scholarly journals Due Diligence Procedures and Principles for Financial Analysis and Corporate Governance

2018 ◽  
Vol 12 (1) ◽  
pp. 107-114
Author(s):  
Hugh Grove ◽  
Mac Clouse
Keyword(s):  
Corporate Governance ◽  
Boards Of Directors ◽  
Financial Analysis ◽  
Financial Analysts ◽  
Forensic Analysis ◽  
Common Stock ◽  
Corporate Executives ◽  
Governance Practices ◽  
Global Companies ◽  
A Company

An initial set of seven procedures is developed for assessing a company’s common stock. A second set of ten procedures is developed for performing stealth or external financial (forensic) analysis on a company’s common stock. Also, a set of eight corporate governance principles, developed in secret over one year by 13 prominent CEOs of U.S. based, global companies, are elaborated for analyzing a company’s corporate governance practices in this paper. The purpose of this paper is to portray how these procedures and principles can be used by financial analysts and Boards of Directors in helping to assess the viability of the companies they are analyzing or serving and to develop key questions to ask of corporate executives. Thus, the first set of procedures elaborates seven reasons to consider in assessing a company’s stock. The second set of procedures develops ten steps of stealth forensics to investigate the possibility of financial shenanigans or fraud by a company. The last set of eight principles assesses the strength of corporate governance in a company. The importance of these principles is demonstrated by matching them with the practices of just 18 mainly global companies that managed to destroy $1.5 trillion of market capitalization. All these twenty-five procedures and principles will help strengthen financial analysis and corporate governance, especially for the role of financial analysts and Boards of Directors in assessing the value of companies’ common stock for investors.

scholarly journals Activist investors and implications for corporate governance: A case study of Barington Capital Group and L Brands

2019 ◽  
Vol 15 (2) ◽  
pp. 28-36 ◽  
Author(s):  
Hugh Grove ◽  
Mac Clouse
Keyword(s):  
Corporate Governance ◽  
Initial Public Offering ◽  
Boards Of Directors ◽  
Financial Analysis ◽  
Research Question ◽  
Public Information ◽  
Corporate Executives ◽  
Governance Analysis ◽  
Public Offering

The key research question of this paper is to explore the implications for both financial and corporate governance performances from the emergence of activist investors. This paper uses a dramatic case study of one specific activist investor’s role, Barington Capital Group, in analyzing the performance of a public company, L Brands, which lost $20 billion in market capitalization in the last three years while the U.S. stock market was going up significantly. In conclusion, this activist investor’s approach and recommendations in this case study could be used as operational guidelines by boards of directors and corporate executives for improving both their financial and corporate governance performances. From its financial analysis, Barington recommended either an initial public offering of the superior performing Bath & Body Works brand or a spinoff of the weak performing Victoria’s Secret brand. From its corporate governance analysis, Barington recommended that L Brands improve the composition of its board of directors whose deficiencies in director independence, industry experience, and diversity have hindered its ability to effectively oversee and advise management. Accordingly, the major sections of this paper are financial analysis, operational zeitgeist brand analysis, and corporate governance analysis. It is important to note that this paper was prepared exclusively with public information.

The Steinhoff signals: The role of responsible investing for asset managers

2020 ◽  
pp. 1-17
Author(s):  
Hendrik Jacobus Haasbroek ◽  
Geoff Bick ◽  
Stephanie Giamporcaro
Keyword(s):  
Corporate Governance ◽  
Boards Of Directors ◽  
Financial Analysis ◽  
Real Life ◽  
List Type ◽  
Responsible Investment ◽  
Teaching Case ◽  
Responsible Investing ◽  
Asset Managers

