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Executive summary:

The objectives of good corporate governance, there principle to an organization, the guideline or
practices to assist companies designing their approach to corporate governance. The right of
shareholders as to established by law and encourages of active corporations and stakeholders in
creating wealth and job to the sustainability of financial sound enterprises.

The critical analysis of poor corporate governance of Merrill lynch which chief executive officer
Mr. O’Neal .S due to his unethical behavior towards to the position in the ‘organization,
ignorantly abusing the rules of good corporate governance in Merrill lynch company which
averted to the collapsed of the organization.OECD and Government action, OECD is an
international body that has impact in all development of regulatory of an organization, by
follow the principle approved by the government to the co-operate organization.
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Title page

Executive summary

Table of contents

1.0 Introduction…………………………………………………………………………………...3

1.2Corporate governance over view……………………………………………………….…..…4

2.0Objectives of governance……………………………………………………………….….….4

2.1Structure of corporate governance…………………………………………………………….5

2.2Board of Directors……………………………………………………………………………...6

2.3Poor corporate governance of Merrill lynch…………………………………………………...7

3.0Evaluation of OECD and Government actions………………………………………………...9

4.0Conclusion……………………………………………………………………………………10

4.1 Recommendation…………………………………………………………………………….11

5.0References…………………………………………………………………………………….12
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1.0 Introduction:

The words, corporate governance is a structure specifies the distribution of rights and
responsibilities amongst participants in the corporate such as the board, managers, shareholders
and others stakeholders, and spells out the rules and the procedure for making decision on
corporate affairs. It is also about commitment to value, about ethical business conducts and about
making a distribution between personal and corporate funds in the management of a company.

Corporate governance is a term that refers broadly to the rules process, or laws by which
business are operated, regulated and controlled. It also provides the structure through which the
objectives are set, and the means of attaining those objectives and monitoring performance.

Finally to discuss the poor corporate governance of how an organization should manage their
corporate governance and also to evaluate critically and analyst the OECD and government
actions.
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1.1 Overview of corporate governance:

This is the relationship among stakeholders that is used to determined and control the strategic
direction and performance of an organization, the corporate governance of the organization is
therefore the way in which order and process is established to ensure that decisions are made
,and interest s are properly represented for all stakeholders. It is a boards operational concerned
with choosing the board of directors and with setting the long term objectives of the firm.

2.0 Objectives of Governance:

The aims to set out principles and best practices on structure and process that companies may use
in there operations towards achieving the optimal governance framework. Its implies the
structure and process existing at a micro-level which involves issues such as the composition of
the boards procedure for recruiting new directors.

>Its identifies a set of guidelines or practices to assist companies designing, their approach to
corporate governance

> The board should be meets regularly with due notice of issues to be discussed and should
records its conclusions in discharging of its duties and responsibilities.

>The chief executive officers should clearly accept division of responsibilities at the head of the
company which will ensure a balance of power of decision.

>They must to ensure the strategies guidance of the company, the effective monitoring of
management by the board and the board’s accountability to the company and the shareholders.

> They should recognize the rights of stakeholders as established by law and encourage active
cooperation between corporations and stakeholders in creating wealth and jobs and the
sustainability of financial sound enterprises.
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2.1 Structure of corporate governance

The modern corporations actions and behaviors are directed and controlled by both internal
forces and external forces

The internal forces, the officers of the corporate (such as the chief executive officers or CEO)
and the board of directors of the corporation (involves the chairman of the board), are those
directly responsible for the determination of both strategic direction and the execution of the
company’s future. They are subject to the permanent prying eyes of the external forces in the
market-place.
The creditors and credits agencies who lend them money, while the auditors and legal advisors
are those who testify to the fairness and legality of their reporting and the multitudes of
regulators who oversee their actions in order to protect the investing public.

The market-place (external)

Equity markets---analysts and
other market agents evaluate
the performance of the firm
on a daily basis

Debts markets—ratings
BOARD OF DIRECTORS agencies & other analysts
review the abilty of the firm
Thechairman of the board
&members are Auditors & legal advisors—
The corporate(internal)
accountable for the these contributors provide
organization an external opinion as to the
MANAGEMENT
legality and fairness of
The chief executive presentation & conformity to
officer (ceo)&his terms standards of financial
run the company Regulators—SEC,the
NYSE,or other regulatory
bodies by country monitor
corporate activities for

Figure 1 show the structure of corporate governance:

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These above diagram shows how corporate governance represents the relationship among
stakeholders that is used to determined and control the strategic direction and performance of
the organization.(Eiteman et al 2008 pg 12

2.2 The Board of Directors:

These are describes as the legal body that are responsible for the accountability of governance, of
the corporation. The board is composed of both employees of the organization (inside members)
and senior and influential non-employees (outside members).Areas of debate surrounding boards
includes.

