Question

Take a position on whether you believe that the current regulatory oversight bodies are adequately protecting shareholders. Propose at least two changes that would enhance shareholder protection. Support your position with examples.

Answer 1

The regulatory bodies have been constantly trying to oversee that corporates do not take advantage of the shareholders. The shareholders' interest is kept a priotity. However there is no adequate transparency just implementing laws. There should be adequate check on whether the laws are being followed by the corporates. The corporates are always in a better position to get the better of the shareholders as the board is more in control of the operations, finance and other allocations of the organisation. Hence, the chances of manipulation is high. The regulatory bodies are not in a position to check every aspect as to how an organisation is functioning. Thus, it is important that stricter compliances are put in place.

Changes that would enhance Shareholder Protection:-

• Do not manage earnings or provide earnings guidance.

• Make strategic decisions that maximize expected value, even at the expense of lowering near-term earnings.

• Make acquisitions that maximize expected value, even at the expense of lowering near-term earnings.

• Carry only assets that maximize value.

• Return cash to shareholders when there are no credible value-creating opportunities to invest in the business.

• Reward CEOs and other senior executives for delivering superior long-term returns.

• Reward operating-unit executives for adding superior multiyear value.

• Reward middle managers and frontline employees for delivering superior performance on the key value drivers that they influence directly.

• Require senior executives to bear the risks of ownership just as shareholders do.

• Provide investors with value-relevant information.