Citic Pacific's Internal Corporate Governance Mechanisms Case Study

Pages: 4 (1243 words)  ·  Bibliography Sources: 2  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business

¶ … Citic Pacific's internal corporate governance mechanisms. How are they used to control management decisions?

The internal mechanisms of control and corporate governance at Citic Pacific are intriguing. On the one hand sits the pride of the company and their stated commitment to high standards of corporate governance; on the other hand sits the $2 billion loss and the stakeholder accusations. At a general level, the mechanisms are supported by promoted transparency and collaboration between management and shareowners. Nevertheless, the managerial team was focused on running independently and did not communicate its decisions to the other parties.

Overall then, in light of the situation created, it becomes clear that the control mechanisms developed and implemented by the managerial team at Citic Pacific were inadequate. Instead of focusing on ethics, responsibility and integrity, the company's internal mechanisms were focused on easy gains. In other words, by renouncing a sound financial tool of protection within the international markets, the company made the tradeoff between prudence and easy gains.

And furthermore, when the gains did not materialize, the company did not step up and confess its actions. It perpetuated the situation until it was no longer able to hide it and it only then confronted the stakeholders. This situation is extremely similar to that encountered in the case of the Enron bankruptcy, and the ethical implications are just as serious.

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2. Analyze and discuss any external corporate governance mechanisms from the case. How are they used to control management decisions? Explain

The external mechanisms proved to be working against the interests of the Citic Pacific stakeholders. In spite of the strong reputation it had created for itself, the company was not a professional economic agent and business entity, but one which acted as a united family.

TOPIC: Case Study on Citic Pacific's Internal Corporate Governance Mechanisms. How Assignment

The leaders at Citic Pacific had joined their forces and had constructed a private company, without the involvement of the Chinese communist party. They were committed to privacy and independence and this sense of rebellion was also manifested in their audits and corporate governance processes. An article in the South China Morning Post stated: "Despite its red-chip name and a majority-holding by the Citic Group, Citic Pacific is more of a family business of the Yungs, or should we say, a repayment of nationalized assets to a wealthy and influential family by the Communist Party" (cited by Ko, 2009).

The company leaders discouraged external involvement and the existence of external corporate governance mechanisms was extremely limited. The Yung family maintained full control and ensured to become the sole independent force to run the company.

The external environment constituted sources for future financial gains, rather than inspiration for control and prudence. It inspired the leaders in the Yung family to seek profits against safety. They implemented the models of other economic agents which registered quick profits through risky endeavors and they used the international market only as a source of favorable fluctuations in international rate of currency exchange. In other words then, the external mechanisms used by Citic Pacific were insufficient and inadequate.

3. Were the corporate governance standards at Citic Pacific sufficient? Explain

The corporate governance standards implemented by the executives at Citic Pacific were insufficient and they failed to protect the organization and its stakeholders from losses. While financial failures are a constant of the business community, they can nevertheless be limited and managed by the development and implementation of prudential policies. These policies depend specifically on the individual aversion to risk of each economic agent. It appears that the executives at Citic Pacific had a high tolerance for risk and a low aversion, and their prudential policies were barely existent.

The managerial team at Citic Pacific appeared to have a great understanding of the need… [END OF PREVIEW] . . . READ MORE

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https://www.essaytown.com/subjects/paper/citic-pacific-internal-corporate-governance/386749.