Corporate Governance Benchmarking Businesses in today’s society must be aggressive and competitive to meet the demands of consumers. The corporate culture must be one of shared beliefs with expectations and values that influence and guide the thinking of individuals in a positive and ethical manner. As each organization’s success depends on profitability and productivity, the magnitude of success or failure can be controlled by a few bad apples within the organization. Organizations capable of misleading, cheating and fraud have been highly frowned upon through the collapse or disarray of many organizations.
Team A will provide a brief synopsis of specific organizations experiencing unethical challenges and how these organizations experience total collapse and devastation or how these organizations have come to rise above these unethical challenges by changing the corporate culture. By identifying the key course concepts, comparing and contrasting the practices of the various organizations will also provide insight of how each organization was able to react to these challenges.
Individual Company Synopses Nestle
The pharmacists Henri Nestle found Nestle in 1866 and currently is the biggest international company serving food and beverages (MAREKTLINE, 2010). Nestle employs more than 280,000 individuals working from various countries. Nestle provides products such as beverages, nutrition, ice cream, milk products, prepared dishes, and cooking assisting tools. In addition, Nestle also provides products for animals, and pharmaceutical products (MARKETLINE, 2010). Nestle’s 2008 yearly revenue was over $100,000 million.
Even though Nestle is the largest international company selling food and beverages, Nestle is a company who faced challenges of unethical practices leading them to the examination of compliance controls. According to MARKETLINE (2010) stated, “For instance, the group has faced warnings over the past several years as it sourced cocoa from farms in the Ivory Coast, which employed child labor” (p. 25). Nestle was criticized for purchasing cocoa from Ivory Cost, which the cocoa may have been produced by minor slaves. The minors who produced cocoa were bought from their desperate parents and transported to the Ivory Coast.
The minors were obligated to work approximately more than 90 hours a week with no pay, limited food, and frequent physical abuse. The United States of America and some other countries should not employ minors because it is illegal and unethical. McBride Financial Services (MFSI), like Nestle is considering performing unethical activities. The CEO Hugh McBride is advising the staff members to disguise the biographies of his choice of directors for Beltway’s approval (University of Phoenix, 2010). Corporate governance needs to identify MFSI staffs role of ethics in compliance with organizational objectives and regulations.
MFSI could face serious criticism especially if a staff member acts on the whistle blowing law. Whistle blowing permits staff members and others to communicate their concerns to the audit committee with the understanding that steps will be taken to address their concerns while providing protection from revenge (Chew & Gillian, 2005). Nestle faced severe criticism based on allegations of unethical practices related to child labor laws, but responded to these issues by denying the unethical practice. Nestle continues to be the largest food and beverage company and began to source cocoa through Fair Trade Certification with some countries.
Hewlett-Packard Hewlett-Packard (HP) is a technological global leader providing services to a variety of businesses and customers. The company operates out of many countries including the United States. A set of Stanford University students founded Hewlett-Packard in 1939 by producing different technological products and services to major organizations and individual customers. HP produced revenues over $115 million in 2008. Even though HP has generated millions in profit, the company has faced a major challenge of unethical practices.
HP management faced charges of unethical activates such as using unlawful and unethical techniques to monitor HP reporters and directors leading the HP director Patrician Dunn to admit defeat to the courts (MARKETLINE, 2006). HP Patricia Dunn responded to the issue by surrendering herself to the law, but the outcome was a dismissal. HP continues to be successful, but the leaders should define the roles of management in corporate governance by communicating. MFSI is similar to HP’s unethical practices of running the organization through lack of effective communication.
According to Chew and Gillian (2005), “Incentive plans often fail to achieve credibility because they are not explained adequately. Uncertainty creates doubt, and doubt undermines success” (Chap. 20, p. 5). MFSI should benchmark HP to learn to identify the seriousness of unethical practices, and think twice before implementing an unlawful method. The CEO of MFSI does not like anyone to control the companies investing options, and therefore is directing other staff members to conduct unethical activities associated with the hiring of directors.
