Exam For Law And Ethics - Essay Example

7 December One of the attributes to the current financial crises is the failure of corporate governanceprinciples and practices. Discuss As per Kaiser et al (2000), the advent of globalization increased rapidly and due to that the global financial crisis occurred in the year 1997-1999 which compelled the G7/8’s agenda to initiate further action on corporate governance and its associated doctrines of both global governance and public dimensions, which expanded proportionately. During that time, the G7/8 fastly started to address the demeanor of large MNC themselves. For countries like Russia, it took up the necessity for a stable rule of law of companies and a corporate culture to convince other stakeholders and investors that rational market-based demeanor is substituting the gangster capitalism of the old regime. The international financial crisis stimulated the G7 to lead to foster international codes of conduct to administer and control the activities of financial corporations and institutions in emerging and developing economies thereby focusing the corporate governance to center stage. As per Okinawa (2000), G8 placed a new stress on accountability and transparency, on fighting tax evasion and money laundering, on creating corporate demeanor to cherish new precedence of human security and on establishing the regulations to design the revolution for information technology. These policy decisions made the corporate governance of core concern to the G8 over a wide policy terrain. (Fratianni, Savona, Kriton 7). The recent global financial crisis and the resulting international economic meltdown are due to inefficient corporate governance procedure and rules. The unprecedented bailouts and financial packages in USA, UK and other nations have eaten away trillion of taxpayers’ money and have yet to stimulate or energize the concerned economy and the capital markets. The general observation is that offering subsidies to distressed companies does not yield any desired results, whereas better corporate governance and accountability should enhance the global economy. It is suggested to prevent recurrences of recent global financial crisis, it is suggested to establish an enforceable and effective global corporate governance guideline and rules to make companies accountable globally to their shareholders. ( Baker & Anderson 596). To a larger extent , the poor corporate governance practices were , if not wholly, accountable for the international financial debacle which was kicked-off by a melt-down of US economy in 2008 and 2009 , particularly in financial and banking sectors. (Plessis et al 308). It is to be observed that UK Combined Code deals with corporate governance will be called as UKs Corporate governance Code in the near future. Since 2003, the UK Code has been revised regularly and latest will be taking into account those lessons learned in 2008 -2009 international financial meltdown also that are applicable to all companies in UK. (Plessis et al 318). As per a research study which countered that there was a failure of corporate governance during the international financial meltdown in 2008-09 and that there is no justification presents for sweeping reforms in corporate governance codes. As per study carried over by Cheffins , after evaluating the removal of thirty seven companies from the S&P index especially during the course of market meltdown in 2008 that corporate governance operated acceptably well in those corporate , denoting that the case has not yet to be made for making sweeping reforms of present arrangements in corporate governance. (Plessis et al 468). The international financial meltdown that witnessed in 2008 and worldwide financial uncertainties associated to some worrisome exposures during the first half of 2010 about financial stableness of many EU member nations corroborate the fact the regulation of corporate governance will retain its standing in the near future. (Plessis et al xxiii). 2. The fact that Bahrain is a rentier state is impacting the business environment negatively. Discuss The main ideology behind a rentier state is that the lion’s share of a state’s revenue derives from abroad, and it would push the GDP of that state. Further, a rentier state can refute political rights to their citizens like participation and voting in an election as there is the absence of taxation. Hence, participation in decision making and taxation are closely associated in the replica of the rentier state. However, a rentier state like Bahrain obstructs the development of a wide middle class that is active in industrial manufacturing and transforms the benefits from economic activity into private holdings of capital. (Lane, Redissi & Saydawi 139). The rentier state model neglects to grasp the economic and political development of Bahrain, which is regarded like other GCC member nations to be a par brilliance replica of a rentier state. The GCC nations are developing at a swift phase as compared to other nations in the region and are actively attracting more MNCs to invest. (Al-Khalifa 326). Bahrain definitely is eligible for inclusion in the group of rentier states as it seems to be really preoccupied with their long-run origins of income and have perused effectual industrialization policies. (Lane, Redissi & Saydawi 18). Bahrain has now added value in manufacturing accounts for the notable percentage of its GNP. Bahrain’s joint ventures with other Arab nations and its regional cooperation have, in fact, vigorously supported the well situated, a tiny, and a meager oil reserve nation’s industrialization policy. Thus , a restricted but an active industrialization process is now happening in Bahrain , with industrial projects of second generation, including significant private investments, which are likely to mature in the ensuing years. Presently, Bahrain GNP consists of about 10 to 15% of income from manufacturing accounts. (Beblawi & Luciani 122). Luciani (2005, p95) contended that while the rentier state remains very robust since Bahrain’s national private sector remains vibrant and financial independence from society commands financial resources in excess of those of nations and is well associated in the globalization process due to the addition of assets worldwide. He also commended that due to the existence of a vibrant national private sector in the GCC states like Bahrain, they benefit from the favorable atmosphere to convert economic reform like capital movement, liberalization of international trade, privatization, which runs into a triumph by being able to create mutually rewarding and balanced alliances between foreign and national investors rather than just sell-offs of giant manufacturing assets to foreign investors.