
it lead to emergence of a firm?
Answer lies in the metering problemEnsuring rewards
related to productivity
*
Alchian and Demsetz (3)Classical economics assumes
productivity creates reward automaticallyFor A & D it is the
system of reward that produces the level of productivityTeam
production makes metering difficultLeads to the appointment of
a specialist monitor
*
Alchian and Demsetz (4)
To ensure monitor does not shirk, they are given a bundle
of rights:to be a residual claimant to observe input behaviour to
be the central party common to all contracts with inputs to alter
the membership of the team to sell these rights
*
Alchian and Demsetz (5)
What happens if ownership is diversified?Monitoring
transferred to managersShareholders retain right to revise
membership of management group, to take major decisions
affecting company, and to sell shares if unhappy with other
decisions
*
4. Alchian and Demsetz (6)Accounts for market for corporate
controlFirm is a highly specialised surrogate market (a nexus of
contracts)Shareholders confirmed as residual claimants
*
Jensen & Meckling
Focus is upon the agency costs: arising because the
manager will not always act in the interests of the owner, and
the sum of:Principal’s monitoring expenditureAgent’s bonding
expenditureResidual loss (cost of non-maximising decisions by
agent)
*
Jensen & Meckling (2)Taking seriously the notion of the firm as
a nexus of contracts, J & M note that such costs affect all of the
contractual relations and not just those between owner and
managerFirm is a legal fiction which serves as a nexus for these
contractual relations
*
Jensen & Meckling (3)No point in trying to establish what is in
and outside the firmThere is only a set of contracts between
firm and owners of various inputs and buyers of
outputsQuestions of function or social responsibility become
irrelevantBut does this also question the focus on shareholders
as residual claimants?
*
5. Williamson
Why do those who provide capital both own and control
the firm?Non-specific assets can be financed by debt
(redeployable without cost)Specialised assets must be financed
by equity (redeployable only with cost)
*
Williamson (2)Shareholders provide capital without guarantee
of return, but with a claim on profits after other costs
coveredOther stakeholders can protect their positions with
contracts, but shareholders cannotShareholders thus require
control rights
*
Williamson (3)Board is one such control
mechanismShareholders clearly have a right to representation
on the board, but other stakeholders do notThey may, however,
have informational rights
*
HartSwitches the focus away from transaction costs (and thus
authority—traceable back to Coase) and on to property rights
(and thus the physical and non-human assets of the firm)
*
6. Hart (2)Transaction Cost Economics cannot explain the
advantage of a manager over an independent contractorProperty
rights can, because the owner of an asset has residual rights
allowing him to withdraw it from employees if their work is
unsatisfactoryHence the firm has advantages over the market
*
Hart (3)H’s approach thus explains why ownership of physical
assets leads to control over human assetsHe concedes, however,
that work remains to be done to accommodate the separation of
ownership and control, and the consequent delegation of
authority to managers
*
Corporate Governance
Seminar 4 – Sarbanes-Oxley Act 2002
Why Sarbanes-Oxley?Response to Enron, WorldCom and other
corporate scandals
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
What does it do?New rules on:Corporate
7. governanceDisclosureAuditConflicts of interest
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
*
Who does it affect?Issuers (companies)DirectorsOfficers (e.g.
CEO, CFO)EmployeesAttorneysAuditorsInvestment banks and
analysts
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
*
What else?New federal crimesIncreased penalties for some
existing crimesStudies to be conducted by SEC with a view to
possible future legislation/regulation onCredit rating
agenciesSEC enforcementInvestment banksConsolidation of
accounting firms
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for issuers (1)Enhanced requirements on
8. disclosureMaterial changes to financial condition or operations
to be reported on a rapid and current basisInternal control report
to be included in annual reportFinancial information must be
reconciled to GAAPFinancial information must reflect any
material adjustment
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for issuers (2)Corporate GovernanceAudit
committeeAll members must be independentEnhanced
powersDelisting for failure to complyEthicsImproper influence
on audits prohibitedCode of ethics for CFO to be adopted
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for issuers (3)Enhanced SEC review and
enforcement, for example:Periodic reports to be reviewed at
least every 3 yearsPower to freeze extraordinary payments by an
issuer under investigation
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Directors and Officers (1)Certification of
periodic reports by CEO/CFOInvolving criminal penaltiesFull
compliance with relevant lawFair presentation of financial
condition and operationPenalties: $1million or 10 years or both
for certification knowing that it does not comply$5million or 20
9. years or both for willful certification knowing that it does not
comply
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Directors and Officers (2)Certification of
periodic reports by CEO/CFOInvolving civil penaltiesThat
officer has reviewed reportNo untruth or omission re material
fact based on officer’s knowledgeStringent requirements re
