Problem Solution: McBride Financial Services
McBride is an organization to assist clients with financial needs. Beltway Investments is a financial organization that has provided McBride with the initial capital to help front the start of McBride. The development of corporate governance will uphold a solid foundation for the successful organization McBride is trying to accomplish. This MFS problem solution paper will attempt to weed out and solve the issues McBride is experiencing in the company. The focus of this paper is for McBride to use concepts and benchmarking solutions to solve selectively the major issues.
If, McBride Financial Services discover a way to resolve the issues occurring in the organization. A solution to the problem will lead to a successful outcome and the company will create a good word for the organization. In this paper I will demonstrate end-state visions, alternative solutions, analysis, risk management, solutions, implementation plan, mitigation techniques, and the results of the evaluation. Situation Analysis Issue and Opportunity Identification
Hugh McBride gained a financial relationship with a huge investment company, Beltway Investments and he decided to develop a concept that will assist clients with financial services. Hugh is very confident and determined that his innovative ideas will bring success to the company. In the
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Is important to recognize there is no perfect system and we should try to avoid the movement so typical of politically inspired system redesigns. The current problems arose in an exceptional period that is not likely to happen again soon. The corporate governance was an attraction to intervention in nature sometime ago”(Chew, 2005, p. 83). Hugh is demanding total control of the business by any means necessary by focusing on the profit and any benefit to keep the company in business. Hugh is against Beltway Investments trying to come in and regulate how to do business.
He does not realize how effective corporate governance has contributed to the success of financial investment organization. “As a general principle of corporate governance, decision management and decision control should be separated unless decision makers have a significant ownership stake in corporate cash flows. The most prominent example of this separation is the presence at the top of the corporation of a board of directors with fiduciary responsibility for ratifying and monitoring important decisions initiated by the CEO.
If the Board of Directors are doing an unacceptable job they can be replaced through a proxy fight or a corporate takeover” (Chew, 2005, p. 107). Hugh made an executive decision to choose his own board members, which will gain his control. The possibility of excessive control will eventually lead to failure. Hugh has already been involved with disloyal acts by allowing the stakeholders to believe he is executing board of directors in a legitimate matter. Hugh initiated an order to Betty to assemble phony documents to show Douglas.
Hug has made it very clear to some other individuals he will only take on the responsibilities required for his title and nothing extra. This confusion Hugh is causing is unethical and will demonstrate unacceptable behavior. In the meantime, Hugh is clearly knowledgeable of the SOX Act that was established to decrease confusion in accounting and governance in public firms. Hugh’s knowledge of the act should make him more responsible in developing proper governance for his firm.
Hugh has used ideas from other companies in the accounting firm to provide guidance for the decision he has made to make certain the financial reports in line. Hugh may not see the total purpose of implementing different forms of corporate governance. He has little concern of the method and has interest in the results Paul will have by following the order to handle only the accounting documents. Stakeholder Perspectives/Ethical Dilemmas “Business ethics is a form of applied ethics. It aims at inculcating a sense within a company’s employee population of how to conduct business responsibly.
Because the term “ethics” can pose problems in an international context the term does not translate well and it can be difficult to find a common understanding of the term, some organizations choose to recast the concept of business ethics through such other terms as integrity, business practices or responsible business conduct” (Hurst, 2004, p. 6). Ethics is an important element of corporate governance as decisions being made will depend on the individual ability to determine the difference an ethical and unethical decision.
Unethical activity can result in sales decrease and possible company failure. The individuals of the group are aware of the unethical practices Hugh is implicating and have no control of trying to stop him. This activity will have results of dishonesty and lack of company loyalty between the management and the employees. The employees will not show any motivation and a decrease in employee performance will have a negative result. As a result management team may be concerned that the employees may not be motivated enough that it may lead to turnover and should be addressed on a timely basis.
Beltway investments will have an interest in the investment of the type of company Hugh is managing. The submission of paperwork does not indicate that the rules and regulations are followed. The investment firm will want Hugh to show they are receiving a return on their investments. McBride Financial Services may fail if the unethical behavior continues to occur in the organization. Hugh is operating with one eye open because he does not realize that he creating a disaster by neglecting to implement a sound corporate governance structure.
