Financial Perception of CEO Turned into a Shareholder - Essay Example

Financial perception of CEO turned into a shareholder Introduction This paper will seek to looks at the roleof a CEO changed into a shareholder. At times, the unexpected happens and a CEO of a company finds himself at the helm of a shareholder’s position (Loos, 2010:45). With regard to this point in time, this paper will discuss the perspective of a CEO whose role has been terminated through privatization of a publicly owned company illuminating at the CEO’s view of financial management, sales, and the company’s performance but this time as a minority shareholder (Roland, 2008:44). Arguably, cases occur where an individual, owner, or CEO of a business decides to sell the company to a different owner and resolves to become one of the minority shareholders. Privatizing a publicly owned company can have not only profound experience for employees but also an emotional one (Yusuf, Nabeshima, and Perkins, 2006:62). Most econometrics agree that, changing an individual’s role from a CEO to just a minority shareholder may not always be that simple. A CEO turned a minority shareholder In fact, some of those who undergo such situations end up living a complicated life since they face mental, physical, and environmental changes. The role of CEO is changing gradually as time goes by due to technological advancements (Caprio, 2004:60). On the other side, shareholder’s scrutiny is increasing due to profound know-how as it has facilitated easier access to SEC filing system and round the clock business. All the time, when a CEO of a company loses his position and becomes just mere shareholder, he or she sees the financial performance of that company being unfavorable and poor (Ahlstrom and Bruton, 2010:40). Particularly, not only CEOs but also everyone sees the leadership or guidance of other people unconditional and inadequate when it comes to financial management of a company. A CEO turned shareholder sees the financial performance of \ company not functioning to the fullest mainly because of things related to jealousy, inexperience, and gluttony (Cooper and Clegg, 2008:47). A CEO who becomes a minority shareholder after a public company is privatized perceives the financial functioning of the company as irrational since he is at this time in a better position to see things from a minority shareholder point of view (Poza, 2010:54). CEO in conjunction with majority shareholders always views minority shareholders as being a threat to their financial success. As such, they at all times think of any possible ways to eliminate them by either buying them or making them become of the majority shareholders (Milhaupt, 2003:55). From a minority point of view, a CEO turned minority shareholder pictures the company’s financial performance heading the wrong way. Contrary to other people’s view, such a CEO sees the company losing profits and other bigger opportunities through the CEO performance with reference to financial management of the company. This happens because; privately owned companies have just a number of shareholders as opposed to publicly owned firms (Depamphilis, 2011:50). In other instances, such a CEO perceives the financial performance of the company deteriorating simply because, some privately owned companies are unable to trade in the securities exchange market mainly due to their size, number of shareholders among other reasons (Roland, 2008:81). As a result, it becomes very easy for a CEO who used to be at the helm of a publicly owned company and probably trading in the stock exchange market perceives the new state and financial performance of the company being poor (Cooper and Clegg, 2008:59). Actually, this happens because when the company was under public ownership, it had the mandate or ability to report its performance under the Securities Exchange Act (1993) or trade in the stock exchange market but once it assumes the label of a privately owned firm, trading or reporting at the securities exchange becomes an issue (Ahlstrom and Bruton, 2010:61). Thus, it becomes a definite point that a CEO turned a minority shareholder perceives this company’s financial performance as fading. With regard to a publicly owned company A publicly owned company is able to perform much better in terms of financial accumulation than a privately owned firm. Sources maintain that, a publicly owned company can raise capital by selling its securities in either primary or secondary market (Yusuf, Nabeshima, and Perkins, 2006:75). A publicly owned company is able to raise funds through equity or getting into a debt. Ideally, this is the major reason that makes public companies more crucial when compared to privately owned firms (Vishwanath, 2006:70). Before the existence of public companies, reliable sources reveal that it was a big issue or rather very hard to get huge capital for a private company. Nevertheless, as time went by, things changed and it became easier to obtain capital since with a large pool of names all registered as partners in a company, money-lending institutions felt more secure to loan them (Caprio, 2004:74). Based on the perspective of a CEO turned a minority shareholder within a previously publicly owned company, financial performance and the level of sales is always edging deeper since the company is unable to