Analyse the corporate governance issues facing x company, Financial Management

Assignment Help:

M has recently joined the board of X Company, a main listed confectionary manufacturer. The company was established as a family business over a century ago and members of the founding family still occupy lots of the senior board positions.  When directors are because of retire they are usually replaced by other family members.  The Board is reluctant to make any external appointments, M being an exception.
 
M has noted that there are seven executive board members and only two non-executive members.  On doing some homework about every of the directors, M discovered that all of the directors were from same backgrounds.
 
At the first board meeting after M's appointment, the board papers for discussion were handed out at the initial of the meeting.  The agenda included discussion of a main contamination issue that had occurred in single of the manufacturing plants but when this point was to be discussed at the meeting it was discovered that the board papers for discussion had been omitted.  One of the major institutional investors had expressed concern over the incident. At the subsequent board meeting the executive chairman commented that the company had outperformed in its sector in the past year and that the shareholders should therefore trust him to run the company as he sees fit.

Analyse the corporate governance issues facing X Company.


There are a number of corporate governance issues facing X Company:

Insufficient number of non-executive directors (NEDs)
One of the principles of governance is that listed companies should be led by an effective board with a balance of executive and non executive directors like that no individuals or small groups can dominate decision making. It is doubtful that in X Company two NEDs are sufficient to bring sufficient scrutiny to the executive board. It would suggest that the family members may have the ability to dominate.
 
Senior board positions are based on family membership
A principle of governance is that appointments to the board should be made in a formal, rigorous and transparent manner typically by a nominations committee. Senior positions in X Company appear to be based on family membership rather than getting the correct person.
 
Poor diversity and external expertise
Whilst experience is very significant on a board, governance also calls for the appointment of new members with diversity and external expertise in order to bring in fresh ideas. X Company has poor diversity of backgrounds amongst members which might decrease the level of debate needed when analysing strategic decisions.


Related Discussions:- Analyse the corporate governance issues facing x company

Miller approach of irrelevance of dividends, Q. Miller Approach of irreleva...

Q. Miller Approach of irrelevance of dividends? Discuss the Modigliani as well as Miller Approach of irrelevance of dividends. What are its drawbacks? Ans. Modigliani with M

Basic assumptions of cost of capital, Basic Assumptions of Cost of Capital ...

Basic Assumptions of Cost of Capital The Cost of Capital is a dynamic concept affected by a multiplicity of economic and firm factors and assumes the following assumptions rela

When underwriting a new security issue for a corporation, What does an inve...

What does an investment banker do when underwriting a new security issue for a corporation?  When underwriting a new security concern an investment banker buys it and then rese

No external financing for new proposals, No External Financing for New Prop...

No External Financing for New Proposals: If a firm have sufficient retained earnings with it as required by the new proposal, then the firm may not raise any external finance. In

Floating-rate securities that have adjustable quoted margin, Floaters ...

Floaters that can be classified under this head are: 1. Stepped Spread Floaters 2.  Extendible Reset Bonds

Calculate the future value of annuity, 1.  An investor is thinking of inves...

1.  An investor is thinking of investing in a recurring deposit scheme that offers an interest rate of 12% per annum. The investment that he is planning is for the higher education

Multi-period compounding or else future value, Multi-period Compounding or ...

Multi-period Compounding or else Future Value :- If the company determination compounding interest half-yearly (semi-annually) instead of annually then investors will gain as he wi

Analyse the company capital structure, 1. Analyse the company's capital str...

1. Analyse the company's capital structure and critically assess different types of financing options available to the company. Calculate the cost of these different types of finan

Degree of operating leverage, Degree of Operating Leverage A measure o...

Degree of Operating Leverage A measure of the firm's operating leverage, which is calculated as the contribution margin distributed by income before taxes. A rigid with a high

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd