Corporate Governance Essay

McBride Financial Service Governance Evaluation

a.) Identify the corporate governance problems leading up to the corporate scandals of the early 21st century. Which of these problems might McBride fall prey to if Hugh does not accept your proposed solution?

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            In the 20th century, the kind of corporate management laid the organization structure and its management structure, to manage the the enterprise.  The business was not managed, rather the business was managing the enterprise.  This is the main problem that lead to the financial crisis of the 21st century.  There are certain things in business that have to be managed, these are; result volume, value, value added, performance indicators, result quality and result risk (Menard and Shirley, 2008).

            Performance indicators are such as performance effectiveness, performance uncertainty and capital utilization.  The 21st century problems are due to the lack of management and information about capital investment returns, performance cost capital amortization in solving worth declines, capital solution worth, both for current and planned, new product result value and other information needs.  All these were blocked by the 20th century management.  The main cause of the problems here were the theories that were developed to organize the enterprise and not the business making the enterprise doom into problems.  Business was not so much of concern but how the structure of the enterprise was organized, mattered so that it was organized and reorganized according to what theories people developed (Menard and Shirley, 2008).

            There was also the fundamental problem.  This was failure to organize the business.  Corporate governance involves managing an enterprise business.  The activity of a business enterprise is to provide goods and services.  These goods and services provision and distribution have to be organized for a business to be termed or qualified as organized.  Without organization of what constitutes a business, then there is no business organization.  20th century organization did not consider the organization of the business, instead, it organized the enterprise into; functions, positions, units and so many others to form a contrived structure of the enterprise.  Much value was given to what structure the enterprise had, and the theories were based on how they could be organized (Menard and Shirley, 2008).  Menard and Shirley note that “once an organization structure is laid over the business, there can never be any management of the business” (2008).

            Due to changes in the world the business must change.  Recognition of this fact that a business change influences the structure of the business was not in the 20th century.  If the business changes, it automatically requires the change of the structure of the business therefore reorganization of the structure, but if the structure of the enterprise comes first and is reorganized, is the business being managed really?  The rigid structure of the enterprise affects business change, hence creation of change management problems.  The creation of change management problems, leads to the enterprise being under pressure to form a new structure of the enterprise (Menard and Shirley, 2008).

            The Alignment problem.  This is another problem due to the management of the 20th century.  These are problems due to business and and overlaid structures’ conflicts.  In the kind of management of the 20th century, the capital utilized as a performance solution, and the results brought actual business change.  Since these are not organized, but the enterprise is, through distinct and separate structures laid over the business, alignment with the business do not exist.  Any rigid overlaid structure goes out of alignment with the business if a business change occurs (Menard and Shirley, 2008).

            Complexity in information systems:  The main problem is just like in other cases, the overlaying of the structures of the corporate business and lack of business management and organization.  The business is not organized but the structures over the business are formed for organization, budgeting, planning, information systems, managing performance and many other business management requirements.  The information about all entities used are gathered and management and statutory reporting is done, but the actual business information is not captured.  This results into formation of information and business complexity from each overlaid structure, changes in the views of the business, and in the end complicates the problem of corporate governance (Menard and Shirley, 2008).

            If Hugh does not accept the proposal then, the company may suffer corporate problems due to lack of business management.  He focuses so much on the corporation structure that the business itself, and again, the agreement was that Hugh was to take the role of a manager.  Considering what his beliefs of what management is, the 20th century management will still be used leading to several corporate problems and not only one.  These problems affect all the corporate governance practices.

b.) Examine the influence of the governance rating industry on American corporations. What implications does this have in regards to McBride?

            Corporate governance rating industry through the government ratings and proxy recommendations, affects the policies formulated by the government, several companies’ assets and controls or rather influences the dollars of equity votes.  It affects the value of corporate reputations and the capital costs in case of public companies.  Since this affects the fortunes of a company, the fortunes of the McBride will also be affected too.  Corporate governance rating industry analyzes the extent to which the practices of corporate governance satisfy the shareholders, investors and the other stakeholders by assessing and benchmarking corporate governance (Wearing, 2005).

            When shareholders or investors invest in a corporate business, they always have interests or targets that they want met.  It is for this reason that evaluation is important to them.  The corporate governance rating system gives them the report about the performance of the corporate in relation to what they target and if the interest are being met.  It also acts as a decision making tool for the investors and shareholders who have interest in investing in certain companies.

