Corporate Governance Problems Research Articles

The Case of T-Mobile USA. Inc. (2010-2013): Failed Strategic Alliances and Corporate Governance

T-Mobile’s strategy, decisions and Strategic Alliances were sub-optimal, didn’t result in sustainable growth; and could have resulted in Deadweight Losses (in both the prices of telecomm services and in T-Mobile’s stock prices) and reduced Social Welfare (in terms of increased uncertainty; adverse effects of the stock market; employee morale; and the adverse effects of T-Mobile’s apparent financial distress on its customers, suppliers, shareholders and employees). T-Mobile’s Corporate Governance problems illustrate the weaknesses of Goodwill/Intangibles accounting (IFRS and GAAP), the securities regulation in the US and European Union, Sarbanes Oxley Act, the US FSOC’s “Non-financial SIFI criteria” and the Dodd Frank Act. This article: i) reviews the earnings management, asset-quality management and poor strategic decision making within T-Mobile during 2010-2014; ii) introduces theories of, and biases in Corporate Intrapreneurship, Corporate Governance and enterprise-risk management; iii) characterizes T-Mobile’s problematic strategic alliances; and provides evidence of patterns of failed strategic decisions; iv) provides evidence of, and characterizes Regulatory Failure within the context of Corporate Intrapreneurship and Strategic Decisions; v) summarizes key factors that may affect companys’ receptiveness to corporate venturing proposals.

The Case of Alcoa, Inc. (As of 2014).

Although Alcoa had various and better strategic options, its strategy during 2010-2013 was sub-optimal and didn’t result in sustainable growth. Alcoa’s decisions and misconduct could have resulted in Deadweight Losses (in both the prices of Aluminium and in Alcoa’s stock prices) and reduced Social Welfare (in terms of increased uncertainty; adverse effects of the stock market; prices of Aluminium; employee morale; and the adverse effects of Alcoa’s litigation strategy on its customers, suppliers, shareholders and employees). This article: i) reviews the earnings management, asset quality management and poor strategic decision making perpetrated by Alcoa during 2010-2013; ii) provides evidence of Regulatory Failure (Alcoa’s corporate governance problems illustrate the weaknesses of “Fair value” accounting, IFRS accounting standards, the Sarbanes Oxley Act, the US FSOC’s “Non-financial SIFI criteria and the Dodd Frank Act); and iii) introduces new theories; iv) summarizes key factors that may affect companys’ receptiveness to corporate venturing proposals.

Challenges of Public Enterprises in Kosovo on Corporate Governance

Corporate governance has historically changed depending on the level of development of society, the economy and businesses. In terms of governance theoretical notion has undergone changes but today increasingly it is being understood as policies and monitoring implementation is done by the members of the governing body. In Kosovo with the entry into force of the Law on Companies No. 02 / L-123 in 2007 were established legal frameworks, for registration and operation of commercial companies in order to meet the practices and requirements of the European Union. Whereaswith the Law on Public Enterprises no. 03 / L-087it is set the legal framework for corporate governance of enterprises in accordance with internationally recognized principles of corporate governance of public enterprises. The problem of corporate governance in developed countries is widely researched but this problem in the case of public enterprise in Kosovo is less studied. Therefore, objective study includes the analysis of factors that affect the quality governance of public enterprises in Kosovo. The functioning of the board of directors as decision making factorin public enterprises is associated with various problems such as inexperience in policy making, political interference, and conflicts of interest. The paper aims to prove the hypothesis that corporate governance will improve the quality of governance. The paper is based on primary data published by the Policy and Monitoring Unit of Public Enterprises, and Public Enterprises. The paper also exposes some of the challenges that public enterprises face during the implementation of corporate governance. Thus, we will provide recommendations for improving corporate governance in public enterprises. DOI: 10.5901/ajis.2015.v4n1s2p57

Signalling to Dispersed Shareholders and Corporate Control

This article analyses how outsiders, such as bidders or activist investors, overcome the lack of coordination and information among dispersed shareholders. We identify the two basic means to achieve this goal. First, the outsider must relinquish private benefits in a manner that is informative about security benefits. We show under which conditions this is feasible and which acquisition strategies used in practice meet these conditions. Second, the outsider can alternatively use derivatives to drive a wedge between her voting power and her economic interest in the firm. Such unbundling of ownership and control, while typically considered a source of corporate governance problems, is an efficient response to the frictions dispersed ownership causes for control contestability. We also show that unbundling comes with costs and benefits for the bidder's incentives to improve firm value.

