![Page 1: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/1.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 1/57
History of Corporate Form
![Page 2: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/2.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 2/57
Trade Potential in 16th Century
Till 15th century sole proprietorship or partnership
During 15th
century- Europeans foundopportunities in Asia and Africa
Trade required lot of capital
Loans ± risky- overseas trade- no assuranceof money return
If there is profit, its huge
![Page 3: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/3.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 3/57
Charter Companies
Why not pool the resources and share theprofits?
European Kingdoms issued charters for forming companies ± joint stockcompanies ± issued shares
Appointed board of directors to supervisethe management on behalf of shareholders
![Page 4: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/4.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 4/57
Charter companies
Muscovy company- Britain ± 1555- tradewith Russia
1579 -Eastland Company (North SeaCompany) - trade with Scandinavia andBaltic Sea Nations
Levant company- trade with middle east-1581
East India Company- 1600
![Page 5: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/5.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 5/57
British East India Company
December 31, 1600, the last day of the sixteenthcentury, the Queen granted a Royal Charter to agroup of English merchants under the name,Governor and Company of Merchants of London
trading with the East Indies. The charter awarded the newly formed company,
for a period of fifteen years, a monopoly of tradewith all countries to the east of the Cape of Good
Hope and to the west of the Straits of Magellan
The Company was finally dissolved on 1 January1874, as a result of the East India Stock Dividend
Redemption Act.
![Page 6: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/6.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 6/57
Dutch East India Company ± 1602- FirstMNC
Dutch East India Company alsoestablished Amsterdam Stock Exchange
![Page 7: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/7.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 7/57
Nature of Charter companies
Right to deal with rulers (Monarchs)
Right to form banks
Right to own, manage and grant or distribute land
Can raise its own police force
Have trade monopolies
![Page 8: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/8.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 8/57
Early joint stock companies ± only trade- nomanufacturing
The shareholders did not have limitedliability
Spread to manufacturing industries after industrial revolution
![Page 9: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/9.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 9/57
Problems with JSC
Liability ±
Shareholders don¶t manage their money.
But they are liable to the creditors in caseof losses.
The majority shareholders who manage thecompany may show fake losses to other shareholders
![Page 10: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/10.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 10/57
France -1807- Napoleon - limited liabilities
With Napoleon¶s conquest on Europe the
concept spread It is Civil law version of limited liability
![Page 11: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/11.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 11/57
Common law version
Limited liability1811 - New York state brought in a general
limited-liability law for manufacturingcompanies. Other American statesadopted it
1844- Britain adopted limited liability for shareholders ± made it mandatory to have
annual statutory audit with the auditor being selected by the shareholders.
![Page 12: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/12.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 12/57
Limited liability
Concept of limited liability was not new
Roman empire had certain types of limitedliability ± but they were for partnershipfirms ± not an universal limited liabilities
![Page 13: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/13.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 13/57
Corporate form gradually emerged in the19th century
![Page 14: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/14.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 14/57
Characteristic of Corporations in
20
th
centuryLimited liability
Transferability
Legal personality ±Perpetual entity
Central management
![Page 15: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/15.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 15/57
Corporations ± Purpose
Human satisfaction ± Everybody needseverything
Social structureEfficiency
Identity
![Page 16: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/16.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 16/57
Expectations
Jobs, Products and services to satisfy needs
But Profit is the main motive of businesscorporations
![Page 17: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/17.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 17/57
Business Ownership Pattern
![Page 18: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/18.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 18/57
Traditionally the business firms arepromoted and controlled by businessfamilies
Even today 35 % of Fortune 500companies are controlled by Families
![Page 19: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/19.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 19/57
Oldest Business Entity
Till January 2007, World¶s oldest family controlledbusiness was Kongo Gumi, founded in 578 AD. It wasinto the business of constructing Buddhist Temples.
