Quiz 5: Corporate Governance
About Stakeholders There will be list of stakeholders in every organization, where each stakeholder plays a different role. The list includes: Stockholders or shareholders, customers, employees, retailers, wholesalers, suppliers, community and government. Every organization does not have all these stakeholders. For example: some companies do not deal with wholesalers. Any unethical behavior in the business affects all these stakeholders. In this case study, JT is appointed as a CEO for the ML investment bank which is facing $8.4 billion loss. In the early weeks of tenure, JT took tough decisions to sell bad assets at steep discounts in order to get them off from balance sheet. The strange case with JT is that he spent huge amount of office renovation, when company is in need to recover the $8.4 billion. Later, JT negotiated sale of ML to BA for a price of $29 per share, valuing ML at $50 billion. As the combined value deal of ML and BA is $176 billion, it was worth JT asked for $40 million bonus from BA compensation committee. But after few weeks the value dropped to $39 billion. The board of directors approved $4 billion for employee and JT got his $29 per share but his bonus request of $40 million is turned down. Later, ML faced fourth quarter loss of $15.3, where BA was prompted to ask for $25 billion bailout from government. JT was dismissed from ML. After a year, he is announced as CEO of CIT even though there was extensive coverage about JT regarding his expenditure for office renovation and outrageous bonus demands. The stakeholders affected under JT leadership are shareholders, employees and government. Employees of the company are positively affected by the bonus announced by the BA compensation committee during ML and BA deal. Shareholders got affected negatively during the fourth quarter loss of $15.3 billion. Further government also affected to provide $25 billion bailout.
Governance of the modern corporation Owners of the corporation come at the top of the hierarchy, who supply equity to the company by purchasing shares. Next, board of directors is elected by the owners through elections to run the organization. In parallel to board of directors, audit committee, compensation committee and corporate governance committee is staffed by board of directors to oversee the senior executives (CEO, CFO, and COO). Senior executives oversee the bottom management of organization such as managers, employees and stakeholders. In this case study, M is a paralegal for a large regional law firm. He gets assigned to work with senior partner of law firm Dc to support the lawsuit of Ch industries. The lawsuit claims that the senior management of the company has massaged the numbers in the financial performance as the stock price is likely to go below the price that shareholders has granted to senior management. While assisting Dc, the first assignment of M is to review all the transactions related to stock by senior executives, which is intensive work that takes several days. While working on it, M finds a key paper copy of email where Dc emails CEO to make sure that there is no documentation proof that could be problematic. This shocks M for a while. In general compensation committee is responsible to oversee the compensation packages for the senior executives of the organization. This includes base salaries, stock options, bonus and other benefits or perks. Further, employee's compensation policies are overseen by management team. Even, in this company compensation committee that is staffed by board of directors would have granted stock options to the senior management.
In this case study, M is a paralegal for a large regional law firm. He gets assigned to work with senior partner of law firm Dc to support the lawsuit of Ch industries. While working on it, M finds a key paper copy of email where Dc emails CEO to make sure that there is no documentation proof that could be problematic. This shocks M for a while and he thinks whether to discuss with Dc or sent the information to lawyers of shareholders anonymously or to pretend that he did not found anything. The consequences before he decides to do anything. He doesn't want to do anything that affects his job. Also, recollected the similar case which made life of CEO's worse due to similar act. So, finally he shredded the paper thinking that it is not worth. M gave a thought of all the consequences of his actions and decided to pretend as if he did not find anything. He showed concern for his career and also future of CEO's, which is incorrect action from the ethical perspective. He thought that no one gives attention to rookie paralegal but he would have done his job correctly by bringing that discussion with Dc, further leaving the decision to them.