Modes of Thinking in Corporate Governance: In Search of Root Causes of Governance Malfunctioning

This paper argues that the current two prevailing modes of thinking in corporate governance, the inward-looking and outward-looking modes of thinking, severely limit and constrain our understandings of corporate governance systems and problems and are thus unable to properly diagnose and rectify corporate governance defects and malfunctions in practice. The paper presents a new mode of thinking, i.e., the critically reflexive mode of thinking, to overcome the limitations of current modes of thinking. The new mode of thinking suggests that the core corporate governance issues are not purely from inside the corporation, nor solely from outside the corporation. Rather, they reside at the intersection of internal and external governance spheres interplayed by corporate powers and political, market and other key stakeholder players. With the illustration of three key exemplary theses, the paper shows distinguished understandings of corporate governance among the three modes of thinking. This critically reflexive mode of thinking points to a new direction in corporate governance research and a clearer agenda for effective corporate governance reforms.

DEVELOPMENT OF CORPORATE GOVERNANCE IN TRANSITION COUNTRY: EVIDENCE FROM UZBEKISTAN

This paper empirically analyzes the development of corporate governance in the case of Uzbekistan as a transition country. Specifically, the reforms implemented for over two decades for strengthening and improvement of national corporate governance system, the measures undertaken by the government for improvement of corporate relations in the joint-stock companies, the stages of progressing corporate governance, the current problems of corporate governance are studied as well as the author’s views and thoughts on the development process of corporate governance in the country are stated in this paper. This empirical paper also shows the specific approach for reforming the corporate governance system in the country, and presents evidence suggesting an impact of Uzbekistan’s corporate governance developments on the domestic stock market performance. At the end of paper, the author makes conclusion and brings some suggestions to further develop the corporate governance in Uzbekistan.

A Theoretical Aspect on Corporate Governance and Its Fundamental Problems: Is It a Cure or Another Problem in the Financial Markets?

A Theoretical Aspect on Corporate Governance and Its Fundamental Problems: Is It a Cure or Another Problem in the Financial Markets? Dr. Melih Sonmez, Suat Yildırım Abstract Corporate governance can be defined as an art of management for the business environment in the financial markets and it has recently been used as a key management strategy by both developed and developing countries. In particular, after some financial scandals, such as Enron or Parmalat, it has become an important issue in the financial markets. One question that needs to be asked, however, is whether it is really a curve for the main problems of financial markets. Corporate governance, in itself, is a controversial subject in terms of its definition or interest problem of its main participants. This is because; the corporate governance system can indicate some differences in the financial markets due to different historic, cultural and academic backgrounds. In other words, a ‘one size fits all’ corporate governance model cannot be created for all corporations in the financial markets. Therefore, in order to understand the main role of corporate governance, it seems to be essential to focus on the common interest of corporations by considering the sectorial differences between corporations in the financial markets. In the corporate governance theory, there is an urgent need to address two main problems: “the value maximisation of shareholders and the role of stakeholders in the management system of corporations”. These two problems constitute the fundamental problems of corporate governance and are defined as ‘the agency theory and the stakeholder theory’ in the literature. In this respect, the main purposes of this investigation are to explore; what defines good corporate governance, what are the main corporate governance models in the financial markets, what are the fundamental problems of corporate governance, and how these problems should be addressed, by creating a theoretical framework for the importance of corporate governance in the financial markets. Full Text: PDF DOI: 10.15640/jble.v3n1a2

Collibration as an alternative regulatory mechanism to govern the disclosure of director and executive remuneration in Australia

This paper explores an alternative approach to regulation for addressing corporate governance problems related to director and executive remuneration disclosure. We draw on the concept of collibration, conceived by Dunsire as an approach to managing tensions between opposing forces in social arena. We explore the application of collibration in the development of a regulatory framework, composed of a mix of state regulation and self-regulation, for corporate governance in Australia. Thereafter, we examine the impact of the mixed regulation developed through collibration on remuneration disclosure behaviour in Australian companies. We find that improvement in corporate disclosure is primarily driven by the establishment of remuneration committees and appointment of reputable auditors. Our research demonstrates the effectiveness of collibration in developing a regulatory framework that aligns state regulation designed to protect shareholder interests with self-regulation, about which little was known in the literature.