>the proper balance between inside and outside members.

>the means by which board members are compensated for their service.

>the actual ability of a board to adequately monitor and manage a corporation when board
members are spending sometimes less than five days a year in board activity.

Due to current or retired chief executive, outside member of other companies might bring the
healthy sense of distance and impartiality, which although refreshing can also result in limited
understanding of the true issues and events within the company.

Officers and management:

The senior officers of the corporation, that comprises the chief executive officer(CEO),the chief
financial officer(CFO) and the chief operating officer (COO) are not only the employees most
knowledgeable of the business, but the creators and directors of its strategies operational
directions. According to the theory, the management was acting as contractors, as an agent or
shareholders to purse value creation. They are salary, bonus motivators and stock options
(positively) or the risk of losing their jobs (negatively) they are biased of self-enrichment or
personal agendas that the board and other corporate stakeholders are responsible for overseeing
and policing. In many organizations, the CEO is also the chairman of the board.

>Equity markets: A publicly traded company, regardless of the country of residence, is highly
susceptible to the changing opinion of the marketplace. These reflect the market’s constant
evaluation of the promise and performance of the individual company.
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>Auditors and legal advisors: the responsible for providing an external professional opinion as to
the fairness, legality and accuracy of the corporate financial statements. The auditors and legal
advisors that been hired by the company should be centralized in the auditing, leading rather
than being unique in terms of practice of policing their employers.

2.3 Poor corporate governance of Merrill lynches:

Due to the poor corporate governance in the senior management was caught up in frenzied
pursuit of short term gain, the senior management and the boards of directors of major financial
institutions such as Citicorp and Merrill lynch failed to perform their proper corporate
governance roles that help to precipitate the financial markets crisis to recent week, say’s Henry
Kaufman .At a number of institution, there was a failure by senior management to know the full
extent of the risk-taking.it would seen that risk modeling did not correctly assess the totality of
the risk-taking in the organization.(ARMCHAIR MBA January 29,2008 time11:36am est)

> O’Neal lost his job as chairman and chief executive of Merrill-lynch last October after the
posted a $2.24b third quarters loss due to staggering of $8.4b write down on investment in junk
mortgage and risk debt securities. The wall street firm posted an $8b loss of 2008 and when the
shareholder saw the depreciating of the share values drops more to 40%,yet O’Neal left with
stock option, unvested shares, deferred compensation and pension payments worth more than
$160b due failure of corporate governance.(Merrill lynch 2007)

> The discrepancy between O’Neal generous compensation and his lackluster performance that
led to some of the largest quarterly losses in his company’s history points to an executive
compensation programmed that lacks accountability and rewards short term gains at the expense
of the long term value. Due to the period, merill lynch failed to out perform the standard and
poor in annual basis.

>Due to failure of corporate governance O’Neal told the lawmakers at the hearing that he
received no severance package no bonus for 2007, which he forwarded that the restricted stock
form invested and unexercised stocks option granted over the six years span.
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>At merill-lynch,proxy statement over O’Neal’s regime as CEO shows that his compensation
was not tied to risk-adjusted performance measures.Instead.it was drawn by revenue earning
growth and return on equity. The consequences of this lack of risk accountability can be seen in
the direction the company took during O’Neal regime, since taking over. O’Neal slowly pushed
>Merrill lynch into riskier business, in his quest for higher returns. during the housing
boom,merill lynch became increasingly in package and selling pool of securities tied to
subprime mortgage and eventually increasing its exposure to these collateralized debt obligation
to more than $40 b in late 2008.(Merrill lynch 2007)

>Merrill-lynch became involved in the packaging and selling of a particular type of CDO called
‘Norma’ that let heavily on securities that were among the vulnerable to a rise in defaults of
subprime mortgage loans.

>Merrill-lynch became the top under writer of CDO and generated hundreds of millions of dollar
in profits from packaging selling. Early 2008, the height of the real estate bubble, he was paid
$91m, however according to critics, merill-lynch’s high-risk strategy created little value for
investors or the broader economy.