internal controlDisclosure of problems to auditor and audit
committeeAny changes potentially affecting internal control
after date of evaluation
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Directors and Officers (3)Repayment of
bonuses, etc.In event of accounting restatement being required
(whether personally involved in misconduct or not)Bonuses,
other incentives or equity-based compensation from previous 12
monthsWhether involved in misconduct or not
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Directors and Officers (4)Personal loans to
directors and executive officers prohibitedReporting of share
transactions speeded up (within 2 business days—previously
within 10 days of end of month)NB these reports must be filed
10. electronically and appear on issuer website to assist
transparency
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for EmployeesProtection for whistleblowersi.e. for
those dismissed for disclosing breach of various federal laws,
especially relating to fraudAny person who knowingly dismisses
whistleblower as retaliation is subject to criminal penalties (fine
or up to 10 years prison or both)
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for AttorneysMust report evidence of breach of
securities law or fiduciary duty or similar violation to issuer’s
Chief Legal Counsel or CEOIf they fail to respond
appropriately, must report to Audit Committee or other
independent committee or to the Board itself
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Auditors (1)Public Company Accounting
Oversight BoardReplaces existing self-regulatory
approachFunctionsRegister public accounting firmsEstablish
standards for preparing audit reportsInspect public accounting
firmsInvestigation and discipline of firmsEnforce
complianceSubject to SEC oversight and controlRules must be
11. approved by SEC
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Auditors (2)Registration with the
PCAOBMandatoryIncludes consent to cooperate with the Board
in any investigationSignificant additional disclosure
requirements
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Auditors (3)PCAOB to develop standards
on:AuditingQuality controlEthicsIndependencePCAOB has
broad discretion, but Act sets some minimum requirements, for
exampleRetention of documents for at least 7 yearsSecond
partner must review auditReport on scope of testing, evaluation
of internal control, description of weaknesses or non-
compliance
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Auditors (4)Inspection of firms by
PCAOBAnnually if audit >100 issuersLess frequently if <100
issuersResults public (with exceptions)Investigation at
PCAOB’s discretionMay pass results to regulatorsMay impose
sanctions itself that it deems appropriate
Seminar 4 - Sarbanes-Oxley Act
12. *
Seminar 4 - Sarbanes-Oxley Act
Implications for Auditors (5)Foreign firmsSEC previously held
that foreign firms auditing US listed issuers subject to its
jurisdictionSarbanes-Oxley confirms this stanceSuch firms must
register with Board and submit to its oversight
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Auditors (6)Independence: services prohibited
if contemporaneous with audit, includingBook-keepingFinancial
information systems designActuarial servicesManagement or
human resources servicesInvestment servicesLegal and other
expert services (if not related to audit)Others permitted if pre-
approved by audit committee and disclosed
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
Implications for Auditors (7)Rotation of audit partner (lead and
review)After 5 consecutive yearsAuditor reports direct to audit
committeeIncluding alternative treatments under GAAP and
their consequences and auditor’s preferenceNo audit during
cooling-off periodThat is, where CEO, CFO or CAO worked for
auditor on issuer’s audit during previous 12 monthsCriminal
penalties for knowing and willful failure to retain working
papers for 5 years
Seminar 4 - Sarbanes-Oxley Act
13. *
Seminar 4 - Sarbanes-Oxley Act
Implications for Investment Banks and AnalystsRules to deal
with conflicts of interest between investment banks and
analysts, for exampleTo prevent retaliation against analyst for
negative report which could damage existing or potential
investment banking relationshipTo prevent publication of
reports while bank is involved in public offeringTo ensure
disclosure of conflicts of interest
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
New Federal Crimes and PenaltiesDestruction of Records in
Federal Investigations and Criminal ProceedingsSecurities
Fraud involving a Public CompanyAny such penalties, damages,
etc. are not discharged by bankruptcyIncreased penalties for
mail and wire fraudIncreased penalties for willful violations of
the Securities Exchange Act
Seminar 4 - Sarbanes-Oxley Act
*
Seminar 4 - Sarbanes-Oxley Act
But does it work?What do the critics say about Sarbanes-
Oxley?Does the rules-based approach solve the problems we
identified in the previous seminar with the UK’s principles-
based approach?
Seminar 4 - Sarbanes-Oxley Act
*
14. Seminar 4 - Sarbanes-Oxley Act
Corporate Governance
Stakeholder Theory
Professor John Paterson
1
Directors’ duties
Recall the Dodd-Berle debate on directors duties
Whereas Berle said duties were owed only to shareholders,
Dodd concluded that they were owed to the community
2
2
The rise of stakeholder theory
Dodd’s ideas find modern expression in stakeholder theories of
the company
Whatever the company is, it is surely more than the relationship
between shareholders and directors, as the economic theories
appear to suggest
3
3
Problems for stakeholder theory
Who exactly is included and what are the arrangements for their
15. inclusion in governance?
