Q d. Does the firm appear to have an effective corporate governance structure? Explain any shortcomings. Ans:
They do not have an effective corporate governance structure. The most important shortcoming is the management team who don’t make good decisions for maximizing shareholders’ wealth. They only care for the profit and their bonus related with that. They don’t take any steps to maximize stakeholder’s equity. If this information gets public they might got fired from their job for violating the main goal of a public company “maximize shareholders wealth” Q e. On the basis of the information provided, what specific recommendations would you offer the firm? Ans:
From the information available in the case study, we get a picture that this company has some major problem regarding their top management. We are giving these recommendations to address those issues. 1.
Comply with all laws as well as accepted standards of conduct or moral judgment. This will prevent any more environmental hazard caused by dumping waste and its legal and environmental consequence. 2.
Establish a corporate ethics policy, to be read and signed by all employees. This will make everyone aware about their specific duties and this will prevent further delinquency by the management. 3.
Designing a payment system that ties management team and employees’ salary to share price or a performance based scale. And top management must have a stock based compensation plan which will get rid of the agency problem existing in the company. And buying stocks from the market will create demand for shares thus the stock price may go up for a short session.
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