Assessment 2: Case Study
Assessment 2 Case study
The purpose of this study is to examine the role of corporate governance in the profitability and effectiveness of the organisation. We examine the case of Mittal steel before the merger and after the merger, how its structure altered and what were its benefits and drawbacks. The company merged with other steel company Arcelor. Before the merger, the corporate governance of Mittal included the family and friends of Mittal, which reflected the biases and lack of independence of the board. After the merger the shares of Mittal family reduced which resulted in the selection of new board based on their competencies and abilities. We also discussed the ethical theories and corporate governance theories that supported the decision of selecting the corporate governance of the organisation.
Table of Contents
TOC o 1-3 h z u HYPERLINK l _Toc4406944 Assessment 2 Case study PAGEREF _Toc4406944 h 3
HYPERLINK l _Toc4406945 Abstract PAGEREF _Toc4406945 h 4
HYPERLINK l _Toc4406946 Introduction PAGEREF _Toc4406946 h 6
HYPERLINK l _Toc4406947 Post-merger board structure PAGEREF _Toc4406947 h 7
HYPERLINK l _Toc4406948 Voting Equity of Mittal Family PAGEREF _Toc4406948 h 9
HYPERLINK l _Toc4406949 The effectiveness of pre-merger and post-merger of Mittal steel board PAGEREF _Toc4406949 h 10
HYPERLINK l _Toc4406950 Conclusion PAGEREF _Toc4406950 h 10
HYPERLINK l _Toc4406951 Recommendations PAGEREF _Toc4406951 h 11
HYPERLINK l _Toc4406952 References PAGEREF _Toc4406952 h 12
Corporate governance is the set of rules and practices through which a firm is controlled. Corporate governance is generally involved in balancing the interests of different stakeholders of the company. These stakeholders are the shareholders of the company, management, financiers, government, customers, suppliers, distributors, and community. It is the set of rules, policies, and controls which are used to dictate the organisational behaviour (Bhasa, 2017, P.31). The board of directors have an essential role, and they are pivotal in governance. Board of directors are the direct stakeholders, and they influence corporate governance. The directors are selected by the shareholders and other board members of the company. They are the representatives of the shareholders of the company. Boards are usually made up of the inside stakeholders, executives, and the founders of the company. The role of governance is essential for the performance and stability of the organisation (Aguilera et al., 2018, P.89). The governance can be either good or bad, and The bad corporate governance can adversely affect the reliability and integrity to the shareholders. It also changes the financial health of the firm. While good corporate governance produces a transparent and unbiased set of rules and policies which provide equal incentives to all the stakeholders such as the employees, directors, and shareholders, here, we will discuss the issues of the corporate governance of the Mittal steels. The Mittal steel governance was in control of a family. The directors were not independent most of the shares of the company were owned by Mr Mittal and his family. Some directors were from his family while others were his business partners and friends. There were no independent directors who can raise voice against any policy set by Mr Mittal. The company underwent for acquisition with other steel business Arcelor steel corporation. The Arcelor has a great concerned about the corporate governance of the Mittal steel. The new governance of the merged business included genuinely competent and independent directors. One of the directors in the governance was nominated by the employees to defend their stake. Though the governance of Mittal steel was not independent, the question arises how the business was still successful. The reason for the profitability of Mittal steel is the mergers and acquisitions with other businesses. They invested in different small and large scale businesses. The post-merger governance of the business included the independent and competent directors, and they will not be influenced or pressurised by any authority (Kim et al., 2004, P.813). Unlike the pre-merger Mittal audit committee, the post-merger audit committee will include some independent auditors. The benefits of the independent board of governance are greater than its disadvantages. The independent board can make an unbiased decision which will not involve the conflict of interest of a specific group (Paniagua et al., 2018, 231). Everyone can raise their voice for the stake of business and its other stakeholders such as employees, community, suppliers and so on.