comprehend to bigger ways of raising funds (Ahlstrom and Bruton, 2010:77). In addition, since privately owned companies have no obligation to disclose their financial information, a CEO who is in the position of a minority shareholder can never have faith in the functioning of the current CEO, the company’s financial performance, and its overall sales (Roll, 2006:87). Definitely, this CEO at this position has adequate knowledge about the roles of a CEO despite being just a minority shareholder at this time (Poza, 2010:70). Such a CEO will always find the financial performance of a company being unscrupulous since there is no scrutiny. From his point of view, a CEO turned a minority shareholder after the company he used to guide becomes private sees the company’s financial performance as crawling (Roland, 2008:102). Given the idea that privately owned companies do not have any obligation to disclose their financial information to anyone, they are prone to poor performance especially if the existing CEO is not competent enough to deliver as expected (Chang, 2011:85). Fact-findings show that, lack of mandate or any obligation to report their financial activities to the securities exchange make these companies fail to meet their targets, as there is not pressure to do so (Caprio, 2004:88). Lack of pressure to meet the company’s expectations is one major issue or rather challenges facing privately owned companies. Failure to provide the 10-K filing Forms makes privately owned companies maintain their secrecy and do not leak any information to their competitors hence they do not see nay threat to their existence (Milhaupt, 2003:80). A CEO turned a minority shareholder in a privately owned company perceives the company’s current financial outcome and sales level being low and at most times unsatisfactory since privately owned companies lack pressure (Mallin, 2007:90). Pressure to meet the company’s set targets and objectives is advantageous as it leads to increased volume of sales; increased incentives hence increased employee morale, and subsequently results to improved financial performance (Poza, 2010:79). Following the point that privately owned companies do not have to insurmountable time taking care of the certified public accounts and does not have to undergo certain governmental regulations, it becomes unnecessary for them to disclose their financial status (Yusuf, Nabeshima, and Perkins, 2006:89). As a result, the profits and monies accrue by privately owned companies remains solely the product of the owner and thus unknown to the public. Since most of the regulations and requirements carried out by privately owned companies are not available to the public or minority shareholders, a CEO turned a minority shareholder views the overall financial activities of the company as secretive hence prone to massive misuse of finances (Ahlstrom and Bruton, 2010:80). Under this spectrum, such a CEO finds the company’s financial performance and sales volume as declining. Financial performance deterioration due to lack of accountability Frequently, executives in a company keep complaining that, with justification, shareholders are meddling in their business to extent that the situation goes out of hand and they are unable to do their job effectively (Poza, 2010:91). On the other end, executives keep on complaining, with justification, that some leading company executives pocket large sums of cash but their results are bogus. This situation leads to increased pressure on the side of executives as shareholders tend to act their watchdogs and disciplinarians since they believe without that kind of supervision, the executives are likely to deliver mediocre results (Uddin, 2008:79). From the perception of a CEO turned a minority shareholder, seeing the company’s financial performance rising is hard since he or she sees the current executives as unaccountable (Caprio, 2004:96). Even though shareholders can act as effective as friendly disciplinarians can, it still is impossible for a minority shareholder to see the sales volume of the company increasing unless there are maximum benefits coming in and seeable by everyone including the minority shareholders (Poza, 2010:103). With this regard, a CEO turned a minority shareholder sin able to find both the financial performance and sales volume of the company at least moving towards the right direction since the amount of benefits accrued are increasing day by day (Vallabhaneni, 2009:59). However, in companies where it is only the managers who call all the shots, it is very hard for a CEO turned a minority shareholder to see the performance of the company’s finances and sales doing anything close to good because, such as shareholder knows what happens at the board of managers (Cooper and Clegg, 2008:66). Hence, such a CEO is always pessimistic that the current CEO and the other board members are doing everything to benefit themselves much higher compared to the minority shareholders. With such mentality, a CEO who used to be the head of the said company knows almost everything that goes in and around the bigger office thus due to his pessimist mind, he sees the company performing badly in terms of finances. Despite large efforts of activism against majority shareholders and executives’ dominance over the minority shareholders over the years, not that much