Question 5 Please read the following passage and answer the accompanying questions: - ************** John is the CEO of a publicly listed multinational enterprise in the FMCG sector. The firm's shareholders include pension funds, banks, insurance firms, and other large companies that together control 85% of the firm's equity. The Board of Directors consists of 8 Nominee Directors that represent these large corporations (one from each firm) and 2 Directors that represent the balance 15% of Shareholders (mostly High Net Worth Individuals). John has managed to forge excellent working relationships with 6 of the 8 Directors that represent the large firms. Those Directors have practiced a "hands-off" policy towards John - and left him to steer the firm's Strategy, and Future Direction. Over the past 7 years - John has grown the firm by acquiring 5 smaller competitors, and enhancing the market share and revenues. For each acquisition, John landed a handsome bonus and stock options. His salary and benefits have also grown remarkably during those 7 years - in recognition of his performance. However, despite growth through acquisition, the firm's share price has continued to decline, and the Individual Shareholders have made a lot of noise, questioning John's competency at Creating and Enhancing Shareholder Value. Unperturbed, John knows that his friends in the Board subscribe to his message of "wait for the long term" and John carries on focusing on his personal goals and ambitions. ****************** a) What theory best describes John's actions and attitudes towards the shareholders of the firm? Explain your answer in detail. b) How can this firm develop incentives to harmonize efforts of the CEO (like John) with those of shareholders?
Question 5 Please read the following passage and answer the accompanying questions: - ************** John is the CEO of a publicly listed multinational enterprise in the FMCG sector. The firm's shareholders include pension funds, banks, insurance firms, and other large companies that together control 85% of the firm's equity. The Board of Directors consists of 8 Nominee Directors that represent these large corporations (one from each firm) and 2 Directors that represent the balance 15% of Shareholders (mostly High Net Worth Individuals). John has managed to forge excellent working relationships with 6 of the 8 Directors that represent the large firms. Those Directors have practiced a "hands-off" policy towards John - and left him to steer the firm's Strategy, and Future Direction. Over the past 7 years - John has grown the firm by acquiring 5 smaller competitors, and enhancing the market share and revenues. For each acquisition, John landed a handsome bonus and stock options. His salary and benefits have also grown remarkably during those 7 years - in recognition of his performance. However, despite growth through acquisition, the firm's share price has continued to decline, and the Individual Shareholders have made a lot of noise, questioning John's competency at Creating and Enhancing Shareholder Value. Unperturbed, John knows that his friends in the Board subscribe to his message of "wait for the long term" and John carries on focusing on his personal goals and ambitions. ****************** a) What theory best describes John's actions and attitudes towards the shareholders of the firm? Explain your answer in detail. b) How can this firm develop incentives to harmonize efforts of the CEO (like John) with those of shareholders?
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Transcribed Image Text:Question 5
Please read the following passage and answer the accompanying questions: -
**************
John is the CEO of a publicly listed multinational enterprise in the FMCG sector.
The firm's shareholders include pension funds, banks, insurance firms, and other large
companies that together control 85% of the firm's equity. The Board of Directors consists of
8 Nominee Directors that represent these large corporations (one from each firm) and 2
Directors that represent the balance 15% of Shareholders (mostly High Net Worth Individuals).
John has managed to forge excellent working relationships with 6 of the 8 Directors that
represent the large firms. Those Directors have practiced a "hands-off" policy towards John -
and left him to steer the firm's Strategy, and Future Direction.
Over the past 7 years John has grown the firm by acquiring 5 smaller competitors, and
enhancing the market share and revenues. For each acquisition, John landed a handsome
bonus and stock options. His salary and benefits have also grown remarkably during those 7
years - in recognition of his performance.
However, despite growth through acquisition, the firm's share price has continued to decline,
and the Individual Shareholders have made a lot of noise, questioning John's competency at
Creating and Enhancing Shareholder Value.
Unperturbed, John knows that his friends in the Board subscribe to his message of "wait for
the long term" and John carries on focusing on his personal goals and ambitions.
******************
a) What theory best describes John's actions and attitudes towards the
shareholders of the firm? Explain your answer in detail.
b) How can this firm develop incentives to harmonize efforts of the CEO (like
John) with those of shareholders?
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