There are many different theories and ideas but a lack of clarity
about how these questions can be answered
4
4
Donaldson & Preston’s approach
Divides stakeholder theories into three categories
Descriptive
Instrumental
Normative
What do they mean by each of these terms?
5
5
Descriptive theories
Descriptive
Theories which claim to based on descriptions of existing
examples of stakeholder organisation
6
6
Instrumental theories
Instrumental
Theories based on a hypothetical (if, then) proposition,
suggesting adherence to theory results in some desirable
business outcome
16. 7
7
Normative theories
Normative
Theories based on moral or philosophical foundations,
suggesting adherence to a stakeholder approach is required
because it is “right” in some respect
8
8
The need for clarity
If we are not clear what sort of theory we are dealing with, it is
not easy to reach clear conclusions about its value for informing
corporate governance reform
9
9
Problems with descriptive theories
The naturalistic fallacy
Just because something is does not mean that it ought to be
10
10
17. Problems with instrumental theories
We lack empirical evidence that the stakeholder theories
actually produce the desired effects
11
11
Hidden normativity?
Do the problems with descriptive and instrumental theories
mean that they are really based on their authors’ normative
beliefs?
12
12
Problems with normative theories
If all normative theories are based on a moral or philosophical
conception of what is right or good, what happens if that
conception is not accepted by others?
13
13
A fundamental problem?
If Donaldson and Preston are right that all stakeholder theories
ultimately depend on a normative foundation, does that mean
that all are equally likely to be rejected?
14
18. 14
A solution?
Can stakeholder theory be based on property rights?
Seems unusual, given that this was an approach adopted by at
least one economic theorist (Hart)
But D&P’s idea of property as a bundle of rights and duties
looks interesting…
15
15
A property rights approach
Property rights are not unlimited
The limitations reveal the rights of other stakeholders as well as
notions of distributive justice
16
16
Conclusions
Could an analysis of the company from this perspective identify
the stakeholders and the mechanisms for integrating their
interests in governance arrangements?
What are D&P’s views?
17
17
19. Corporate Governance
Economic Views of Corporate Governance
An outsider to the field of economics would probably take it for
granted that
economists have a highly developed theory of the firm. After
all, firms are
engines of growth of modern capitalistic economies, and so
economists must
surely have fairly sophisticated views of how they behave. In
fact, little could
be further from the truth.
Oliver Hart
Firms are such a pervasive element of the economy that to ask
‘why are there
firms?’ may appear an odd, even superfluous, question. And yet,
given that the
dominant economic view has been that resources are allocated
according to
the price mechanism, the existence of organisations begins to
appear as
something of mystery. A standard response has been to point to
technological
requirements, such as the efficiency of a certain scale of
production or of a
certain rate of production that could not be achieved without the
long-term
contracts, hierarchy, management, coordination, etc. associated
with the firm.
(In the previous session, for example, we spoke in very general
20. terms about
the efficiencies and power of concentrations of capital, without
being explicit
about how this might operate in practice.) Other economists,
however, have
pointed out that the same ends could be achieved by
independent short-term
contractors, with management services also being bought in as
required. Such
realisations give new prominence to the question of why firms
exist. For those
of us who are interested in corporate governance, the answer
provided to this
question by economists is significant because it will have an
impact on the
actors who are regarded as integral to the firm, the nature of
their relationship
with it and ultimately what role if any that they will have in its
governance.
The notes below are based on the readings set for this meeting
of the class.
Page references relate to the versions of these readings (with
the exception of
that by Williamson) collected in Louis Putterman & Randall S.
Kroszner
(1996) The Economic Nature of the Firm: A Reader (Second
Edition)
Cambridge: Cambridge University Press.
Ronald Coase, ‘The nature of the firm’
The basic observation upon which Coase’s work proceeds is that
the market
and the organisation are essentially alternative methods of
coordinating
21. production. If standard microeconomic theory holds that in the
market
production is coordinated by the price mechanism, the question
arises as to
why organisations emerge that essentially supersede the price
mechanism.
Indeed, it is this characteristic that Coase regards as the
‘distinguishing mark
of the firm’ (p91). The thrust of this seminal paper is then to
explain the choice
between the alternative coordinating mechanisms.
