Forum Memos in Governance - Case Study Example

When corporate governance becomes ineffective, it leads to unfavourable consequences. A good case study is the American International Group Incorporation. The company violated Delaware laws and stakeholders’ rights by accepting to be rescued by the federal government in exchange for a majority stake in the insurance company. Further, the company refused to provide its shareholders/company owners with an opportunity to vote on major issues on a bailout proposal. The government was to give out $85 and receive a $79.9 per cent stake in return which violated Delaware corporate law. One of the investors by the name of Wilma Walker filed a suit in court. His actions caused the senior director of the company to resign managers including the chief executive officer since the act led to a loss of $180 billion and the American International Group risked being collapsed. This was a deal backed by the US Treasury Department, and it was designed to prevent the chaos that threatened other financial companies (Bloomberg, 2008).

American International Group also did not adhere to good corporate governance by converting the preferred shares into common stock without any approval from shareholders. The company also had to part with $1.6 billion to settle allegations of influential leaders because the company had misled stakeholders and lied in the worker’s compensation program (Bloomberg, 2008).