BM628 Corporate Governance Report: Poundland's Takeover Issues

This report examines the corporate governance issues faced by Poundland, a British variety store company, focusing on its inaccurate business expansion strategy, particularly the takeover of the 99p store. The report delves into the concept and importance of corporate governance, reviewing relevant literature and discussing the challenges of mergers and acquisitions. It analyzes the problems associated with Poundland's expansion, including integration difficulties, financial strain, and loss of public confidence. The research includes primary and secondary research, a critical review of findings, and culminates in actionable recommendations and an implementation plan to address the identified corporate governance shortcomings. The report aims to provide insights into improving corporate performance, investor trust, and overall business sustainability within the context of Poundland's strategic decisions.

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

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Table of Contents
Introduction..........................................................................................................................2
Background of the organization.......................................................................................2
Problem faced by the company........................................................................................3
Literature Review................................................................................................................3
Concept of Corporate governance...................................................................................3
Importance of corporate governance formulation...........................................................5
Fulfilling corporate social responsibility.....................................................................5
Increased number of corporate scams..........................................................................5
Mergers and takeovers.................................................................................................5
Improving the corporate performance.........................................................................5
Increasing the trust of the investors.............................................................................5
Access to the global market.........................................................................................6
Overcoming corruption................................................................................................6
Accountability..............................................................................................................6
Business expansion..........................................................................................................6
Takeover and relevant expansion activities.....................................................................7
Problems associated with takeovers................................................................................8
Advantages of takeovers..................................................................................................9
Primary and secondary research undertaken.....................................................................11

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Critical review of the results of the research.....................................................................14
Recommendations and action plan....................................................................................19
Approaching new investors...........................................................................................19
Making changes internally.............................................................................................20
External business consultant firms and financial advisors for overcoming this situation
...................................................................................................................................................21
Proposed timeline..........................................................................................................21
References..........................................................................................................................23

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Introduction
Corporate governance refers to combination of all the processes, rules and laws that
operates, regulates and controls the businesses. Moreover corporate governance includes all the
internal and external factors that affects the company’s stakeholders interest including the
interest of the customers stakeholders, government regulators, suppliers and management
(Abdallah and Ismail 2017). Therefore corporate governance includes the system for controlling
and directing the company. The board has the responsibility to determine proper strategies for
the organization, provide leadership that can help in implementing the strategies, undertake
supervision and reporting all the issues to shareholders (Admati 2017). The corporate
governance is built on some of the major pillars of- accountability, transparency, fairness
stakeholder management, leadership and assurance. The company selected for the purpose of this
paper includes- The Poundland Company that is a British variety store company. The main aim
of the paper is to understand the corporate governance issues of the organization under study.
The paper will therefore discuss about the corporate governance issues faced by the company
selected for the purpose of this study, literature review to understand the concept of corporate
governance in depth and the various issues related to corporate governance, discuss the primary
and the secondary research undertaken by the company, critical review of the results and provide
necessary recommendations and action plan for overcoming the issue identified with the
corporate governance of the company.
Background of the organization
The Poundland Company chain of variety store based in United Kingdom. It was founded
in the year 1990 and has been known for selling its products and services including proprietary

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brands and learned items at a single price that is 1 euros (Aguilera and Crespi-Cladera 2016).
Initially it had to face a number of issues because it was rejected by a number of landlords due to
the fear that a single priced store can adversely affect the existing local stores. According to a
2016 report, about 7 million customers shopped in the store majority of the shoppers being
women.
Problem faced by the company
The company had been facing a major issue related to its corporate governance that was
its inaccurate business expansion strategy (Aguilera, Judge and Terjesen 2018). The company
had recently decided to take over the 99p store with the objective of boosting its domestic
portfolio with the help of the 252 more stores that was would come into operations as a result of
acquisition of the 99p Store. Moreover the company expected revenue synergies from the
takeover. However the integration took a lot of time and moreover the 99p store had poor shelf
life by the time it was taken over by the Poundland Company. Moreover the Poundland
Company was unable to pay the suppliers and there was a withdrawal of the credit insurance.
Moreover it was later reported by the Telegraph reports that the company paid too much for the
takeover. According to the report as soon as the business was sold by the family owners all the
mess started happening. The company failed to identify the significant risks associated with the
takeovers and as a result of such poor expanding strategic decision on part of the company, the
public is losing its confidence (Anginer et al. 2018).

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Literature Review
Concept of Corporate governance
Corporate governance includes- the processes, mechanisms, and the relations that helps
controlling corporations. The governance principles and structures identify the roles and
responsibility division among participants of the organization such as the, managers, the board of
directors, the creditors, the shareholders, and others and therefore include a number of rules and
regulations for making decisions. Corporate governance is necessary because it can help in
resolving the possible conflict of interest between different stakeholders usually between the top
management and the shareholders. Corporate governance also includes setting the objectives of
the organisations and pursuing the same in the regulatory, market and social conditions.
Therefore corporate governance includes- monitoring the policies, actions, practices and
decisions of the organizations, their shareholders and other affected stakeholders. Therefore
corporate governance is done in order to ensure that the interest of different parties are aligned
with each other. Moreover the interest of the various political parties and the public had been
maintained in the corporate governance due to the various corporate scandals. Some of the
largest corporate scandals includes- MCI and ENRON. One of the major reasons as has been
identified behind the corporate governance includes- mitigating the conflict of interest between
different parties. The conflict of interest arises between the upper management and the
shareholders and also between the shareholders (Bain and Band 2016). The two main conflict
that can be resolved with the help of corporate governance includes- the conflict between the
principal agent and also the conflict between the principal and the principal. In organizations
where there is a separation of management and ownership, there can be conflicts between the
agents and the principals or the top management and the shareholders. The shareholders may

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only be concerned with profits whereas the top management may be concerned with good
working conditions, good pay and other factors affecting the relationship of the top management
with the on-floor employees. Therefore corporate governance can be used in such situations to
align the interest between the two parties (Black et al. 2018). On the other hand in case of
conflicts between the principal and the principal arises when the top management acts on behalf
of majority of the shareholders then a collective action problem can be faced by the shareholders
(Black et al. 2019).
Importance of corporate governance formulation
Fulfilling corporate social responsibility
Corporate social responsibility has become a major issue due to the increasing awareness
of the different stakeholders of the organization. Therefore it is the responsibility of the board of
directors of the company to protect the interest of the employees, the customers, the shareholders
and other stakeholders of the company with the help of corporate governance.
Increased number of corporate scams
In the present world, the number of frauds, scams and corrupt practices have increased
because of the misappropriation and misuse of the public money. It is also happening in the stock
market, in financial institutions, in banks and various other institutions and therefore corporate
governance has become important to overcome these financial irregularities (De Haan and Vlahu
2016).

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Mergers and takeovers
The numbers of takeovers and mergers have increased in the present day and in such
situation it is only the corporate governance that can ensure that all the parties interest is being
safeguarded.
Improving the corporate performance
With the help of improve governance processes and structures, the quality of decision
making has improved, it also encourages succession planning and therefore helps in ensuring
sustainable profitability for top management (Cuomo, Mallin and Zattoni 2016).
Increasing the trust of the investors
When the investors evaluate a company for making investments they check the financial
performance of the company and also see if the company has corporate governance. When an
organization has transparency and better levels of disclosure then the investors’ chances of
investing in that company increases.
Access to the global market
When a company has good corporate governance it is able to attract investors globally
and that can lead to increased efficiencies in the financial sectors.
Overcoming corruption
Businesses can overcome corruption by creating an environment of full disclosure pf
auditing and accounting procedures, and allow transparency in business transaction and also
ensuring fairness and accountability within the organizational operations. Corporate governance
can help organization in creating such environment that can help in preventing malpractices and
fraudulent practices within the organization (Dimopoulos and Wagner 2016).

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Accountability
The relationship between the investors is an essential part of corporate governance.
Investors trust the top management of the company for enhancing the value of their investment.
Therefore companies are required to make proper disclosures to its investors on a regular basis
(Du Plessis, Hargovan and Harris 2018).
Business expansion
Business expansion includes a business strategy of growth whereby the number of stores
are increased in which the company’s’ products and services can be bought by the customers. It
is different from relocation because business expansion includes- opening new stores in various
physical locations while being able to maintain their present business location. The stage of
business expansion includes a number of challenges and opportunities (Schmidt and Fahlenbrach
2017). It helps improving the financial stability of the company and it is also seen as validation
of the startup business of the entrepreneur. On the other hand business expansion cam also
include a number of challenges. This si so because business growth brings with ity a number of
changes in its financial, legal and managerial position. When a business is growing it needs to
hire new people who may take some time to learn their operation and therefore the business may
not be as profitable as before at the time of expansion. Growth also includes decentralization that
can cause internal politics, dissension and also protectionism (Rodriguez-Fernandez 2016). There
are various methods for growth and expansion of business. Some of these includes growth and
expansion through acquisition of another business that is usually smaller in size, through
franchisee ownership business, through licensing of intellectual property, entering different
business agreements with dealer or even distributors. Business growth and expansion can also
include- identifying new routes of markets, offering public stocks and also offering various

