The corporation and corporate governance

1. The aims and objectives of a corporation and the goals of the different interest
groups involved.
An aim is a long-term plan from which business objectives are derived. It is
where the business wants to go in the future, in short, it is a statement of
purpose. The objectives of a corporation are the stated, measurable
targets on how to achieve business aims. It gives the corporation a clearly
defined target. Plans can then be made to achieve these targets and to
motivate the employees. It also enables the corporation to measure the
progress towards to its stated aims.

The main objectives that business might have are:

i) Profitability - maintaining profitability means making sure that revenue
stays ahead of the costs of doing business.
ii) Productivity - employee training, equipment maintenance and new
equipment purchases all go into company productivity. Your objective
should be to provide all of the resources your employees need to
remain as productive as possible.
iii) Customer Service - good customer service helps you retain clients and
generate repeat revenue. Keeping your customers happy should be a
primary objective of your organization.
iv) Employee Retention - employee turnover costs you money in lost
productivity and the costs associated with recruiting, which include
employment advertising and paying placement agencies. Maintaining a
productive and positive employee environment improves retention.
v) Core Values - the mission statement is a description of the core values
of a company. It is a summary of the beliefs the company holds in
regard to customer interaction, responsibility to the community and
employee satisfaction.
vi) Growth - it is planned based on historical data and future projections. It
requires the careful use of company resources such as finances and
personnel.
vii) Maintain Financing - maintaining your ability to finance operations
means that you can prepare for long-term projects and address short-
term needs such as payroll and accounts payable.
 viii) Change Management - it is the process of preparing your organization
for growth and creating processes that effectively deal with a
developing marketplace. The objective of change management is to
create a dynamic organization that is prepared to meet the challenges
of your industry.
ix) Marketing - is more than creating advertising and getting customer
input on product changes. It is understanding consumer buying trends,
being able to anticipate product distribution needs and developing
business partnerships that help your organization to improve market
share.
x) Competitive Analysis - a comprehensive analysis of the activities of the
competition should be an ongoing business objective for your
organization. Understanding where your products rank in the
marketplace helps you to better determine how to improve your
standing among consumers and improve your revenue.

Shareholders, directors, and bondholders have different objectives. For

example, stockholders have an incentive to take riskier projects than
bondholders do, as bondholders are more interested in strategies that will
increase the chances of getting their investment back. Shareholders also
prefer that the company pay more out in dividends than bondholders
would like. Directors may also be shareholders and reap the profits of
more risky strategies or may prefer risk-averse empire-building projects.

2. The relationship between shareholders, bondholders, bankers and directors, the

potential for conflicts of interests; the effects of the agency theory on concepts
of governance.

Conflicts Between Directors and Shareholders

Agency costs mainly occur when ownership is separated, or when directors
have objectives other than shareholder value maximization.

The “agency view” of corporations argues that the decisions rights of a

corporation should be entrusted to a director, so that the director can act in the
interest of shareholders. Partly as a result of this, mechanisms of corporate
governance include a system of controls that are intended to align the
incentives of directors with those of shareholders. While attempting to benefit
shareholders, directors often encounter conflicts of interest. For example, a
director might engage in self-dealing, entering into transactions that benefit
themselves over shareholders. Directors might also purchase other companies
to expand individual power, or spend money on wasteful pet projects, instead of
working to maximize the value of corporation stock. Venturing onto fraud, they
may even manipulate financial figures to optimize bonuses and stock-price-
related benefits. The chief goal of current corporate governance is to eliminate
instances when shareholders have conflicts of interest with one another.
Another important goal is to evaluate whether a corporate governance system
hampers or improves the efficiency of an organization. Research of this type is
particularly focused on how corporate governance impacts the welfare of
shareholders. Advocates of governance typically encourage corporations to
respect shareholder rights, and to help shareholders learn how and where to
exercise those rights. Disclosure and transparency are intertwined with these
goals.

Conflicts of Interest Between Shareholders and Bondholders

The shareholders and bondholders have different rights and returns, leading to
potential conflicts of interest.

The shareholders are individuals or institutions that legally own shares of stock
in the corporation, while the bondholders are the firm’s creditors. The two
parties have different relationships to the company, accompanied by different
rights and financial returns. For example, stockholders have an incentive to take
riskier projects than bondholders do, as bondholders are more interested in
strategies that will increase the chances of getting their investment back.
Shareholders also prefer that the company pay more out in dividends than
bondholders would like. Shareholders have voting rights at general meetings,
while bondholders do not. If there is no profit, the shareholder does not receive
a dividend, while interest is paid to debenture-holders regardless of whether or
not a profit has been made. Other conflicts of interest can stem from the fact
that bonds often have a defined term, or maturity, after which the bond is
redeemed, whereas stocks may be outstanding indefinitely but can also be sold
at any point.