However, MFSI does fall under the guidelines of the SOX. According to Chew and Gillian (2005), “SOX mandated changes that will affect executive compensation, shareholder monitoring, and, particularly, board monitoring” (Chap. 6, p. 8). The CEO Hugh McBride should improve focus and arrive at the right measure by strengthening his corporate plan. HP continues to be a global leader of technological products and services while avoiding unethical practices and lawsuits. Therefore, MFSI should mirror HP concerning the focus on what is ethical.
The leaders of corporations can better their organizational objectives through strong leadership skills, focus, and accurate projections. The CEO Hugh McBride is in time to incorporate best practices from HP before any whistle blowing or unethical activities occur. Enron Enron, an American corporation that traded energy founded in 1985. By 2000 it had been named by Fortune magazine as the most innovative company in America for the fifth consecutive time (Enron, 2004). The collapse of Enron in December 2001, at this time now the seventh largest corporation in the United States, stunned most investors and analysts.
Senate reports later revealed that Enron had inflated its earnings by hiding its debts and losses in subsidiary partnerships. Jeffery Skilling, former Chief Executive Officer of Enron resigned just months before the company’s collapse, yet he testified before members of the Senate that Enron was financially sound at the time of his resignation. Powers testified that contrary to testimony from senior executives and Skilling, senior management had a decisive role n the bankruptcy of this $63 billion company (Powers, 2002). “There is no question that virtually everyone, from the board of directors on down, nderstood that the company was seeking to offset its investment losses with its own stock (Powers, 2002, para 4). “Culture or, more specifically, the ethical environment within the firm created through management practices and espoused values, may be the most important deterrent to unethical behavior” (Gasco, Gonzales, & Llopis, 2007, p. 96). Analysis from the perspective that the business culture at Enron contributed tremendously to the company’s demise, undoubtedly the blame for this financial tragedy is due to the values Skilling exhibited and promoted among top and mid-level management. The results of a qualitative study of the nature of ethical leadership emphasize the importance of being perceived as a leader with a people orientations, as well as the importance of leaders engaging in visible ethical action,” Hartman, 2004, p. 185). “Every organization has a culture, represented by a shared pattern of beliefs, expectations and meanings that influence and guide the thinking and behaviors of the members of an organization or group” (Hartman, 2004, p. 186). Like Enron, MFSI’s corporate culture will continue to erode if they only pay cosmetic attention to integrity (Ezekiel, 2006).
The responsibility remains with both the board of directors and executive officers to display ethical leadership that is in the best interests of the company and its shareholders. Instead of taking the road of turmoil chosen by Enron, MFSI has the opportunity to create their own best practices in corporate ethics and compliance functions by following regulatory guidelines and taking an active role in establishing procedures and policies affecting the way the corporation is directed, administered, and controlled. Enron’s failures have resulted in many case studies that focus on what not to do to be successful.
WorldComWorldCom, a United States company original formulated as Long Distance Discount Service (LDDS) in 1983 and later renamed in 1995 as WorldCom (WorldCom, 2009). During the telecommunications boom of the 1990s, WorldCom’s aggressive acquisition of its competitors made it a formidable force and a leader in the industry (WorldCom, 2009). In June 2002, senior executives admitted that the company’s profits for the previous five quarters had been overstated by US$3. 8, thus, leaving the organization close to bankruptcy and forcing it to announce 17,000 redundancies.
Sparks from the fraud were felt the world and in the July 2002, WorldCom became the largest US Company ever to file for bankruptcy protection. Bernie Ebbers, CEO, and Scott Sullivan, CFO, created a culture that enabled them to run an unchecked organization. This type of environment allowed them to use creative accounting to manipulate the numbers to meet Wall Street expectations. Lower level management and other employees did not question the actions of Ebbers and Sullivan or the validity of the transactions being recorded in WorldCom’s accounting records.
The SEC Report of Investigations states, “Ebbers created the pressure that led to the fraud. He demanded the results he had promised, and he appeared to scorn the procedures (and people) that should have been a check on misreporting. When efforts were made to establish a corporate Code of Conduct, Ebbers reportedly described it as a colossal waste of time” (Beresford, Katenbach, & Rogers, 2003, p. 44). Boards rely on information obtained from other sources; however, neither the board nor Audit Committee operated in a manner in which actions signaling a red flag would be brought to their attention.
