The Law of Majority Shareholder Power - Assignment Example

Case Study Name Course Professor Institution Date Question 1 Directors are involved in supervision of the company’s management by making policies and setting up objectives. Directors’ recourse is through CEO of the company and can decide on a replacement in case of underperformance. CEO’s and not the directors are involved in the operations and implementation of the company’s strategies. Therefore, directors should not be held accountable for company’s financial position. However, directors’ governance significantly contributes to investors’ decisions on investing in an enterprise which affects the financial position of a company. The directors decide on the business funding to run a firm which in turn determine the financial position of a company. The investors provide funds necessary for the growth of a firm (Dravis, 2015). Colonial First State did not invest in Crown Resorts due to concerns about board independence and governance. Stepping down of Chairman James Packer who owns majority shares did not help in solving conflicts with Colonial First State. James Packer was replaced by Rob Rankin, the head of Consolidated Press Holding that is Parkers private company and controls Crowns majority shares. Furthermore, Crown Resorts speculation to privatise the casino company and the potential increase in advisory fees to Consolidated Press Holding contributed to negative perception to Colonial board. Also, the Crown’s high-risk decision to diversify from their core casino business and instead focused on expanding in non-gaming ventures contributed to Colonial exit. Crown sold down parts of its investments in Macau, gaming hub. From the scenario, the directors decisions were largely contributed by the James Packer, who at times made wrong decisions that affected the company’s funding (Williams, 2016). On Murray Goulburn, it’s obvious that the directors are not involved in financial operations. However, directors are aware that the company will not meet the target of $85 million as stated in their disclosure statement. This affects the shareholders and farmers income. The directors made a bad decision by not providing realistic profits forecast and overestimated the milk value. Although the directors are not involved in the day to day operations, by knowingly not informing the concerned parties on the reasonable disclosure statement only increases doubts to investors and customers. This automatically leads to investors’ fear of investing more in Murray Goulburn due to the unexpected downgrade of shares by 40% resulting in a lack of enough funding. On the other hand, the farmers feel cheated on the overestimated price which was expected to increase from $5.60 to $6 but instead dropped to $4.75 per kilogram. The farmers may opt for other companies with better prices (Danckert, 2016). Therefore on both occasions, directors are not involved in the day to day operations of a company. However, their decisions affect the outcomes and expected profits of a firm hence resulting in loss of investors. Investors’ confidence levels determine their willingness to invest and directors significantly contribute to this as they are responsible for funding a company. Crown Resorts should address the issue of the board to avoid conflicts by not giving majority powers to James Packer so as to have stable governance and make appropriate decisions that enhance the success of the company. Murray Goulburn, on the other hand, should be transparent to both the investors and suppliers to avoid their lack of confidence in the company. Question 2 Shareholders are the owners of a company as they own shares in the company. All shareholders are investors, but not all investors are shareholders. The shareholders take risks of gaining or loosing upon investing in a company. The shareholders get high rewards when a company makes profits and suffers losses when companies they have invested in realizes losses. Upon making losses, shareholders can take a class-action lawsuit to sue companies for the wrongful acts (Johnson, 2001). On Murray Goulburn scenario, the milk producer board misled the investors on the expected float. The board was aware that they could not attain $85 million profits and went ahead to state a misleading disclosure statement and not informing the market that they could not meet their target. The revised profits forecast were between $39 and $42 million compared to the projected float of over $85 million. The shareholders shares dropped by over 40% that is from $2.14 to $1.23. John Webster is acting as the lead plaintiff; shareholders have the right to sue the Murray Goulburn directors for the misleading float information (Danckert, 2016). On the Crown Resort scenario, the situation was complicated because James Packer owned 53 % of the company. The action of James Packer by stepping down as a chairman was designed to solve the conflicts that exist. However, Crowns Resort governance did not improve as Rob Rankin the new chairman headed Consolidated Press Holding; a company owned by James Packer and controlled the majority of Crowns shareholding. If the Colonial First States decided to invest in Crowns Resort knowing all the facts about the board independence and the governance of the company, there would be no possibility of suing. This is because, despite the bad governance, Crown Resort did not mislead or violate the rights of Colonial First State. Therefore, Colonial First State can decide to invest considering Crown Resort situation. Colonial First State opted the best alternative to exit due to the board independence (Williams, 2016). In any scenario, the shareholders have the right to sue companies but only upon doing wrongful acts. The shareholders could sue directors when they provide misleading information like in the case of Murray Goulburn but cannot be able to sue for losses if they had a vital hand in making a decision that led to losses. On another perspective, Mr. Packer had warned on the fall of profits in 2016 due to the slowdown of Macau casinos and the increased spending on the new resorts. The Crown Resort could sue Macau management due to the failure of Barangaroo project delay by 18 months. Although, the suing could not be justified as Macau is