Corporate Governance Identify Essay

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As such, investors are giving an increasing weight to the governance practices of business as their own overall wealth is at risk. Because of this increased influence, more American corporations are providing a more profound emphasis on governance in general to help diminish or abate the effects of the governance rating agencies on their stock price. In regards to McBride, they will be forced to reassess their governance issues in order to better align themselves with competition. From the emails, the CEO has a blatant disregard for governance and its implications on his business. Likewise, he seems to not respect the needs of the shareholders of his business. Investors, as a result will pull funding away from McBride which will ultimately lower the companies stock price. In addition, the company can be investigated by the SEC for not implementing proper internal controls in regards to its auditing and accounting practices. Overall, the ratings agencies are great for the typical American investor and consumer. Through these agencies, companies with questionable practices will be identified and punished according. This provides opportunities for the well run American franchise as they now can take advantage of their competitors misfortune through customer, investor and asset acquisitions.

Evaluate at least two governance rating methodologies and their effects on your solution for McBride.Download full Download Microsoft Word File
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Essay on Corporate Governance Identify the Corporate Assignment

One methodology used by the Institutional Shareholder Service, is based on comparison. First, an overall market index is established that all companies regardless of industry or size can be compared to. For a more detailed comparison, a company can be assessed relative to its peer group within the industry. The overall index is determined from 61 variables spanning 8 categories in including director education, director stock ownership, board structure, audit issues, and many of the topics discussed in section A. In addition, information regarding corporate governance is garnered from official websites, annual reports, prospectuses, and official statements to better gauge the companies corporate governance structure (5). This ISS metrics are very detailed but still leave room for flexibility in regards to evaluation. For example, in regards to director compensation, if the director receives a pension even though he is not an employee of the company, the score is negatively impacted. This is a concrete statement with little room for flexibility; however, option plans and costs are assessed on a case by case basis. This allows flexibility in regards to the scope and the responsibilities of the directors. A director of a fortune 100 company should be adequately compensated for his efforts in the context of the larger business. Likewise a director of a small cap company with less responsibility should be compensated somewhat less than the other director. My only quarrel with the metric is the assessment of what is "adequate," and what is "excessive." Who is to determine that, and how much personal bias is placed in that decision. It is quite difficult to quantify accurate the cost of a directors responsibility within a business as many are different in regards to industry, stuctuture and operations. As such, I would rather see a range in regards to the score of a particular company to take into account the ambiguity inherent within the process itself.

In addition, The Corporate Library (TCL) also evaluated corporate governance of individual companies. What is appealing about TCL is that it is an independent research firm with no obligations to outside entities. Many of the same metrics of ISS are used by TCL. Other metrics not mentioned by ISS include: compliance with meeting attendance, age of the director, takeover defenses, litigation problems and gender of the director. Scores are awarded A to F. Many of these scores are based on research and proprietary metrics. One aspect I don't like about the system is the A to F. rating. Almost akin to the morning star mutual fund ratings, this can be misleading to investors in some instances. Instead of an A to F. ranking for a single year, I would like to see the ranking as a cumulative average to account for any short-term governance gimmicks on the part of the company. I would also like to see a more detail metric system. Is the A for a particular company a 90% or is it a 99%? Under the TCL system, investors wouldn't know

Now in regards to McBride, this system does not bode well for its operations, as the company will undoubtedly receive a low score. However, the benefit of the evaluation is that it provided McBride with an opportunity to correct past mistakes. The company now knows exactly what metrics to improve and can take the necessary steps to improve them.

Evaluate corporate America's reaction to the governance rating industry. Assess how McBride will react to this same rating system.

Corporations are resistant to any change that affects their ability to manipulate or mislead others. The corporations that have high standards established have an opportunity to attract new investors, and capital to expand operations. Questionable companies however could potentially lose funding and their investor base. As such, the corporate reaction will be mixed at best, and negative at worst. None of these standards imposed will have a material effect on day-to-day business operations. In fact, it is my belief that business operations will be enhanced as a result of these new metrics. McBride, will react negatively to this new system as the company has awful corporate governance practices. They will resist change and lobby to enact the old standard. However, it is in the benefit of their shareholders and business constitutes that they act in the best possible manner.

References

1) Kaplan, Stephen. "Capital Ideas - The Evolution of U.S. Corporate Governance." The University of Chicago Booth School of Business - Business School, Full-time, Part-time, Executive MBA Programs. Web. 13 Jan. 2012. .

2) Shaw, Kenneth. "New Accounting Rules for Defined Benefit Pension Plans." NYSSCPA.ORG | The Web Site of the New York State Society of CPAs. Web. 13 Jan. 2012. .

3) Stoever, Henry. "Current and Emerging Issues - Resources - NACD." NACD - National Association of Corporate Directors. Web. 13 Jan. 2012. .

4) Blodget, Henry. "Here's Why Bank Of America's Stock Is Collapsing Again - Business Insider." Featured Articles From The Business Insider. 23 Aug. 2011. Web. 13 Jan. 2012. .

5) "Business Practices & Principles | ISS." ISS |. Web. 13 Jan. 2012. . [END OF PREVIEW] . . . READ MORE

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