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Corporate Governance In Banks Undergoing Merger And Acquisition

2449 words - 10 pages

AbstractThis nine page paper on Corporate Governance In Banks Undergoing Merger And Acquisition presents a case on banks that have recently undergone the process of M&A in Pakistan and the steps these banks should take in order to encompass corporate governance to ensure higher profitability and employees' satisfaction. Effective corporate governance involves a set of relationships between a company's management, its board, its shareholders and other stakeholders. It is also about promoting corporate fairness, transparency and accountability. Banks can easily safeguard their risk exposures and build their sustainable competitive advantage via imposing corporate governance. ...view middle of the document...

Research has suggested that historically, merger and acquisition often failed to add importance to the value of the acquiring firm's shares since the focus was primarily on costs and projected financial gains. It is important to note that the triumph of a merger or acquisition depends upon the ability of management to anticipate key issues and problems that arise when employees from different companies are required to work together. If banks want to witness a substantial rise in profitability and adequacy ratio then they must encourage sound corporate governance practices. Good corporate governance systems will allow organizations to realize their maximum productivity and efficiency, minimize corruption and abuse of power, and provide a system of managerial accountability.Implementation of corporate governance ensures the smooth running of policies and mechanisms that result in good behavior and safeguard shareholders. Hence, during M&A, corporate governance should be put into practice in such a manner in which systems, procedures, processes and practices of a bank are handled so as to allow positive relationships and the use of power in the management of assets and resources with an aim of advancing shareholder's value and contentment together with enhanced accountability and transparent administration.The emphasis on corporate governance of banks in Pakistan is great because of the following reasons,Banks in Pakistan have an overpoweringly prevailing position in its economy's financial systems, and are extremely important engines of economic growth.Financial markets here are usually underdeveloped; banks in the Pakistani economy are typically the most important source of finance for the majority of the firms.Banks are usually the main depository for the economy's savings.The recent liberalization of the banking system though privatization and disinvestments have given bank's managers greater freedom in how they run their banks.Corporate governance of the rapidly growing banking industry in Pakistan should involve the governance of business and affairs of individual institutions by their boards of directors and senior management. This requires a clear understanding of the respective roles of the board and of senior management and their relationships with others in the corporate structure. The relationship of the board and management should be realized by openness; their relationships with employees should be characterized by fairness; their relationship with the communities in which they operate should be characterized by good citizenship; and their relationship with government should be characterized by a commitment to compliance. These were the principles that Citigroup followed in order to become one of the leading financial services company in the world. Their prime concern was to protect the interests of its stakeholders.Banks in Pakistan that are undergoing M&A should keep in mind that effectual corporate governance requires that...

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