Subject area of the teaching case: The case can be used in the subject areas of finance and in particular investments, corporate governance, ESG, or responsible investments. It is suitable for students from all financial backgrounds, from a novice in the financial markets to an expert in finance. It is, however, expected that the class should have a sound fundamental grounding in financial analysis and valuations. The purpose of this case is to prepare students for future investments they would make in whatever capacity – whether in private or listed companies – and to prepare them for future roles on boards of directors. The examples of real-life events in this case study are used to prepare students for future similar situations in which they might find themselves. Student level: This teaching case is aimed at postgraduate students pursuing an MBA or a specialist Masters in a finance programme. This case can be used as a master class in corporate governance, investments, or responsible investments. This case is also suited for an executive education class in management. It is particularly relevant to a module that focusses on investments, corporate governance, ESG, or responsible investments. Brief overview of the teaching case: The case study chronicles meetings held on 8 November 2017 at a fictional South African asset manager, Active Investment Management (AIM). These meetings discuss the firm's investment in JSE-listed Steinhoff International Holdings. The case deals with the questions that active fund managers need to address when balancing financial analysis; environmental, social, and governance (ESG) analysis; portfolio management; and the need to comply with their fiduciary duty to clients. It also looks at the need for responsible investing in decision-making. Expected learning outcomes: The understanding of the assessment around the complexities of asset management when it comes to responsible investment. To determine why institutional investors should apply responsible investment principles when making investment decisions. An understanding of the evaluation of the unique roles of the three pillars of corporate governance, namely asset managers, auditors, and the board of directors. The ability to assess how to integrate financial analysis and ESG principles in making investment recommendations.

scholarly journals CORPORATE GOVERNANCE AND BUSINESS PERFORMANCE: EVIDENCE FOR THE ROMANIAN ECONOMY

2015 ◽  
Vol 17 (3) ◽  
pp. 458-474 ◽  
Author(s):  
Monica-Violeta ACHIM ◽  
Sorin-Nicolae BORLEA ◽  
Codruţa MARE
Keyword(s):  
Corporate Governance ◽  
Business Performance ◽  
Stock Exchange ◽  
Policy Makers ◽  
Governance Practices ◽  
Corporate Governance Practice ◽  
Corporate Governance Quality ◽  
The Impact ◽  
A Company

Our finding contributes towards the understanding of movements regarding the adoption of corporate governance practice in emerging countries such as Romania and its impact on business performances of a company. We have developed two econometric models to assess the business performances of the companies listed on Bucharest Stock Exchange, in order to point out the impact of corporate governance on business performances. Our results are inconsistent for the period 2001–2011, but if we consider only 2011, the results document a positive correlation between corporate governance quality and market value of companies, such it is reflected by Tobin’s Q. Therefore, our results contribute to the studies relating corporate governance and business performances, as it confirms a positive relationship between the two variables which appears once the Romanian emerging economy has began to adopt the best corporate governance practices. Firstly, our research has important implications for managers in order to know that the adoption of the best corporate governance practices could contribute to the financial success of the firm. Secondly, the results are useful for any investor who needs to consider the quality of corporate governance as a good predictor for the best rate of return of theirs investments. Moreover, our findings have also implications on policy-makers and regulatory authorities in European developing countries and offer them a barometer of adopting the best corporate governance practices in European space.

scholarly journals Corporate Governance Principles and Sustainability

2017 ◽  
Vol 1 (2) ◽  
pp. 13-19 ◽  
Author(s):  
Hugh Grove ◽  
Maclyn Clouse
Keyword(s):  
Corporate Governance ◽  
21St Century ◽  
Boards Of Directors ◽  
Financial Analysts ◽  
Accounting Standards ◽  
Lessons Learned ◽  
International Accounting Standards ◽  
Short Sellers ◽  
The U.S

With 21st century U.S. frauds destroying well over one trillion of market capitalization and now with Valeant’s 2016 market cap destruction of $86 billion, the question must again be asked: where were the gatekeepers (boards of directors, regulators, sell-side financial analysts, and auditors) to protect investors? Many of these frauds were caught only by short sellers, such as Jim Chanos (shorting Enron in 2000 and Valeant in 2014), Andrew Left (shorting Valeant in 2015), and buy-side financial analysts. Sir David Tweedy, the former chair of the International Accounting Standards Board, has commented: “The scandals that we have seen in recent years are often attributed to accounting although, in fact, I think the U.S. cases are corporate governance scandals involving fraud” (Tweedy, 2007). This paper is a case study using the Valeant $86 billion market cap destruction in 2016 to emphasize the timeless nature of such corporate governance scandals. This scandal was even larger than the infamous $78 billion market cap destruction scandal of Enron which occurred 15 years earlier in 2001. These scandals appear here to stay as the new normal so these gatekeepers should be doing everything they can to analyze the ongoing fraud problems. Accordingly, as a case study, this paper develops lessons learned from this $86 billion Valeant scandal to emphasize the importance of sustainable corporate governance principles as a pathway to avoid malpractices in the future.

