MCBRIDE FINANCIAL SERVICES GOVERNANCE EVALUATION

McBride Financial Services Governance Evaluation

University of Phoenix

McBride Financial Services Governance Evaluation

Since 1980, corporate governance has seen a radical transformation. Before this time, public corporations were self-centered in their desire for growth, without consideration for the shareholders. Disappointed shareholders had little recourse and management controlled the seats of corporate boards. Ownership of stock and options was minor with “only 20% of the compensation of U.S. CEOs tied to stock market performance” (Chew & Gillan, 2004, p. 73).

Corporate governance problems leading up to the corporate scandals of the early 21st century

Many events occurred that led up the corporate scandals of the 21st century. Because shareholders received little acknowledgment, without any voice, change was inevitable. The 1980s and 1990s were a period of transformation for many organizations. This transformation revolutionized corporate governance.

Hostile takeovers and restructuring activities began increasing in the 1980s in reaction to shareholder neglect. Debt financing which is defined as

A company can raise working capital by issuing bonds or notes to individuals or institutions, along with a promise to pay interest as well as to repay the principal. The other major way of raising capital is to issue shares of stock in a public offering (AFR, 2008, p 49)

McBride lacks knowledge of the Sarbanes-Oxley Act (SOX) or the reporting requirements from the Securities and Exchange Commission (SEC), the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and NASDAQ. He is also asking that internal controls be implemented without comprehension of what that entails. McBrides also lacks knowledge concerning customer privacy and the technology to adhere to the Gramm-Leach Bliley Act “The Financial Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act or GLBA, includes provisions to protect consumers' personal financial information held by financial institutions” (Privacy Initiatives, 2008, p 1). McBride has not realized that equity-based compensation plans provide some evident advantages to employers. The current practices of McBride Financial Services could easily result in a takeover or merger. (Agrawal & Cooper, 2007)

The influence of the governance rating industry on American corporations

Eric Krell's article, New Governance Rating Services: How Does Your Company Score, was written in 2003. The information is outdated and current information rejects some thoughts in Krell's article using Stanford studies. Therefore, current information was obtained from other sources in discussion of the topic of the governance rating industry.

“Evidence suggests that most corporate governance ratings are a meaningless waste of money, but more troubling, create moral hazards for investors” (Ryan, 2008, p 3). The results of this study are

There is little or no correlation between ratings and the real-world likelihood of a corporate governance problem at a rated company (How Good are Corporate Governance Ratings, 2008, p 7).

There is little consistency between the ratings. For instance, a company that has a good corporate rating with one provider may have a poor rating with another provider (How Good are Corporate Governance Ratings, 2008, p 12).

In the case of ratings, provided by RiskMetrics/ISS, formerly Institutional Shareholder Services, there is no correlation ...