Benchmark - Case Study: Corporate Governance

Over the past few years, the number of start-up companies attracted to either doing business themselves in the cloud, or specifically creating applications for others to use in the cloud, has grown significantly. A few but very promising enterprises have launched applications in ?container? technology, which enables companies, programmers, or other enterprises to both launch and run applications solely in the cloud.

There is still a lot of room in this emerging marketplace, and you are diving in. The product you?ve developed has a unique angle to tap into the local-grown/local-made/local-paid movement that?s also growing larger every day. Your initial market is your own small city, which operates independently but which is linked economically and via public safety provision to another small city sitting directly across a river separating the two. Once you?ve been able to launch your company in your city, you plan to approach the ?sister city? leaders, then the county, state, and eventually go national. It?s too soon now, but your future plans entail an IPO offering to accomplish all this. Eventually, you hope to be able to re-imagine your product to go global. You have big plans, are close to being tapped out financially and you now need to plan for additional investors.

Address the following considerations as they apply to your product launch.

1. Describe an agency relationship and how it may/will take shape for your small company. As the sole employee and investor in your startup, what agency conflicts might arise?
2. Six months have transpired, and you?ve been able to add two employees. In this new arrangement, what agency disputes might now develop that need to be addressed, and how might you address them? What resources do you need to use or consider?
3. Another three months have passed. You are now ready to expand to your sister city and you need more capital. You decide the wisest path is to sell some stock to outside investors, but you will maintain control over your company by holding onto the majority of the stock. In this new scenario, what type of agency conflict might occur? How can you address this in advance?
4. The IPO was a success, and you have a robust number of shareholders. With board support, you determine it is time to hire a financial manager to help your firm achieve current goals and set new ones appropriate to the firm?s growth strategy. What professional strengths and skills will an individual seeking this position need to possess?
5. Another consideration you feel you need to address at this point, now that your firm?s stock is publicly traded, is how to sustain the high ethical standards you?ve fostered thus far as you move into the firm?s future. What strategies can your management team implement to conduct your business with both personal and professional integrity? What steps can you take to ensure that ethical considerations for financial and other management decisions are embedded into the firm?s culture?
6. Congratulations - you are now at Year One, and everything is moving along faster than you anticipated. While this is great, you are at the point where you need to raise additional capital from outside lenders. With this decision, what type of agency costs might the company incur? How might a lender mitigate any agency costs?
7. Year Two rolls around. Your company has been able to expand beyond your local communities and into to localities and governments in half the counties of the state. The stakes are getting bigger and you welcome the idea of high-level input to ensure the company keeps growing and expanding. You cash out the majority of your stock and turn the company over to an elected board of directors. Neither you nor any other stockholders own a controlling interest (which is also the situation at most public companies). List six potential managerial behaviors the new board might take that could harm your company?s value, and what steps overall can put into place to avoid or mitigate these.
8. You are also aware from your prior career and from your research, that corporate governance can affect shareholder value. This greatly concerns you, as you still have lofty plans for your company?s growth and eventual global trajectory. Questions you?ve identified that need to be addressed at this stage include: a) What is corporate governance?; b) What five corporate governance provisions are internal to a firm and are under its control?; c) What characteristics of the board of directors usually lead to effective corporate governance?; d) What characteristics of the board of directors signal ineffective or problematic governance practices?; e) How can regulatory agencies and legal systems affect corporate governance? If there are differences in local versus national levels, expand upon these.
9. Lastly, one of your new board members is very concerned with ?blockholders.? What is block ownership? How does it affect corporate governance? Explain the pros and cons.

