The paper "The Law of Majority Shareholder Power" is a great example of a Management Assignment. Directors are involved in the supervision of the company’ s management by making policies and setting up objectives. Directors’ recourse is through the CEO of the company and can decide on a replacement in case of underperformance. CEO’ s and not the directors are involved in the operations and implementation of the company’ s strategies. Therefore, directors should not be held accountable for the company’ s financial position. However, directors’ governance significantly contributes to investors’ decisions on investing in an enterprise that affects the financial position of a company.
The directors decide on the business funding to run a firm which in turn determines the financial position of a company. The investors provide funds necessary for the growth of a firm (Dravis, 2015). Colonial First State did not invest in Crown Resorts due to concerns about board independence and governance. Stepping down of Chairman James Packer who owns majority shares did not help in solving conflicts with Colonial First State. James Packer was replaced by Rob Rankin, the head of Consolidated Press Holding that is Parker's private company and controls Crown's majority shares.
Furthermore, Crown Resorts speculation to privatize the casino company and the potential increase in advisory fees to Consolidated Press Holding contributed to a negative perception of the Colonial board. Also, the Crown’ s high-risk decision to diversify from their core casino business and instead focused on expanding in non-gaming ventures contributed to Colonial exit. Crown sold down parts of its investments in Macau, gaming hub. From the scenario, the director's decisions were largely contributed by James Packer, who at times made wrong decisions that affected the company’ s funding (Williams, 2016). On Murray Goulburn, it’ s obvious that the directors are not involved in financial operations.
However, directors are aware that the company will not meet the target of $85 million as stated in their disclosure statement. This affects the shareholder's and farmers' income. The directors made a bad decision by not providing realistic profits forecast and overestimated the milk value. Although the directors are not involved in the day to day operations, by knowingly not informing the concerned parties on the reasonable disclosure statement only increases doubts to investors and customers.
This automatically leads to investors’ fear of investing more in Murray Goulburn due to the unexpected downgrade of shares by 40% resulting in a lack of enough funding. On the other hand, the farmers feel cheated on the overestimated price which was expected to increase from $5.60 to $6 but instead dropped to $4.75 per kilogram. The farmers may opt for other companies with better prices (Danckert, 2016). Therefore on both occasions, directors are not involved in the day to day operations of a company.
However, their decisions affect the outcomes and expected profits of a firm hence resulting in loss of investors. Investors’ confidence levels determine their willingness to invest and directors significantly contribute to this as they are responsible for funding a company. Crown Resorts should address the issue of the board to avoid conflicts by not giving majority powers to James Packer so as to have stable governance and make appropriate decisions that enhance the success of the company. Murray Goulburn, on the other hand, should be transparent to both the investors and suppliers to avoid their lack of confidence in the company.
Chivers, D., & Shaw, B. (2008). The law of majority shareholder power: use and abuse. Oxford, Oxford University Press.
Danckert, S., 2016 Class action filed against Dairy giant Murray Goulburn Published: May 16, 2016, theage.com.au
Donald, M.S. and Le Mire, S.M., 2016. Independence and the Governance of Superannuation Funds. CIFR Paper, (097).
Dravis, B. F. (2015). The Role of Independent Directors in Corporate Governance.
Johnson, R. E. (2001). Shareholder value: a business experience. Oxford, Butterworth-Heinemann. http://www.123library.org/book_details/?id=36336.
Williams, P., 2016 Colonial Exists James packer's Crown Board Independence Published: May 11, 2016, theage.com.au