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employee stock option plans. There are a number of issues associated with business expansion
(Hong, Li and Minor 2016). Some of these issues include- companies may grow too fast, need
for record keeping and other needs related to infrastructure. Issuer reacted to customer service,
disagreement and conflict of interest among the various owners, family issues, the changing role
of the owner. One of the major issues faced at the time of nosiness expansion includes- rapid
growth and also a number of problems that comes with such rapid growth. Some of these issues
the inability of the business to meet the increasing customer demands. There can be issues
related to capital because small business lack additional financing. The customer service may
also have to suffer as a result of continuous growth and expansion of business because of
excessive workload on the employees (Lau, Lu and Liang 2016).
Takeover and relevant expansion activities
A takeover takes place when one company decides to take control or acquire another
company by purchasing a majority of shares in that other company. The company that acquires
the other is called Acquirer Company while the one that is acquired is called the target company.
Takeover is usually done by a large company for a smaller one. Moreover takeovers can also be
voluntary or through a mutual decision between the two parties involved. Takeovers are a
common phenomenon in business world. It is more like mergers where the processes of two
companies are combined into one. However one major difference between a merger and an
acquisition is that an acquisition involves two unequal parties whereas a merger is done for two
equal parties (Whincop 2017). There can be various types of takeovers such as a hostile
takeover, a friendly takeover and a reverse takeover. A friendly takeover is one where both the
parties consider the phenomenon of acquisition as a positive one and therefore the process goes
much smoothly. On the other hand, a hostile takeover includes- an aggressive takeover where the

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one that is getting acquired is not willing to participate in the process. Therefore the firm
acquiring the other can make use of various unfavorable techniques such as dawn raids. A
reverse takeover is one that occurs when a private company acquires a public company. The
reverse takeovers occur in order to help the private company become public without having to
spend additionally on the initial public offering or IPO. There can be a number of reasons for a
takeover such as- targeting a unique niche that is occupied by the target company, sometimes
there is a takeover of similar companies within the same geographical location for the purpose
of improving efficiency and it also helps in reducing the cost and achieving economies of scale.
Problems associated with takeovers
One of the most highest risk methods for business expansion and growth includes
takeovers. Many researchers have found out that takeovers destroy the shareholders’ value of the
target firm or the form that is being acquired and that is also one of the major reasons why
takeovers fail. Some of the major risks associated with takeovers includes- high cost is involved
in takeovers because the price of taking over is often too high. There can be various problems
related to valuation of the firm that is being taken over by the acquirer. The suppliers and the
customers may become upset because of the disruption involved in takeovers. There can be
various integration problems or problems related to change management and one of the major
problems being resistance from employees. Moreover there can be incompatibility of the
organizational structure, culture and even managements styles between the acquirer organization
and the one being acquired. There can be different interest of different parties that can further
lead to conflicts within the organization. One of the major problems associated with takeovers
includes its failure. Some of the major reasons behind the failure of a takeover includes-
sometimes the price paid for a takeover is too high, lack of proper change management activities

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within the organizations, mishandling of the takeover, cultural incompatibility between
businesses. There may further be poor communication between the employees, stakeholders and
the top management of the acquired company. There may be loss of customers and key personnel
as a result of a hostile acquisition. This can happen when the shareholders and the key personnel
were not willing to be acquired then they may decide to leave the organization that is being
acquired. Since the integrating process is time taking, that time can be utilized by the competitors
for gaining a better market share.
Advantages of takeovers
Takeovers provide for a number of advantages to both the parties in the acquisition that is
the target company and also the acquirer. When both the parties take part in the deal through
mutual consent it helps in designing a better deal and also delivering value to both the parties.
Moreover in case of friendly takeover’s the target company does not lose its value because it
voluntarily enters into the takeover rather than applying some defence mechanism. Moreover the
target company does not have to incur expenses or costs. It is the bigger or the acquiring
company that incurs reasonable amount of cost. Moreover the premium is based on the target
company’s growth prospects and potential synergy goes that are created as a result of this
takeover. In case of hostile takeovers also there can be a number of benefits to the target
company. Some of these includes- an offer for premium stock price to the shareholders of the
target company. Many times it also happened that the target company is paid more due to its
unwillingness to become a part of the takeover. Moreover there have been cases where even a
hostile takeover had been beneficial to both the companies the acquiring one and the target
company. Takeovers are advantageous for the acquirer company because it helps them in adding
assets, distribution strength and also technology to its existing businesses. Some of the other