Having dismissed such basic suggestions as that firms might
emerge because
individuals prefer to be directed than to contract independently
on a
continuous basis or because people prefer to direct others,
Coase observes that
‘[t]he main reason why it is profitable to establish a firm would
seem to be
1
that there is a cost of using the price mechanism’ (p93). Thus,
in place of the
need to discover the price for every single transaction among a
number of
factors of production, each factor enters into a contract whereby
he agrees, in
return for a certain remuneration, ‘to obey the directions of an
entrepreneur
within certain limits’ (p93). Similarly, as regards the supply of
goods or
especially services, a long-term contract will reduce the costs
22. associated with a
series of short-term contracts. Given the desire of the purchaser
in such
circumstances to achieve a degree of certainty over the longer
term, such an
arrangement may ultimately take the form of a contract where a
high degree
of direction is afforded the purchaser vis-à-vis the supplier, at
which point
Coase suggests that a firm has emerged. While he does not
believe that such
additional factors as the existence of sales taxes on market
transactions as
compared with intra-firm transactions can explain the
emergence of firms,
they would seem to encourage the growth of firms (pp94-5). For
Coase,
therefore, a firm ‘consists of a system of relationships which
comes into
existence when the direction of resources is dependent on an
entrepreneur’
(p95).
A key advantage of this approach is that it allows one to
examine the question
of why a firm gets larger or smaller – why, in the ultimate, it is
the size it is.
Insofar as it is possible to point to the costs associated with
market exchange
giving rise to the emergence of firms, the question then arises
as to why all
transactions are not ultimately organised by the entrepreneur
rather than
being subject to the price mechanism. Coase offers three
possible reasons
(which may in reality operate in combination):
23. • a point is reached where the cost of organising the additional
transaction is greater than the cost of leaving it to the market;
• the increasing number of transactions to be organised means
that a
point is reached where the entrepreneur is no longer able to
deploy
resources most efficiently and where an open market transaction
is
preferable;
• the supply cost of a factor may rise due to the expansion of the
firm, the
lower initial cost having been influenced by the smaller size of
the firm
(p96).
After then dealing with some further details and indicating the
shortcomings
of certain alternative accounts of the emergence of firms, Coase
checks to see
whether his account matches reality. By looking at the nature of
the legal
relationship between employer and employee, he finds that it is
indeed the
‘fact of direction which is the essence’ of the relationship
(p104). In other
words, it is this fact that distinguishes a contract of service (or
employment)
from a contract for services (a market transaction). Satisfied
that the theory is
realistic, Coase emphasises that the ‘question always is, will it
pay to bring an
extra exchange transaction under the organizing authority?’
(p104). The
24. manager will accordingly continually experiment, producing an
equilibrium
between market and organisation.
2
Armen Alchian & Harold Demsetz, ‘Production, information
costs,
and economic organization’
These authors begin by contesting the basic observation made
by Coase that
the distinguishing characteristic of the firm is the fact of
direction, the ability
of the employer to direct the employee. For Alchian and
Demsetz there is no
difference between the way in which power is exercised in the
firm and in the
market – the withholding of future business or resort to the
courts for redress.
The question then again becomes one of explaining why firms
emerge, of
where the difference lies between organisation and market. For
them, it ‘is in a
team use of inputs and a centralized position of some party in
the contractual
arrangements of all other inputs’ (p194). This shifts the
question to one of
explaining what a team process is and why it leads to the
emergence of the
firm.
They describe the fundamental problem of efficient economic
25. organisation as
‘the metering problem’ (p194), in other words, the problem of
ensuring that
rewards are appropriately related to productivity. Whereas
classical
economics assumes that productivity automatically creates
reward, Alchian
and Demsetz propose that the causal relationship is actually
reversed. In other
words, it is the precise system of reward which produces a
given level of
productivity. The quality of the system by which productivity is
metered or
monitored is therefore crucial for efficiency.
For them, what makes metering difficult and thus what leads to
a search for
means to reduce the costs of metering is team production. Team
production
arises where the output produced by a team from several types
of resources is
more than would have been produced by the sum of the
separable inputs of
each team member and where the difference is sufficient to
cover the cost of
organising the team. It is this situation which gives rise to
metering costs. If it
were simply a matter of summing the separable inputs, each
input could be
measured and rewarded accordingly. But how does one detect an
individual’s
contribution to team production? One way is to observe
individual behaviour.
But this has costs and results in a degree of viable shirking –
i.e. the amount
which it is cheaper to ignore. Competition for places from
26. individuals offering
lower costs or greater rewards is an alternative – but this
assumes a high level
of information for the outsiders.
The authors thus examine the classical firm and suggest that an
individual can
be assigned the function of specialist monitor. The danger that
he in turn may
shirk can be addressed by paying him the net earnings of the
team, by making
him, in other words, the residual claimant. But the task of the
monitor is a
complex one and he thus must enjoy an entire bundle of rights:
1. to be a residual claimant
2. to observe input behaviour
3. to be the central party common to all contracts with inputs
4. to alter the membership of the team
5. to sell these rights (p201).
