The controlling shareholder Essay Example

serves as CEO, what are his "limits of authority" in terms of involvement with the board? Reviewing committee charters will unveil which matters require independent assessment, such as...

, engaging and expiration of senior officers, manager nominations, major investings, strategic determinations, etc. A reappraisal of commission studies will uncover the board's ability to retain independent advocate and other professional advisers.

The Independence of the Board & The Value of an Independent Board

Denis O'Brien up to this point was publicly branded a heretical stockholder by INM and was a man who publicly stated a blood feud against the so Group CEO of INM -Tony O'Reilly. Denis O'Brien had over a six twelvemonth period taken actions as a stockholder that negatively impacted on the value of INM portions while at the same time doing himself a bulk stockholder. Denis O'Brien made personal onslaughts on the so Group CEO as to his determination devising abilities for running companies non related to INM.

Allowing Denis O'Brien to nominate three managers for the board of INM was a significant decision for INM. This decision has resulted in two conflicting factions on the board, each represented by major shareholders of approximately equal value. Consequently, the board of INM can no longer be seen as truly independent. According to Professors Lucian Bebchuk and Assaf Hamdani, good corporate governance practices in a publicly held company may not necessarily be beneficial in a publicly traded company with a controlling shareholder. Board independence is a fundamental concept in establishing appropriate corporate governance practices, but its meaning changes when a controlling shareholder is present. Even if members of a controlled company's board meet all current requirements for independence and

are independent of the corporation's management, they may not be independent from the controlling shareholder.

If these managers lack the ability to exhibit "independence of head," which is the ultimate objective of board independence, they may be overlooking something significant. In the presence of a controlling shareholder, board independence should imply autonomy from both the controlling shareholder and the corporation itself. Board independence plays a vital role in corporate governance as it allows the board to fulfill its legal obligations. As per corporate law, it is essential for the company to be led by a board of managers rather than solely relying on the controlling shareholder.

The first step in evaluating the quality of corporate governance at a regulated corporation involves determining if the board is truly independent. However, it is worth noting that even an independent board can be controlled by a majority stockholder through their voting power and ability to remove members. Therefore, assessing the effectiveness of corporate governance practices requires understanding how the controlling stockholder monitors and manages their decision-making influence. Additionally, for these practices to be optimal, it is necessary to subjectively analyze the interaction between the controlling stockholder and the board. This analysis should primarily focus on evaluating the character of the controlling stockholder and their motivations concerning the company's well-being.

The role of the controlling stockholder's personality in determining optimal corporate governance practices is significant. At IMN, questions arise about whether the INM board will make decisions in the company's best interest or to harm their adversary's representatives (DOB), and vice versa. The presence of representatives from Denis O'Brien and Anthony O'Reilly may create a better decision-making board with checks and

balances compared to when there was only one majority stockholder, Group CEO Antony O'Reilly. Antony O'Reilly, as both a majority stockholder and Group CEO, decided to allow Denis O'Brien's representatives on the board. If there had been an independent board at that time, would they have made the same decision? In other words, did personal pressure from Denis O'Brien influence Anthony O'Reilly's decision? Considering the bitter competition among current INM board members, establishing an independent board free from majority stockholders' influence could be beneficial for the company.

Issues regarding Majority Shareholders and Agency Theory

Before retiring, Anthony O'Reilly held the position of Group CEO at INM with a stake of over 28%. He and affiliated parties also purchased more than 29.5% of the company's shares.According to Corporate Governance Best Practice, the board of INM cannot be considered "independent".

Anthony O'Reilly's significant role and competitive nature suggest that he was a majority shareholder who aimed to minimize "agency costs" for INM by pursuing wealth maximization for the company. However, considering some of the advantages he enjoyed in his position, there may be an indication of personal indulgence on his part. For example, Denis O'Brien believed that Anthony O'Reilly exploited his influence in INM to ensure negative news coverage regarding the granting of a telecoms license and the subsequent Moriarty Tribunal, which followed. Another example is his appointment of his son Gavin as Chief Operating Officer, which critics may deem as nepotism. In a publicly held company with a large and diverse group of shareholders, a classic agency problem arises due to the separation of ownership and control - will managers work for the shareholders or prioritize

their own interests? Introducing a controlling shareholder into the equation may help mitigate these agency costs if he exercises his power to monitor management activities, either by becoming the CEO, actively participating as a board member, or having one or more agents representing his interests on the board.However, the presence of a controlling stockholder can also create agency problems between the controlling and noncontrolling stockholders and other stakeholders in the house.

This job occurs when the majority shareholder tries to use their power to transfer corporate resources to themselves for personal use or gain, without benefiting the minority shareholders equally, and/or causing harm to the corporation. There are two types of private benefits of control: monetary and non-pecuniary. Monetary benefits include "tunneling transactions," corporate perks and theft. Non-pecuniary benefits include "forms of psychic and other benefits that, without more, involve no transfer of actual company resources and do not disproportionately dilute the value of the company's stock to a diversified investor." For example, non-pecuniary benefits may arise from having control of a major national newspaper through which the majority shareholder may have the opportunity to influence national sentiment. Alternatively, one can receive the non-pecuniary benefits of placing family members in executive positions regardless of their qualifications.