Market, Cultural Heritage and the Solution to the Corporate Governance Problems

The current economic scenario and the cultural heritage are two very important factors that heavily affect the companies and the way in which they can resolve the corporate governance problems. According to this principle, we intend making an analysis on the endogenous and the exogenous factors affecting the company and its structure. For example, in Italy the difficult situation on the market - straightly connected with the international financial and economic crisis - involved relevant changes concerning the number of firms, their structure and their own management. But it is not the single reason causing the companies metamorphosis. The cultural heritage played - and still today it plays - an important role for the company growth and dimension. The analysis is divided in two parts: First part: comprehension of the exogenous factors indirectly affecting the company and their structure. As we will see, the corporate governance is connected with different factors and it straightly depends from them. In this part we will analyze Market, Technology and Tax burden. Above all, the cultural heritage is one of the most important factors, then it will be analyzed in depth. Second part: analysis on the endogenous factors that directly affect the corporate governance. Stakeholders’ importance for the company development and performance will be deeply considered. More in particular, in this part we propose to analyze the way in which Stakeholders affect the company management – then consequently its performance - and above all the relationship between small company-Stakeholders and large company-Stakeholders. Conclusions: This study, therefore, proposes to make an analysis of the reality which today characterizes the companies, the factors that are affecting it and the new challenges for the Corporate Governance in Italy.

Corporate Governance and the State

Pick up any first-year textbook in economics, and you will see that the analysis of pricing and other decisions by firms is based on the assumption that they maximize profits. More generally, when economists talk about the advantages of market economies – invisible hands and the like – they are implicitly assuming that managers maximize profits or shareholder wealth. Some 80 years ago, Berle and Means (1932) called this assumption into question by documenting the existence of a separation of ownership and control. Their main concern was that this separation of ownership from control would free managers to essentially rob the owners of the firm. The recent histories of firms like Enron, WorldCom, and Parmalat show that such fears remain well founded even today. The existence of a separation of ownership from control potentially gives rise to a host of principal/agent problems, which go beyond managers simply stealing from shareholders. I begin by discussing some of these as they manifest themselves in the private sector, turn after that to state-controlled companies, and end with a discussion of corporate governance problems in regulated industries.

From Minimization to Exploitation: Re-Conceptualizing the Corporate Governance Problem

Over the past three decades, the topic of corporate governance has become an increasingly high profile aspect of social-scientific scholarship, both in the Anglo-Saxon world and continental Europe. To a significant extent, however, the conceptual boundaries of the corporate governance debate have been set narrowly in accordance with the logic and language of the dominant 'agency' paradigm of governance. According to agency theory, the central 'problem' of corporate governance is the question of how to minimize the (harmful) consequences of the separation of ownership and control within public companies first identified by Berle and Means (1932), by reference to competitive market pressures coupled with market-based incentive and disciplinary mechanisms. In this article, we present an alternative interpretation of the corporate governance 'problem' premised on the logic and language of institution rather than the market, which we argue is both more empirically relevant and conceptually defensible than the dominant agency paradigm. To this end, we rely on existing (US) corporate law doctrine in conjunction with recent developments in the economic theory of the firm. According to the proposed 'institutional' model of corporate governance, the central governance 'problem' is that of how to exploit, rather than minimize, the (beneficial) consequences of the separation of ownership and control, so as to engender the development of a more dynamic and sustainable system of governance than that emanating from the free interplay of (stock) market forces.

Organizational Framework for the System of Crisis Corporate Governance

The paper distinguishes the new category crisis corporate governance. The study elucidates the reform of corporate governance body of companies. Based on the research of the main problems of corporate governance, we propose to eliminate the Audit Committee as the governance and control body of corporate governance and create instead the Crisis Committee. The paper provides renewed structure of Crisis Committee. The major purpose of activities is studied along with responsibilities of each commission as a member of the Crisis Committee. The study highlights basic advantages of the proposed changes in corporate governance of companies.

