[SOLVED] how a company should run and govern itself
This module is about corporate governance. In another words, it is about how a company should run and govern itself. In this module, you will learn that the main organ that sets the tone, the long and short-term directions and the culture/value system of a company is the Board of Directors. Therefore, how the Board interacts within itself (i.e. amongst Board members) and with the other stakeholders such as the management, shareholders and the regulators, bearing in mind its legal and operational duties, is the focus of this module. In addition, since many of you are also interested to set up your own company, we will also look at the relationship between major and minority shareholders, and how a shareholder with a minor stake in a company can use legal means to protect his/her rights.
Instruction for the Assignment
The pre-course case study I have prescribed for you this year is Luckin’s Spilled Coffee. In addition to the case and the references listed there, I have also included some latest online articles on the latest development of Luckin.
Please read the case carefully and answers all the questions listed below. You can do further research into the case to supplement your answers but please remember to state your references. The typed-written report, which should not be more than 3500 words maximum in total shall be submitted by 7 May 2022 0600 (Singapore time). Please remember to state your name in the file as well as in the report.
Do note that completion and submission of this pre-course assignment is a pre-requisite to attending the module and participation in class discussion.
- What are the key contributing factors that led to Luckin’s downfall?
- Luckin issued two classes of shares with Class A shareholders entitled to one vote per share and Class B shareholders entitled to ten votes per share. This allowed Lu to become the controlling shareholder of the company. Discuss the pros and cons of dual-class shares in the context of Luckin and other companies such as Google, Meta (Facebook), Tesla, Snapchat.
- Evaluate the composition of Luckin’s board of directors. What are some of the problems which may arise from the close and long-standing relationship between Luckin’s Chairman and management? Have the directors breached their duty of care and loyalty?
- Short sellers like Muddy Waters played an instrumental part in unravelling the fraudulent activities of Luckin. Are short sellers like Muddy Water good for the corporate market and corporate governance? Should they be more strictly regulated? Explain.
- EY has denied any responsibility for Luckin’s fraudulent financial statements. Discuss the role of auditors and whether EY should be punished for Luckin’s falsified FY2019 financial statements and the comfort note? How can we regulate accounting firms like EY so that they are able to carry out their role efficiently?
- Many high profile institutional investors flock to invest in fast-growing “unicorn” companies like Luckin, despite these companies reporting losses and in some cases arguably having “fundamentally broken” business models. What are the incentives of these institutional investors and are their interests aligned with public investors? Explain?
- Corporate Governance: Principles, Policies, and Practices, Fourth Edition, 2019, by Bob Tricker, Oxford Press
- Corporations: Examples and Explanations, Ninth Edition, 2020, by Alan R. Palmiter, Wolters Kluwer. Read in particular, Part IV on Fiduciary Duties (Chapters 11- 18)
- Corporate Governance Certification Form – for listing on NASDAQ
- NASDAQ Listing Rules (Note: This is a 212 pages document and you just need to read pages 100-135 (Rules 5600 series) on Corporate Governance requirements –focus more on the relevant portions, like composition of the board and independence requirement).
- NYSE Corporate Governance Guide
- Directors’ and Officers’ Fiduciary duties – California vs Delaware
- Luckin Coffee: can China’s Starbucks win back investors? Financial Times, 9 Feb 2022.
- Luckin Coffee Announces Successful Conclusion of Provisional Liquidation, GlobeNewswire, 7 March 2022
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