Alchian and Demsetz assert that the ‘coalescing of these rights
has
arisen…because it resolves the shirking-information problem of
team
production better than does the noncentralized contractual
arrangement’ (i.e.
3
the market) (p201). There is thus nothing distinctive about the
contracts
which link team members to the owner.
27. The authors then go on to apply their analysis to a number of
different
organisations, but we are most interested in their treatment of
the
corporation. The complication introduced by the corporation is
that
ownership may be very diversified, with a large number of
shareholders all
owning a small fraction of the firm. In such circumstances, the
cost for any
one shareholder of informing him or herself about every
decision is likely to
be higher than the loss incurred by a bad decision. Accordingly,
decision
making authority is transferred to a smaller group of managers
with the
shareholders retaining ‘the authority to revise the membership
of the
management group and over major decisions that affect the
structure of the
corporation or its dissolution’ (p207). As a result of this
arrangement, any
individual has the right to sell his or her shares rather than have
to accept
decisions with which they do not agree and which they are
unable individually
to influence. Alchian and Demsetz thus provide an account of
the market for
corporate control. The existence of other groups of would-be
external or
internal managers and a market for shares means that diversified
holdings can
‘congeal’ into temporary blocs in order to displace the existing
management.
Alchian and Demsetz see these features of corporate structure as
having
28. emerged as a result of the ‘problem of delegated authority to
manager-
monitors’ (p208).
Their analysis confirms owners as residual claimants (p212) and
identifies the
firm as ‘a highly specialized surrogate market’ (p214).
Eugene Fama, ‘Agency problems and the theory of the firm’
Fama recognises Alchian and Demsetz’s ‘striking insight’ in
seeing the firm as
a set of contracts between factors of production, but does not
believe that their
analysis is capable of explaining the large modern corporation
where
ownership and control are separated so radically as there
between
shareholders and directors – despite Alchian and Demsetz’s
efforts in this
direction. His thesis is that separation of ‘ownership and control
can be
explained as an efficient form of economic organization within
the ‘set of
contracts’ perspective. More radically still, he states that:
ownership of capital should not be confused with ownership of
the
firm. Each factor in a firm is owned by somebody. The firm is
just the
set of contracts covering the way inputs are joined to create
outputs and
the way receipts from outputs are shared among inputs. In this
‘nexus
of contracts’ perspective, ownership of the firm is an irrelevant
concept.
29. Dispelling the tenacious notion that a firm is owned by its
security
holders [i.e. shareholders] is important because it is a first step
towards
understanding that control over a firm’s decisions is not
necessarily the
province of security holders (p304).
Fama wants to develop ‘a perspective on management and risk-
bearing as
separate factors of production, each faced with a market for its
services that
provides alternative opportunities and, in the case of
management, incentive
towards performance’ (p304).
4
While shareholders, as risk-bearers, will act optimally insofar
as they spread
the risk by investing in a portfolio of shares, the manager
invests his human
capital in one firm. Accordingly, while an individual
shareholder may not have
much interest in the oversight of the running of a given firm, he
will have an
interest in an efficient capital market which accurately reflects
the risk he has
undertaken as well as any rewards (or losses) that ought to
accrue to him as a
result of his investment decision. The signals thus produced by
the capital
30. market with regard to the value of a firm’s shares ‘are likely to
be important
for the managerial labor market’s revaluations of the firm’s
management’
(p305).
That said, Fama’s main question remains to be answered: ‘[t]o
what extent
can the signals provided by the managerial labor market and the
capital
market…discipline managers?’ (p305-306). He demonstrates
that the former
does exert many pressures on the firm to ‘sort and compensate
managers
according to performance’ (p306), but it does not answer the
question as to
how managers are to be disciplined. This task is allocated to the
board of
directors, the question then being how this ought best to be
constructed.
Because of diversified ownership of shares, shareholder
domination of the
board does not appear to offer effective oversight. Management
themselves
have an incentive to ensure that the firm is well-run in order to
send the right
signals to the managerial labor market and thus are prima facie
candidates for
positions on the board. They may, however, but may equally
engage in
expropriation and thus there is a need for some check on their
behaviour.
Accordingly, boards also contain outside directors who
‘stimulate and oversee
the competition among the firm’s top managers’ (p307). ‘The
role of the board
31. in this framework is to provide a relatively low-cost mechanism
for replacing
or reordering top managers; lower cost, for example, than the
mechanism
provided by an outside takeover’ (p308).
In contrast, therefore, to Alchian and Demsetz, Fama rejects the
allocation of
the role of disciplining managers to the shareholders as risk-
bearers.
