Business Strategy Presentation On ³Shareholders on the March´

Presented by,
Swati Kiran Ashmeet Kaur Chayashree Pathak Tuhina Saxena Naincy Thukral Komal Chhabriya

TABLE OF CONTENT
Objectives  Introduction  Corporate Governance Chain  Case 1: Michael Green at ITV  Case 2: Pay and Rewards @ GSK  Case 3: Conrad Black at Hollinger  Case 4: BSkyB and the Murdochs  Conclusion 

OBJECTIVES    

To understand what is the role of Shareholders and the management in the corporation To understand the importance of framework of Corporate Governance How the conflict of interests arise between the shareholders and board of director What are the different mechanisms to resolve those conflicts

INTRODUCTION 

Division of responsibilities in a corporation

1. Shareholders (owners) 2. Directors (Board of Directors) 3. Managers, Corporate officers who manage the company for the owners

THEIR ROLES:    Managers have always been known to lead and direct an organization or a company by deploying and manipulating of resources. The expectations of the shareholders influence the strategies of the business. . Shareholders on the other hand are the one who holds one or more shares of stock in a joint-stock company. The actual power of the shareholders tends to be very limited though it seems that they are the owners of the companies.

But in many instances. who is typically also the chairman of the board The role of the board of directors has increasingly come under scrutiny in which the board of directors failed to act in investors' best interests.  . the board has become a servant of the chief executive officer (CEO). The board is responsible to the shareholders and is supposed to govern a company's management.

 .POTENTIAL CONFLICTS OF INTEREST BETWEEN SHAREHOLDERS AND MANAGERS OF CORPORATIONS  Conflict of interest happens when both parties want to maximize each benefit. Shareholders want to see higher profits as more dividends can be yield from it.

Conflict between both can also arise when there is takeover bid to the company.CONTD«  While the managers are more interested in higher revenue because it means more expenses can be made that are beneficial to them.  .

GOVERNANCE FRAMEWORK The governance framework describes whom the organisation is there to serve and how the purposes and priorities of the organisation should be decided. .

THE GOVERNANCE CHAIN BENIFICIERIES BOARD PROFFESSIONAL MANAGERS .

or chain of governance.THE GOVERNANCE CHAIN ´ Most organisations operate within a hierarchy. The details of the chain will vary from one organisation to another The principal²agent model ´ ´ .

´ ´ ´ . Rewards are structured. Budgets.THE GOVERNANCE CHAIN HELPS HIGHLIGHT SOME IMPORTANT ISSUES ´ Conflicts of interest Directors· responsibilities to shareholders Accountability to stakeholders Targets.

Green resign as chairman of the merged television company. Following completion. Michael Green will become chairman of the merged group and Charles Allen will be Chief Executive. .CASE 1: MICHAEL GREEN AT ITV    The two biggest companies in the ITV network. Shareholders who collectively 36% of Carlton & 33% of Granada demanded that Mr. have gained approval for their proposed merger which they hope will revive their fortunes. Carlton and Granada.

MAJOR ISSUES:    Shareholders are reported to be disillusioned with Mr. Green was the wrong man to be ITV chairman. They argued that Mr. non. Green·s management style .executive chairman should be appointed from outside Carlton or Granada. An independent. its merger partner. .

executive chairman from outside Carlton & Granada. Although the board accepted shareholder arguments to have an independent.ANALYSIS:  The two companies decided to merge so as to cut on their cost as ITV has been losing market share to other channels.   . The shareholders believed that Green has made too many strategic errors. and has cost his companies billions. Green to stay on as Carlton chairman. they wanted Mr. non. till the completion of the merger.

would be highly de-stabilizing and could put at risk some of the benefits of the merger. following shareholder pressure. Green lost the support of merger partner Granada.  .CONTINUED  Soon. Mr. . This adds that a management shake-up like this in the midst of sensitive merger negotiations.

analyst at Barclays stockbrokers.COMMENTS: ´Granada is a bigger company and you have to believe that without Michael Green. this no longer looks like a merger but a takeover by Granada«µ says Henks Potts. .

CASE 2 PAY AND REWARDS @ GSK .

Jean-Pierre Garnier. DR. was receiving a ´Golden.ABOUT THE CASE CEO of GSK. The The shareholders of GSK were against the benefits of the pay package given to the Chief executives.Packageµ estimated about $30 million including all his Stocks and he was liable to receive the same even after he is forced to resign for poor performance.  .

These Institutional share holders have rejected & revolted the recommendation of the remuneration committee for their this decision.MAJOR ISSUES INVOLVED  The shareholders were dissatisfied with the excessive package paid to the CEO·s.  .

CONTD«  The Glaxo Board conceded that the company would reexamine the way it sets executive pay.  . Some reluctance shown on GSK·s Chairman to change their pay packages.