that has changed (Yusuf, Nabeshima, and Perkins, 2006:105). In fact, CEO’s and other managers have proved to be unmovable and stubbornly uncooperative. Legal regulations set by different governments point out that shareholders should be the ones supposed to act as the central controllers of a company. CEO’s and managers must orbit or function around shareholders or work with reference to the shareholders’ decisions (Vishwanath, 2006:87). Since this has proved to be such a debatable issue, it is impossible to monitor what goes in the auditing office and CEO’s will show shareholders what they need to see even if it is incorrect (Ogilvie, 2006:77). This means they embezzle the company’s funds and look for ways to deceive shareholders on the performance of the company’s funds. Systematically, it becomes hard for a CEO turned a minority shareholder to see the company’s financial performance working for the best since he is aware of the deceiving game that goes around the executives’ offices (Caprio, 2004:104). It is even much harder to square using facts that, if shareholders had more power, capitalism would be at its best. There is a big gap revolving around reality and rhetoric when it comes to the financial performance of a company as well as its other avenues used to generate income such as sales volume, sell of shares, and increased demand for the company’s products (Ahlstrom and Bruton, 2010:97). In practice and in law, shareholders do not have that much voice or say over the most and big corporate decisions. Although people continue to utter whether shareholders must be part of the company’s corporate decisions making process, it is still unclear whether this will ever come to happen (Cooper and Clegg, 2008:82). This is so because, many economists tend to politicize the idea terming it “rhetorical and capitalism based”. Of course, such a situation seems to make the minds of many shareholders believe that the activities related to company’s financial performance and its sales volume is not that much transparent. As such, they always have a mindset that tells them that their securities are at risk even if the company is doing well (Milhaupt, 2003:95). Referring to a CEO turned a minority shareholder, his perception about the company’s financial performance and sales volume is at most times dim (Hove, 2006:36). Decision making through quantification process Today, managers in association with the board of directors resolve to make strategic decisions and determine policy with no meaningful intelligence of shareholders (Bragg, 2011:80). Agreeably, such situations tend to keep minority shareholders in darkness hence they always think whatever is happening at the top office is particularly not in their favor or at their best interest (Poza, 2010:119). Moreover, shareholders end up ascertaining that the decisions made and the policies determined did not include their contextual objectives. Without their intellectual voice in the quantification process, shareholders hold it against managers and the board that their ideas do not matter to them (Frattini, 2007:74). In turn, a CEO turned a minority shareholder, being one of the existing shareholders, assumes the same mentality and from his point of view, he starts seeing things differently. For example, from his point of view, he will always see the financial performance of the company not working in their favor, as the board of directors as well as managers does not consult them (Yusuf, Nabeshima, and Perkins, 2006:130). According to the Shareholder Metrics, the board of directors and managers tends to assume that all shareholder needs are similar. This quantitative representation makes the minority shareholders feel left out since it only involves the majority shareholders (Caprio, 2004:122). This means that, the minority shareholder’s criteria of growth, benefit, value, and risk fails to appear to in the manager and board’s list of requirements. Hence, it is with no doubt that a CEO turned a minority shareholder will perceive the financial performance and the sales volume of the company as weakening (Ahlstrom and Bruton, 2010:111). This follows the idea that since their primary objectives might not be included in the list of the company’s objectives as they made by the managers and board of directors who happen not to include them in corporate decision-making (Cressy, Cumming, and Mallin, 2012:65). Alignment with the financial performance of the company In contrast to many policy makers’ thoughts, a CEO turned a minority shareholder may perceive the company’s financial performance and sales as good and considerable to the whole company. Frankly, a CEO who ends up becoming a minority shareholder due to reasonable and transparent means holds no hurt feelings against either the succeeding CEO or the company itself (Terterov, 2005:108). Therefore, it is hard for such a CEO to see the company’s financial performance deteriorating or the sales volume diminishing. He sees the company doing well since in his belief he may find it good to have a change in the company’s management structure (Roland, 2008:125). Patently, when change occurs in an organization, chances of increasing the sales volume of a company, which in turn consolidates the financial performance of that, company increases. Consequently, it becomes easier to see the financial