The viability of the large corporation with diffuse security
ownership is
better explained in terms of a model where the primary
disciplining of
managers comes through managerial labor markets, both within
and
outside the firm, with assistance from the panoply of internal
and
external monitoring devices that evolve to stimulate the ongoing
efficiency of the corporate form, and with the market for
outside
takeovers providing discipline of last resort. (p308)
Michael Jensen and William Meckling, ‘Theory of the firm:
managerial behavior, agency costs, and ownership structure’
In this ambitious paper, the authors seek to make advances
along a number of
fronts in the theory of the firm. Their precise focus is upon the
‘behavioral
implications of the property rights specified in the contracts
between the
owners and managers of the firm’ (p318) which means that they
are concerned
32. among other things with the question of agency costs as
between owners and
managers and with the nature of the firm as a ‘nexus of
contracts’.
5
In the owner-manager relationship, agency costs arise because,
assuming both
parties to be utility maximizers, it is likely that the manager, or
agent, will not
always act in the best interests of the owner, or principal. These
costs,
therefore, are the sum of:
1. the monitoring expenditures by the principal
2. the bonding expenditures by the agent (i.e. costs incurred by
the agent
to guarantee that he will not act so as to harm the principal)
3. the residual loss (i.e. the cost arising from the divergence
between the
decisions taken by the agent and the decisions which would
maximize
the principal’s utility).
For Jensen and Meckling, ‘an explanation of why and how the
agency costs
generated by the corporate form are born leads to a theory of
the ownership
(or capital) structure of the firm’ (p319). In contrast to the
general literature in
33. this area, they assume that owners and managers solve these
agency problems
and they investigate the ‘incentives faced by each of the parties
and the
elements entering in to the determination of the equilibrium
contractual form’
of the relationship between manager and owner (p320).
Particularly interesting for us in Jensen and Meckling’s paper is
their
definition of the firm. They locate themselves in the literature
stretching from
Coase to Alchian and Demsetz, but they regard the focus of the
latter as too
narrow. In particular, they insist that ‘[c]ontractual relations are
the essence
of the firm, not only with employees but with suppliers,
customers, creditors,
etc.’ (p320). Unlike Alchian and Demsetz, however, who focus
only on the
costs associated with team production, Jensen and Meckling
note that agency
costs and monitoring problems exist for all of these contracts.
They thus stress
that the firm is only a ‘legal fiction which serves as a nexus for
contracting
relationships and which is also characterized by the existence of
divisible
residual claims on the assets and cash flows of the organization
which can
generally be sold without permission of the other contracting
individuals’
(p321). Consequently, they see little point in trying to establish
what is inside
and what is outside the firm. There is only a set of contracts
between the firm
34. and the owners of the material, human and capital inputs and
consumers of
the firm’s outputs. This ‘nexus of contracts’ perspective also
makes questions
of the firm’s objective function or of its social responsibility
irrelevant – or at
least no more relevant than they would be to the operation of a
market, which
is essentially how Jensen and Meckling view the firm.
Without going into the more detailed analysis conducted by
Jensen and
Meckling, it is possible to see that their approach focuses
attention on the
nature of the contracts that arise for a particular organization,
their
consequences and the effects of changes ‘exogenous to the
organization’
(p321). While they particularly focus on these questions with
respect to the
relationship between shareholders and managers and thus are
frequently cited
in support of understandings of the firm and of corporate
governance
emphasising shareholder value, the market for corporate
control, etc., it is
useful to bear in mind their insistence on the pervasiveness of
the problems of
agency and monitoring across all the contractual relations that
characterise
the firm. If we extend the investigation to those other
contractual
relationships, will the model of governance change?
6
35. Eugene Fama & Michael Jensen, ‘Organizational forms and
investment decisions’
This paper, dealing with a more specific question, is
nevertheless within the
same stream of literature. Its significance for us is in its focus
on the
relationship between organisational form and decision-making
processes. In
the case of what the authors describe as the open corporation
(that is, a
corporation where ownership and control are separate and
whose shares may
be freely traded) most shareholders ‘have no direct role in the
decision
process’ and have interests that conflict with those of the
managers.
Accordingly, agency problems arise and so, in making
investment decisions,
shareholders will consider the ‘decision control process’ (p337).
The authors
state that ‘maximizing market value involves extending decision
control
mechanisms to the point where the incremental market value of
improved
decisions is just offset by the market value of the cost of
improved decision
control’ (p337).
Again, therefore, economic analysis justifies a focus on the
relationship
between shareholders and managers when it comes to corporate
governance.
36. But again, since the authors state that their analysis is
‘applicable to all
decisions’, the question is raised as to whether a more extensive
analysis
would yield a different view of corporate governance.