Post-merger board structure
When two companies merge all the top management, directors, and governance changes, the directors are taken from both the businesses to work for mutual interest. Merger and acquisition are one of the major method used by the corporate for the rapid transformation of their fortunes (Pirson et al., 2011). This dramatic changes in the business can lead to some job losses as well. Mostly the junior level management jobs are at risk, due to the changes in the top management and the governance. After the merger, the combined boards of both organisations shrink to a great extent. In some cases, the directors are at higher risk than the other management. The post-merger structure is based on the effective directors whose presence is essential for the growth and stability of business (Alba, 2009, P.3). Only those directors survive whose presence can benefit the organisation in a true sense. The need for organisation is to gain efficiency and reduce the cost of overstaffing or unnecessary positions. When the organisation are going through a merger, they negotiate the process and every decision they want to make. Both the organisations are open and welling for the change in their management. Merging organisations are also influencing organisational culture. According to the change management theory, there is the transitional stage which can lead the organisation to great losses. The insecurity in the employees regarding their jobs is also a risk for the organisation. The merging of two companies also develops a sense of miscommunication and lack of understanding in the initial stages. The post merging governance structure is more formal and based on talented and competent directors. This structure does not include any nepotism and biases, and the family-based structure is no more applicable after merging (Bonazzi, 2007, P.9). A board evaluation framework can help in the evaluation of possible changes that can boost the performance of both the merged board and the organisation as a whole. It also ensures strong integration and setting the stage for the success of the newly merged firm. The merging process is based on sharing the best resources of the organisation. In todays world, the top organisations merge to use the competitive edges of each other. For instance, if one organisation has a strong distribution channel and other has the latest technology they merge for mutual gain the profit of such organisations boosts and their fortune change after merging. According to the agency theory, the interest of management is different from the interest of the owners. The management is the agent working on behalf of shareholders, usually found less interested in the benefits of the organisation (Greening development, 2012, N.p). So the involvement of ownership in governance and management can strengthen the control of the business.
Voting Equity of Mittal Family
In the case of merging the Mittal steels and Arcelor steels, the voting equity of the Mittal family reduced to 43.5 per cent which diminished the monopoly of the family in the governance of the company. Initially, the companys governance included Mr Mittal, his son, his daughter, and others were his business partners and friends. Before the merger the board was not independent, and there was no representative of employees in the board. The board was selected for four years, and most of the shares were owned by the Mittal family which didnt allow any director to disagree with the highest shareholder party. According to the stewardship theory, the steward protects and maximises the wealth of the stockholders of the company through their performance (Heath et al., 2004, P.249). Stewards are the executives of the organisation and the managers work on behalf of shareholders. The satisfaction of stewards is associated with the performance of the company. They are rewarded when for the best performance to motivate them.
The motivation could be both intrinsic and extrinsic. The Mittal family has lost the one-third majority which allowed the talented and merit-based people to chair the governance body. Other investors will have the chance to elect their representatives on the boards in the annual general meeting. The vote right of the family reduced, so the employees will also get the opportunity to elect their representative in the board to raise voice for their issues. According to the resource dependency theory, the role of the board is to provide access to the resources which are needed by the firm. The directors represent the management in broader decisions. The resource allocation and financing mega projects are decided by corporate governance. The fair and independent governance body can make a better decision, and there is less influence of one party. The resource allocation and provision enhances the performance of the organisation and its survival.