1 Unsatisfac tory 0.00% 70.0 %Content 7.0 %Describes Not potential included. agency relationships/co nflicts at firm launch. 2 Less than Satisfactory 74.00% 3 Satisfactory 79.00% A description of potential agency relationships/con flicts at firm launch is incorporated, but the information provided is incomplete, inaccurate, or otherwise deficient. A description of potential agency relationships/con flicts at firm launch is incorporated, but minimal detail or support is provided for one or more components. 7.0 %Describes Not potential included. agency relationships/co nflicts due to hiring of employees. A description of potential agency relationships/con flicts due to the hiring of employees is incorporated, but the information provided is incomplete, inaccurate, or otherwise deficient. A description of potential agency relationships/con flicts due to the hiring of employees is incorporated, but minimal detail or support is provided for one or more components. 7.0 %Describes Not potential included. agency relationships/co nflicts due to issuance of noncontrolling stock. A description of potential agency relationships/con flicts due to the issuance of noncontrolling stock is incorporated, but the information provided is incomplete, inaccurate, or otherwise deficient. A description of potential agency relationships/con flicts due to the issuance of noncontrolling stock is incorporated, but minimal detail or support is provided for one or more components. 4 Good 87.00% 5 Excellent 100.00% A description of A description of potential agency potential agency relationships/con relationships/con flicts at firm flicts at firm launch is present, launch is present and is and incorporated in comprehensive. full. The The submission submission further encompasses incorporates essential details analysis of and provides supporting appropriate evidence support. insightfully and provides specific examples with relevance. Level of detail is appropriate. A description of A description of potential agency potential agency relationships/con relationships/con flicts due to the flicts due to the hiring of hiring of employees is employees is present, and is present and incorporated in comprehensive. full. The The submission submission further encompasses incorporates essential details analysis of and provides supporting appropriate evidence support. insightfully and provides specific examples with relevance. Level of detail is appropriate. A description of A description of potential agency potential agency relationships/con relationships/con flicts due to the flicts due to the issuance of non- issuance of noncontrolling stock controlling stock is present, and is is present and incorporated in comprehensive. full. The The submission submission further encompasses incorporates essential details analysis of and provides supporting appropriate evidence support. insightfully and provides specific 7.0 %Discusses Not professional included. strengths and weaknesses required for a financial manager. 7.0 %Discusses Not strategies to included. maintain ethical standards of integrity. Benchmark (C: 4.4) 7.0 %Discusses Not steps to ensure included. that ethical considerations for financial and other management decisions are embedded into the firm?s culture Benchmark (C: 4.2) examples with relevance. Level of detail is appropriate. 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The The submission provided is is provided for submission further incomplete, one or more encompasses incorporates inaccurate, or components. essential details analysis of otherwise and provides supporting deficient. appropriate evidence support. 7.0 %Discusses Not agency costs included. related to raising of capital and potential lender cost-mitigation options. A discussion of agency costs related to raising of capital and potential lender cost-mitigation options is incorporated, but the information provided is incomplete, inaccurate, or otherwise deficient. A discussion of agency costs related to raising of capital and potential lender cost-mitigation options is incorporated, but minimal detail or support is provided for one or more components. 7.0 %Lists six Not potential included. managerial behaviors the board might take that could harm the company?s value and discusses potential steps to avoid or mitigate adverse board decisions. Some potential managerial behaviors the board might take that could harm the company?s value and discusses potential steps to avoid or mitigate adverse board decisions are incorporated, but the information provided is incomplete, inaccurate, or otherwise deficient. Most potential managerial behaviors the board might take that could harm the company?s value and discusses potential steps to avoid or mitigate adverse board decisions are incorporated, but minimal detail or support is provided for one or more components. 7.0 %Discusses Not elements of included. corporate governance, including: a) definition of corporate governance; b) A discussion of some of the required elements of corporate governance is incorporated, but the information A discussion of most of the required elements of corporate governance is incorporated, but minimal detail or insightfully and provides specific examples with relevance. Level of detail is appropriate. 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A discussion of all A discussion of all five of the five of the required required elements of elements of corporate corporate governance is governance is present, and is present and incorporated in comprehensive. the five internal corporate governance provisions internal and controlled by a firm; c) board characteristics of effective corporate governance; d) board characteristics of ineffective or problematic corporate governance; e) effects of regulatory agencies and legal systems on corporate governance. 7.0 %Discusses Not block ownership included. and its effects on corporate governance. 20.0 %Organization & Effectiveness 7.0 %Thesis Paper lacks Development any and Purpose discernible overall purpose or organizing claim. 8.0 %Argument Statement Logic and of purpose Construction is not justified by the conclusion. The provided is incomplete, inaccurate, or otherwise deficient. support is provided for one or more components. full. The submission encompasses essential details and provides appropriate support. The submission further incorporates analysis of supporting evidence insightfully and provides specific examples with relevance. Level of detail is appropriate. A discussion of block ownership and its effects on corporate governance is incorporated, but the information provided is incomplete, inaccurate, or otherwise deficient. A discussion of block ownership and its effects on corporate governance is incorporated, but minimal detail or support is provided for one or more components. A discussion of block ownership and its effects on corporate governance is present, and is incorporated in full. The submission encompasses essential details and provides appropriate support. A discussion of block ownership and its effects on corporate governance is present and comprehensive. The submission further incorporates analysis of supporting evidence insightfully and provides specific examples with relevance. 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