Harold Demsetz, ‘The Structure of Ownership and the Theory of
the Firm’
This author makes a number of interesting modifications to the
debate as it
had developed up to this point. His focus is particularly upon
the issue of
consumption on the job by managers – the issue that becomes
the agency
problem in the context of the separation of ownership and
control and of the
diversification of ownership. Demsetz is not convinced that this
problem is
greater in the latter context and suggests that even where firms
are effectively
producing goods for employee-consumers, it will be doing so
efficiently. As
regards the problem of shirking, Demsetz indicates that it can
be reduced and
all parties to the firm made better off ‘if the monitoring cost
required to
reduce shirking is less than the value of the resources consumed
in shirking’
(p350). He continues ‘[p]resumably, shirking is reduced to its
optimal level by
various pressures from within and outside the firm’ (p350). The
amount that
an individual is paid will be reduced by an amount reflecting on
the job
consumption, with the reduction being greater in firms where
37. the cost of
monitoring is higher. Demsetz’s point therefore is that in any
situation it is the
firm and not those who work for it that bears the cost of
monitoring – their
total compensation (including pay and on the job consumption)
will be the
same whether they work for a firm with high cost or with low
cost monitoring,
only the fractions of each component will change. In choosing a
particular
form of business organisation, therefore, the firm must check to
see whether
higher cost monitoring will also lead to reductions in other
costs such that the
higher cost monitoring is worthwhile.
From the corporate governance perspective, therefore,
Demsetz’s insights
focus attention on the cost of any particular governance
arrangement, and
7
especially upon its impact on costs beyond those it is
immediately concerned
with controlling. He does this by indicating the extent to which
any
arrangement does not have an impact upon the total
compensation of, say, the
managers whom previous authors have focused upon in terms of
the agency
problem. Once the overall cost of any governance arrangement
(in terms of its
38. effects beyond those it is aimed at achieving) is an issue, a
broader range of
governance arrangements should be considered in order to
discover which is
optimal for the firm as a whole.
Oliver Hart, ‘An economist’s perspective on the theory of the
firm’
Hart’s motivation is a concern with certain shortcomings he
perceives in the
transaction cost economics approach to the firm. He takes
instead a property
rights approach to the firm, which focuses attention on the
physical or
nonhuman assets of the firm. Whereas the TCE approach
emphasises the
importance of authority within the firm over the price
mechanism of the
market, Hart points out that it is not clear on the basis of the
TCE approach
alone what the advantage of the manager is over the
independent contractor
and thus of the firm over the market. He states instead that ‘[I]n
a world of
transaction costs and incomplete contracts, ex post residual
rights of control
will be important because, through their influence on asset
usage, they will
affect ex post bargaining power and the division of ex post
surplus in a
relationship’ (p356). Hart is thus able to show that the firm
offers advantages
over the market to the extent that the owner of an asset has
residual rights of
control over them and hence the right to withdraw them from
39. employees if
their work is unsatisfactory. The employee therefore has more
of an incentive
to work more efficiently for the owner of the assets he requires
to complement
his labour input than he does for someone who does not own the
assets he
requires to complement his labour input. Not only, therefore,
does the
property rights approach have something to say about the
location of the
boundaries of the firm vis-à-vis the market, but it also explains
why ownership
of physical assets leads to control over human assets.
It might be thought, accordingly, that Hart’s approach provides
an
explanation for the priority of shareholders in corporate
governance
arrangements and the relatively weak position of employees.
Shareholders
after all own the physical assets of the firm and possess some
residual rights of
control such as the right to replace directors. The difficulty that
Hart
acknowledges, however, is that the property rights approach
cannot easily
accommodate the fact of the separation of ownership and
control and the
consequent delegation of control to managers. He is
nevertheless hopeful that
this can eventually be done.
Oliver Williamson ‘Corporate Governance’
This author is concerned to know why it is that those who
40. provide capital, the
shareholders, both own and control the firm. His argument is
that
redeployable (i.e. non-specific) assets can be financed by debt,
but that
specialized and intangible assets must be financed by equity.
This is because
the former can be transferred to other uses without cost,
whereas the latter are
bound up with the specific business of the firm and cannot be
redeployed
8
without cost. Shareholders, of course, provide capital without
any guarantee
of a return but with a claim to profits after all other costs have
been covered.
Williamson makes the point that while members of other
constituencies are
able to protect their positions through contracts (or through the
exercise of
political power) all of which can be revisited periodically,
shareholders make a
once for all investment which they cannot adjust periodically
(short of
outright sale). For this reason, shareholders require control
rights over the
firm by such mechanisms as the board of directors. While
Williamson is thus
able to point to reasons why other constituencies should not be
represented
on the board insofar as they have a direct influence on decisions
through
41. voting rights, he is not averse to their presence for
informational purposes.
