The Toshiba and Volkswagen Scandals

Review the financial scandal of Toshiba and Volkswagen and answer the following questions:

1. Discuss how the reported issues could have been effectively monitored in the context of executive performance management and compensation? (30%)

The modern corporations rely on the principle of separation of ownership and control to operate their businesses. The success or failure of these corporations depends, to a large extent, on the quality of the executives’ decisions on the operations of the corporations. However, these executives may have objectives in mind different from those of the owners to whom they serve. Besides monitoring, it is important for owners to motivate these executives to act in the interests of the corporations and thus their owners through designing appropriate incentive contracts. These contracts specify the performance evaluation criteria and how executives’ compensation is determined. Establishing an effective corporate governance culture at the workplace helps attract a good deal of public interest in the sense that trade barriers fall, markets expand, and restrictions on investments disappear. This makes it easier for investors to invest internationally. Furthermore, as the capital market becomes worldwide, corporate governance in individual countries begin to play an important role. With intense competition and global financial ethics, investors are looking for investment structures that will service their interests more. Corporate governance is essentially a system by which business corporations are directed and controlled with a structure that specifies the distribution of rights and responsibilities among different participants in the corporation, it is also defined as the relationship of a company to its shareholders or, more broadly, its relationship to society. Corporate governance policies are implemented by the board of Directors and the concerned committees for the company’s stakeholder’s benefits. In recent years, there has...