Ethics

A Stewardship Code for Institutional Investors
This article addresses the new stewardship code that contains new roles for investees and investors. It aims to explain how the stewardship code shows that the shareholders are usually part of the answer and never part of the problem as majority believes. It also seeks to show how under the stewardship code the shareholders have an obligation and a right to be involved in the activities of the companies in which they have invested. The article outlines the responsibilities of the investors as contained in the stewardship code.

This article addresses the behavior of most financial institutions where they encourage share holders who have short term interests to invest in their institutions. The ethical implications are that the short term shareholders do not have the long term objectives of the institutions at heart. This means that the shareholders are never really concerned about the operations of the companies and this has resulted in the financial institutions lacking long term goals as well as not being risk conscious. Rule utilitarianism theory of ethics points out that for an action to be termed as right, it should result in greatest good after being done repeatedly. Based on this, the financial institutions behavior of allowing investment by shareholders with short term objectives is wrong since the long term effect of this is not good. The shareholders participation in operations of the companies will bring good results in the long run thus its ethical for them to be involved. The code provides for investors to act collectively but does not state how to legally prohibit these joint actions. Another ethical implication is that the involvement of the investor in the operations is against the rules of insider trading that govern the market systems. This involvement will result in companies shifting their attention from their core duty of performing well and managing risks and this is not ethical.

The possible solutions to this are to be clear on the issues that contradict other existing codes of ethic. The code should indicate the necessity of disclosing important institutional information regarding the investor. The code should also indicate how to avoid legal prohibitions against collective actions of the shareholders. Another solution is for the code to indicate how oversights differ in the company.

Risks to Over bidders Under Delaware Law
The article addresses a case that had been filed in the court regarding failure of a company to abide by the rules of bidding in a merger process. It shows the risks that are usually underlying in a situation that involves overbidding through the wrong process. Sometimes the merger agreement is not obeyed by the parties involved which results in damages. These damages are usually as a result of the cheated party seeking justice for damages obtained. The article seeks to inform that violating schedule 13D is not always solved by just correcting the disclosure as believed by some individuals. This means that bidders planning to potentially top a deal should not disclose wrong or non comprehensive information to the public since they can be sued even long after the deal has been sealed. This article involves a case where NACCO and Applica companies signed a merger deal. Another company known as Harbinger hedge funds was at that time also interested in bidding for the Applica Company and accumulated a substantial stake in the company but did not reveal this in its 13D filings. Later it simply corrected its 13D disclosures to reflect this and then topped NACCOs bid and the deal was sealed. This led NACCO to sue Applica for breach of the merger agreement.

According to the ethical point of view based on Rule-utilitarianism, an action is usually right if it results in happiness for majority of the individuals involved.  In this case, the action of Harbinger hedge funds failure to disclose its intentions though right resulted in unhappiness for most of the people involved. This action of breaching the agreement on merger was against the rules of merger that governs market systems. The other implication is there is need for the set out rules pertaining to protection of deals be followed. Applica company never followed these rules and this resulted in damages to NACCO. The failure of Applica Company to inform NACCO of Harbinger hedge funds plans to overbid was contrary to the standards that govern bid agreements. There is a conflict of ethics since the rules of bidding does not require one to disclose their other intentions in a company apart from those related to investment until one bids for the company. However, this can be treated as fraud under the common law in Delaware.

The solution to these implications is that there is need to first change the laws so that individuals and companies will be required to disclose their intentions to prevent underhand deals. The entities involved in mergers should also respect the rules that have been laid down regarding overbidding. Applica Company should have informed NACCO Company of the potential overbid.