2.1.3 Shareholder protection
Shareholder protection is top on the list of corporate governance. However, emphasis placed on protecting shareholders may led to unethical practices if this is a difficult thing to accomplish. Thus, it causes a problem for effective corporate governance in future. This is because protecting shareholders goes in line with making high profits. Therefore, if the company is making losses, it may misrepresent financial figures in order to deceive shareholders that the company is making profits. WorldCom went bankrupt after its attempt to create illusory earnings that mounted to $3.8 billion in expenditure, in a bid to raise shareholder confidence (Romero 2002). This shows that some firms lack open and transparent …show more content…
Some of them heads running the various departments are elected or appointed to the BOD. However, to separate powers, the chairman heads the BOD and the CEO oversees the daily management of the company. The internal structure of the Volkswagen is two-tier meaning that it has a management board and a supervisory board – which is appointed by the management board to oversee governance issues and which consists of representative of workers, shareholders and trade unions (Morrison 2015, p. 266). The fact that the supervisory board is appointed by the management board creates a conflict of interest when considering that members of the BOD will usually have individual interest such as being elected in or pushing certain policies. Generally members of the BOD will elect someone who share and represent their interest and this can impact effective corporate governance. Therefore, while shareholders elect the BOD they should also elect the supervisory board to avoid conflict of interest. But the again this stems from a German’s corporate laws that stipulates a structure that is established in that manner (Kershaw 2012, p.
Shareholder protection is top on the list of corporate governance. However, emphasis placed on protecting shareholders may led to unethical practices if this is a difficult thing to accomplish. Thus, it causes a problem for effective corporate governance in future. This is because protecting shareholders goes in line with making high profits. Therefore, if the company is making losses, it may misrepresent financial figures in order to deceive shareholders that the company is making profits. WorldCom went bankrupt after its attempt to create illusory earnings that mounted to $3.8 billion in expenditure, in a bid to raise shareholder confidence (Romero 2002). This shows that some firms lack open and transparent …show more content…
Some of them heads running the various departments are elected or appointed to the BOD. However, to separate powers, the chairman heads the BOD and the CEO oversees the daily management of the company. The internal structure of the Volkswagen is two-tier meaning that it has a management board and a supervisory board – which is appointed by the management board to oversee governance issues and which consists of representative of workers, shareholders and trade unions (Morrison 2015, p. 266). The fact that the supervisory board is appointed by the management board creates a conflict of interest when considering that members of the BOD will usually have individual interest such as being elected in or pushing certain policies. Generally members of the BOD will elect someone who share and represent their interest and this can impact effective corporate governance. Therefore, while shareholders elect the BOD they should also elect the supervisory board to avoid conflict of interest. But the again this stems from a German’s corporate laws that stipulates a structure that is established in that manner (Kershaw 2012, p.