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Cooperate governance is defined as a collaboration of people, policies and processes that unite with an aim of serving the needs of the stakeholders. Serving stakeholder's needs includes ensuring good managerial practices in ensuring transparency, integrity and accountability. Sound cooperate governance relies on external commitment through an effective board that preserves processes and policies. The quality of corporate governance can influence greatly the prices of shares in addition to the cost of capital rising. Quality on the other hand is determined by external forces of the market, legislation and the ongoing financial markets (Sun 55).
It is the responsibility of the board governing corporate to disclose financial and operating results to the stakeholders involved. This will ensure that they understand the nature of business, the state of affairs and the future developments of the institution. This will largely depend on the reporting standards. The board should ensure that it identifies the risks involved and estimates utilized in preparing of the financial and operating results (sun 68). For example, valuation of assets should be done in a fair value basis while for some assets deep markets might exist and fair value could be achieved by objectivity by the management. Failure of being objective may lead to failure of the company. With the governments assertion that it would bail out big institutions in times of financial crisis has brought about the institutions management taking on very risky investment. This has largely put a strain on the tax payer leading to the current recession.
It is the responsibility of the management to transparently disclose any transactions with related parties to the stakeholders. This would guarantee the stakeholders whether the management is running the firm in their best interest. The management should ensure that the shareholders are treated equally through effective communication. The board should have the skills and expertise to challenge management performance. In addition, they should carry themselves with integrity and make decisions in an ethical manner. This will be necessary for decision making and avoiding and managing risk. The remuneration for directors should be clear to the stakeholders and revelation of this information should be broad as to whether it is tied to the company's long term performance as per the criteria. Information on the compensation package and other benefits for the executives should be clear. In regard to the financial crisis, the decision on compensation package for executives was left to the company's themselves .This enabled the executives to take short term risks which brought about the current crisis. The former structure enabled excessive pay and excessive risk taking by the executives.
The management should disclose the governance structures of the institution to its shareholders. In essence it should disclose the structures established to cushion against conflict of interest among the executives and the shareholders. They should also disclose issues dealing with the oversight of executive remunerations, audits and appointments to the board. The failure of the government to regulate the structure of these institutions contributes largely to the financial crisis. The current structure encourages liquidity and incentives taken to risky activities. Moreover, the incentive structure needs to change so that the risk of investment is taken on by the institutions themselves.
In sum the corporate governance is responsible for the current financial crisis.it is through review of its practices that a solution can be found to cushion against future crisis. The right of the board to disclose operating and financial systems to its stakeholders is of prime importance as well as disclosure of financial transactions. The remuneration of the board of governance is of prime importance as this will assure stakeholders that the management is capable of carrying out the duties efficiently. The government on the other hand should regulate the structures of these institutions to ensure that they do not encourage liquidity.
Question Two: Kuwait as a Rentier State
A rentier state or country is one that relies on its own natural resources. They use their indigenous resources to its external clients to earn revenue. This is a term used in the 20th century to refer to the countries that rely on oil for their economies. The rentier state theory states that the countries that receive oil revenues from exportation to other countries tend to be independent from its society. This means that it is not accountable to its citizens and the government is oppressive to its citizens. Kuwait is a classical example of a rentier state as it relies on oil. Petroleum accounts for 90% of the government income. The disadvantage of this is that they are unable to diversify and reform for the better. Moreover, such economies are highly susceptible to external shocks of prices. Kuwait has faced various challenges in trying to develop its economy. Among them is the increased population urbanization and uneven distribution of resources (Beblawi 34). This paper focuses on the rentier state theory as applied to Kuwait business environment.
Kuwait's economy/business environment is characterized by rent issues outweighing all other contributors to the economy. This is in addition to other sources of revenues. Secondly the rent received by Kuwait comes from external sources such that it s received as revenue. The citizens are therefore not entitled to contribute to the economy. Third, Kuwait engages very few people in the creation of rent (government) while the rest of the citizens are involved in its distribution and utilization. Fourth, the government of Kuwait is involved in receiving of the rent generated (Beblawi 59).
The Kuwait economy conforms to the rentier state theory in that, it does not extort income from the household economy. The government of Kuwait engages itself in expenditure programs without involving the public in taxations. This is different from other systems of government since it acts as an allocation state as opposed to production state. However, Kuwait has a slow development process as opposed to other countries which is thought to be because of lack of hard work by the government. This has over the years been interpreted as unnecessary to give the citizens a say in the running of their country. The government is usually oppressive buying political ranks. Expression of dissatisfaction in the government of the day is impossible in these strategies. This kind of governance brings about social effects bringing discrimination between the citizens and the rest of the society (government). This prevents resistance of political or economic nature (Beblawi 23).
