Corporate Governance: The Downfall of Toys 'R' Us

Running head: CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Name of the Student
Name of the University
Author Note

CORPORATE GOVERNANCE1
Introduction
Corporate Governance is considered to be the method by which the companies or any
kind of organizations are governed or regulated. The companies or organizations have certain
rules and regulations. They follow certain guidelines which would help them in maintaining an
order within the organization. Therefore, companies follow certain guidelines where they need to
be governed by the directors of the organization or the companies. Corporate Governance is the
method by which the companies or the organizations are governed and regulated1. The
companies or the organizations are regulated or governed by the directors who are a part of that
organization. The directors of a company ore an organization has certain rules and guidelines,
which they need to follow, and the directors are responsible for the working of the company or
organization. The shareholders of the company or an organization select the Board of Directors.
Therefore, the directors have the authority to regulate and govern the working of an
organization2. The Board of directors govern and regulate the working of an organization by
setting up strategic aims and implementing new schemes and methods and trying to execute
them, which would make the organization gain profit and would help them in creating a better
future for the company or the organization3. Therefore, corporate governance is the process by
which the day-to-day functional or operational activities of an organization are valued and this
process helps in regulating or governing the management of an organization by the executives of
that company.
1 Bevir, Mark. Governance: A very short introduction. OUP Oxford, 2012.
2 Farber, David B. "Restoring trust after fraud: Does corporate governance matter?." The Accounting
Review 80.2 (2005): 539-561.
3Murphy, Patrick E., and Bodo B. Schlegelmilch. "Corporate social responsibility and corporate social
irresponsibility: Introduction to a special topic section." Journal of Business Research 66.10 (2013): 1807-
1813.

CORPORATE GOVERNANCE2
This paper discusses one of the biggest corporate failures around the world and it tries to
relate the theories which led to the downfall of that company or organization. The company on
which the paper is based has been one of the most dominant company in the industry. The
company which would be dealt with in this paper would be Toys ‘R’ Us. The thesis statement of
this paper discusses the various aspects and the issues relating to corporate governance failure
and what role the Board of Directors played which led to the failure of the company or
organization. In conclusion, it summarizes the conditions that led to the downfall of the company
and discusses the impact regulation or governance has on a company or an organization.
Discussion
The organizations or companies are legal entities that employ or appoint group of people
with a specific motive or objective. Companies or organizations that act as corporations,
institutions have a separate legal identity and is considered to be artificial persons that are
governed or regulated by Board of Directors with the objective of gaining profits4. The
shareholders or the shareowners of the company owns the shares and select the Board of
Directors who would carry out the duties on behalf of the company as they are considered to be
artificial persons. If an organization fails to work and carry on duties that incurs losses for the
organization then the company needs to be wound up since it is not able to function properly or
in an effective manner5.
Brief Overview on Toys ‘R’ Us
Toys ‘R’ Us is a popular company which was created by Charles Lazarus in the year 1948. At
first it was a small furniture store which was created to sell baby furniture. After a while Lazarus
4Chang, Chen-Shan, Shang-Wu Yu, and Cheng-Huang Hung. "Firm risk and performance: the role of
corporate governance." Review of Managerial Science 9.1 (2015): 141-173.
5 Burke, W. Warner. Organization change: Theory and practice. Sage Publications, 2017.

CORPORATE GOVERNANCE3
thought of expanding its business by selling toys for children. As children were supposed to play
with toys. The instinct of Lazarus was correct as it became one of the greatest toy store that used
to sell toys for kids and it washed away the existence of other toy stores in America. It created
dominance in the market and were one of the biggest competitors in the whole market. After its
huge success of selling toys it tried branching out by selling clothes for kids and babies which
also caught on. The toy store became so popular that it even had its own mascot which was
known as Geoffrey the Giraffe. The company dominated the toy industry and the majority of the
kids were associated with the company name and its brand. While Japan was rebuilding its
economy, it started selling its low-priced toys that were bought by Lazarus in bulk6. It had also
been open to the idea of advertising the products and its brand on television which was beneficial
for them. The concept of toys being sold like groceries in a departmental store style was a new
strategy which was implemented by the company which helped them earn the brand value of that
company and captured the market completely. The company became publicly listed and it
dominated the toy industry for years7. The cause of the downfall for the company was when they
made a decision to sign a contract with Amazon to enter the e-commerce market and gave
exclusive rights to Amazon for selling their toys. Amazon breached the contract and violated the
conditions of that deal by allowing other retailers to sell toys. The company sued Amazon for the
breach but it was not able to establish an e-commerce presence for itself. Therefore, this led to
the downfall of the company along with other reasons that were also considered to be the reason
for the failure of the company8.
6 Thomison, Ethan S. "A strategic marketing and financial analysis of Toys R Us." (2016).
7HISTORY (2019). Inside the Rise and Fall of Toys ‘R’ Us. [online] HISTORY. Available at:
https://www.history.com/news/toys-r-us-closing-legacy [Accessed 30 Aug. 2019].
8 FinSMEs (2019). Toys R Us: From Industry Titan To Happy Childhood Memory | FinSMEs. [online]
FinSMEs. Available at: http://www.finsmes.com/2019/01/toys-r-us-from-industry-titan-to-happy-childhood-
memory.html [Accessed 30 Aug. 2019].