Investors fear risking a lot of money on non performing organizations.  If therefore McBride’s company receives low scores according to the rating system, then investors might change their minds and the already involved might pull out.  The method of rating is by assessing corporate governance practices with reference to several issues for example accountability, internal disclosure and many others.  The rating depends on the methodology  (Wearing, 2005).

c.) Evaluate at least two governance rating methodologies and their effects on your solution for McBride.

            Institutional Share holder Services:  This gives scores to the corporate governance practices by assessing the corporate governance in relation to other companies in the market.  It assesses 61 variables in the different areas of corporate governance.  These areas include, charter and by law provisions, auditing, board of directors, laws on the state of incorporation, compensation of executive and director, ownership and director education, and qualitative factors.  It gives a rating of 0-100, of which 0 signifies low score and 100 signifies high score  (Wearing, 2005).

            Governance Metrics:  This is another rating methodology.  It gives scores of 1-10 where 1 signifies low scores and 10 signifies high scores.  This method does rating by relating the company to others under seven categories including a general score.  It assesses so many variables in different areas of corporate governance which include accountability, internal controls, social responsibility, financial disclosure, market for control, reputable responsibility, base of ownership, potential for dilution, market for control and share holder’s rights.

The Effect of this Method to the Solution Provided


            Hugh McBride, president, CEO, and CFO of McBride Financial Services, Inc. maintains the “hands off” approach and prefers to leave sound corporate governance “things” to Betty Williams, human resources manager and Beth Bennett, Executive Assistant.  He does not understand the growing importance corporate governance plays within his organization, thus having a blueprint for success is absent within the organization.  In order to establish and implement sound corporate governance methodologies, McBride Financial Services, Inc. needs to benchmark other organizations to determine what the standardizations across the industry and the variance each company may attach or attribute to corporate governance standards.

            Following the benchmarking practice of American Express, McBride Financial audit committee could ensures the integrity of the company’s financial matters is maintained; ensure the works of internal audit as well as external audits are done according to the company’s requirement. The committee also ensures the integrity of internal accounting and financial control, compliance to the law of the Sarbanes-Oxley Act are upheld in the structure establishing McBride Financial the same as the American Express Company.

If McBride follows the above advice and corrects the belief on how the company should be run and the much accountability the board of directors should have, then rating scores will be high.

d.) Evaluate corporate America’s reaction to the governance rating industry.  Assess how McBride will react to this same rating system.

            The governance rating system was meant for monitoring and providing evaluation report to stakeholders, which is an advantage to them but has had criticisms.  Most of the methodologies have been found to leave managers unaccountable to stakeholders and therefore most American’s view governance rating system as an indicator of the processes of monitoring managers such as renumeration, hiring and so may others.  Most investors ask the question about this rating method’s reliability in determining the quality of a company supervision, transparency and general management, for them to make decisions on where to invest but would always be told that this is just an indicator of the monitoring processes of getting n appropriate manager (Ali et al, 2006).

            Some say the rating industry has few firms due to the fact that the methodologies consider or assess reputation which takes along time for a company to build, and therefore companies would rather go for other rating methods (Wearing, 2005).  Investors too have a disadvantage to this kind of rating, if in any case a well or highly rated firm goes bankrupt, should the investors be compensated since they made decisions based on this governance rating methodology?  The investors feel that they always make the correct decisions when they select a highly rated company to invest on, but if the company goes down, then the reliability of the governance rating is questioned (Wearing, 2005).

            Considering McBride and the company’s management processes, McBride cannot consider this system as a reliable one.  McBride believes that his company should be run through his own way and dictates how much accountability the board of directors should have.  This is a clear indication that McBride would not view this rating as are liable one.  Again McBride does not believe in benchmarking in corporate governance which will make him not believe more on this kind of rating system that assesses benchmarking of corporate governance. This rating depends on some of the factors that he controls such as management


Ali, Paul, Ali, Paul A U and Gregoriou,  Greg N. (2006). International Corporate Governance After Sarbanes-Oxley. John Wiley and Sons.

Menard, C and Shirley, M. M. (2008). Handbook of New Institutional Economics. US: Springer.

Wearing, R. (2005). Cases in Corporate Governance. London: SAGE.


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