After Meiji Restoration the company diversified into
commercial construction. Still temple constructionaccounted for 80 % of their revenue
In January 2007, it was ceased to be an company
controlled by the family due to debt problems andunfavorable business conditions. It bought byTakamatsu, a large Japanese construction company andbecame its subsidiary
![Page 20: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/20.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 20/57
As of now the oldest family ownedbusiness is µHoshi Ryokan¶ founded in718 AD ± Hotel business
![Page 21: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/21.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 21/57
Majority Stake ownersClassification
Business Families
Governments
MNCs Institutional Investors (Mutual funds,
Pension funds)
![Page 22: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/22.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 22/57
Ownership Pattern Across theWorld ± Big business firms (10%)
![Page 23: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/23.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 23/57
Medium size business firms
![Page 24: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/24.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 24/57
Japan
Zaibatsu ± before WW II ± 14 powerfulZaibatsu¶s controlled 25 % businessassets in Japan ± Mitsui, Mitsubishi,Sumitomo
After WW II - Keiretsu ± Crossholding
![Page 25: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/25.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 25/57
Ownership pattern in USA
Wide spread shareholding
Separation of ownership and management
Professional managers
Why did this happen
![Page 26: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/26.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 26/57
USA
Dominance of Families in business till 20th
century
US government raised funds and placing
bonds with the public during WW1.Tightened laws related negotiable
instruments to push the bonds
Success of Investment banks in selling
securities among publicHabit of investing in securities
![Page 27: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/27.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 27/57
After WW I
Dilution of family shareholding to expand business
Booming stock market helped the securitiesmarket
Highly efficient legal system encouraged thepeople to invest in shares and securities
Big market in USA provided an opportunity to growbig which was not available in other countries
Competition among states to get the companiesincorporated
![Page 28: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/28.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 28/57
Organizational Goals
![Page 29: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/29.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 29/57
Organizational Goals - till 15th
Century
Till 15th century - Goal of the entrepreneur is the goal of the organization
Charter Companies ± Goal is defined inthe charter
From Mid 19th century mid 20th Century -Goal of the promoter is the goal of theorganization
![Page 30: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/30.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 30/57
Goals in Modern Corporation
Promoters do not have majority stake inthe firms (mainly Anglo American Firms)
All stakeholders are aware of their rightsand very demanding
Employees, customers, stakeholders andSociety - objectives are conflicting
The Example of Nutrition value in Foodand cost of food ± By Herbert Simon
![Page 31: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/31.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 31/57
Importance of Goals
Legitimacy to external audiences such as:
* Investors
* Customers
* Suppliers
A source of motivation and commitment
* Help employees identify with the organization
* Reduce uncertainty and clarify what employeesshould accomplish.
![Page 32: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/32.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 32/57
Goals of modern firms
Broad goal is indicated by the missionstatements
How they get transformed to next level isreflected in the Value statements
![Page 33: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/33.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 33/57
Organizational Mission
Reason for existence, the basic purpose
Focus on items such as:
* Market and customers* Desired types of activities
* Values, aspirations, and reason for being
* Product quality
* Location of facilities
* Attitude toward employees.
![Page 34: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/34.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 34/57
Strategic goals
Broad statements describing where theorganization wants to be in the future.
![Page 35: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/35.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 35/57
Peter Drucker¶s Eight Areas of Focus
1. Market standing relative to competitors2. Innovation of new methods or products
3. Productivity or efficiency
4. Resources, both physical and financial5. Profitability
6. Managerial performance and
development7. Worker performance and attitude
8. Public responsibility to customers and
society.
![Page 36: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/36.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 36/57
Tactical Goals
Define specific results for major divisionsand departments within the organization toachieve.
![Page 37: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/37.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 37/57
Operational Goals
Define specific results expected fromdepartments, work groups, andindividuals.
![Page 38: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/38.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 38/57
Example Mission Statements
![Page 39: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/39.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 39/57
ITC
To enhance the wealthgenerating capability of theenterprise in a globalizing
environment, deliveringsuperior and sustainablestakeholder value
![Page 40: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/40.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 40/57
Aditya Birla Group
To deliver superior value to our customers,shareholders,
employees andsociety at large
![Page 41: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/41.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 41/57
Infosys Technologies Ltd
To achieve our objective (of wealthcreation) in an
environment of fairness, honesty, andcourtesy towards our clients, employees,
vendors and societyat large."
![Page 42: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/42.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 42/57
Tata Group
At the Tata Group our purpose is to improve thequality of life of thecommunities we serve.We do this throughleadership in sectors of national economicsignificance, to which the
Group brings a unique setof capabilities.
![Page 43: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/43.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 43/57
Do all the companies have welldefined Mission statements?