Controlling shareholder entrenchment: Bonuses versus dividends

An excess of control rights over cash flow rights (deviation), resulting in controlling shareholder entrenchment, is a common corporate governance problem in East Asian companies. This study examines whether control rights and cash flow rights deviations affect companies' earnings distribution policies in Taiwan. The results indicate that, regardless of whether voting rights or the number of directors on company boards are used to measure control rights, companies with higher degrees of deviation between control and cash flow rights pay disproportionately large shares of company earnings in employee bonuses relative to shareholder dividends. Severe deviation companies are biased in favor of employee compensation at the expense of minority shareholders. These companies are more likely to expropriate minority shareholders through controlling the boards of directors and paying cash bonuses to employees.

Charitable Insolvency and Corporate Governance in Bankruptcy Reorganization

Poor corporate governance is a pervasive problem in the charitable nonprofit sector. Prominent examples of mismanagement and abuse include instances of intentional misconduct, such as embezzlement and unauthorized self-dealing, and negligent conduct, such as failure to diversify the organization’s investment assets. In numerous cases, the lack of good corporate governance had led to the financial distress or failure of a charitable nonprofit firm. A rich literature on nonprofit law has considered the need for better corporate governance and enforcement of fiduciary duties, but the scholarship has yet to address the implications of financial distress and insolvency on corporate governance. This article, ‘Charitable Insolvency and Corporate Governance in Bankruptcy Reorganization,’ fills that void and argues that, when a charity encounters financial distress and approaches the point of insolvency, features and customs of nonprofit and bankruptcy law tend to exacerbate rather than ameliorate the corporate governance problem. Consequently, charitable insiders who breach their fiduciary duties are in a better position to entrench themselves and avoid termination than their for-profit counterparts. In the for-profit sector, three constraints tend to regulate corporate governance by helping to oust fiduciaries responsible for financial distress: bank monitoring of commercial loan covenants; absolute priority and the transfer of ownership in bankruptcy; and involuntary bankruptcy proceedings. In the nonprofit sector, however, those constraints are either less effective or do not apply. As a result, blameworthy charitable fiduciaries are better able to entrench themselves and, without new competent leadership, financially distressed charities are less likely to achieve a full and sustainable financial recovery. My article contains some nascent ideas for reform, including a suggestion that the law might better protect the public interest in charitable assets from waste and abuse by presumptively appointing bankruptcy examiners in all Chapter 11 reorganization proceedings involving substantial charitable assets. Once appointed, bankruptcy examiners would be tasked with identifying the cause of insolvency and individuals responsible for the charity’s financial distress.

The corporate governance in Uzbekistan: A special focus on the board’s supervisory role compared with German practice

Today, the topic of corporate governance has become vital for the most researches and scientific controversies. The corporate governance is now playing a key role in economic and social development of a country, and it has began to significantly matter for both industrialized and most of the developing countries. In the meantime, little is known for the world community about the state and problems of corporate governance in Uzbekistan. In this regard, in this paper we mainly address the present situation in Uzbek corporate governance as well as, as a special focus, make comparison of the Uzbek and German board’s supervisory role practices. This paper may be interesting for those who are not aware of the corporate governance in Uzbekistan and who would like to more or less know about it.

Sustainable Companies Through Enlightened Boards: Combining Private and Public Interest in the Decision-Making of Large Public Firms

This paper identifies two main corporate governance problems that have persisted for over a decade in the UK (and more generally within Anglo-American corporate law contexts). The first is represented by flawed systems of control (both internal and external) over managerial behaviour. The second problem is reflected in the unresolved dilemma of the corporate objective whose urgency is magnified by the application of shareholder value as the parameter of corporate success. It is also asserted that these problems resulted from fundamental weaknesses in the governance system, namely the lack of necessary competences within board of directors (BoDs) and the effective independence of its members, whose intellectual bias impaired the balancing of different interests. The paper highlights the need to redesign the structure of the BoDs in large public firms. It posits that structural changes are needed to recalibrate key decision-making processes in order to align them with more socially inclusive and sustainable goals. To achieve this, a new governance structure is advocated, encompassing an “enlightened” participation of the State in BoDs which would provide democratic legitimacy to corporate decision-making. It is suggested that the inclusion of a public interest component in BoDs should occur via the State, which is identified as ultimate guardian of social interests because of its democratic underpinning. This public element would contribute to legitimising managerial power within society. More practically, it would constitute an ex ante mechanism to determine the firm’s corporate objective and it would provide a gatekeeping function over decisions that have a negative impact on social interests.

China as a Test Case: Is the Rule of Law Essential for Economic Growth?

