“For Better Corporate Governance, Shareholder Value Review”
1. INTRODUCTION
This article seeks to address the issue of corporate governance and how effective corporate governance can be enhanced by conducting a periodic Shareholder Value Review (SVR). It focuses on explaining how shareholder value is maximised, its current status as a corporate objective, how it is effected by the corporate competitive life cycle, and a proposal on how to conduct an effective SVR and its benefits.
1.1. Corporate governance: This is concerned with the duties and responsibilities of a company’s board of directors in managing the company, and their relationships with the shareholders and other stakeholder groups. Corporate governance guidelines are a set of rules or practices that firms can adopt to reduce agency costs. The guidelines are generally lists of practices that demonstrate how the board of directors will oversee the management of the firm and carry out its responsibilities. In the aftermath of high-profile business failures such as Enron Corp. and WorldCom, Inc., public confidence in corporate governance structures has decreased to very low levels. In 2002, President Bush signed into law the Sarbanes-Oxley Act which incorporates many reforms intended to protect investors by improving the accuracy and reliability of corporate disclosures.
1.2. Shareholders’ Wealth: The main objective of management should be to maximise the wealth of the company’s shareholders. Other factors such as profit maximisation and social responsibility should be of secondary importance. Shareholders’ wealth is maximised through company management making sound investment, financing and dividend decisions. These decisions should take account of expected company c ...