The effectiveness of pre-merger and post-merger of Mittal steel board
According to the Financial Times article, the Mittal steel merged with Arcelor Steel to maximise the profit for both the organisations. Before the merger, Mittal Steel was a listed company, but 75 per cent of its shares were owned by the Mittal family. So the board of governance included Mr Mittal, his family and friends. The advantage of such a governance structure is the boards have better relations and understanding with each other. Moreover, they have strong control over the management and the business. They have a common stake for which they are more honest and loyal. The decision making is relatively easy because of the same mindset people on the board. However, there are some disadvantages to this type of governance structure such as the lack of independence and expression of opinion. Here the ethical consideration is at risk and the family can impose strict policies over the management. Moreover, due to nepotism, there are less competent people in the governing body of the organisation who have no vision. On the other hand, after the merging with Arcelor steel the shares of the Mittal family reduced to 43 per cent which allowed other stakeholders to elect their representative through voting. The employees also got a chance to elect their representative on the board of governors. This type of governance structure is essential for the independence and autonomy of the firm. All the shareholders are satisfied because of their voting rights. The firm will be more effective because of the diversity in the board members. All members have different approaches and different intellectual skills. They could decide the better fate for the organisation.
The governance of an organisation decides the set of rules and policy, which is executed by the management. Management works on behalf of the shareholders of the company. The management is executing the plans, while the board is making policies and broader decisions. The shareholders usually elect the directors of the company. The listed companies follow all these principles. Merger and acquisition is the process which is widely practised in the global market to transform the fortune of the business. In the case of Mittal steel the governance was in the hands of Mittal family who are the major stakeholders of the firm. The governance body included mostly family members and friends. It restricts the chances of growth due to the incompetent people in the board due to the favouritism and biases of the ownership. In some cases, it could be helpful such as, the better control and understanding of the business. The board have better relation so they can take better and timely decisions.
The governance of the organisation is to set the vision of the organisation. They take broad decisions which help the organisation to survive and grow in the long run. Here I will recommend a few points for the better structure of corporate governance. First, the corporate governance should be based on merit and elections by the shareholders. In the case of a family-owned business like the Mittal steel, the shareholders should select the directors not by personal relations but the basis of their competencies and abilities. The board must include people from different backgrounds and expertise. In the decision of the corporate governance ethical theories should be considered to avoid biases and selection based on nepotism (Sorin Monica, 2011, P. 119). The rights of employees and other shareholders should not be exploited.
Aguilera, Ruth, Judge, William Terjesen, Siri 2018, Corporate Governance Deviance,Academy of Management. The Academy of Management Review, vol. 43, no. 1, pp. 87109, accessed from.
Alba, Joseph D., Park, Donghyun Wang, Peiming 2009, Corporate governance and merger and acquisition (MA) FDI Firm-level evidence from Japanese FDI into the US,Journal of Multinational Financial Management, vol. 19, no. 1, pp. 111.
Bhasa, Malla 2017, Normative Ethical Theories as Frameworks for Better Corporate Governance A Practitioners Perspective,IUP Journal of Corporate Governance, vol. 16, no. 2, pp. 2938, accessed from.
Bonazzi, Livia Islam, Sardar M.N 2007, Agency theory and corporate governance,Journal of Modelling in Management, vol. 2, no. 1, pp. 723.
Greening development/ enhancing capacity for environmental management and governance.2012, OECD, Place of publication not identified.
Heath, Joseph Norman, Wayne 2004, Stakeholder Theory, Corporate Governance and Public Management What can the History of State-Run Enterprises Teach us in the Post-Enron era ,Journal of Business Ethics, vol. 53, no. 3, pp. 247 265.
Kim, Hyun Dong, Lee, Bong Soo, Lee, Sang Whi, Park, Kwangwoo Jambal, Khishigjargal 2015, The Effect of Corporate Governance on Post Reverse Merger Survival ,Asia Pacific Journal of Financial Studies, vol. 44, no. 6, pp. 811 848.