.OUTCOMES/ ANALYSIS OF THE CASE ´ ´ GlaxoSmithKline announced a shake-up of executive pay in line with a review by Deloitte & Touche. The proposed changes denied chief executive Jean Paul Garnier the chance of collecting a £22 million golden goodbye and reduced his compensation for losing his job from two years to one.

and his basic salary will remain at £1 million.CONTD« ´ Mr. Garnier is set to collect tens of millions of pounds worth of share options. This wouldn·t hurt his interests much either. ´ . however. This outcome restored the shareholder·s faith in GSK board.

said.COMMENTS: GSK's Chairman. In developing our new policy we have listened carefully to the views of our major shareholders. "This has been a rigorous process. retain and motivate key talent in the globally competitive marketplace in which we operate.µ Source: BBC NEWS THE NEW YORK TIMES . The new remuneration arrangements will allow GSK to secure. Sir Christopher Hogg.

is an organization based in U.S. he suffered a humiliating defeat in November 2003. Lord Conrad Black was the chief executive of Hollinger International. Despite owning 73% of newspaper publisher Hollinger international.CASE 3: CONRAD BLACK AT HOLINGER About the case´ Hollinger International. ´ ´ . the publishing division of Hollinger Inc.A that owned many newspapers.

Company·s annual report by KPMG further heated up the issue which was in favor of Tweedy Browne. ´ ´ . The battle centered on $154m of management fees paid to Lord Black and other executives.CONTD« ´ The campaign to unseat him as chief executive was led by Tweedy Browne. a New York-based institutional investor that owned 18 per cent of shares in Hollinger.

an ineffective audit committee and a dominant CEO (Chief Executive Officer) can damage the corporate governance structure.OBJECTIVE ´ To understand how an inactive board. which can be detrimental to shareholders' interests ´ To discuss the role of directors and whether they should be held financially accountable for neglecting their responsibility to protect the interests of minority shareholders .

MAIN ISSUES ´ Personal greed. shareholder activism. regulatory loopholes and failed internal controls that were responsible for a series of frauds committed by Black and his associates. board management and internal controls in an increasingly globalized business environment ´ . Importance of corporate governance policies.

. Ability to influence a company·s solvency . They also have influence in the management and ability to reduce the power of managers. Active involvement and influence in corporate governance.BENEFITS OF AN INSTITUTIONAL INVESTOR ´ ´ ´ ´ Safe investments owing to their vast domain knowledge.

DANGERS FACED BY INSTITUTIONAL INVESTORS ´ Limitations on their ability to process the information required to monitor firms. No direct involvement in the management of the company. ´ .

The Board needs to act proactively to tide over the crisis and win back the investor·s lost confidence. ´ ´ ´ ´ . Restructuring of the Company Policies. Institutional shareholders might raise the issue of Fraud.OUTCOMES TO BE PREFERED ´ Appropriate Information about the company should be given to all shareholders and stakeholders. Company would have ideally favored an out of court settlement.

´ . It produces TV content and owns several TV channels.OVERVIEW OF BSKYB ´ British Sky Broadcasting (BSkyB) is a company that operates Sky Digital . a subscription television service in the UK and Ireland.

an American company chaired by Rupert Murdoch. ´ . ´ More than a third of the equity is owned by News Corporation.CONTD«.. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

OVERVIEW OF THE CASE ´ In November 2003 James Murdoch. 30-year-old son of Rupert Murdoch. James became the youngest CEO of FTSE 100 company by a considerable margin. was appointed as CEO of BSkyB. Rupert Murdoch was the Chairman. ´ ´ .

´ The Appointment Committee stated that the appointment process had been rigorous. Appointment criticized by shareholders due to nepotism and possible creation of a family-firm company. ´ ´ . Committee also stated that James was the best candidate with a track record at Star TV as evidence.CONTD«.

Loss of confidence in the minds of shareholder. We can anticipate a conflict of interest. ´ . Institutional Investors who invest heavily will tend to withdraw their hands.CONSEQUENCES ´ ´ ´ James is a beneficiary of nepotism.

therefore what influence people can have over an organisation·s purposes.CONCLUSION  Strategy is all about what people expect an from organisation to achieve and. Therefore through corporate governance framework we describes with whom the organisation is there to serve and how the purposes and priorities of the organisation should be decided  .

. misrepresentation and other abusive and unethical practices had become so deeply ingrained in the corporate culture that they became commonplace and perhaps indistinguishable from normal everyday practice for some of the key actors.CONTINUED: "Self-dealing.

managers with shares in the companies will go for projects that would raise the share value of the business and also profitable projects that would give the managers more dividends since they are having investment in the company as well.  . Secondly. This means that the managers' earnings are paid with accordance to the level of profit.CERTAIN MECHANISM FOR THE BETTERMENT OF BOTH THE PARTIES  The first mechanism would be the profit related pay.

 . Through these mechanisms. Third mechanism would be direct intervention by the shareholders in company. the managers can be disciplined so that this can lead to betterment of both parties. the shareholders and managers. The shareholders may actively checking the performance of the company.

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