No
The case of Reliance Industries, BajajGroup
![Page 44: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/44.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 44/57
Goals and Ethics
Why studying µGoals¶ in Ethics Course?
Goals Influence the way companies fulfilltheir responsibilities to the stakeholders
Example ± Sears Holding Corporation ±the parent company of Kmart and Sears,Roebuck and Co - Auto Service Centers ±Problem of overcharging customers
![Page 45: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/45.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 45/57
Edward A. Brennan, CEO and Chairman of Sears, Roebuck & Company, made the followingstatement in 90s
³We are confident that our Auto Center customer satisfaction rate is among the highest in theindustry. But after an extensive review, we haveconcluded that our goal and hence goal-settingprogram and (subsequent) incentivecompensation and inadvertently created anenvironment in which mistakes have occurred.We are moving quickly and aggressively toeliminate that environment´
![Page 46: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/46.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 46/57
Corporate Governance ± An
Introduction
![Page 47: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/47.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 47/57
In January 2000, AOL merged Time-Warner withitself.
The combined entity¶s shares were trading ataround US $ 70 during the initial months
AOL Chairman Steve Case and Time Warner CEO Gerald Levin were instrumental in takingthe lead for merger.. Steve Case became theChairman and Gerald Levin become CEO of the
AOLT
ime Warner, the largest media firm in theworld, reaching each and every AmericanCitizen in one form or other
2000 employees were fired to achieve synergy..20 % of the global workforce
![Page 48: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/48.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 48/57
After 3 years, for the financial year 2002,the company has announced a loss of US$ 98.7 billion.
The share prices have touched US $ 8
Another 2000 employees were laid off
During the 3 year period 2.3 millioncustomers moved out of the company
![Page 49: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/49.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 49/57
What was the mistake of the shareholdersand employees?
T
he decision was taken by Levin and Histeam..
He and his team grossly overestimated thebenefits
They need to be punished « but why theemployees and shareholders?
![Page 50: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/50.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 50/57
Refco
Refco ± brokerage firm for commodities, futurescontracts and securities. - the largest broker onthe Chicago Mercantile Exchange
It was founded in 1969 as "Ray E. Friedman andCo.³
Went public in August 11, 2005 with the sale of 26.5 million shares to the public at $22. It closedthe day over 25% higher than that, valuing theentire company at about $3.5 billion.
![Page 51: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/51.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 51/57
Refco
In October 2005, some accountingmalpractices were found about relatedparty transactions ±The CEO Phillip R.Bennett - US$430 million ± The firm¶sstock fell to US 0.80 from $ 28
The company filed bankruptcy under
chapter 11. Almost 50 % of the employeeswere sacked
![Page 52: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/52.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 52/57
Illegal activities ±Companies in Northeastern states
![Page 53: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/53.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 53/57
Corporate Governance
Managers (or controlling shareholders) havethe control
Other stakeholders are affected by their actions
This creates problems for the stakeholderswhen the managers act selfish objectives
![Page 54: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/54.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 54/57
Issues in Corporate governance
Ethical issues ± frauds ± illegal activities ±Companies in North eastern states
Accountability issues ± Refco
Efficiency ± Mergers -Time Warner and AOL
![Page 55: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/55.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 55/57
Corporate Governance- guiding corporations toprotect the interests of stakeholders
Corporate governance is system by which
business corporations directed and controlledOr
System of structuring operating and controlling acompany with a view to achieve long-termstrategic goals to satisfy primary stakeholders
![Page 56: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/56.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 56/57
Corporate Governance andCorporate management
Corporate governance Corporate Management
External focus Internal focus
Open system Relatively Closedsystem
Strategy oriented Task oriented
Concerned with wherethe company is going
Concerned with gettingthe company there
![Page 57: 20341526 History of Corporate Form and CG Into](https://reader030.vdocuments.mx/reader030/viewer/2022021223/577d211c1a28ab4e1e9485f8/html5/thumbnails/57.jpg)
8/3/2019 20341526 History of Corporate Form and CG Into
http://slidepdf.com/reader/full/20341526-history-of-corporate-form-and-cg-into 57/57
Theories of Corporate Governance
Stewardship theory ± monitoring requiredto curtail rare misconduct of humansmanaging corporations (managers)
Berle and Means
Agency theory ± managers need to bemonitored as their motives differ from thatof shareholders