Ebbers distanced the company’s actions from the board and controlled the discussions, agendas, and decisions. A proper checks and balances were not implemented on Ebbers. He managed to create an environment whereby the controlling authorities were weak and the pressure to meet numbers was high. The consensus was not to challenge senior management (Beresford et al. , 2003). According to Richard Thornburgh, Bankruptcy Court Examiner, the culture at WorldCom implicitly forbid scrutiny and detailed questioning (Beresford et al. , 2003).
This allowed Ebbers and Sullivan to direct lower-level employees to record journal entries that misclassified revenue and expenses without being questioned. Furthermore, WorldCom’s culture permitted journal entries to be recorded without proper authorization and documentation. Management at WorldCom disregarded employee complaints and opinions about the tasks they were asked to perform. The lack of detailed reporting and questioning makes it nearly impossible for internal and external auditors to perform complete and thorough audits.
Internal audit teams could not access the information needed to determine if fraud was or was not occurring in the organization. In addition, external auditors should have issued a disclaimer of opinion because of scope limitation (McCafferty, 2004). Bristol-Meyers Squibb Bristol-Myers Squibb Company has a mission statement to enhance human life by providing the highest quality health and person care products to consumers, however, few bad apples within the organization causes major havoc within organizations.
Since inception in 1887, Bristol-Myers Squibb has thrived to become the leading pharmaceutical, consumer products, medical devices, and nutritional product business in the world. Nevertheless, ranking at the third largest pharmaceutical company in the world and offering massive drugs such as cardiovascular, anti-cancer drugs, anti-infective agent, drugs for treating the central nervous system and many others. The consumer products consist of Clairol and Excedrin, medical devices, include orthopedic devises knee replacement, artificial hips and even supplying various nutritional products.
Bristol-Myer settled challenges in 1981 in which a ten-year old antitrust suit alleging this pharmaceutical company was improperly obtaining a patent on the antibiotic ampicillin. These accusations of the pharmaceutical giant influenced “engaging in restrictive licensing practices which resulted in excessive change to hospitals, wholesales, and retailers” (Company History, n. d. , p. 3). Constant bombardment with accusations in the coming years with product tampering incidents over-the-counter product shed light on recurrent unethical values led to questioning from the Food and Drug Administration (FDA).
By 2001, Frederick S. Schiff, Executive Vice President and Chief Financial Officer were appointed because of his tenure and experience of holding various prominent positions within the Bristol-Myer’s Company. Being known as an “audit committee expert” Frederick S. Schiff was honestly ready to meet the high quality demands of the new consumers in the market (CFO, n. d. ). Unethical practices trails from longtime business and unethical financial reporting and in June 2005, “Frederick S. Schiff, senior vice president and CFO, and Richard J.
Lane former executive vice president and the president of the company’s worldwide medicine groups was charged with conspiracy and securities fraud” (CFO, n. d. , p. 1 ). Schiff and Lane was fabricating and inflating sales and earnings; then presenting misleading information to the SEC. Employees began reporting unethical, fraudulent and dishonest dealings, yet ignored. Schiff and Lane was facing maximum penalty of 15 years in prison and $1 million in fines. With new a board member James Robinson III appointment as a non-executive chairman, his quest was to emphasizes openness, accountability, and integrity in corporate governance” (CFO, n. d. , p. 2). Bristol-Myers sought after correcting unethical behaviors previously and stating “we are determined that the mistakes of the past not be repeated and that the company’s reputation for adhering to the highest standards of ethical business practices be fully restored” (CFO, n. d. , p. 1). Rite Aid ThrifDiscount Center first opened the doors in September 1962 in Scranton, Pennsylvania. This discount company began to flourish rapidly through five northeastern states by 1965.
However, 1968 the name changed as this store began trading on the American Stock Exchange. Through continued growth by 1981, Rite Aid was known as the third largest retail drugstore chain in the country. Rite Aid began to acquire other drugstores and improve the services provided to customers. In 1999, a new management team had a master plan for increasing sales and profits and taking the company to the next level. The new financial operation and the new required balance sheets and a new way of doing business was at the forefront.
