...damaged reputation and for moving the company forward, it is imperative that management at Biovail resolve three immediate issues. 1. Establishing a worst-case scenario, what is the known liability that Biovail has incurred for deceiving its investors? 2. What does a comparative financial analysis of Biovail, Abbot Labs, and Cephalon reveal about Biovail's strategic weaknesses? 3. What principles of governance can be employed to assure investors that Biovail's past misconduct will not recur in the future? FINANCIAL ANALYSIS Liability for Fraudulent Reporting and Communications to Investors In all likelihood, a class action lawsuit against the company for aggressive and misleading accounting practices (which have had a material impact on shareholder returns) is forthcoming. Biovail must be prepared to accept responsibility for the damage experienced by investors as a result of its former actions and misrepresentations. Even though (as of February 2008) Melnyk no longer holds any affiliated role with Biovail, and although he alone is responsible for his personal actions, he held a fiduciary duty to stakeholders at Biovail at the time that the deceptive reports were released to the public. As a result, the company will be, at least in part, responsible for the consequences of his actions. Melnyk's suspicious trading activity, failure to issue insider trading reports, inaccurate disclosure of holdings to the public, and understatement of personal...
Words: 3538 - Pages: 15
...the company forward, it is imperative that management at Biovail resolve three immediate issues. 1. Establishing a worst-case scenario, what is the known liability that Biovail has incurred for deceiving its investors? 2. What does a comparative financial analysis of Biovail, Abbot Labs, and Cephalon reveal about Biovail's strategic weaknesses? 3. What principles of governance can be employed to assure investors that Biovail's past misconduct will not recur in the future? FINANCIAL ANALYSIS Liability for Fraudulent Reporting and Communications to Investors In all likelihood, a class action lawsuit against the company for aggressive and misleading accounting practices (which have had a material impact on shareholder returns) is forthcoming. Biovail must be prepared to accept responsibility for the damage experienced by investors as a result of its former actions and misrepresentations. Even though (as of February 2008) Melnyk no longer holds any affiliated role with Biovail, and although he alone is responsible for his personal actions, he held a fiduciary duty to stakeholders at Biovail at the time that the deceptive reports were released to the public. As a result, the company will be, at least in part, responsible for the consequences of his actions. Melnyk's suspicious trading activity, failure to issue insider trading reports, inaccurate disclosure of holdings to the public, and...
Words: 3506 - Pages: 15
...#12 Management: Managers, Performance, and the Environment I) The major point of this article is that management needs to be strong and be willing to make changes in their thought process if they want to succeed. That America’s economy and the managers who plan, direct, organize, control, and staff its businesses must provide new, different, and creative approaches to meet the new competitive global environment. II) The overall managerial lesson in this reading is that management existed all the way back to the early days of civilization. Many companies have come and gone and many have reconstructed themselves to insure their futures. As a discipline, management faces new challenges and obstacles daily and some are the result of their successes but I feel some are the result of their weaknesses also. One outstanding challenge that has happened over the years is the new role of managers that are women(Mary Barra, General Motors), African Americans(Kenneth Chenault, American Express), Hispanic Americans(Oscar Muñoz, United Airlines) to name a few, and other minorities. These and other organizations will need managers who can think clearly and are capable of dealing with changes in all aspects of the companies so they can stay on top. III) What I have learned personally is that I need to make changes in my management style if I want to succeed at my job and company. I have always thought and have been told if it isn’t broke don’t fix it. I might think it’s not...
Words: 6985 - Pages: 28
...(Daily & Dalton, 1997). The all round concern has been whether one person‘s positioning at the corporate pivotal positions of CEO and board chairperson weakens corporate governance effectiveness, leading to managerial opportunism and resulting in reduced firm performance (Brickley, Coles, & Jarrell, 1997; Finkelstein & D‘Aveni, 1994). From the agency theory perspective, having one individual in charge of both management implementation and control is not consistent with the concept of checks and balances. However, from an organization theory perspective, CEO duality may enhance organizational efficiency in corporate leadership. Most theoretical arguments against the practice of CEO duality leadership have centered on the issue of power concentration on dual CEO (Brockmann, Hoffman, Dawley, & Fornaciari, 2004; Daily & Dalton, 1997). Duality has been described as a concentration of power on the dual CEO, enabling dual CEOs to dominate the board, reducing board effectiveness in monitoring and controlling the management’s performance. CEO duality leadership implies a heightened formal authority and greater informal power for the one individual who occupies two positions, both as CEO in management implementation and board chairperson in management control. In addition to formal hierarchical power on the executive team derived from the position as CEO, by virtue of their position as chairperson of the board, dual CEOs can exert substantial...