experiencing investments slowdown that might be contributed by the board independence concerns. In conclusion, the shareholders should have reasonable grounds to sue a company upon incurring losses. Question 3 Majority shareholder comprises of an entity or a person who owns 50% or more of the company’s shares. The possibility of the presence of majority share is in small companies where the total share value is not high. The majority shareholder has a significance influence on business operations. The CEO is accountable to the board on the company’s operational running. The chairman runs the board by setting up the agenda of the board. However, one person can perform the role of the Chairman and CEO depending on the company’s articles of association. Some people reason to separate the two positions so that a company can strengthen its integrity. The shareholders with the majority shares normally hold the position of the chairman and or that of CEO. Therefore, it is reasonable when a majority shareholder is the chairman of the company as he or she will focus on bettering the business (Chivers & Shaw, 2008). In Crown Resort total share value, Consolidated Press Holding that is owned by James Packer has 53% of the company shares. James Packer stepped down as the chairman due to the board independence and governance concerns. Rob Rankin replaced James Packer as the new chairman. Rob Rankin is also the head of Consolidated Press Holding that is owned by James Packer. This means that James Packer indirectly through Rob Rankin controls the activities and decisions of Crown Resort. In the scenario, James Packer should not be the chairman whether directly or indirectly as he does not make decisions that favor the success of the company. The move of investing away from non-gaming assets which increase risks and privatisation on the part of Crown Resort business is not good and pushes investors such as Colonial First Choice away. Mr. Pecker control of the company has also affected privatization taking place according to National Australia Bank. The company decision on $1 billion deal to sell down part of Macau investment which the biggest gaming hub and instead invests $135 million in Robert De Niro’s Nobu Restaurant and $60 million in non-gaming ventures reduced equity investors. Also, there is fear of sidelining the minority investors on the $8.5 billion proposal deal of privatising the company. The decision that the majority shareholders make does not lead to the growth of the company but instead leads to losses (Williams, 2016). The chairman of Murray Goulburn is Phil Tracy. However, Murray Goulburn is a large company with many shareholders with no distinct majority shareholder (Danckert, 2016). In conclusion, it’s common but not a must that the chairman or the CEO of a company. At times, a shareholder with great experience and best ideas to enhance company’s growth should be the chairman or the CEO. Question 4 Pension funds are the scheme that delivers retirement income. The funds involve major investors to both private and public companies represent large institutional investors. The funds play a significant role in the capital market and economy in general. The number of employees participating in pension funds scheme is growing leading to the growth of pension funds. However, there is a concern that the funds beneficially may not get their rightful benefits. Also in the private sector, the pension plans are in danger of insolvency. The pension funds can contribute to the investments and in turn enhance the growth of a company. Therefore, pension funds can influence the control of a firm. Independent directors who are available on the public board of trustees have the mandate to offer superannuation funds and strengthen the requirements on the conflict of interest. As a result, superannuation funds have the right and ability to influence a company. Crown Resort is focusing on privatisation that leads a company to be classified private from a public company. Public companies are guided by government laws in Australia that serves to the best interests of the members. Some penalties apply if a public company does not abide by the requirements. If Crown Resort successfully, privatises the company, it is likely that the trustee funds scheme will suffer as public laws will not apply to the company. Good governance is a significant aspect when it comes to the private pension system. Good governance enhances the investment performance and also the benefit security. However, Crown Resort lacks good governance. Also, Crown Resort lack good independence of directors. Consolidated Press Holding is involved in major decision making that could result in lack of good policies that support pension funds. Considering the concerns about directors’ governance and independence of the board, it is likely that the pension fund will fail. The decisions that the majority shareholders make affects the minority negatively and as a result, it is evident that James Packer is only concerned with his personal interests. On the other hand, Murray Goulburn is listed publicly and hence adheres to the laws governing public pension. Therefore, the company smoothes pension scheme that considers the pension trustee. However, it was difficult to entrust on the Murray Goulburn board, and it is evident that they are capable of misleading investors. In conclusion, superannuation funds are significant and can influence a meeting with the board of directors, but there is a need for the laws and policies to enhance good pension scheme (Donald & Le Mire, 2016). Reference Chivers, D., & Shaw, B. (2008). The law of majority shareholder power: use and abuse. Oxford, Oxford University Press. Danckert, S., 2016 Class action filed against Dairy giant Murray Goulburn Published: May 16, 2016, theage.com.au Donald, M.S. and Le Mire, S.M., 2016. Independence and the Governance of Superannuation Funds. CIFR Paper, (097). Dravis, B. F. (2015). The Role of Independent Directors in Corporate Governance. Johnson, R. E. (2001). Shareholder value: a business experience. Oxford, Butterworth-Heinemann. http://www.123library.org/book_details/?id=36336. Williams, P., 2016 Colonial Exists James packer's Crown Board Independence Published: May 11, 2016, theage.com.au Read More