scholarly journals Contemporary financial reporting and intangible resources: Implications for corporate governance

2019 ◽  
Vol 3 (1) ◽  
pp. 39-47 ◽  
Author(s):  
Hugh Grove ◽  
Mac Clouse
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Boards Of Directors ◽  
Brand Names ◽  
Share Price ◽  
Short Term ◽  
Wall Street ◽  
Intangible Resources ◽  
Corporate Executives ◽  
Global Brand

The key question of this paper is what are the implications for corporate governance from the emergence of contemporary financial reporting and intangible resources? Going beyond traditional financial reporting, Boards of Directors and corporate executives should investigate the intangible resources of contemporary financial reporting. What intangible resources are causing the huge price to earnings (PE) ratio gap and the huge market to book (M/B) ratio gap for their companies? Possibly such gaps are driven by global brand names, global licensing, customer loyalty, product quality, and product innovation. Unfortunately, the short-term focus upon traditional financial reporting by both Wall Street and corporate executives to “make the numbers”, i.e. short-term (quarterly), predicted numbers, has damaged firms’ competitiveness. Such damages include postponing or cutting expenditures on emerging technologies, advertising, research and development, employee training, and maintenance expenses. Research has shown that such earnings management techniques are relatively futile efforts since a consensus earnings miss by a company generally produces an insignificant 1.5% to 2% share price drop. Boards of Directors should inform corporate executives accordingly. To offer solutions to these issues and implications for corporate governance, this paper is divided into the following sections: the emergence of contemporary financial reporting; asset value migration: the power of intangibles; top five future business value drivers: all intangibles; forward looking measures for intangible resources; market gaps: “old economy” versus “new economy” companies; global brands and global licensing; hidden intangible values made visible; international perspectives on contemporary financial reporting; and conclusions.

scholarly journals The influence of the newspaper media on the corporate governance practices of Irish listed PLCs

2010 ◽  
Vol 7 (3) ◽  
pp. 259-274
Author(s):  
Louise Gorman ◽  
Theo Lynn ◽  
Mark Mulgrew
Keyword(s):  
Corporate Governance ◽  
News Media ◽  
Media Coverage ◽  
Boards Of Directors ◽  
Newspaper Coverage ◽  
Share Price ◽  
Shareholder Protection ◽  
Governance Practices ◽  
Company Directors ◽  
Newspaper Articles

While a great deal of research has focused on the factors driving adoption of codes of best practice in corporate governance, only recently has the influence of the news media been considered. Corporate governance literature has largely converged upon internal monitoring and shareholder activist strategies as methods of shareholder protection following the decline of the market for corporate control. Commentators and activists alike have generally neglected the opportunity for an independent party, which watches over the management of companies, to guard shareholders’ interests. Ireland is just one country where the value of media coverage of corporate governance violations to: (i) shareholders, (ii) policymakers and (iii) company directors has not been assessed. This paper investigates the reaction of these groups to newspaper coverage of corporate governance violations so as to determine the influence of the newspaper media on the corporate governance practices of public limited companies (plcs) listed on the Irish Stock Exchange. Using newspaper articles, media activity was analysed and measured in 15 instances of corporate governance violations and the relationships between this activity and the actions and behaviours of investors, policymakers and company directors as indicated by stock market data8, government reports9 and newspaper articles respectively were examined. Evidence from this study suggests that the Irish newspaper media influences (i) the boards of directors of Irish listed plcs, in that subsequent newspaper articles report reformatory measures taken by the boards in the vast majority of companies in the sample; (ii) the government authorities who are responsible for the legislative and regulatory infrastructure in which they operate, with statistical evidence of increases in government attention to corporate governance issues following increased newspaper coverage of theses issues and (iii) the investing decisions of investors in Irish listed plcs, with statistical verification of a relationship between movements in share price and volumes of newspaper articles relating to corporate governance violations by listed companies.