( Al Khalifa 108). As a rentier state , Bahrain has allocated its financial resources mainly emanating from the refinery activities and oil manufacturing process to provide a low-cost or free healthcare benefit to all the citizens of Bahrain not only living in Bahrain but those expatriates residing in abroad. Bahrain offers enormous governmental jobs to its citizens in spite of economic reforms thereby signifying of its rentier status. Though unemployment rates are high but majority of these are witnessed in Shiite residing provinces signifying that the ruling al-Khalifa employs rents, mainly to win over the hearts of Sunni minorities as a more inexpensive style of trenching the nation. According to Bahrain Tribune ( Feb 14 2005), Bahrain is the first Arab nation to introduce the major democratic reforms which was acclaimed by G.W.Bush, the then American President, who hailed that Bahrain was the first gulf nation to embark in democracy, reforms, overall development and freedom. (Al Khalifa 108). 3. Takeover defenses can impose some ethical challenges. Discuss Hostile takeovers were predominantly present in the middle of 1980s both in U.S.A and in U.K, particularly when acquirer found that there existed a big discrepancy between particular company assets and the relative stock market valuation. These takeover efforts are targeted at attaining the control over a company which is named as “asset stripping.” (Steinbacher 2007:10). Sometimes, takeover may end in a “monopoly position” and will be taken to an elevated level, where it can wield its control on the price structure. Under this scenario, takeovers sometimes paved to market-concentration position like cartels, and hence it has resulted in the restriction of competition, which can end in a potential veto from anti-trust authorities. Normally, hostile takeover impact negatively the behavior of the target company’s management. Some companies may have to look for expansion opportunities by resorting to takeover companies that are conceived to be undervalued. Due to enhanced hostile takeover activities, the targeted companies are using appropriate defenses from such hostile takeovers. There are a lot of takeover defenses that are employed by such companies such as interlocking employee share funds, employment of interlocking shareholders within the group setup , restructuring of the capital of the company , the placement of shares to other group companies , transfer of company assets , employing golden parachutes , the assistance of the white knight or selling of the crown jewels. (Griggs 1998:204). Poison Pill This is one of the takeover defenses. Under this strategy , the defense mechanism normally facilitates shareholders ( except acquirer) to convert their “ shareholder rights) into a large chunk of company’s common shares if any acquirer purchases more than a targeted quantum of the target’s stock which will be usually around 10 to 20%. This strategy will water down the quantum of shares that the acquiring company must purchase at a premium and in effect, increases the cost of the deal for the acquiring companies. (Hitt, Ireland & Hoskisson2009: 292). Golden Parachute It is a promise extended to executives that if they resign from jobs after a takeover, they would be adequately compensated. (Joshi 2004:47). Under this plan, a CEO can receive up to 3 year’s salary if his company has been taken over. When a company is acquired in a takeover bid, a onetime full payment of hard cash is given to senior executives of the targeted company. Greenmail Agreement: It refers to the repurchase of shares at a premium that have been purchased by the hunter in lieu of a contract that the hunter will not aim the company for conquest in the future. Capital Structure Change: It refers to the process of making the acquisition more costly to the bidder by diluting the stock which may include recapitalization, the stock selling, new debt, share buybacks and employee stock options. Takeover defenses in U.S.A Court –based replica in U.S.A facilitates company management to use its authority a considerable quantum of defensive strategies, which is restricted to acute judicial scrutiny barring the infringement of the defenses. In U.S.A, the behavior of target directors is administered through the general principles of corporate law, particularly the law on director’s responsibilities and duties. (Huang 2008:172). Takeover defense in UK The City Code on Takeovers and Mergers inflicts a rule of impartiality on the target directors by banning the employment of defenses without the shareholder assent. This usage can be regarded as the “shareholder –oriented “replica because it is the shareholders who have a final say with regard to the usage of defensive strategies. (Huang 2008:172). Takeover Defense in Russia A broad takeover reform law was introduced in mid -2006 in Russia. This law provides for both minorities squeeze out and also minority put option. This law requires for compulsory tender offers after crossing of shareholding limit of 30%, 50% and 70%. It also demands bidders to get an approval for anti-monopoly approval before finalizing a hundred percent stock acquisitions. Compulsory tender offers have minimum price needs with shareholders having a choice to select cash in case of securities offers. Thus, the minimum price offered could not be lesser than the share price of last 180 days trading period. Further, such offers should be filed with the Russian Federal Service for the Financial Markets. (Gaughan2007: 90). Works Cited Al-khalifa LA. (2010). Foreign Direct Investment in Bahrain. New York: Universal Publishers, 2010. Baker , HK & Anderson R. Corporate Governance : A Synthesis of Theory , Research and Practice. New York : John Wiley & Sons, 2010. Beblani H & Luciani G. The Rentier State. New York: Routledge Taylor & Francis Group.1987. Fratianni M, Savona P & Kirton, JJ. Corporate Governance and Global Governance: G8 Contribution. New Delhi: Ashgate Publishing Ltd,2009. Gaughan, Patrick A. Mergers, Acquisitions and Corporate Restructurings. New York: John Wiley & Sons,2007. Hitt, M.A, Ireland R D, Hoskisson R E.). Strategic Management. Competitiveness and Globalization. New York: Cengage Learning,2009. Huang Hui. The New Takeover Regulation in China. Its Evolution and Enhancement. Heinonline, 42 International Law,2009. Lane JE, Redissi H & Saydawi R. Religion and Politics: Islam and Muslim Civilization. New Delhi: Ashgate Publishing Ltd,2009. Plessis J JD , Hargovan A , Plessis JJD & Bagaric . Principles of Contemporary Corporate Governance. Cambridge : Cambridge University Press, 2010. Steinbacher Jan. (2007). Defense Strategies against Hostile Takeovers: Emerging Trends. London: GRIN Verlag. Read More