The practice of effective corporate governance the employees will have a sense of security and awareness of the rules and guidelines they should follow. If the rules and regulations are followed properly the outcome will be successful and will provide satisfaction to the clients. Problem Statement McBride Financial Services will strive for leadership in the investment industry by following rules, laws, and regulations of the corporate governance process, which points to the responsibilities and rights of the members. End-State Vision
The changes McBride will initiate will result in a loyal, comfortable, and productive work environment. The continued change will increase the possibility of company success and lower the possibility of employee turnover. McBride will succeed in the implementation plans once the corporate governance programs are successfully up and operating. “Little good is likely to result when the CEO becomes not only the boss of the business but also the boss of the board, erasing the bright line that common sense tells us ought to exist between management and governance” (Gandossy, 2004, p. 125).
The responsibilities of the McBride Board of Directors will be addressed and expected to be demonstrated in an effective leadership form. This will mean the board of directors are responsible to make ethical decisions to help provide a benefit to the company and to protect the stakeholders. The ethical decisions will provide employees with a sense of stability and comfort to know they are working for a legitimate investment company. The employees will perform at an acceptable level and will receive compensation and incentives that will motivate increased quality performance. Alternative Solutions
Hugh has taken on the responsibilities of the CEO and the chaiperson of the board, in the case of making all the decisions. If he CEO and chairman role are combined this should be analyzed and determine if separation is needed. “It is common to appoint an outside independent director to serve as lead director. In Britain, where boards historically have had fewer independent directors than their American counterparts, a different practice arose: that of appointing an outside, independent director as nonexecutive chair” (Behan, 2008, para. 1). Another alternative is the whistle blower programs this provides protection for the employees.
“The program allows employees to report violations of the law to a government agency or a superior without fear of retaliation. Many nations have such programs to ensure that workers feel comfortable about reporting violations. Some companies also have whistleblower policies in place to encourage their employees to speak up about problems in the company. These programs appear to be highly beneficial for employees and society in general, since employees may notice problems which could become serious issues if they are not addressed” (Smith, 2010, para. 1).
The third solution in the case for McBride would be a suitable audit committee. If the audit committee is considered the “board will necessarily want to ensure that the audit committee is comprised of the right individuals, and be satisfied that they are experienced, ethical, inquisitive and independent. Under Sarbanes-Oxley, an audit committee member may not accept, directly or indirectly, any “consulting, advisory, or other compensatory fee” from either the company or any of it is subsidiaries beyond the fee he or she receives from serving on the board, the committee itself, or any other board committee” (McCarthy, 2003, p.
185). Rick Konrad attended an annual meeting at Citigroup and he posed a question to Richard Parsons, the chairperson of Citi pertaining to the Audit and Risk Management Committee. “No one can deny that risk management at Citi has been an abysmal failure. It seems that the mission of this company was a Star Trek mission” (Konrad, 2009, para. 8). This company lived under an illusion of prosperity, which has been endorsed by the lack of oversight and ability of the Audit Committee to fulfill its responsibilities.
Over the last five years, the Chairperson of the Audit Committee was Mike Armstrong, who at the same time served on the Executive Committee. That same committee was chaired by none other than Bob Rubin whose hypocrisy and denial of the risks that have taken this company down” (Konrad, 2009, para. 9). The Armstrong’s tenure as the Audit Committee chairperson, the incalculable loss in shareholder value because of his failure and the Committee’s failure to manage risk properly” (Konrad, 2009, para. 12). Kodak experienced a weakness and errors in the 2004 annual report in its internal controls and over its financial reporting process.
These errors will cause a negative report from the auditors. “The Sarbanes-Oxley Act requires management and auditors to perform assessments of the effectiveness of such internal controls. The errors in Kodak’s treatment of income-tax accounting were discovered during the year-end closing process. Final earnings results for the fourth quarter, which had been scheduled for release this week, are being delayed about six weeks while the income-tax accounts are analyzed by management and external consultants” (Marlin, 2005, para. 2).
