Discuss three corporate governance issues, why they are defined as issues, and how you would solve them. Use examples in your answer.
Following are the three corporate governance issues:
1. Conflict of interest: Conflict of interest issue arises when a person from management or a controlling member has a different financial interest which is not in line with the corporation's financial interest and can be considered as conflicting interest. This creates the problem which leads to loss of trust by shareholders and hence termed as a very critical issue.
E.g. A board member on a company which makes the products related to renewable energy (solar panel) has invested heavily in a non-renewal energy (oil) company, hence his interest would be in the success of oil company and this will create the conflict with solar panel manufacturing company's financial interest.
2 Oversight issues: The board represents the interest of shareholders and therefore they must keep a close sight on the day to day operation of the business and reports from company executives, but some time later on things are uncovered and most of the things come as a result of lack of oversight from board members and those decision turns against the interest of shareholders. Because this represents a great loss to shareholders it is also considered a critical issue.
E.g. the management of the company violates the federal law and the company needs to pay heave fines as penalty and such penalty are loss to shareholders for which the board members are responsible because they did not have substantial oversight on the decisions being made by management.
3. Transparency: A corporation that has got the shareholder's money must report all the financials of the company correctly without any information being kept hidden from shareholders which might affect the future business outcome. It is the duty of corporate governance to make sure that all the financial audits are in place and the financial reports are correct and made available to the public without masking any critical information.
e.g. A company is making loss but they are inflating the profit number purposefully and reporting the wrong numbers, later on it gets discovered and suddenly the share price fall, it will result in very huge loss to the shareholders. The classic case of Enron is one of the example of such failure of corporate governance.
Discuss three corporate governance issues, why they are defined as issues, and how you would solve...
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