Corporate governance in an emergent economy: a case of Ghana

2015 ◽  
Vol 15 (1) ◽  
pp. 52-84 ◽  
Author(s):  
Otuo Serebour Agyemang ◽  
Monia Castellini
Keyword(s):  
Decision Making ◽  
Corporate Governance ◽  
Control Systems ◽  
Boards Of Directors ◽  
Structured Interviews ◽  
Content Type ◽  
Large Shareholders ◽  
Governance Practices ◽  
Decision Making Processes ◽  
Ownership Control

Purpose – The purpose of this study is to examine corporate governance practices in an emerging economy. It focusses on how ownership control and board control systems operate in corporate organisations in an emergent economy, assuming that these systems are essential for enhancing good corporate governance practices in emerging countries. Design/methodology/approach – The paper builds on descriptive multiple-case study with multiple units of analysis to divulge how ownership control and board control systems function to ensuring effective corporate governance in publicly listed corporate organisations in Ghana. A criterion-based sampling technique is used to select the companies. Thereafter, three techniques of data collection are used to gather data from the companies: archival records, semi-structured interviews and observation. Findings – By linking the gathered data to the paper’s theoretical propositions, the study highlights that all the companies are characterised by the presence of large shareholders, and, in consequence, they tend to exert extensive control over the activities of the companies through their involvement in the decision-making processes. However, whilst the presence of large shareholders has the tendency to solve the agency problem, it poses challenges in regards to minority shareholders’ interests in these corporate organisations. The study also reveals that boards of directors tend to exercise control over corporate organisations when majority shareholders stop interfering in their dealings. This implies that when major shareholders fully partake in corporate decision-making processes of companies, boards of directors seem to be sheer advisory bodies to management. Research limitations/implications – This is a paper to shed light on corporate governance practices in four large publicly listed corporate organisations on the Ghana Stock Exchange, so the observable facts do not apply to other emergent economies. In addition, the sample does not represent all corporate organisations in Ghana; thus, the empirical observations cannot be generalised to other organisations that have not been included in this study. However, the empirical results can be applied to other similar corporations in Ghana and other emergent economies in an analytical sense. With the application of inductive reasoning, the results can be applied to provide important appreciation in an effort to understand the structure of corporate governance practices in organisations in developing countries. Practical implications – A comparative analysis of the empirical observations from this study and the recommended guidelines of corporate governance of Ghana has been carried out, and aspects in which organisations need to reform and improve to fully comply with the guidelines are highlighted: director independence, director evaluation, introduction of new directors and board education. This could possibly be the foundation upon which corporate governance structures in these organisations can be restructured and further enhanced. Originality/value – The majority of the studies of corporate governance in emergent economies have used quantitative techniques to examine the relationship between corporate governance mechanisms and firm performance. However, this study takes a different approach to examine corporate governance practice in an emergent economy by using a comprehensive and defensible qualitative analysis to examine relations between ownership structure and shareholder control, and board of directors and board control. In addition, it highlights how ownership and board control systems interact in corporate organisations in emergent economies.

scholarly journals Banking Sector’s Corporate Governance Practices: Study on Rangpur Region in Bangladesh

2020 ◽  
pp. 41-55
Author(s):  
Md. Shakhaowat Hossin ◽  
Farzana Karim Biva
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Banking Sector ◽  
Human Resources Management ◽  
Banking System ◽  
Secondary Data ◽  
Governance Practices ◽  
Research Questions ◽  
A Company ◽  
Mean Variance

