MANM443 International Corporate Finance Project

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MANM443 International Corporate Finance Project

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MANM443 International Corporate Finance Project

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Course Code: MANM443
University: University Of Surrey

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Country: United Kingdom

Question:

You are the Assistant Finance Director of a listed company with global operations. In advance of a forthcoming board meeting, you have been asked to prepare an executive briefing on the top two corporate finance issues facing the company which may be drawn from the following (this is not an exclusive list):
Capital investment policy
Dividend policy
Capital structure policy
Governance and control
Mergers and acquisitions policy
International financial risk management policy
The Finance Director has therefore asked you to develop a briefing report to explain for each of the two issues:
i) the nature of the issue facing the company. and
(ii) the alternative strategies available to the company for dealing with that issue. either currently employed by the company OR which you propose as a useful solution.

Answer:

Introduction
Equifax Inc. is one of the top credit bureaus and a leading global provider in consumer and business solutionsSchaefer, Labude and Nasir, 2018). It brings buyers and sellers through management of information, customer relationship management, transactions and direct marketing, and transaction processing. Equifax has diversified customers and clients, that is, individuals, financial institutions, governments and corporations. The company provides credit scores to consumers, risk analysis to clients, and credit histories (Jeffery and Arnold, 2014). Products and services of the company are stored in databases which contain business and consumer information. The information is derived from public record, marketing data, credit, demographic, and finance. This helps further in coming up with modified visions, services processing, and decision-making solutions for business. It offers human resources services and provides outsourced payroll. It helps consumers make informed financial decisions by making them understand and protect their personal information(Schaefer, Labude and Nasir, 2018). Although the company operates around the world most of its businesses are in US.
Corporate finance deals with decisions of finance and investment of a company (Fracassi, 2016). It focuses on increasing the value of the shareholder through financial planning and implementation of strategies which can be long-term or short-term(Fracassi, 2016). Activities of corporate finance are investment decisions on capital and investment banking. The decision process of capital investment deals with capital budgeting. This helps the company identify capital costs, estimate the flow of money proposed on capital projects, relate planned investments with possible income while deciding which schemes best suits capital budget. Capital investment is the most crucial task in corporate finance and at the same time cause major implications when it comes to business(Fracassi, 2016). Poor budgeting on capital affects the financial position of the company either due to excess financing costs or having an under-funded operating capacity.
After the Equifax’s 2017 breach of data, many were angered after learning that the company had known it earlier but was slow in letting the public know (Zou and Schaub, 2018). Failure to let them know earlier compromised personal information of many which damaged the company’s public trust and in turn made their stock prices tumble. After the attack it’s not clear whether the company will recover or continue to suffer with its stakeholders. Equifax’s breach teaches an important lesson on keeping personal information safely (Moore, 2014). Investment index company MSCI gave Equifax the lowest possible social, environmental and corporate governance (ESG) rating in July 2017. MSCI pointed out that the company faces a high risk of data theft and associated reputational consequences(Gressin, 2017). ESG ratings provide another point of help to investors and help them in understanding the company. MSCI applies a scale that uses a range of AAA to CCC. Companies with AAA ratings show leaders on ESG issues while companies with B or CCC ratings are considered laggards like the case of Equifax. Low ESG shows areas of weaknesses relative to other companies. Report from AQR capital management found that stocks with poor ESG ratings may occur and cause higher volatility experience or risks than stock with strong ESG ratings. Mishandling of people’s personal data can greatly affect privacy and financial well-being(Berghel, 2017). ESG funds still holds Equifax shares. To maintain a socially responsible portfolio is a priority when it comes to investment. Investors pay attention to ESG ratings. Equifax’s stock in the year 2017 dropped by 31% after the breach. The company’s market capitalization value went down.
Corporate governance refers to rules, practices and policies under which a firm is controlled and operates with (Tricker and Tricker, 2015). It involves balancing the needs and interests of different stakeholders in a company, who are the customers, financiers, suppliers, shareholders, government, community and the management. A company’s governance focuses on the objectives, management, and structure of plans, the rate of performance, internal controls and corporate exposures(Tricker and Tricker, 2015). Governance dictates the corporate behavior. A company’s board of directors is important when it comes to governance. They are the primary stakeholders and influence greatly on governance. Good governance brings up a transparent set of rules and controls in which directors, shareholders and officers have aligned incentives(Filatotchev and Nakajima, 2014). Every company works to achieve the best corporate governance. Sound corporate governance, environmental awareness and ethical behavior bring about good corporate citizenship(Tricker and Tricker, 2015).
Governance and control in Equifax Inc. is directed by Board of Directors that serve the interests of the shareholder in management and growth of a successful business and increasing financial returns that are long-term (Filatotchev and Nakajima, 2014). The board ensures the company achieves these results. It ensures management carries out their responsibility irrespective of the challenges facing the company. Equifax’s board is responsible for overseeing how effective the management policies and decisions are and how its strategies are to be executed(Filatotchev and Nakajima, 2014).Equifax as a reporting credit agency provides consumers with credit information regarding businesses while selling products and services to them (Schaefer, Labude and Nasir, 2018). Many businesses including banks, retailers, and insurance firms rely on Equifax for information when issuing credit cards and credit-checking loans for customers. As a result, the company has millions of profiles of people worldwide(Schaefer, Labude and Nasir, 2018). This prompted a target by the hackers where Social Security numbers and PII are used by perpetrators to commit theft and fraud.
Nature of the issue facing Equifax