The future prospects of developing business in Kuwait are highly threatened. The business environment is very unfriendly as a result of the instability of Kuwait's government. This is because the government faces immense opposition from its citizens. External shocks are feared to affect business in Kuwait since the economy relies on external revenues of oil. Moreover the government develops policies that are not tailored to the needs of the citizens. This makes it difficult for businesses to thrive. Access of the private sector to lines of credit has become very difficult. Alongside is the unattractive nature of the business environment to foreign investors. Due to the above reasons it is extremely difficult for the private sector to flourish in Kuwait.
In sum, rentier state theory refers to the countries that rely on their natural resources to retrieve revenue. Such is the example of Kuwait, whose petroleum accounts for 90% of revenue. Kuwait's government therefore does not depend on tax from the citizens. This makes the citizens lack democracy in issues involving running of the government. Kuwait's business environment is poor characterized by a weak private sector. Political instability is also to blame for Kuwait's poor business environment alongside difficulties of the private sector accessing credit facilities. If credit is accessed high interest rates are a major characteristic. In conclusion Kuwait need to evolve from being a rentier state since it has fewer benefits as compared to disadvantages.
Question Three: Challenges of Takeover Defense
Takeover is defined as the purchase of a company by another company. Takeover defense is defined as a strategy used to prevent unwanted takeovers. This strategy mainly benefits the officers more than the stakeholders. There are diverse natures of takeovers. A friendly takeover is whereby a bidder informs the board of his intent to make an offer. Accepting the offer is based on satisfactorily analyzing that the interests of stakeholders are addressed. A hostile takeover is whereby a suitor takes charge of a company's management unwillingly to accept collaboration while a reverse takeover is whereby a private company takes control of a public company. This paper focuses on the negative ethical consequences of takeover defense.
Hostile takeover demonstrates more ethical issues as contrasted to other voluntary takeovers. During hostile takeovers pressure is usually imparted on an unwilling target. The successful bid for Placer Dome Inc. done by Gold Corp's is a typical example. Any form of coercion is rejected by the Jewish law. Devising ways of preying an object away from another is considered theft. It is considered as causing mental distress to others. For instance a sales man would put a lower bid to motivate a potential buyer. However if the buyer refuses to buy, it would be unethical for him to continue negotiating in the same tone as before.
Acquiring of another company is considered as a sign of economic growth to a company amid slow internal growths. Hence, many companies are looking for target companies to takeover. There has been great activity in regards to takeover in Canada in the recent past. This is usually occasioned by job lose by many employees. Hence ethical issues emerge as pertains to the rights of employees in making takeover decisions. They are expected to work with the same efficiency even with impeding rumors of lose of their jobs in the company. Such changes should be done gradually to ensure employees seek employment elsewhere. A lot is questionable in terms of the rights of employees in regards to the right to information, right to participate in decision making of the management and job protection.
The commonest justification of a merger or acquisition is normally the benefit of stakeholders from both companies. However, minimum attention has been paid to the responsibilities of the stakeholders. Since the stakeholders reap the benefits, it's only logical that they have responsibilities tied to these benefits. Yet very little is known about the above. They have a right to maximize their gains from such merger/acquisition. This can be done by closely monitoring the management's actions in protecting the stakeholder's interest. Usually the higher the share an individual owns in a company the higher the responsibility in decision making. For instance institutional shareholders withdrew from companies that did not implement the Sullivan principle in South Africa and this has had a great impact to these companies. For individuals with few shares, exercising this right becomes a problem. This needs to be addressed.
During mergers or acquisitions, ethical questions usually emerge as pertains to the conduct of the company's top management. However this is often ignored. Most companies targeted for friendly acquisition are usually low performing and hence seek a better company to uplift it. Instead of focusing on the reasons for prompting a merger most people focus on the predator company. This ignores the conduct of the management which is crucial for development to be achieved after the merger.
In sum, takeover defense mechanisms involved have various ethical challenges among them is the coercion which is considered unethical according to Jewish law. The involvement of employees in making decisions together with the management is of essence .this is as opposed to the violation of the rights of employees that is currently common. Shareholders on the other hand are the prime beneficiaries of certain mergers/acquisition and hence should be involved in decision making regardless of the number of shares one owns in a company. In addressing the above ethical consequences a company will soar to great heights.