The text highlights that when a commanding stockholder exploits non-financial benefits, it can negatively impact non-controlling stockholders and stakeholders. This raises questions about whether the CEO misused their position for personal gain, if appointing a certain individual as COO was in the company's best interest, and if there is a conflict of interest when controlling both public roles and a successful media group. The majority shareholding by Denis O'Brien also poses

new problems for INM. It emphasizes that the impact of a controlling shareholder on corporate governance practices is significant and that O'Brien may have valid reasons to criticize INM's corporate governance based on "Best Practice." The text suggests that implementing certain corporate governance practices can improve board functioning.These practices encompass maintaining an independent board, conducting bulk voting, holding one-year manager elections, allowing executive sessions without executive direction, and requiring stockholder approval to amend bylaws. Additionally, effective corporate governance often involves the absence of certain factors like a toxic pill and charter provisions that limit removal of managers to specific causes, as well as requiring supermajority votes from stockholders. However, these best practices may be less effective in the presence of a controlling stockholder since their existence shifts agency costs' focus from executive direction to the controlling stockholder.

The main focus is currently on the potential misconduct of the controlling shareholder rather than the executive management team. This shift in focus has implications for best practices, including: assessing board member independence in relation to both the controlling shareholder and the corporation; ensuring that directors can only be removed for cause and implementing staggered boards with charter amendments to protect directors from dismissal before their term ends unless there is cause; requiring the Chairman of the Board to be independent from both the controlling shareholder and CEO; and not allowing the controlling shareholder to serve on the board's nominating committee. Additionally, it emphasizes that corporate governance practices should prevent family members of a controlling shareholder from serving on the executive management team.Several best practices, such as majority voting, executive session meetings without the controlling shareholder, shareholder approval of

bylaws, shareholder nomination of directors, and the absence of a poison pill become inconsequential. A supermajority vote requirement for shareholders is necessary to give minority shareholders a voice. These practices not only prevent the controlling shareholder from engaging in self-serving behavior but also support the board's role as an independent decision-making body within the corporation.

Questions:
1. Understanding the Controlling Shareholder
2. Did Anthony O'Reilly use INM (presumably a company) to further his own interests in other business situations or to manipulate public opinion to align with his interests?

The Independent Newspaper in Ireland has a circulation of over 500,000 and is widely read. During the 1997 general election, Anthony O'Reilly published biased content on the front page of The Independent, which is believed to have influenced public opinion in favor of Fianna Fail and the Progressive Democrats. This controversy arose from a disagreement between Sir Anthony and former Taoiseach John Bruton regarding one of Sir Anthony's business interests. Both Anthony O'Reilly and Denis O'Brien competed for the Esat mobile telecom license, which was ultimately won by O'Brien. The Independent's subsequent coverage of the Moriarty Tribunal can also be seen as a repetition of history, as O'Reilly used his influence at INM to portray a negative portrayal of O'Brien's role in that competition.

Despite previous controversial actions by O'Reilly in relation to intelligence coverage, such as promoting biased narratives during a critical election period, it is important to note that Denis O'Brien, a successful entrepreneur, has had a longstanding feud with the O'Reilly family and their board members. O'Brien has previously disrupted the interests of other shareholders and may continue to do so in the future for his own benefit.

In the worst-case scenario, where the majority shareholder abuses their power by stealing value or opportunities from the company, imposing their will on the corporation, and compelling compliance from managers, it becomes crucial to consider implementing the mentioned best practices and more as an absolute necessity.

The practical world is that most influential stockholders, who can be assumed to be driven and powerful people, fall somewhere in between these two extremes [ .. ]. If so, the board will be working with a strong-minded individual, who has a sense of ownership, a high level of connection with the company, and is driven to succeed no matter what. Such an influential stockholder will want to convince the board that his ideas are best for the company instead of simply telling them what to do. He will recognize that "buy in" will facilitate implementation while dictating conformity strains resentment. This dynamic will force the influential stockholder to carefully consider his ideas, avoid major roadblocks, and create the opportunity for generating more and better alternatives.

In other words, the managers will most likely have an opportunity to provide advocacy, influence the dominant shareholder's ideas, and move forward in real alignment. Moreover, while it is true that the dominant shareholder has ultimate control over the board, supporting their own candidates from the floor if necessary, it should not be assumed that every dominant shareholder only wants to surround themselves with loyal followers. For example, the dominant shareholder may want to compose a high-quality board because it benefits both them and "their" company and (on a less flattering note) because having influential individuals on the board boosts their ego. Additionally, many influential

people are wise enough to surround themselves with individuals they believe are smarter than them. As a result, the dominant shareholder may do their best to retain independent managers and view the threat of resignation by a key independent manager as a serious concern. Finally, mass resignations could be a credible threat to the dominant shareholder as they could damage their net worth by sending a negative signal to the stock market while tarnishing their image as a leader.

It is important to keep in mind that the passion, drive, and creativity of a controlling stockholder can lead to superior company performance, benefiting all stockholders and stakeholders. This means that the presence of a "benevolent dictator" may result in the corporation being better off by seriously considering implementing all of the best practices described above. However, the controlling stockholder (especially when they have full ownership) may never lose their attitude of "l'entreprise c'est moi," meaning they never accept that they are no longer the "owner" of the corporation and therefore do not adequately respect the interests of other stakeholders, particularly other stockholders.

Questions

1. Have Anthony O'Reilly's high profile concern traffics outside of INM made INM a mark for defeated challengers who have been angered by intelligence coverage?
2. Can Denis O'Brien ever be trusted to represent the interests of other shareholders given his track record with the company?