Multinational Corporate Entities - Essay Example

Multinational Corporate Entities Introduction Shares in any multi corporate entity (MCE) provide shareholders with the authority to vote on matters of corporate policies and significant business decisions. The company law entails treating every shareholder of any kind equally1. By voting on the matter of corporate policy, shareholders can support organisational actions in an effectual and operative way so that the objectives are fulfilled. In any MCE, corporate policy comprises of the general statements, regulations for repetitive business operations, decision making procedures, combined organisational structure and positive assertion for the supporters. Therefore, it helps MCEs to refrain from any criminal activity for generating profit. Shareholders plays major part in maintaining corporate governance and ensure ethical business conduct in MCE. Question A Multi corporate entities (MCEs) are those organisations which possess or control revenues and assets in more than one nation. MCEs establish their global business by foreign direct investment (FDI). In contrast to general business, FDI signifies the physical addition of operations and the venture of equity capitals and shares in numerous nations. Whenever a MCE establishes a plant, office, or warehouse, it denotes involvement in FDI2. Corporate Governance The main purposes of MCEs are to generate profit, but all of their activities are non-profit focused. In certain cases, MCEs engage in criminal activities in order to make profit. Therefore, shareholders play vital part in ensuring good corporate governance in managing as well as monitoring the performance of the organisation3. Managing Internal Corporate Relationships A well governed MCE must balance the three groups in organisation which are shareholders, boards of directors and managers without compromising the monetary promises and other responsibilities to the stakeholders. Shareholders provide the capital so that they can achieve benefit from it and increase the organisation’s corporate worth. Shareholders possess rights and authorities to choose or to discharge directors and auditors, and employ, support or reject any kind of central changes for the sake of organisation’s wellbeing such as merger or alterations in investment structure4. Managing External Corporate Relationships The legal and regulatory obligations are portions of external incentive structure aimed at ensuring obligation of common business standards such as impartiality, transparency, liability, concern for protecting the shareholders, the customers, the employees, and avoiding offensive business practices which can impact on environment. National and international organisations have developed several external aspects on best practices of organisation such as appropriate disclosure of financial statements, proper accounting and auditing principles, employment regulations, environment criterions and industrial product standards among others. Managing the external aspects is essential as without those an organisation can face acquisition from other firms5. Rights of Shareholders Shareholders, as company owners, have the right to enable corporate governance and govern the organisation directly or by voted representatives. The shareholders are not likely to undertake duty for handling corporate actions as they are usually positioned for board and administration teams. Shareholders can instigate the business units to provide attention on specific major concerns such as vote of board members and any other ways for inducing the arrangement of the board, alterations to the organisation’s gradual brochures, authorisation of extraordinary dealings and other elementary subjects as stated in company law and internal business acts. Shareholders can apply a level of control on organisation. Shareholders can cover the issues of board selection procedure4. In broader sense, rights and responsibilities of shareholders are related with possession of share in an organisation. Shareholders who have voting securities have unconditional control over organisation, but minority shareholders have no power to regulate the strategies and the direction of the organisation. They possess minor prospects to extract the worth of their investments in the organisation by selling their shares. Through their rights, shareholders can bring the directors and board to task if they think that their business is not going towards best interest of organisation. By participating actively in the organisation, shareholders can encourage openness, integrity and accountability in the board members for improving the good corporate governance activities. The Annual General Meeting (AGM) provides shareholders the occasion to request their queries to the board and discuss broader subjects which can impact on the business. Shareholders are able to use their powers in order to suggest any resolution for reflection and argument. They can also request for any report to be considered while evaluating any projected resolution. Shareholders can contribute towards corporate governance of an organisation by appropriately utilising their rights. Shareholder's Duty in Voting The most significant right of shareholder is the power to vote in annual general meeting. They are able to vote on significant corporate issues such as union and selling out and selection of board of directors among others. The major reason to vote is to authorise the resolutions in annual general meetings. The voting right is significant because it lets the shareholders to use their ultimate authority over the organisation and the board. With regard to selection of the applicants for board, several organisations have developed selection commissions to certify appropriate obedience with established selection processes and to simplify and organise the search for a stable and competent board. The consultative vote in several nations expresses the strength and the manner of shareholders feelings to the board without compromising employment agreements6. The right of shareholder for selecting the directors is significant not only for their personal interests but also for the stakeholders’ welfare. The reason is that, through this right, shareholders satisfy the social goals of making the directors responsible. This responsibility is to not only defend the benefits of shareholders but also to certify that organisations are complying with the wellbeing of public and society. If the shareholders are dissatisfied with the performance of the company they can put pressure by lowering the cost of stock. As a result, the company can face the threat of acquisition and become more vulnerable to aggressive takeovers from other organisations. Conversely, if the shareholders are satisfied with the performance of the organisation, the demand of stock will increase progressively and investors will be more attracted to put their money on the company. These threats of acquisitions and removal from their respective positions make directors to take shareholders’ interests and demand sincerely5. Therefore, shareholders’ rights to elect directors