China is the fastest growing country in the world. Yet its adherence to the Rule of Law is frequently criticized. Does the coexistence of these two facts mean that institutions in general, and the Rule of Law in particular, are not necessary for sustained economic growth? The experience of the Asian Tigers, who had an overall growth record in their early years at least equal to China's, suggests that China may face a slowdown in growth. China is still a poor country, poorer than the Asian Tigers when their growth slowdown began. The Asian Tigers faced many of the same problems of crony capitalism, connected lending and poor corporate governance that China now faces. China's institutional and governance weaknesses involve a weak judiciary, including a lack of judicial independence; a weak financial sector with inadequate banking and corporate bond markets; and an outmoded bankruptcy system. Yet China's leadership, starting with Deng Xiaoping, has avoided some of the missteps of the transition countries of the former Soviet Union and has recognized the need for an evolutionary approach toward a more efficient economic system. But there is nothing in China's experience to date that would lead to the conclusion that institutional and Rule of Law issues are not important in economic development.

Executive Compensation. A Review of the Latest Research

Purpose: The paper presents a review of the latest research on executive compensation and indicates the main problems and weaknesses of the existing solutions as well as trends for the future. Methodology: In the analysis executive compensation constitutes a crucial element of corporate governance. The analysis is based on a review of the latest studies and research on the effectiveness of executive compensation referring to its size, structure and disclosure. Findings: The paper presents the latest fi ndings in the practice of executive compensation and it points to the extension of the period of time giving rise to the payment of cash bonuses, the introduction of a range of different indicators, based on which executives are evaluated, simplifying compensation packages, the implementation of deferred payments, the introduction of the “say on pay” rule and clawbacks. Practical implications: The analysis points out the main weaknesses of executive compensation, which were particularly emphasized in research studies on companies affected by the fi nancial crisis. The paper presents a wide range of suggested solutions that could be implemented in the fi eld of executive compensation in order to provide for a better alignment of the interests of executives with those of shareholders and for the increase in shareholder value. Originality/value: The paper attempts to identify the most severe corporate governance problems with reference to executive compensation and to confront them with research results as well as the recently proposed and implemented reforms and recommendations.

Cash holdings of politically connected firms

Politically connected firms benefit from soft-budget constraints and are unlikely to suffer from liquidity constraints. This argument suggests that politically connected firms should hold less cash than non-connected peers. Another view posits that these firms exhibit acute corporate governance problems. In this setting, politically connected firms are more likely to hold more cash than non-connected firms. Using a sample of 50,119 firm-year observations from 31 countries, we find that politically connected firms hold more cash than their non-connected peers. We put forth two explanations for this result. Firstly, politicians use politically connected firms as “cash cows” to advance their political agendas. Secondly, political connections are conducive to agency problems. In additional analyses, we find that the positive relationship between political connections and cash holdings is stronger when corporate governance is weak.

Business Ethics as a Tool for Competitive Advantage in the Banking Industry in Nigeria

Given the financial scandals and the resulting new mandates on business, firms find themselves pressed to develop strong codes of ethics to guide the behaviour of board members, managers and empl oyees. In recent times, the banking and telecommunication sectors in Nigeria have been the most vibrant; contr ibuting immensely to the growth and development of the country. Considering the recent corporate governance problem in the banking sector that led to the removal and trial of chief executives of five banks and the subsequent liquidity problem it created, there is the need to look into the business ethics practices in Nigeria especially in the banking industry. The aim was to establish the level of unethical practices perpetrated in the Nigerian banking industry in recent time and the consequences. Data was collected from available literature on the issue and analysed. The study shows that there are several unethical practices in the Nigerian banking industry. The recent developments in the industry confirmed this, especially with the removal of top executives in some banks owing to illega l granting of loans and the resultant crisis that followed. The study recommended that all stakeholders in the banking industry, namely the regulator, shareholders, sponsors/directors, top management and the government, should participate actively in ensuring that there is an ethical code in place in the banking industry in Nigeria. Moreover, the management of banks should ensure that their various organizations follow due process in the business practices to avoid future crisis. The study also concluded that there should be more commitment from the various Stakeholders in the industry to ensure the propagation of ethical business practices. This will not only ensure that transactions are carried out in the correct manner, but will as well guarantee customers' retention at competitive advantage for those firms that adhere to high ethical standards.