By June 21, 2002, the “Securities and Exchange Commission (SEC) filed accounting fraud charges against several former senior executives of Rite Aid Corp” (SEC, n. d. ). Charges were filed against several CEOs for exaggerating income in every quarter. Since 1997 to May 1999 SEC acknowledged, Rite Aid overstated income for the company by massive amounts. Once these fraud charges were investigated, Rite Aid was forced to “restate its pre-tax income by $2. 3 billion and net income by $1. 6 billion, the largest restatement ever recorded” (SEC, n. d. , p. 1).
Martin Grass, former CEO enriched his salary at the expense of Rite Aid shareholders this includes Frank Bergonzi, CFO, and former vice chairman Franklin Brown. Martin Grass continued to defraud shareholders when he was feeling pressure and made-up finance committee minutes for meetings that never occurred in connection with a corporate loan transaction. The Regional Director of the Commission’s Northeast Regional Office, Wayne M. Carlin, stated, “Rite Aid’s former senior management employed an extensive bag of tricks to manipulate the company’s reported earning and defraud its investors” (SEC, n. . , p. 1). At the same time, former CEO Martin Grass concealed use of company assets to line his own pockets. “When the house of cards teetered on the edge of collapse, Grass fabricated corporate records in a vain effort to forestall the inevitable” (SEC, n. d. , p. 1). Martin Grass pleaded guilty to many counts of fraud and misrepresentation of corporate money. A federal judge sentenced the former chief executive, chief financial and vice chairman of Rite Aid to eight years in prison for their role in accounting fraud at the drugstore chain.
Martin Grass, CEO was also responsible for paying 3. 5 million in fines and forfeiture in connection with his guilty plea to two conspiracy charges. Hugh McBride of McBride Financial Services will become a part of fraud and dishonesty once he begins to embellish and fabricate biographies, which can lead to additional unethical challenges for him and the organization as well. Park Avenue Property and Casualty Insurance With the announcement of the federal bailout of banks announced in 2009, it was just a matter of time before someone was going to acquire some of the money illegally.
The first person accused of defrauding the federal bailout program was banker Charles Antonucci, a former president of a small New York City bank (Mecoy, 2010). Charles Antonucci was involved in one of the oldest insurance frauds on the books. The courts showed that he was involved in purchasing and insurance company with its own money. Park Avenue Property and Casualty Insurance needed a buyer. The buyer needed to help Providence Holdings. Derek Lancaster, president and CEO of Park Avenue transferred a $69 million bond portfolio from Wells Fargo to Oppenheimer & Company.
Within eight days Oppenheimer changed the name on the portfolio from Park Avenue to Antonucci. On the same day that the name change occurred, Oppenheimer lent $30 million to Antonucci to purchase Park Avenue. Antonucci then used the $30 million in addition to another $7. 5 Million in Park Avenue funds that transferred to Antonucci by Providence Holding to complete the purchase of Park Avenue Property and Casualty Insurance. Once this transaction was completed, the executives at Providence Holdings distributed $20 million between its five top executives (Mecoy, 2010).
The problem is Antonucci’s investment was, in money that already belonged to the bank and was simply moved around to give the appearance that it came from Antonucci himself. With a combination of misrepresentation, fraud, and concealment to increase their own personal financial gains at the expense of policyholders, Charles Antonucci is charged with, bank bribery, self-dealing, fraud, and embezzlement. If he is found guilty, he is facing the possibility of 260 years in federal prison (Mecoy, 2010).
The same type of situation could occur at McBride Financial Services. With no board of directors and no accounting firm to audit the books, money could be appropriated for any use at all. By have an organization to be accountable for would eliminate the temptation to use available funds for any purpose. It is also the reason that the board of direction should be involved in the activities of the company and not just a group of figure heads with no power of control (University of Phoenix, 2004). AmeriFirst
Jeffrey Bruteyn, the former Managing Director of the former Dallas-based AmeriFirst Funding Corporation and AmeriFirst Acceptance Corporation is facing 180 years in federal prison and millions of dollars in fines and restitution because of his participation in a securities fraud scheme that targeted senior citizens. He will be sentenced in federal court on July 23, 2010 (PR Newswire, 2010). Bruteyn rose over $50 million from more than 500 investors living in Florida and Texas. Most of his victims were retired people looking for a safe secure investment.