In the McBride scenario Hugh expressed a concern to Paul that he needed for him to focus on the governance and Sarbanes Oxley Act to make certain the organization is in compliance of the internal controls process. It is certain that Kodak errors are not from any misconduct but from the accounting errors only. Analysis of Alternative Solutions McBride has a specific goal and that is to create a stable work environment where corporate governance is important and ethical decisions are made by management. The goals and mission is clear and the approach needed to accomplish these goals should be implemented by the company.
The communication with the employees among providing the proper compensation and feedback will attract and decrease the employee turnover. If board members can make decisions without the influence of the CEO this shares an important component of corporate governance. The stockholders being able to select board members, it will allow the employees to be comfortable with serving as an employee for the company. The interests of the employees are protected and the process allows for group decision-making. Risk Assessment and Mitigation Techniques
Auditors are sometimes unable to detect fraudulent activity from the management area. In many cases auditor do not know the questions to ask to determine what activity is causing he fraud. “The Committee shall meet at least four times annually, or more frequently as their responsibilities dictate. As part of its job to foster open communication, the Committee shall, at least annually, meet separately with management, the director of the internal audit department, the general counsel and the independent auditors to discuss any matters that the Committee or any of these groups believes should be discussed privately.
In addition, the Committee should meet with the independent auditors and management quarterly to review the company’s financial statements and reports consistent with Section IV below. The Committee may meet at any time in person or by such electronic means as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously” (Audit Committee, 2010, para. 3). It is an important factor for companies to be aware of the avenues that show a risk they may face and ways to avoid it should be addressed.
McBride should identify all the risks that may occur with the decisions being made so the appropriate measures can be implemented to minimize the risk. McBride can decide to implement internal auditors for the finances and they should also make sure the auditors are trained properly. If the auditors do not demonstrate experience or skills this may cause inaccurate reports that will give investors the incorrect information. If the internal reports are not accurate the credibility of the company may become a question.
The Audit Committees “need to step up their oversight involvement in order to have the appropriate level of knowledge and interaction implicit in the concept and to comply properly with Sarbanes-Oxley” (McCarthy, 2004, p. 184). Reporting illegal activity as part of being a whistleblower is a fear employees may have because of the consequence that may occur. There are cases when employees have been discharged from the job and acts of discrimination have been noticed for reporting the activity.
The managers are aware that whistle blowing can benefit the company and this should be communicated to the employees. If the whistleblower program is designed not to be effective it will be discouraging for the employees. Employees who report such unethical and illegal behavior in a company will want to guarantee the privacy of the reports remain anonymous. If the programs are designed improperly, this will create cases which employees will not report on these activities because of the fear of persecution by their employers.
A mitigation process can be done by benchmarking ideas of other companies and see how the company implemented a successful whistleblower program. “1. Ensure there is a satisfactory process for the receipt, retention, and treatment of complaints received regarding accounting, internal accounting controls, or auditing matters regardless of source 2. Ensure a satisfactory process for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters” (McCarthy, 2004, p. 190). Optimal Solution
Hugh McBride is trying to develop a main focus for him to be in control of the decisions and growth of the company that the company. Hugh’s directions to the employees to hold the stock options is a firm indication that he is concerned about the profits of the company than he cares about the employees making the company more profitable. The board of director is responsible to ensure that the stakeholder needs are being addressed fairly and in an ethical profession. If the board members are independent of the management this should not be difficult to accomplish.
In current years the Board of Directors chosen by people in the company who wants to dictate and dominate the control of the company. In the McBride Scenario Hugh dictated who should be on the board of directors of the company. By choosing the board of directors through the method as Hugh did, does not secure the company against unaccountable activity. “An active and independent Board of Directors are working for shareholders clearly benefits the corporation by reducing the “agency problem” that arises from the separation of ownership from control in the modern corporation” (Chew, 2004, p.
180). “Pursuant to state law, the board of directors is charged with managing the affairs of the corporation in the best interests of the shareholder, and giving them the authority to make most investment and operating decisions, while regularly monitoring management’s performance” (Chew, 2004, p. 177). Implementation Plan McBride Financial Service implementation plan must depend on the resources of the company. The company will have to use the appropriate resources to identify the individuals who fit the definition as a loyal board member.