In the year 2017, the company was breached several times with the latest on September 29th.(Gressin, 2017). Hackers had stolen Social Security numbers, names, driver’s licenses, birth dates, addresses and numbers of 143 million consumers (Berghel, 2017). They also compromised 209000 credit card numbers stored by the company for credit services.  In the month of May the same year hackers targeted the company’s TALX payroll division which offers online tax, HR and payroll services. They gained access to employee data (Gressin, 2017). The company was hacked again two months later and in large scale. In the month of March the hackers used a crafted HTTP header to remotely carry out commands on the company’s Apache (Luszcz, 2018). Either the company did not patch the vulnerability of the website which was deemed critical for more than two months; this gave more room to the hackers. This was critical for an organization keeping sensitive data.
Strategy for dealing with breach
Many businesses have tried to implement patching best practices. Either automated patching solution has not been implemented by many organizations but instead they rely on manual processes that are slow and high risk to error. Many organizations also come up with a patching schedule of a range of one week to one month to protect critical vulnerabilities (Privette, Carlton and Kelly-Kilgore, 2014). Lack of effective patching exposes an organization to severe risks of attack like the one faced by the Apache Struts at Equifax (Luszcz, 2018). The risk could have been avoided if the company carried out an efficient patching program. Many people used media to criticize Equifax due to poor response to the incident(Zou and Schaub, 2018). The company had discovered the breach on 29th of July, 2017 but alerted the public on September 7th. The affected customers should have been notified as soon as possible through electronic means, mail, or telephone regarding the breach(Pereira, 2014). After the discovery of the breach, three top executives of the company sold around $2 million of their Equifax stock. They later claimed they were unaware of the incident at the time they sold their shares. FBI and SEC are now investigating on the three executives for possible violation of trade laws (Moore, 2014).
To protect its customers, Equifax set up a website to enable them check whether they had been affected (Moore, 2014). To do this one is required to enter their last name and the last six digits of their Social Security number to check out. The company also came up with a free mobile and desktop application, Lock and Alert that enables users to control access to their report. The app is available to all Equifax users whether affected or not(Pereira, 2014). The tool allows one to shut off access to the credit report and blocks the hackers from opening new accounts in their name (Pereira, 2014). The company also considers freezing of credit report to prevent thieves from accessing personal information (Zou, et al, 2018). Security leaders and stakeholders should be clear with a visible role and responsibilities; there should have been no delays during crisis management(Privette, Carlton and Kelly-Kilgore, 2014). Risk management and assessment should have carried out according to perceived risk to data. Appropriate scenarios should have been identified and understood. Regular risk assessment would have identified the risk exposal to the company. Control assessment should have been done to assess how effective the operational security controls especially those related to patching. The company also made a number of changes in governance. The roles of chairman and CEO were separated. Two new independent directors and a new CEO were appointed. The company strengthened its claw back policy while it added its performance measure on cyber security to its compensation program.
Nature of the issue facing the company
The company has also tried to explain why top executives sold of their stock days after the breach and why the company long to discover the hacking and inform the public (Jeffery and Arnold, 2014). Investors and consumers also hit the company hard while legal and political powers also demanded for answers and justice. Federal Trade Commission and several states opened their own investigations while Members of Congress demanded for criminal investigations and the company’s account for what happened (Gressin, 2017).
Strategy of dealing with the issue
The company hired a chief information security officer. The company has also made efforts to change the corporate and data security methodology. It has also invested $200 million on security infrastructure of their data. it aims at improving patching process. There are also better detection and programs in place to respond to new problems in case they arise (Gressin, 2017).
Conclusion
Equifax has faced large breaches which led to hacking of sensitive consumer information that left millions of Americans social security numbers compromised. Equifax’s slow response made media and other clients’ critic the company. As a result of the breach the company faced challenges in capital investments and governance and control. Many consumers lost trust in the company. Some of the executives also resigned and sold their shares days after the hack.as a result the company came up with ways to counter the damages caused by looking for ways to help the consumers and the company’s investments.
References
Berghel, H., 2017. Equifax and the Latest Round of Identity Theft Roulette. Computer, (12), pp.72-76.
Filatotchev, I. and Nakajima, C., 2014. Corporate governance, responsible managerial behavior, and corporate social responsibility: Organizational efficiency versus organizational legitimacy?. Academy of Management Perspectives, 28(3), pp.289-306.
Fracassi, C., 2016. Corporate finance policies and social networks. Management Science, 63(8), pp.2420-2438.
Gressin, S., 2017. The Equifax data breach: What to do. Federal Trade Commission, Washington, DC.
Jeffery, P. and Arnold, D., 2014. Disrupting banking. Business Strategy Review, 25(3), pp.10-15.
Luszcz, J., 2018. Apache Struts 2: how technical and development gaps caused the Equifax Breach. Network Security, 2018(1), pp.5-8.
Moore, R., 2014. Cybercrime: Investigating high-technology computer crime. Routledge.
Pereira, S.A., 2014. The impacts of identity theft to its victims and how to prevent future attacks (Doctoral dissertation, Utica College).
Privette, H.M., Carlton, D.S. and Kelly-Kilgore, S., 2014. SEC Guidance on Cybersecurity Measures for Public Companies, The. LA Law., 37, p.14.
Schaefer, G.O., Labude, M.K. and Nasir, H.U., 2018. Big Data: Ethical Considerations. In The Palgrave Handbook of Philosophy and Public Policy (pp. 593-607). Palgrave Macmillan, Cham.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
Zou, Y., Mhaidli, A.H., McCall, A. and Schaub, F., 2018, August. I’ve got nothing to lose: consumers’ risk perceptions and protective actions after the equifax data breach. In Proceedings of the Fourteenth USENIX Conference on Usable Privacy and Security (pp. 197-216).USENIX Association.
Zou, Y. and Schaub, F., 2018, April. Concern But No Action: Consumers’ Reactions to the Equifax Data Breach. In Extended Abstracts of the 2018 CHI Conference on Human Factors in Computing Systems (p. LBW506). ACM.

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