Bruteyn misled, defrauded, and deceived investors by misrepresentation and failure to disclose the fact concerning the safety of the securities he was selling (PR Newswire, 2010). Bruteyn manipulated the stock price of Interfinancial Holdings Corporation by selling and buying hundreds of thousands of shares of stock. These large purchases and sales of stocks gave the impression of a large interest in the Interfinancial Holdings Corporation stock. Gerald Kingston pleaded guilty to committing securities fraud by helping Bruteyn to manipulate the stock by making the purchases and then selling the stock back and admitted to making $1. million in the process (PR Newswire, 2010). Bruteyn told his investors that the investments were guaranteed by a commercial bank and two insurance companies. He also told his investors that this stock “was a perfect investment vehicle for someone in a conservative financial position” (PR Newswire, 2010). In addition, he represented himself as possessing a Master’s of Business Administration from Wharton School of Business when, in fact, he had no such degree and was expelled from the securities brokerage ndustry following a series of violations (PR Newswire, 2010). Over $55 million was raised through the fraudulent sale and offer to sell AmeriFirst’s collateral secured debt obligations and secured debt obligations. The United States Securities and Exchange Commission also charged Bruteyn and his sales representatives with targeting and luring elderly investors to invest their retirement savings into investments that had little or no risk and were, in fact, guaranteed by a commercial bank and protected by numerous insurance companies (PR Newswire, 2010).
AIG American International Group Inc (AIG) is a vastly diverse company, in not only the products that they offer, but also the countries that the company operates in. AIG’s primary focus is general insurance, life insurance, and retirement services. During 2006, AIG was the ninth most valued company in the world with market capitalization in excess of $180 billion. By the end of 2008, AIG had “reported $37. 63 billion in losses through the first nine months. ” (Greenwald). AIG began experiencing issues when the American housing market began to take a turn.
People began to default on their loans and turn-in their homes. Many of these mortgages were under-written by AIG property insurance division. The company’s financial products division “had written credit default swaps, derivatives and futures with a notional amount of about $2. 7 trillion, including about $440 billion of credit default swaps” (2009). This caused AIG to become unstable because the “losses on certain credit default swaps and collateral calls by global banks, broker dealers and hedge funds” (2009).
This division had transactions with every major commercial and investment bank in the world, which caused the entire world banking system to be at risk. Because their financial division was not a licensed insurance company, it did not fall under the normal guidelines, rules, and regulations enacted in the late nineties. “It must be obvious that the sharp decline in trading costs that has come with electronic communication networks has enabled, and doubtless encouraged, managers to trade with carefree abandon” (Gandossy).
Oversight committees, regulations, and external auditors would have stemmed the amount of abuse that occurred in AIG. McBride Financial Services will begin offering low cost mortgage services in particular areas of the United States. The McBride Company must fully understand not only the HIPPA and Sarbanes Oxley Act of 2002 regulations; they must also comply with the federal and state regulations regarding mortgage lenders doing business in particular states.
The federal government has been enforcing stricter regulations centered on the mortgage industry “endorse proposed rules developed by its staff for the banks it regulates that would end some of the more abusive lending practices aimed at subprime borrowers” (Stezer). “I know there are some governance things related to this stuff so make sure we cover that…you might check with Larry on those steps” (UOP) Potential and current clients of McBride Financials will be expecting a certain quality of security measures enacted to protect their personal information and financial future.
AIG, a worldwide brand, was ranked 30th on Barron’s survey of “The World’s most Respected Companies’, was not able to provide their customers with this assurance. “Corporate executives and directors have been placed in positions of great power and authority without an adequate understanding of their fiduciary duties” (Gandossy). Tyco Tyco International LTD. (Tyco) is a diversified company that provides vital products and services to customers in four business segments: fire and security, electronics, health care, and engineered products and services.
In 2002, several top members of the company’s management team immersed the company in scandal, bankruptcy, with careless compliance to government accounting practices. By 2005, the former Chief Executive Officer (CEO), Dennis Kozlowski, stood convicted of 22 of the 23 counts that he was indicted on. The company tasked the new CEO, Ed Breen, with bringing the company back from the edge of extinction. McBride Financial is trying to determine which rules and regulations they need to be considered with “make sure you cover the governance and Sarbanes or SOX or whatever that Enron law is…focus on internal controls” (UOP).