functioning of that company working for the best (Narayanaswamy, 2008:70). In addition to that, a CEO turned a minority shareholder can perceive the financial functioning and sales of a company as increasing if he had left the company at a low performing state and immediately after his departure and the company’s subsequent privatization, the company starts making more sales (Poza, 2010:128). Absolutely, there are CEOs who are not good at leading companies. Some end up swindling the company’s financial incomes making it opt for borrowing or other actions, which results to poor functioning of its activities (Vishwanath, 2006:112). In fact, for a publicly owned company to be bought by a private investor, it must typically take place through a leveraged buyout. Further, the private investor ensures that investors have undervalued the company’s securities (Yusuf, Nabeshima, and Perkins, 2006:144). This points out that for a publicly traded company CEO to change and become a minority shareholder, the securities of the previous company could have been below the value of a public company. Privatization changes many things of a previously publicly traded company. Further, managers and the board of directors start doing business in a different manner (Cooper and Clegg, 2008:106). With reference to the finances of the company, these leaders have the mandate not to reveal them to the public, as thy do not need to do so in accordance with the law (Stanton, 2012:83). Following such regard, it is very possible for the management not to involve shareholders in the important aspects of the company especially those that which involve huge lumps of money (Milhaupt, 2003:113). Ideally, a minority shareholder who used to a CEO of the same company would perceive the company’s financial performance in addition o the company sales volume as increasing if the company is indeed doing something presentable and evident (Gibson, 2009:52). In conclusion, to change from a CEO and end up becoming a minority shareholder in the same company is traumatizing and sometimes the CEO may always have waging thoughts against the sitting board of directors (Brocke and Rosemann, 2009:92). Furthermore, he may not see the managers doing the required in order to see the financial performance or sales volume of the company increasing. As such, it can always look unconceivable for a CEO turned a minority shareholder to se the company’s well-being at the hearts of the existing managers and board of directors (Ahlstrom and Bruton, 2010:124). This paper has discussed the role of a CEO changed into a shareholder. Bibliography Ahlstrom, D. and Bruton, G. D. 2010. International management: strategy and culture in the emerging world. Australia: South-Western Cengage Learning. Bragg, S. M. 2011. The new CFO financial leadership manual. Hoboken, N.J., Wiley. Brocke, J. and Rosemann, M. 2009. Handbook on Business Process Management. Berlin: Springer-Verlag GmbH. Caprio, G. 2004. The future of state owned financial institutions. Washington, DC: Brookings Inst. Press. Chang, S. J. 2011. Sony vs Samsung the Inside Story of the Electronics Giants' Battle For Global Supremacy. Hoboken: John Wiley & Sons. Cooper, C. L. and Clegg, S. 2008. The Sage handbook of organizational behavior. London: Sage Publications Ltd. Cressy, R., Cumming, D., and Mallin, C. A. 2012. Entrepreneurship, governance and ethics. Dordrecht: Springer. Depamphilis, D. 2011. Mergers, Acquisitions, and Other Restructuring Activities an Integrated Approach to Process, Tools, Cases, and Solutions. Burlington: Elsevier Science. Frattini, G. 2007. Improving business reporting: new rules, new opportunities, new trends. Milano: Giuffre?. Gibson, C. H. 2009. Financial reporting & analysis: using financial accounting information. Mason, OH: South-Western Cengage Learning. Hove, M. R. 2006. Consolidated financial statements: an international perspective. Cape Town: Juta. Loos, A. 2010. Directors' liability: a worldwide review. Austin: Wolters Kluwer. Mallin, C. A. 2007. Corporate governance. Oxford: Oxford Univ. Press. Milhaupt, C. J. 2003. Global markets, domestic institutions corporate law and governance in a new era of cross-border deals. New York: Columbia University Press. Narayanaswamy, R. 2008. Financial accounting: a managerial perspective. New Delhi: PHI Learning. Ogilvie, J. 2006. Management accounting financial strategy. Oxford: CIMA Pub. Poza, E. J. 2010. Family business. Mason, OH: South-Western Cengage Learning. Roland, G. 2008. Privatization: successes and failures. New York: Columbia University Press. Roll, M. 2006. Asian brand strategy: how Asia builds strong brands. Basingstoke: Palgrave/Macmillan. Stanton, T. H. 2012. Why some firms thrive while others fail: governance and management lessons from the crisis. New York: Oxford University Press. Terterov, M. 2005. Doing business with Malta. S.l.: GMB Pub. Uddin, S. 2008. Corporate governance in less developed and emerging economies. Bingley: Emerald Jai. Vallabhaneni, D. 2009. What's your MBA IQ?: a manager's career development tool. Hoboken, N.J.: John Wiley & Sons. Vishwanath, S. 2006. Corporate finance: theory and practice. New Delhi: Response Books. Yusuf, S., Nabeshima, K., and Perkins, D. H. 2006. Under new ownership privatizing China's state-owned enterprises. Palo Alto, CA: Stanford University Press. Read More