Corporations are entities created artificially by state statute, and are granted legally enforceable rights and under the law. They are treated as individuals, where they possess the ability to pay out profits, taxes or acquire debts, sue or be sued, enter into contracts, and lastly can hold or transfer property. Therefore, from such information an investor to be in a publicly listed company trading on the stock market has many factors to consider before investing in it. For starters, an investor has to consider the previous performance of such a firm so as to gauge the return an investment will bring. In the sense that he or she compares the stock price and company’s earnings relationship with its competitors, they get a clear picture of its performance (Holistic, 3).
It is wise for an investor to note the quality of the company’s management since it is the single most crucial element in bringing success to a firm or failure. Thus, an investor should analyze their experience in terms of managing firms, and their success story in regards to projects they have handled in the past and how well they performed, and then their qualifications on the same (Holistic, 9). It is important to vet management abilities due to the high incidents of corruption and family ties influencing the business world since most people managing today's corporations are not qualified, but are by virtue of the ‘who’ they know or are related to.
When a firm has a strong backing from promoters such as the government or another big company such as Tata and Birla tends to add a premium to the IPO’s price due to the created credibility (Holistic, 10). From such most investors tend to believe that their investment is safer and the level of returns will be high. Lastly, after critical research one now has to decide the amount of capital, they can give for IPO and at the same time create a financial plan that will act as a guide helping note if there are any returns on investment.
At any publicly traded company, the highest governing body within its management structure is the board of directors. Therefore, one can note that the board of directors usually has many responsibilities to play in the governance of the firm. However, their primary responsibility is the protecting of shareholders' assets and ensuring that investors receive decent returns for their investment. Although, in some countries the board tends to put employees’ interest before investors at the end with well-paid and cared for employees, a firm's success is inevitable.
Therefore, for the board of directors to be effective in playing their roles first they must have a vested interest in the company. It will ensure that they plough all their effort with zeal in the firm creating efficiency and effectiveness while creating morale for the firm’s employees to identify themselves more with work. Secondly, the board should work in the upper management of the firm (Kennon, par. 5). It is a key factor since a board of directors requires all authority to perform some of its tasks such as selecting of the chief executive officer (CEO) while at the same time overseeing how the firm’s management is fairing in serving the long-term interests of the owners/ investors. It is also responsible with the auditing committee’s establishment, which is responsible with the ensuring that reports and financial statements are accurate and with fair, reasonable estimates. With such responsibilities, it is wise to have the board given absolute authority and power over all other elements in the organizational structure.
Thirdly, although known for their abilities in business management, the board of directors should be independent of the company (Kennon, 5). It is crucial since it helps prevent infiltration by employees and other elements in the company while at the same time preventing the board from continuous interfering with the firm’s daily activities and procedures. By so doing, the principle helps keep both the company’s lower level elements independent of the boards’ interferes thus giving them autonomy to function freely while also allowing the board of directors' time and space to make fair, critical, and decisive decisions.
The proper balance between long-term and short-term objectives of value creation as it relates to investors purely depend on their ability to influence decisions made on their investments. According to Leo Strine, only short-term investors are given a chance to vote, thus, playing a role in the conducting of the company’s business. However, longer-term investors who may have invested in their children’s education or as insurance for the retirement period, do not have the ability to influence decisions taken (Frankel, 5). The same sentiments are shared by Larry Fink, who believes that companies should be focused similarly on the achievement of sustainable returns on long-term investment as they do short-term. He goes on to urge firms to try and have strategies that drive towards long-term growth that sees firms being able to meet the promises made to long-term investors (Holistic Investment Planners (P) LTD, p. 2).
For corporate leaders, Fink suggests that they play that significant role of communicating the long term growth strategy of their company persuasively thus be able to attract the capital they need. To Fink long term growth is crucial to the extent that he advises firms that although paying dividends to shareholders brings balance to capital strategy; it should not be done if it jeopardizes the company’s future ability to create and sustain long term returns and growth. Therefore, it is wise to make investments in things like innovation and product enhancement, employee development, and technology, which are the elements responsible for sustainment of growth (Fink, 5).
Works Cited
Fink, Larry. Letter to CEOs to Encourage Focus on Long-term Growth Strategies. 21st March,
2014.
Frankel, Alison. Strine: Stop shareholder activism from hurting American investors. Reuters.
25th March, 2013.
Holistic Investment Planners (P) LTD. Factors to Consider Before Investing In
IPO’s. Web.2011. Assessed on 23rd April, 2014. From:
<http://www.holisticinvestment.in/before-investing-in-ipo>
Kennon, Joshua. The Board of Directors; Responsibility, Role, and Structure. Web. 2013.
Assessed on 23rd April, 2014. From:
<http://beginnersinvest.about.com/cs/a/aa2203a.htm>