The company will need to address issues such as SOX compliance, HIPPA privacy laws, Financial Privacy Rules, and when going public SEC regulations. In examining the Tyco governance record, we draw three conclusions that may be helpful to other companies so that they may avoid breeding governance cultures that allow conflicts of interest to flourish: first, that boards must be proactive in their oversight of company management; second, that a board with a majority of independent directors should also include a diversity of skills, favoring irectors with operating experience; and third, that aligning director interests with shareholder interests through stock ownership should be balanced by establishing a reserve system for realizing re- realizing gains that is long-term in its construction (Levensohn). In 2003, Breen, from Tyco needed to complete the same steps a new company is contemplating, not a company that had been in existence for more than 40 years. Breen looked at the internal organization of the company and realized that drastic changes were necessary or the company would not survive.
He began to implement new ethical policies, moved to have a new board of directors elected and replaced approximately 95% of the upper management team that reported to the former CEO, Kozlowski. The CEO, Breen, comprehended that changes were necessary and management had to enforce and set the direction for the new culture. “As one of his chief priorities, Breen set the goal of meeting the highest standards of corporate governance” (Verschoor). In the letter to the proposed board of directors, the CEO of McBride, is stating that he will be CEO and Chairman of the Board. “I do not envision a lot of work on your part.
As a reward for your support, I’d simply like you to be a part of the company but, as your Chairman” (UOP). For the board of directors to perform their duties correctly, there has to be a division between the CEO and the Chairman of the Board. If public company directors have the right to attractive cash and stock option compensation packages, to the prestige associated with their positions, and to exercise the power corporate strategy, they also have the responsibility to be proactive in their oversight and to ask the hard questions of the CEO before trouble is irreversible (Levensohn). At Tyco, Mr.
Breen had taken a strong stance with a corporation traumatized by the actions of unethical leadership and turned it into a company that is respected. Tyco’s progress is the considerable improvement in its governance rating by consultants Governance Metrics International (GMI). In December 2002, Tyco’s rating by GMI was 1. 5 out of 10. As a result of the company’s governance efforts, it rose to 9. 0 in August 2005. GMI highlighted the company as one of the most dramatically improved (Verschoor). Hugh McBride has decided to make decisions about his company and not let the investors tell him how to run his own business.
By not properly and completely disclosing information pertaining to the operation of his business he is in danger of misrepresenting the company similar to the way Mr. Bruteyn from AmeriFirst misrepresented the information he presented to his investors (University of Phoenix, 2004). Team Analysis Critique the independence objectives of corporate governance Corporate governance is identified through the examining of corporate performances such as those of the benchmarked companies Nestle, Hewlett-Packard, Enron, WorldCom, Bristol-Meyers Squibb, Rite Aid, Park Avenue Property and Casualty Insurance, AmeriFirst, AIG, Tyco, and MFSI.
According to Chew and Gillian (2005), “The determinants of corporate performance— strategic, managerial, and environmental—are complex and interrelated, and in the last decade some or all of them may have offset the positive effect of board activism” (Chap. 14, p. 2). Corporate governance is critical to the operation of local and global businesses to make certain ethical practices occur on an ongoing basis. The independent behavior and performance of organizational leaders is measured by metrics supporting ethical and legal methods.
Some metrics for independent and performance corporate governance are self-governing board leadership, frequent conferences consisting of independent leaders only to assess administration against the organizational plan for strategic performance, and official policy establishing an open relationship among the board members and administration (Chew & Gillian, 2005). Each of the benchmarked companies understands the importance of corporate governance because each company has faced challenges with unethical activities. Analyze the roles of the key corporate governance players
Key corporate governance players play a major role within the incentive plan of their organization. The governance players must first understand their roles relating to corporate governance and then determine ways to create a strong incentive plan. Each benchmarked company is driven by governance players who faced challenges related to unethical practices, but responded with creativity and innovation to create a strong incentive plan. Nestle responded to their issues of unethical child labor practices by sourcing cocoa through the Fair Trade Certification with certain countries.