The board members should be able to handle the current business practices and also will be an asset to the company. The size and type of the board is an important piece of the puzzle for the business. The size and type will determine how successful the company is managed. The board members should demonstrate acceptable ethical behavior and show interest to a diverse work environment. These elements are necessary for company fairness during decision-making because a diverse board will likely represent each stakeholder’s involved in the organization.
The decision about what areas and how long the board will participate will serve as important areas to cover. Some members of the board may be tempted or influenced to conspire if they are not rotated constantly. Beltway Investments is considered to be major stakeholders and they can evaluate how effective the board is in maintaining good corporate governance within the company. If statements of feedback are issued and collected from each employee it will show the company is concerned and interested in their thoughts of the decisions made by the board members. Evaluation of Results
To measure the effectiveness of the board of directors, the measures discussed should be applied in addition to measuring the success of the board and the managing of the needs for shareholders. Conducting feedback surveys and performance management surveys the company should be able to make a better judgment on the success of the board members. The measurement should be ongoing to make certain the decisions are in line with the mission and goals of the company. These steps of the process are important and will allow McBride to determine if the decision to restructure the board was the change needed for the company.
The main concern with the current board was the recruiting method that did not provide the necessary governance the company needed. The scoring criteria should be able to assess if the corporate governance is effective. The surveys will be conducted at least three to six months after the plan is implemented and another survey consecutive for the next three to six months to ensure growing progress and success of the program. McBride should prepare to see improvements in employee job satisfaction after the employees have been aligned with the changes of the company.
The responsibility to measure the employees who complain of poor job satisfaction is left up to McBride to handle each month. Tracking the numbers can then be compared to previous months to determine if there is a positive change in numbers for employee satisfaction. MFS should be careful to separate those employees who may have other job issues not related to compensation and recognition. Conclusion Corporate governance is the component of many successful organizations as it serves as an agent who considers the customs, processes, and the relationship between the stakeholders and the laws that dictate how a company is managed.
Directors are important people in corporate governance as they are the body that will oversee the operations of the company. The development of a problem solution for any company is a process that must be followed to provide success of the solution. McBride Financial Services was facing a challenge developing an effective corporate governance program. The issues needed to be addressed properly so it was important for McBride to identify the source of the problem instead of focusing on the symptoms. The solutions to the problem should address the necessary end-state goals of the company.
The company also needed to look at the possible risks that can occur from the solutions. The risks should be evaluated to determine if they will be a benefit to the company approach. Once the solution has been evaluated and the required steps are applied to make the company a success McBride will definitely see in instant change in the effectiveness of the company success. References Behan, B. (2008). Splitting the Chairman and CEO Roles. Retrieved from http://www. businessweek. com/managing/content/jan2008/ca2008018_642807. htm. Chew, D. H. (2005).
Complete Governance at the Crossroads. New York,: Mcgraw-Hill. Gandossy, R. (2004). Leadership and Governance from the Inside Out. New Jersey,: John Wiley & Sons, Inc. Hurst, N. E. (2004). Corporate Ethics, Governance and Social Responsibility: Comparing European Business Practices to those in the United States. Retrieved from http://www. scu. edu/ethics/publications/submitted/hurst/comparitive_study. pdf Konrad, R. (2009). Citigroup Shareholders Meeting: Lessons in Corporate Governance. Retrieved from http://www. seekingalpha. com.
Marlin, S. (2005). Accounting Errors Delay Kodak Earnings. Retrieved from http://www. informationweek. com. McCarthy, M. (2004). Risk from the CEO and Board Perspective. New York,: Mcgraw-Hill. Smith, S. E. (2010). What is a Whistleblower Program. Retrieved from http://www. wisegeek. com/what-is-a-whistleblower-program. htm. (2002). The Sarbanes-Oxley Act. Retrieved from http://www. soxlaw. com (2010). Audit Committee. Retrieved from http://www. accenture. com/Global/About_Accenture/ Corporate_Governance/Board_Committees/AuditCommittee. htm.