help to create and to sustain the organisation and to maintain corporate control. Besides, it keeps shareholders responsible for proper utilisation of general wealth of the organisation. By applying the voting rights, shareholders designate the board of directors and make decisions for the organisation. Selection of directors is a critical task, as dishonest directors can easily engage in illegal ways to raise profit and harm the organisation as well as society6. Corporate Social Responsibility In order to strengthen the international law on MCEs, the corporate social responsibility (CSR) had framed the report externalities of business operations of MCEs. The failure to consider the legal aspect of CSR can significantly weaken the opportunities of MCEs to maintain appropriate stability between government, corporate and society. Therefore, CSR is regarded as a footstep of international law towards maintaining a business standard. It seeks to protect other elements through modifications in international corporate law, agreement law, civil responsibility law, employment law and human rights law. CSR is regarded as a counterpart to international law by encouraging social rules7. Responsibility of Home State Though CSR practices of MCEs are becoming more widespread nowadays, it cannot replace the requirement of effective home state regulation. Therefore, international law also scrutinises the faults in the domestic legal structure, and recommends practical options within local environment which can enrich the control of MCEs’ activities in home state. The areas of international law, which are relevant in home state, are company law, wrongful act law, human rights law, criminal law, and anti–corruption law8. Question B In order to assure viability of business and control of commercial activities of MCEs there are several rules and measures to make them acquiescent towards responsibilities. To impose international law in the United Nations’ corporate structure, ‘business sanctions’ have been developed as a vital instrument. With respect to current understanding of global business, the role of MCEs must be re-intellectualised to make them operate within the jurisdiction of international law. As MCEs can freely conduct business in other countries the business sanctions become a strong instrument for governing externalities of MCEs. The other reason for higher significance of business sanctions has been the emerging issues in responsibility of home state for extraterritorial infringement of international law by MCEs as well as their subsidiary companies8. Advice to the Shareholders Concerning MRL, the company had faced repatriation restrictions and as a result was unable to pay dividends to the shareholders. The ‘Foreign Exchange Control Law’ controls the amount of nation’s local currency which can be transformed into foreign currencies. The law can entirely restrict or partly restrict the capability of MCEs to confiscate funds to home country. Repatriation restrictions are generally enforced for controlling the foreign exchange, i.e.to secure or preserve foreign currency in a nation, to observe foreign direct investment, and to police possible tax avoidance9. It is advisable for the shareholders as well as board and directors of MRL to reserve almost 10% of the profit as a legal fall-back and this should not be distributed as dividend. The foreign exchange control law necessitates reservation of a percentage of annual income as a special reserve10. It is advisable to Hugo Perez that he should manage the task of the organisation as a director and ensure that the MRL continues to function for best interests of every stakeholder. With respect to the right and the authority of the director and board, they can take several measures in order to govern MRL more effectively. In case of MRL, a culture of active transparency needs to be maintained which can encourage operative negotiation among the director, the management and the shareholders. In accordance with the duties, board should select the directors according to fields of proficiency so that any difficult situation can be handled successfully. Today, the active forces of globalisation, the testing economic environment and the technology have congregated to radically reform the business world. Maintaining good corporate governance has become utmost concern for every organisation including MRL which operates internationally. It is the duty of Hugo Perez along with the entire board to ensure that corporate governance of the organisation is in right place and simultaneously improving by implementing best business practices. It is advisable that MRL should develop good corporate governance policies and put them in action, which will regulate the interface between business practices and stakeholders11. As MRL had grown into diversified businesses in several countries, the complexity of duties and responsibilities also increases for board as well as director Hugo Perez. In order to avert the phenomenon such as breach of sanctions, Hugo Perez should play his part effectively. To complete his responsibility towards MRL, he needs to stay dynamic, conversant and authoritative in the direction of the organisation. Hugo Perez has more than just regulatory role in MRL. He is also responsible for any kind of illegal or unethical business operation. In any company, there are some legal, commercial and institutional constructions and relationships which deliver an outline for director and board about operating business in foreign business environment. It is their duty to maintain and act according to the outline and maintain the global code of business practice, because the outline can differ from country to country. To ensure fair business performance, it is advisable to Hugo Perez to act genuinely in the interest of MRL and its shareholders, rather than his own. Therefore, he should not use his rights and authorities for personal indemnity purpose and must not place himself in a situation which can result in conflict between personal and financial aspect of MRL. In other words, Hugo Perez and other board members must not engage in any secret profit generation by means of unethical ways. The shareholders should be aware that each nation has unrestricted right to approve or reject foreign investment. Repatriation of capital and revenue becomes difficult if host nations’ foreign currencies are not enough to certify the exchange of home currency. Host nation can also take capital relocation actions, such as restrict the initial exchangeable revenue to proportion of invested money. These actions can result in conflicts with the shareholder and can provide possible privileges for renegotiation12. Effective business performance requires two major aspects which are developing a moral consciousness and encouraging ethical behaviours and manners among the directors and the board members. The board members and directors must be reliable, honest and effective and they should continuously express a conforming internal state of awareness. Shareholder’s Vote In present days, it can be observed that boards are more likely to implement the majority