(www.aflcio.org/corporatewatch/retirementsecurity/case_merrillynch.cfm)

>O’Neal .S paid for his mistakes with his job, but financially, he’ll walk away flush.Mereill said
O’Neal would not get any severance or a bonus for 2007, and that his salary stopped Tuesday.
But because of his long services to the company. O’Neal will be able to keep all of his stock
option grants and restricted stock accumulated over the years, a sum that approach #160.

>Bove say’s O’Neal should not have been pushed out, since it puts Merrill back where it was
five years ago,re-creating its business without the benefits of time-tested veterans.Bove’s biggest
criticism of O’Neal is he fired so many experience people that there was no one to warn him
about overexposure to credit risk in subprime market.

>Bove placed a ‘sell’ on this week, saying he did not have faith that this board understands the
need to build a long-term business plane or the capability to execute it.

>The two big risk remain, merill is expecting to write down further losses on bad bets tied to
mortgage gone bad in the fourth quarter. Also the firm’s investment banking division, big
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revenue produce may fall victim to a talent drain as competitors seek to capitalize on Merrill’s
woes by luring away their top producers.

(www.snl.com/snlitn/scans/110107merriusatod.pdf)

3.0 Evaluation of OECD and Government actions:

These evaluation of OECD and government actions, in may 1999 ministers representing the 29
government which comprises China, American, European etc.The organization for Economic co-
operation and Development (OECD) the government are the country involved in the organization
to endorse the principles of OECD.The principles were to negotiate over the course of a year in
consultation with key players in the market.

The constitution ,the chief response by government to the OECD,the important pillar is to pin
point in these areas like world bank,interntional monetary fund ,united nation and international
organization.OECD is a bedrock of good corporate governance ,it holes the amplification and
required to give then sufficient force. The government strategies towards them should be on a
concrete guidance on how OECD principle can best be implemented, less say, practical
guidance can be of help to the boards meeting real-world expectations so that may operate most
efficiently and in particular, to compete for scarce investment capital effectively.
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4.0 Conclusion:

>Its identifies a set of guidelines or practices to assist companies designing, their approach to
corporate governance

>The chief executive officers should clearly accept division of responsibilities at the head of the
company which will ensure a balance of power of decision

>They must to ensure the strategies guidance of the company, the effective monitoring of
management by the board and the board’s accountability to the company and the shareholders.

>Merrill lynch into riskier business, in his quest for higher returns. during the housing
boom,merill lynch became increasingly in package and selling pool of securities tied, they
should apply good corporate governance.
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4.1 Recommendations:

> The board should be meets regularly with due notice of issues to be discussed and should
records its conclusions in discharging of its duties and responsibilities.

> They should recognize the rights of stakeholders as established by law and encourage active
cooperation between corporations and stakeholders in creating wealth and jobs and the
sustainability of financial sound enterprises

>Merrill-lynch became involved in the packaging and selling of a particular type of CDO called
‘Norma’ that let heavily on securities that were among the vulnerable to a rise in defaults of
subprime mortgage loans. They should learn proper way of good governance.
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5.0 References:

>Armchair M.B.A January 29, 2008

>http://www.businessweek.com/managing/content/january2008/ca 20080129_778908.htm.

>Eiteman et al 2008 pg 18.

> Merrill lynch 2007

> (www.aflcio.org/corporatewatch/retirementsecurity/case_merrillynch.cfm

>(www.snl.com/snlitn/scans/110107merriusatod.pdf

>www.soxfirst.com/50226711/oneal_160_million_parachute_merril_lynch_reward_for_failure.p
hp.

www.researchrecap.com/index.php/2008/09/22/poor-corporate-governance-
highlights-risk-of-

bank-failure/ - 31k

>digg.com/business_finance/Merrill_lynch_CEO_Nothing_justifies_suspending_our-bonus.

>www.usatoday.com/money/companies/management/2007-10-30-merrill-lynch-future-N.htm-
64k.

>www.blackwell-synergy.com

www.oecd.org/dataoecd/41/33/38309896pdf

www.oecd.org/dataoecd/32/1/4229620pdf

www.svs.cl/sitio/publicaciones/doc/gobcorp/sherman_boone.pdf

old.tuac.org/News/cnews2002.htm - 26k
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