Words: 7682 - Pages: 31
...concerning the success and failure of business organizations regardless their size, country of origin and industry in which they are competing. This research paper is approached to give a review, put together and find out the limitations on the earlier scattered literature on the respective sections which consists of mainly two topics. The first topic is rooted in and originated from traditional economic theory and industrial organization tradition. The second one has originated from a resource and competency based view of business organizations. Both approaches are centered on techno-economic factors of sustainable competitive advantage. Very less importance is given to the role and impact of top manager’s actions and their organizational behavior in the overall profitability and competitiveness of a business firm. The loyalty, commitment and pro-activeness of top level management is seen and tried to be proven as potential source of competitive advantage for business organization by this research paper. It is very commonly and frequently found that, top level management usually tend to be self-serving, avoiding risks and not motivated and loyal to the growth and long run profitability of their respective business organizations. In the earlier period of business culture, these issues and problems were not as much important as they are in today’s era of global competition due to extensive globalization. Using non parametric tests on a Canadian sample, we found evidence of top manager’s...
Words: 5798 - Pages: 24
...The Origins of Managerial Thought Pre-Industrial Revolution Influences 1000 BC perceptive officials in China were writing about how to manage and control organized human activity Egyptians and Romans implemented management systems as well late Middle Ages (15th and 16th centuries) Venice and Florence were managing with ‘modern’ procedures Industrial Revolution in England beginning of the end of the domestic production system= steam engine (1765) factories established themselves in England and to create maximum efficiency, division of labor began (championed by Adam Smith, a founder of modern econ) aside from how to divide up work efficiently, another issue was how to manage these factories’ entrepreneurs or factory owners began to implement management systems (ex. Robert Owen and Charles Babbage) Industrial Revolution in America America flourished during IR due to abundance of raw materials and natural resources also gained an advantage from the early trail and error of their English counterparts revolution began in textiles Railroads=first systematic thinking emerged about how to manage a company more effectively since RR has to organize, coordinate, and supervise multiple operations in widely geographical locations * Pioneers: The Scientific Management Approach rapid growth in # and size of factories in 1865 resulted in increased attention to the issue of how to improve industrial efficiency pro engineers began to address problem in 1880s Henry R. Towne and...
Words: 3763 - Pages: 16
...Chapter 7: * Merger: a strategy through which two firms agree to integrate their operations on a relatively co-equal basis * Acquisition: a strategy through which one firm buys a controlling, or 100% interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. After acquisition, management of the acquired firm report s to the management of the acquiring firm * Takeover: a special type of acquisition when the target firm did not solicit the acquiring firm’s bid for outright ownership * Friendly acquisition: the management of the target firm wants the firm to be acquired * Unfriendly acquisition (hostile takeover): the management of the target firm does not want the firm to be acquired (direct negotiations with the firm’s owners; tender offer; bear hug) Explain the popularity of acquisition strategies in firms competing in the global economy * There are seven reasons why acquisitions in firms competing in the global economy work * Increased Market Power: * This is the primary reason for acquisition * If a firm achieves enough market power, it can become market leader * Example: AT&T acquisition with T-Mobile made them in the lead with market share in w-ireless service providers * Also, not only would their market share increase, but their customers would increase by 1/3 and all cell towers and wireless spectrum that t-mobile had would also turn to AT&T ...
Words: 7561 - Pages: 31
...G300 *CETE-Centro de Estudos de Economia Industrial, do Trabalho e da Empresa, Faculdade de Economia, Universidade do Porto, Portugal. Correspondence to: Jorge Farinha, Faculdade de Economia da Universidade do Porto, Rua Roberto Frias, 4200 Porto, Portugal. Tel. (351)-22-5571100, Fax (351)-22-5505050. E-mail: jfarinha@fep.up.pt. CORPORATE GOVERNANCE: A SURVEY OF THE LITERATURE ABSTRACT This paper reviews the theoretical and empirical literature on the nature and consequences of the corporate governance problem, providing some guidance on the major points of consensus and dissent among researchers on this issue. Also analysed is the effectiveness of a set of external and internal disciplining mechanisms in providing a solution for the corporate governance problem. Apart from this, particular emphases are given to the special conflicts arising from the relationship between managers and shareholders in companies with large ownership diffusion, the issue of managerial entrenchment and the link between firm value and corporate governance. Keywords: agency theory, corporate governance, ownership structure JEL Classification: G300 1 1 Introduction Recent financial scandals associated to accounting and other frauds allegedly blamed to top company managers (e.g. Enron, Worldcom, Adelphia) have brought into public light the recurring question of whether companies are managed on the best interests of shareholders and other company stakeholders such as workers, creditors...