9
1
SEMINAR 1
Week 27
Theories of the Company and of Corporate Governance
In the first seminar, we move on from the initial discussion of
definitions by considering some of the key theories
that have sought to explain and account for the nature of the
company and of corporate governance. In the first
part of the class we will discuss economic approaches and, in
the second, so-called stakeholder approaches.
Given the apparent position of the company as the pre-eminent
expression of capitalism, it is not surprising to
find that it has been the focus of considerable attention by
economists who have sought to explain its nature and,
as a consequence, how it should be governed. What is perhaps
more surprising is that there is little agreement
among economists on these issues. As the Harvard economist
Oliver Hart has expressed it:
An outsider to the field of economics would probably take it for
42. granted that economists have a highly developed
theory of the firm. After all, firms are engines of growth of
modern capitalistic economies, and so economists must
surely have fairly sophisticated views of how they behave. In
fact, little could be further from the truth.
In the first part of the seminar, the aim will be to gain an
impression of some of the major schools of thought
regarding the company within the economic literature and to
consider what their implications are for corporate
governance. It will also be important to bear in mind the
relationship between economic thinking and the legal
understanding of the company. As lawyers, we are ultimately
concerned with what law has to say about corporate
governance. It is important to realise, however, that the legal
model of the company in any given jurisdiction is
an implicit or explicit reflection of a set of underlying
economic, social and political decisions. Thus, in order to
understand the legal position, we need to understand the models
that have informed those decisions. We begin
by looking at economics.
Some of the papers listed below are quite complex, some are
quite long. DON’T PANIC! You are not expected to
understand complex equations or complex economic concepts.
In each case, there is a fairly straightforward
message relating to the company and its governance, which the
authors discuss in relatively straightforward
language. This is what you need to identify and focus upon.
Even if you still find the exercise difficult, again please
don’t worry. We will ensure in the class that the key points are
identified and after the class a short document
will be made available which summarises the lessons to be
drawn from these important and influential texts.
43. Reading
• Coase, Ronald, ‘The Nature of the Firm’, Economica,
November 1937, 386-405
• Alchian, Armen & Harold Demsetz, ‘Production, information
costs, and economic organization’, The
American Economic Review, Vol. 62, No. 5 (Dec., 1972), 777-
795
• Jensen, Michael and William Meckling, ‘Theory of the firm:
managerial behavior, agency costs, and
ownership structure’, Journal of Financial Economics, 3,
(1976), 305-360
• Williamson, Oliver, ‘The Modern Corporation: Origins,
Evolution, Attributes’, Journal of Economic
Literature, Vol. 19, No. 4 (Dec., 1981), 1537-1568
• Hart, Oliver, ‘An economist’s perspective on the theory of the
firm’, Columbia Law Review, Vol. 89, No.
7, Contractual Freedom in Corporate Law (Nov.,1989), 1757-
1774
The following questions will help us to focus our discussions:
1. For Coase, why do firms emerge? Or, in other words, why is
it suddenly the case that the market is no
44. longer good enough?
2. What is the essence of the firm as far as Alchian and Demsetz
are concerned?
2
3. What are the implications of Jensen and Meckling’s ideas on
agency costs and the firm as a ‘nexus of
contracts’?
4. How does Williamson suggest that asset specificity affects
the emergence of firms and by extension their
governance?
5. For Hart, how does ownership of physical assets lead to
control over human assets?
6. Which economic account of the firm do you find most
convincing and why?
Following on from the examination of the relatively narrow
view of the company and its governance allowed by
economic accounts, this seminar will consider more recent
theorising which understands the company as being
composed of a broader range of interests or stakeholders. Such
thinking is intuitively attractive, especially in the
face of concerns about corporations acting with a lack of
45. concern for social responsibility, environmental
protection, etc. It is necessary to consider, however, whether
such a broad understanding of the company could
usefully inform practical corporate governance arrangements. In
particular, how might a decision be made about
which interests are to be included within the company?
Assuming that such a decision could be made, what
mechanism might allow these interests to be integrated so as to
ensure its governance?
Reading
• Donaldson, Thomas and Lee E. Preston (1995) ‘A Stakeholder
Theory of the Corporation: Concepts,
Evidence, and Implications’, Academy of Management Review,
20(1), 65-91.
Consider especially the following questions when reading this
paper.
1. How do Donaldson and Preston categorize different versions
of stakeholder theory?
2. What is their critique of the different categories of the theory
that they identify?
3. What is the basis of their proposal for stakeholder theory?
Does this resolve the problems they have
identified with existing varieties of the theory?
All articles cited for this seminar are available online via the