Paniagua, Jordi, Rivelles, Rafael Sapena, Juan 2018, Corporate governance and financial performance The role of ownership and board structure ,Journal of Bus.Um Q c m
(dagdVNVdgdD 7 Q R S T U V W X Y Z _ a
(dagd8xdgdDa b c
,-789QRSUVWgS)jhlh/aUmHnHuhlh/a0J6BmHnHphu3jhlh/a0JBUmHnHphuhlh/amHnHuhlh/a0JBmHnHphuhh/aCJOJQJaJmHnHu-jhlh/a0JBUmHnHphu)j3hlh/aUmHnHujhlh/aUmHnHuhlh/amHnHuWXYZtuvwygyRgyg)jhlh/aUmHnHujhlh/aUmHnHuhlh/amHnHuhlh/a0J6BmHnHphu3jhlh/a0JBUmHnHphuhlh/amHnHuhlh/a0JBmHnHphu-jhlh/a0JBUmHnHphuhh/aCJOJQJaJmHnHurWHWAWhlh/ahlh9CJOJQJaJhlh,)jhlh,)5UmHnHuhh/aCJOJQJaJmHnHu)j hlh/aUmHnHujhlh/aUmHnHuhlh/amHnHuhlh/a0JBmHnHphu-jhlh/a0JBUmHnHphu3jhlh/a0JBUmHnHphut((((,dgdXdgdVNVgd/agd,)dgd9H lst voohhhlhhlhWhlhiD_6CJOJQJaJhlh6CJOJQJaJhlhVNVfHq hlhhlhmhlhehlhVKhghlh21hlh3hlhVNVhlhxihlhiD_hlh/ahlhbq6CJOJQJaJ((47lP9((Z(((((((,,-/0000013hlh7)hYhlhehlhXChlhX6CJOJQJaJhlh/ahlhX hlhVNVfHq hlh Ohlh/4hlhVNVfHq hlhVNVhlhuhlhAW3,000777s@0d0gd _gdlagdldgd9dgd _dgd9gd/adgdVNVgd/agd,)dgdX3e777777dSrs_0gtrkJhlh216fHq hlh21fHq hlhlhb7CJOJQJaJhlhb7CJOJQJaJhlho1hlh _hlhVNVhlhhlh6CJOJQJaJhlh3t6CJOJQJaJhlhhlhiD_6CJOJQJaJhlh/ahlh OhYhlh3thlht@g@AA/ANAAABBxDDDDDDEE,F4F6FFGHppppUqqqqqqqqqqqqqqqpjhDh(0JU hH0JhDhH0JhHh6Hjh6HUU/hlh216OJQJJfHq )hlh21OJQJJfHq hlh21hlh216fHq hlh21fHq hYfHq ,@OAACDFppqqqqqqqqqqqqqagd.n0d0gd _iness Research, vol. 89, pp. 229234.
A person, Michael Turnbull, Shann 2011, Corporate Governance, Risk Management, and the Financial Crisis An Information Processing View, Corporate Governance An International Review, vol. 19, no. 5, pp. 459470.
Sorin Nicolae Borlea Monica-Violeta Achim 2013, THEORIES OF CORPORATE GOVERNANCE,Studia Universitatis Vasile Goldis Arad, Seria Stiinte Economice, vol. 23, no. 1, pp. 117128, accessed from .