Nestle’s management improved their focus and use of metrics to strengthen the company’s incentive plan. Furthermore, the benchmarked company Enron hid its debts and losses in subsidiary partnerships, which inflated the company’s earnings. The unethical conduct by Enron could have been prevented if the stock were tracked. When stock is tracked, the incentive plan will strengthen. MFSI could learn to avoid unethical practices by implementing best practices such as tracking stock to measure and motivate.
Tracking stocks consists of giving investors an opportunity to invest in the company of choice, give individual companies permission to raise capital, build a different focus of each business, and capture the effectiveness of similar resources (Chew & Gillian, 2005). Critique the role of ethics in compliance Corporate Culture “Every organization has a culture, represented by a shared pattern of beliefs, expectations and meanings that influence and guide the thinking and behaviors of the members of an organization or group” (Hartman, 2004, p. 188).
The culture of the firm has a direct impact on the decision making process and can be a sustaining value to the organization that provides direction when confronted with challenges. The incentive to increase profits directly correlates to taking higher risks and should send a signal to implement the proper controls to mitigate such risks. “The determinants of corporate performance— strategic, managerial, and environmental—are complex and interrelated” (Chew). McBride Financial is embarking on a journey that many companies have traveled before.
One major key for McBride Financial to be successful is to take the lesson, actions, and missteps encountered by the companies outlined in this review and incorporate them into their business plan. McBride Financial will need to establish audit committees, independent board of directors, and security measure to protect the personal data gathered from their cliental and vendors. Corporate governance can take on many forms. To ensure businesses are acting in the best interests of all stakeholders, the federal government continues to impose new regulations and restrictions on businesses.
The Sarbanes-Oxley Act and the Clean Water Act are two examples of legislation that was passed in response to failures in corporate governance. After such legislation has passed, businesses must adjust their management practices to ensure compliance. Unlike Enron or WorldCom, McBride has the opportunity to establish a code of conduct and ethics codes that focus on proper social responsibility and ethical behavior. When employees do not see ethical business practices in upper levels of management, they are less likely to behave ethically themselves.
Governance at all levels of the corporation is essential the success of the business. Hugh McBride is in the process of engaging Beltway Investment to become a major financial stakeholder in his company. For McBride Financial Services, Hugh is President, CEO, CFO, and Chairman of the board. With the president of a company, occupying the positions of chairperson of the board there is no partition between the board of directors and the company, they are overseeing. This leads to an inability to perform their main function, to monitor management and provide “increased board activism in monitoring management. Chew) Tyco had an external audit committee overseeing the financial and SEC reporting, as mandated by the SOX regulations. However, because of internal corruption the auditors were not effective in uncovering the issues facing the company. This was because of the company’s ability to bury the evidence in areas that they knew the audit committee did not focus on. McBride could avoid this by “audit committee members consider management misconduct; they will need to reflect on some of the more commonly documented areas” (McCarthy).
Without separation, the employees will not have the capability to report issues that could prevent the company from facing issues with regulation and prevent misconduct. Leaders need to set the example of ethical decision-making and protecting individuals’ ability to speak out when practices within the business are being conducted incorrectly. The leadership team “must learn to disseminate that ethical decision-making process” (Hartman) is conducted through the actions of the management team.
The chief executive, chief financial and vice chairman of Rite Aid conducted fraud that was documented and know by other members of the senior management group. With a separation from upper a management and the board of directors, the collusion may not have happened. Many guidelines from successful company have been established: (1)board selection by a nominating committee rather than the CEO; (2) more equity compensation for directors; and (3) more director control of board meetings through appointment of a lead director or outside chairman, annual CEO reviews, and regular sessions with outside directors only (Chew).
Strong corporate governance plays a large role in the structure and strategy of an organization. Corporate governance is a key element in enhancing investor confidence, promoting competitiveness, and ultimately improving economic growth. The system of controls that maintains the balance of power between stakeholders, senior management and the board of directors is vital to the long-term health of an organization. Past behavior has forced change in business and legislation was implemented to protect the interest all the stakeholders instead of the interest of a few.
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