Words: 19465 - Pages: 78
...Introduction to the Theory of Accounting and Control ••••••••••••••••••••••••••••••••••••••••••••• Three ideas are central to understanding accounting and control in organizations. First, all organizations are sets of contracts among individuals or groups of indi viduals. Second, provision of shared information among the contracting parties helps design and implement these contracts. Finally, control in organizations is a sustainable balance or equilibrium among the interests of its participants. It should be distinguished from control of organizations, which suggests manipulation or exploitation of some participants by others. We start this overview by stating these ideas briefly, leaving most definitions and details for the following chapters. We conclude with a summary of ideas about micro and macro aspects of accounting and control presented in the book. Organizations as a Set of Contracts Organizations are many things to many people. Business firms, for example, are employers to those who work for them; customers to the purveyors of goods and services; suppliers to their own customers; benefactors to those who receive their charity; investments to those who save; taxpayers to the government; a threat to the livelihood of their competitors; impersonal bureaucracies to the powerless; and pillars of free enterprise to the believers. Organizations are variously seen as com plex networks of human relationships, production functions, hierarchies, even garbage cans....
Words: 3313 - Pages: 14
...topics in modern financial literature. The inconclusiveness of the theories on importance of dividend in determining firm’s value has made it one of the most debatable topics for the researchers (see for example, Ramcharan, 2001; Frankfurter et. al 2002; Al-Malkawi, 2007). The present study investigates the impact of firm specific characteristics on corporate dividend behavior in emerging economy of Pakistan. Three years data (2005-2007) of 100 companies listed at Karachi Stock Exchange (KSE) has been analyzed using Ordinary Least Square (OLS) regression. The results show that managerial and individual ownership, cash flow sensitivity, size and leverage are negatively whereas, operating cash-flow and profitability are positively related to cash dividend. Managerial ownership, individual ownership, operating cash flow and size are the most significant determinants of dividend behavior whereas, leverage and cash flow sensitivity do not contribute significantly in determining the level of corporate dividend payment in the firms studied in our sample. Estimated results are robust to alternative proxy of dividend behavior i.e. dividend intensity. Keywords: Dividend Policy, Ownership Structure, Cash Flow, OLS Regression 1. Introduction Dividend policy is among the widely addressed topics in...
Words: 9161 - Pages: 37
...WEEK 7 SHAREHOLDER ACTIVISM 3. Whether management proposals at the target’s AGM are controversial. * Understanding a target company's defensive measures and a shareholder's procedural rights is key to any solicitation * to determine the existence of matters such as limitations or prohibitions on the ability to call meetings, restrictions on shareholder proposals, the existence of a staggered board, the adoption of a poison pill and other limitations that may significantly increase the expense, timing and ultimately determine the success of a proxy contest * provisions in a company's constituent documents, loan agreements, employment agreements and other material contracts should also be reviewed to determine whether there are change of control or similar provisions and the cost to the company in the event of success. 4. Whether to team up with other shareholders especially institution * Less effective since entity initiating a proxy contest usually does not have majority voting power by themselves and need the voting power of other shareholders. * To gain more power, proxies can also borrow votes by buying shares from other shareholders in return for options which entitle them to purchase the shares back at a lower price than the proxy bought. * In effect the loss the proxy makes is the cost of using their vote. Explain the free rider problem and discuss how this barrier could be overcome. * The proxy who is amassing all votes required to...
