Company Law
Based on the given case and the corporate laws, it can be said that the directors of companies in Hong Kong SAR should adopt an approach where they are able to promote the success of the company for the benefit of all its members which also include their shareholders. Accordingly, the directors of various organizations should be able to ensure that all members are benefited. It can be mentioned that corporate governance is centered on the careful administration of the processes involved particularly on the relationships among all the stakeholders (Bhattacharya, 2000). Accordingly, directors should work effectively for the benefits of all members of the company which include the shareholders also. Though there are issues concerning the context of maximizing the values of shareholders, it is more important that all other members and stakeholders should also be given importance by the directors. Some authors mentioned that there is a need for rational approaches through which the directors can be induced to ensure the maximization of shareholders’ wealth at the same time protecting the interests of all parties involved, including the managers, large and small shareholders, and creditors and other investors.
Jobber (1998) reports that this kind of approaches are being implemented within diverse stakeholder groups for the purposes of determining the most valuable ways to manage essential business resources through the utilization of methodical methods as result of empirical studied taken among various fields of application. Thus, efficient approaches by the director are considered good for all the members because it serves mainly on the most effectual control and management of organizational operations. It can develop corporate performance by minimizing the total cost of aligning managers’ and shareholders’ incentives, and of unavoidable self-interested managerial behavior (Jensen and Meckling, 1976). The directors’ good governance is good for all the members because it provides proper incentives for the Board and management to pursue objectives that are in the interests of the company and its shareholders. In addition, the directors should also facilitate effective monitoring thereby encouraging firms to use their resources more efficiently and ensure that the company adheres to the needs of the employees and the community as well. Aside from protecting stakeholders’ rights, it also focuses on the guaranteed achievement of organizational objectives leading to outstanding corporate performance and profitability.
It must be remembered that the directors have full responsible emerging culture of effective corporate actions which is directed to a competitive company conduct and performance. Thus, the company’s position on corporate governance is among their competitive edge against their rivals, general business strategy and performance.
On the given case, it can be noticed that the shareholders of SBS CO Ltd (A, B, C, D) has encountered problems in terms of decision-making approaches. It can be mentioned that the failure of the management of the SBS Co Ltd to strategically decide on its venture and contracts with SM Ltd, have been one of the major caused of their sales reduction. In this regard, to be able to solve the this kind of problem, shareholders must be provided with legal and specific actions for their negligence that cause major problems in the financial and economic status of SBS.
The risk issue that can be noted is in terms of its inefficient and strategic decision making approach as well as having a vague and ambiguous firm economic and practice objectives which has been neglected by shareholders of SBS. It is said that in an organization, indistinct, unclear or vague economic and practice objectives are oftentimes an indication of an absence of direction towards outcomes that are compatible with the personal, professional and economic objectives of the business, which may lead for having conflicts and risks that will affect the company. And this situation has been encountered by the four shareholders, as they made decisions that affect the performance of the company.
Herein, the venture to SM Ltd that required major financial support, since SM Ltd has financial problems. In order to resolve problematic matters and support business plans, the shareholders attempted to consider various strategies. However, the company’s strategies, specifically their strategic plan only went from one major loss to the next. Because of the inability of the management to have a strategic decision making, which leads to wrong investments and partnerships, the company’s growth slowed down considerably. As a result more of its weaknesses had grown more apparent. Financial losses and various cases against the company had resulted to a major downfall.
In order to solve the third issue, the company has been able to initiate a proper and strategic decision-making of the company. Herein, the company’s decision were made strategically by identifying first the pros and cons of the decision that they made. The management sees to it that everybody should agree to the decision so that further conflict or risks within the company would not arise. Good decision making can be attributed as one of the vital factors that will help the business to achieve its core mission and objective. This alternative is helpful in a way that it can make the company more competitive and survive in the marketing environment.
Furthermore, in terms of the negligence of the shareholders (A, B, C, D) proper actions must be undertaken since they brought the company to a major problem. In this regard, the company can take immediate actions for these shareholders by suspending them to some controls of the company and/or filing lawsuits against them if legal issues are concerns. On the other hand, the shareholders can also be subjected to regulatory and governmental authorities if in case these shareholders have breach the laws and regulations that leads to company problems.
Since there is an involved winding up actions, the official receiver/liquidator of the company may investigate the conduct of the shareholders and evaluate their past and present activities and pursue litigation against the shareholders.
The case of these shareholders and their issue on financial losses due to their wrong decisions and plans serves as a realization to have an effective management approach. In this regard, the company must be able to have the ability to identify the issue. The company may also use some approaches to analyze the actions to be undertaken against the shareholders. Criticality Analysis enables companies to assess and evaluate risks that focus on the gravity of the consequences of an event. The Criticality Analysis involves the identification of an initiating event that can turn out to be risky, the outcome of the initiating risk event, the mode of failure in the negative outcome, and the consequences that are faced by a particular organization.
If critical thinking has been prioritized by the company, its management could have developed better and more practical financial decisions. This is because the presence of critical thinkers in the workplace promotes results-orientedness, openness to ideas, willingness to change as well as flexibility. Furthermore, critical thinker develop better decisions as they are more analytical, assertive, creative, observant and spirited to take on challenges and risks.
It can be concluded that, based on the case of the SBS Co Ltd and SM Ltd it is important that every shareholders in the business field should know how to manage or to handle situations in order for the business to achieve success and to be able to managed risks effectively. In our case, it is important that the lessons learned from these issues should serve as enlightenment in making efficient approach and decision making.
The company is responsible in taking actions against anyone that puts the company in trouble which leads to performance failures. In accordance to theory, the directors of public companies are held responsible for their action by their shareholders. On the other hand, the authority of the shareholders to influence the behavior of the company directors should also be monitored to avoid power abused.
By and large, it can be said that shareholders have duties to perform and so the management of the company. If the former is doing some illegal actions and misconduct, then the management of the company should take immediate actions and that includes the suspension or other lawsuits that can be provided to the one who made the mistake, like in this case the shareholders of SBS Co Ltd (A, B, C and D). Currently, different companies have been attracting a significant deal of interest from the public due to its apparent purpose and significance for the general economic health of various corporations as well as the society.
Reference
Bhattacharya, C. B. (2000) Relationship Marketing in Mass Markets, Handbook of Relationship Marketing, Thousand Oaks, CA: Sage.
Chen, J. (2004) Corporate Governance in China, New York: RoutledgeCourzon.
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