shareholder’s plans. In MRL’s case, 75% of shareholders have voting power and majority of issued shares are possessed by directors. The majority vote plans can explore board’s reaction to shareholders. Traditionally, shareholders’ plans were measured as a weak instrument to initiate authority reformation in organisation. Before 1990s, majority vote plans were frequently overlooked by boards. However, after several financial scandals (such as scandal of Enron Corporation), the majority vote plans have gained increased importance for MCEs as well as individual directors. Presently, the proxy voting amenities, governance rating organisations and shareholder advocates clearly monitor organisations and directors on the basis of sensitivity to majority vote plans. Therefore, in order to resolve the issue of dividend, MRL should implement the majority vote plans. Besides, shareholders and boards also need to take strict actions to ensure that MRL complies with the corporate governance policies and international laws while conducting business13. Question C By analysing the issues in part A and B, the major similarity that can be observed is that MCEs can engage in several criminal activities in order to make profits. The increasing reach of MCEs can encourage abuses of corporate authority. These crimes can occur from the top officials such as company directors and boards. These illegal business performances can cause huge amount of loss and destruction of company reputation. Today, globalisation has fuelled the illegal business practices of MCEs in their immoral pursuit for profits. There are several examples of serious abuses caused by MCEs. In both parts (A & B), it have been found that MCEs are more prone to increased profits and therefore corporate governance can help to control the activities of MCEs14. The issue of corporate governance can be evident in each of the cases. Recent MCE anomalies resulted in further attention to the activities of directors and management. Present attempts at governmental and organisational transformation for enhanced self-governance appear to be a sign for MCEs to look beyond gaining profits. MCEs need to deal with more challenging global shareholders who pursue for better disclosure and further transparent clarifications for major decisions. The major apprehension for corporate governance is to control business activities within organisations rather than outside intervention. The corporate governance not only observes the associations between directors and stakeholders but also guides international businesses and identifies the distribution of authorities and accountabilities among the members who involve in commercial decision making procedure15. Presently, it can be said that the MCEs are one of the major motivating strengths in modern economy. They contribute substantial amount in international GDP and employment. Thus, MCEs attract a growing attention of FDI. The globalisation has resulted in higher investment movements in international economies, and higher prospect of getting larger share of international FDI has inspired several nations to commence further liberalisation. As the significance of globalisation increases, MCEs are criticised and respected for several reasons. They are mostly criticised due to their effect on domestic companies, superior technology, control of bigger portion of world market, higher economies of scale and profit seeking activities. Their profit seeking activities lead to repatriation of resources. In some context, they are also criticised for controlling domestic economic policies and involving in country’s national benefits or individuality. In comparison with these criticisms, MCEs are supported on the grounds that they have significant impact on productivity, management of resources, industrial development, employment opportunities, innovations and higher competitiveness. It can be witnessed that the main interest of MCEs for investing in a foreign country is to get early advantages and operate business better compared to their home market. They always search for selling products with higher profit. In the hunt for higher profit, the MCEs often breach the international law. From part B, it is evident that MRL’s subsidiary company had breached the international law by selling product to Iranian organisation which is strictly prohibited in South America. The breach of sanctions can impose extra costs to the firm. In international business, MCEs should consider the status of country, as reputational concern is affected by spitefulness of the violation made by MCEs and can have major impact on the organisations. In the case of SAMSA (the subsidiary of MRL), the violation is highly concerned with the status of South America which can cause serious effect on company’s business. The sanction involves actions which are planned to penalise the offending organisation, i.e. rather than a removal from taking advantages, the breach of sanction can represent burden of fine. It is the duty of the shareholder to vote and select appropriate board of directors who can be trusted, so that MRL generate profit in ethical manner. The major discrepancy identified in both the parts is that part B focuses on issue of shareholders such as expecting good returns in the form of dividends, whereas part A describes the right and the authority of shareholder through vote. Though, shareholders can only get returns if other entitlements of businesses are met. Therefore, in order to ensure they fulfil their investment goals, shareholders need to play their part and use their rights carefully. The decisions made by them must be sensible and they should be aware of the consequences of their decisions. Conclusion In conclusion, it can be said that MCEs provide employment opportunities, innovative technologies, and better competition in the market. Apart from that, MCEs can also engage in several unethical ways of generating profit such as violation of law, breaching of sanctions, and bribery among others which can impact on fair business environment as well as productivity of organisation. The board of directors that manages the important issues in business are at central position of trust. But in certain cases, it has been observed that they abuse their position in order to gain maximum profit at the cost of shareholder’s investment. Shareholders are provided with the power to elect directors in annual general meeting. Shareholders can play strategic part in improving corporate governance and applying their rights for commercial fairness and open inspection of directors’ actions. Therefore, corporate governance is significant for MCEs which can help them to protect the authority of shareholders and direct the business towards higher affluence. References Bakan, J. (2005). The Corporation: The Pathological Pursuit of Profit and Power. Los Angeles: Free Press. pp. 138-200. Cohen, S. D. (2007). Multinational Corporations and Foreign Direct Investment: Avoiding Simplicity, Embracing Complexity. New York: Oxford University Press. pp. 200-350. Davies, P. L. & Et. Al. (2008). 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