This research paper is an endeavor to look at the present status of corporate governance in banking sector of Bangladesh. Corporate Governance ensures to bring transparency, accountability and professionalism within the management system of a company body that enhances the credibility and acceptability to the shareholders, employees, potential investors, customers, lenders, governments and every one other stakeholder. This is often truer just in case of banking system. To serve the study, both primary and secondary data are wont to prepare this paper. Samples are collected on the premise of questionnaire by interviewing 10 randomly selected bank personnel like corporate branch manager and other concerned personnel. So as try to the study; the main issues were focused like shareholder rights and disclosure of knowledge, disclosure and transparency, board issues, audit practices, financial reporting and Human Resources Management (HRM) practices. Seven hypotheses are developed so as to spot whether banks are complying corporate governance issues or not. To estimate the idea, statistical tools like mean, variance and Z-test are used. Hypotheses for the study are developed from the research questions. The results and analysis indicate compliance of CG code within the banks is above 70% and also the assumption of the 6 hypothesis only 50%. Consequently, the study recommends greater regulatory monitoring to confirm the exercise of fine governance in Bangladeshi Banks.

scholarly journals Diversity in the board of directors and good governance practices

2020 ◽  
Vol 9 (2) ◽  
pp. 97
Author(s):  
Álvaro Melón-Izco ◽  
Francisco J. Ruiz-Cabestre ◽  
M. Carmen Ruiz-Olalla
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Boards Of Directors ◽  
Good Governance ◽  
Gender Diversity ◽  
Positive Influence ◽  
Board Diversity ◽  
Corporate Governance Mechanisms ◽  
Governance Practices ◽  
The Board Of Directors

Motivated by the debate on the adequacy of the composition of boards of directors, we examine the effect that board diversity has on corporate governance performance in Spain, analysing gender diversity, diversity of director types and tenure diversity. The findings reveal that diverse boards of directors have a positive influence on good governance practices,improving the efficiency of corporate governance mechanisms. These results could be interesting for practitioners and regulators.

scholarly journals Corporate governance for trillion dollar opportunities

2017 ◽  
Vol 13 (3) ◽  
pp. 19-27 ◽  
Author(s):  
Hugh Grove ◽  
Maclyn Clouse
Keyword(s):  
Artificial Intelligence ◽  
Corporate Governance ◽  
Big Data ◽  
Boards Of Directors ◽  
Industry 4.0 ◽  
The Internet ◽  
Technological Changes ◽  
Corporate Executives ◽  
Challenges And Opportunities ◽  
The Internet Of Things

Boards of Directors will have to play a key role in the technological survival and development of companies by asking corporate executives about their plans and strategies for these emerging technological changes and challenges. Key challenges and opportunities discussed in this paper, with corresponding corporate governance implications, included Big Data, Artificial Intelligence (AI) with Industry 4.0, AI with the Internet of Things (IoT), Deep Learning, and Neural Networks. Survival should not be the goal, but it may be the necessary first step for today’s companies. Potential winners seizing these trillion dollar opportunities will be company executives and Boards of Directors who can incorporate these technological changes into specific new business models, strategies, and practices. While the awareness on boards regarding risks originating from disruptive innovation, cyber threats and privacy risks has been increasing, Boards of Directors must equally be able to challenge executives and identify opportunities and threats for their companies. This shift for companies is not only about digital technology but also cultural. How can people be managed when digital, virtual ways of working are increasing? What do robotics and Big Data analysis mean for managing people? One way to accelerate the digital learning process has been advocated: the use of digital apprentices for boards. For example, Board Apprentice, a non-profit organization, has already placed digital apprentices on boards for a year-long period (which helps to educate both apprentices and boards) in five different countries. Additional plans and strategies are needed in this age of digitalization and lifelong learning. For example, cybersecurity risks are magnified by all these new technology trends, such as Big Data, AI, Industry 4.0, and IoT. Accordingly, the main findings of this paper are analysing the challenges and opportunities for corporate executives, Boards of Directors, and related corporate governance concerning the driving force of Big Data, Artificial Intelligence with Industry 4.0, Artificial Intelligence with the Internet of Things, Deep Learning, and Neural Networks.

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