BUSINESS AND MANAGEMENT PAGE 7
qqqqqqqqhlh21fHq h6HhDh(hY0JmHnHujhDh(0JUhDh(0J5 01hpxm/ yDyK_Toc4406944yDyK_Toc4406944yDyK_Toc4406945yDyK_Toc4406945yDyK_Toc4406946yDyK_Toc4406946yDyK_Toc4406947yDyK_Toc4406947yDyK_Toc4406948yDyK_Toc4406948yDyK_Toc4406949yDyK_Toc4406949yDyK_Toc4406950yDyK_Toc4406950yDyK_Toc4406951yDyK_Toc4406951yDyK_Toc4406952yDyK_Toc4406952sp02 0@Pp2( 0@Pp 0@Pp 0@Pp 0@Pp 0@Pp 0@Pp8XVx 0@ 0@ 0@ 0@ 0@ 0@ 0@ 0@ 0@ 0@ 0@ 0@ 0@ 0@_HmH nH sH tH @@NormalCJ_HaJmH sH tH @,) Heading 1@5CJ KH OJPJQJJaJ DADDefault Paragraph FontRiRTable Normal4 l4a(k (No List4@4.nHeader
.)@..nPage Number6U680 HyperlinkBphV/1V,)Heading 1 Char5CJ KH OJPJQJJaJ V AV,)pTOC Headingd@ 5BKHph.t@
,)pTOC 1PKContent_Types.xmlN0EH-J@ULTB l,3rJBG7OVa(7IRpgLr85vuQ8CX6NJCFB..YTe55 _g -Yl6NPK6_rels/.relsj0Qv/C/(hO Chvxp_P1H0ORBdJE4bq_6LR70O,En7Lib/SePKkytheme/theme/themeManager.xmlM @w7c(EbCA7K
e.,H,lxIsQ ,jGW)E 8PKRtheme/theme/theme1.xmlYF/lMBql4F3 iCCiH/6MwFcd
xuv 0F,FKsO3wvfSVbsyX p5veuw 1z@ l,ib
theme/theme/_rels/themeManager.xml.relsPK xml version1.0 encodingUTF-8 standaloneyes
aclrMap xmlnsahttp//schemas.openxmlformats.org/drawingml/2006/main bg1lt1 tx1dk1 bg2lt2 tx2dk2 accent1accent1 accent2accent2 accent3accent3 accent4accent4 accent5accent5 accent6accent6 hlinkhlink folHlinkfolHlink/t 333336
XXXXXXXXX.068@0( B S _Toc4406944_Toc4406945_Toc4406946_Toc4406947_Toc4406948_Toc4406949_Toc4406950_Toc4406951_Toc4406952c t (/s36 (/36 uwPJWmMYUaH - 9 W Z ,(()A)K)S)l)y),,-)-r////1H122333334a6f6677777778888O9V9g9m9nqENVag( 4HIOPVbcjkt6
o(hH. hH. pLpLhH. @@hH. hH. LLhH. hH. hH. PLPLhH.DxC ClzV-F gMW4Kz()7)A.L.5s13/4N68.189H3cZNANBXC6HeHiHVK M OSySVNV1XZlZ _iD_/axbeVegixiPjxm.nMobqQrtsujvw8x,)Jb7OZjhuK01KX l3e-3t(COAW,be21YlQla)unW(mONRlqo1@((((@9@BDF@UnknownGAx Times New Roman5Symbol3.Cx Arial7.@CalibriABCambria MathC., @Calibri LightqhssY J5
qx243P j2xxmuhammadtehreemNight 3Oh0p ,8
DPXhmuhammadtehreemNormalNight 33Microsoft Office Word@F@@u@j
q Title 8@_PID_HLINKSA6
(),-./0123456789@ABDEFGHIJKLMNOPQRSTUVWXZ_bcdefghkloRoot Entry FGnData 1TableCWordDocument 7tSummaryInformation(YDocumentSummaryInformation8aMsoDataStoreB0AZ2GUKR2Item PropertiesUCompObj r bSources SelectedStyleTURABIAN.XSL StyleNameTurabian Version6 xmlnsbhttp//schemas.openxmlformats.org/officeDocument/2006/bibliography xmlnshttp//schemas.openxmlformats.org/officeDocument/2006/bibliography/bSources
xml version1.0 encodingUTF-8 standaloneno
dsdatastoreItem dsitemID02AF16E0-5CB6-41C2-A4C9-42B5DE4476AE xmlnsdshttp//schemas.openxmlformats.org/officeDocument/2006/customXmldsschemaRefsdsschemaRef dsurihttp//schemas.openxmlformats.org/officeDocument/2006/bibliography//dsschemaRefs/dsdatastoreItem F Microsoft Word 97-2003 Document MSWordDocWord.Document.89q
Useful LinksFree Essays About Blog
If you have any queries please write to us
Join our mailing list
@ All Rights Reserved 2023 email@example.com