Words: 3053 - Pages: 13
...the 1990s seems to have outpaced even the remarkable increase in CEO pay itself during this period (Murphy, 1999). Much research has focused on how executive compensation schemes can help alleviate the agency problem in publicly traded companies. To understand adequately the landscape of executive compensation, however, one must recognize that the design of compensation arrangements is also partly a product of this same agency problem. Alternative Approaches to Executive Compensation Our focus in this paper is on publicly traded companies without a controlling shareholder. When ownership and management are separated in this way, managers might have substantial power. This recognition goes back, of course, to Berle and Means (1932, p. 139) who observed that top corporate executives, “while in office, have almost complete discretion in management.” Since Jensen and Meckling (1976), the problem of managerial power and discretion has been analyzed in modern finance as an “agency problem.” Managers may use their discretion to benefit themselves personally in a variety y Lucian Arye Bebchuk is the William J. Friedman Professor of Law, Economics and Finance, Harvard Law School, and Research Associate, National Bureau of Economic Research, both in Cambridge, Massachusetts. Jesse M. Fried is a Professor of Law at Boalt Hall School of Law, University of California at Berkeley, Berkeley, California. Their e-mail addresses are ͗bebchuk@law.havard.edu͘ and ͗friedj@law.berkeley...
Words: 17317 - Pages: 70
...http://dx.doi.org/10.5539/ijbm.v10n1p204 Abstract As the corporative company type emerged, the two functions of ownership and management are separated. In the companies with a large number of employees the managers are the ones that manage the capital in the best interest of the shareholders. In this type of companies, conflict of interest may occur between the managers and the shareholders. Having more information about the work of the company, managers may use it in making decisions for their own benefit, which on the other hand cannot be as beneficial for the shareholders. Conflict of interest between managers and shareholders leads to so-called agency problem. There are different ways by which shareholders can control the operations of management. Some of the measures that can be used to resolve and prevent this problem are subject of analysis in this paper. Keywords: management, ownership, shareholders, conflict of interest, asymmetrical information, corporate governance 1. Introduction It has long been known that in the large companies the interest of the managers may be different from the shareholders profit maximization goal. In these companies mangers are appointed by the shareholders to make decisions and act within their interests. Lasher (2008) says that this kind of relationship creates a conflict of interest...
Words: 3875 - Pages: 16
...Academy of Management Review 2003, Vol. 28, No. 3, 447–465. THE CROSS-NATIONAL DIVERSITY OF CORPORATE GOVERNANCE: DIMENSIONS AND DETERMINANTS RUTH V. AGUILERA University of Illinois at Urbana-Champaign GREGORY JACKSON Research Institute of Economy, Trade and Industry We develop a theoretical model to describe and explain variation in corporate governance among advanced capitalist economies, identifying the social relations and institutional arrangements that shape who controls corporations, what interests corporations serve, and the allocation of rights and responsibilities among corporate stakeholders. Our “actor-centered” institutional approach explains firm-level corporate governance practices in terms of institutional factors that shape how actors’ interests are defined (“socially constructed”) and represented. Our model has strong implications for studying issues of international convergence. Corporate governance concerns “the structure of rights and responsibilities among the parties with a stake in the firm” (Aoki, 2000: 11). Yet the diversity of practices around the world nearly defies a common definition. Internationalization has sparked policy debates over the transportability of best practices and has fueled academic studies on the prospects of international convergence (Guillen, 2000; Rubach & Sebora, ´ 1998; Thomas & Waring, 1999). What the salient national differences in corporate governance are and how they should best be conceptualized remain hotly debated...
Words: 11664 - Pages: 47
...firm’s operations * Enhance accountability to shareholders * Effectively incentivize executives, and in an overall sense * Maximize the firm’s ability to create value for stakeholders and especially for shareholders Summary * Corporate governance is the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organization. Effective governance that aligns managers’ decisions with shareholder’s interests can help produce a competitive advantage for the firm. * Three internal governance mechanisms (1) Ownership concentration, (2) The board of directors, (3) Executive compensation. The market of corporate control is an external governance mechanism. This market is a set of potential owners seeking to acquire undervalued firms and earn above-average returns on their investments by replacing ineffective top-level management team. * Ownership is separated from control in the modern corporation. Owners hire managers to make decisions that maximize the firm’s value. Thus, modern corporations are characterized by an agency relationship that is created when one party hires and pays another party to use its decision making skills. As risk-bearing specialists, owners diversify their risk by investing in multiple corporations with different risk profiles. * In a large number of family-owned firms, ownership and managerial control are not separated at all. Family-controlled firm...
Words: 1782 - Pages: 8
