Harvard Case - Getting Ready to Rumble: Governance of World Wrestling Entertainment, Inc.
"Getting Ready to Rumble: Governance of World Wrestling Entertainment, Inc." Harvard business case study is written by Justin J. Hopkins. It deals with the challenges in the field of Accounting. The case study is 7 page(s) long and it was first published on : Dec 21, 2021
At Fern Fort University, we recommend that World Wrestling Entertainment, Inc. (WWE) implement a comprehensive governance framework focused on enhancing financial transparency, improving operational efficiency, and fostering a culture of accountability. This framework should address key areas such as corporate governance, financial reporting, risk management, and employee incentives, ultimately leading to improved financial performance and sustainable growth for the company.
2. Background
The case study focuses on World Wrestling Entertainment, Inc. (WWE), a publicly traded company that has faced challenges related to financial reporting and corporate governance. The company's stock price has been volatile, and investors have expressed concerns about the company's financial transparency and the effectiveness of its board of directors. The case study highlights the need for WWE to strengthen its governance framework and address these concerns.
The main protagonists of the case study are:
- Vince McMahon: The CEO and Chairman of WWE, who has a strong influence on the company's operations and financial decisions.
- The Board of Directors: Responsible for overseeing the company's management and ensuring that it operates in a responsible and ethical manner.
- Investors: Concerned about the company's financial performance and governance practices.
3. Analysis of the Case Study
The case study can be analyzed through the lens of corporate governance frameworks, focusing on key areas such as:
1. Financial Reporting and Transparency:
- WWE has faced criticism for its accounting practices, including the use of non-GAAP measures and the lack of transparency in its financial reporting.
- The company needs to improve its financial reporting by providing more detailed and transparent information about its revenue recognition, cost allocation, and other key financial metrics.
- Implementing a robust internal control system and adhering to Generally Accepted Accounting Principles (GAAP) will enhance the credibility and accuracy of WWE's financial statements.
2. Board of Directors and Corporate Governance:
- The board of directors needs to be more independent and active in overseeing the company's management.
- Implementing a strong corporate governance structure with clear roles and responsibilities for the board and its committees will enhance accountability and transparency.
- The board should have a diverse composition, including independent directors with relevant experience in finance, accounting, and governance.
3. Risk Management:
- WWE operates in a highly competitive and volatile industry, facing risks related to talent retention, regulatory changes, and economic fluctuations.
- The company needs to develop a comprehensive risk management framework that identifies, assesses, and mitigates these risks.
- This framework should include robust internal controls, contingency plans, and a proactive approach to managing potential threats.
4. Employee Incentives and Performance Management:
- WWE's compensation structure should be aligned with long-term value creation and incentivize employees to focus on profitability and sustainable growth.
- Implementing performance-based incentives and a robust performance management system will ensure that employees are motivated to contribute to the company's success.
- This should include clear performance targets, regular performance reviews, and appropriate rewards for exceeding expectations.
4. Recommendations
To address the challenges outlined in the case study, WWE should implement the following recommendations:
1. Enhance Financial Reporting and Transparency:
- Adopt GAAP: Ensure all financial reporting adheres to GAAP, providing a consistent and reliable basis for financial analysis.
- Increase Transparency: Provide detailed information on revenue recognition, cost allocation, and other key financial metrics in the financial statements.
- Implement Activity-Based Costing: Use activity-based costing to improve cost analysis and allocation, providing a more accurate picture of profitability.
- Independent Audit: Engage an independent audit firm to conduct regular audits of the company's financial statements, ensuring accuracy and compliance with GAAP.
2. Strengthen Corporate Governance:
- Independent Board: Increase the number of independent directors on the board, ensuring a majority of independent members.
- Board Committees: Establish independent audit, compensation, and nominating committees to oversee specific areas of the company's operations.
- Code of Conduct: Implement a comprehensive code of conduct for all employees, outlining ethical standards and expectations.
- Shareholder Engagement: Increase shareholder engagement by providing regular updates on the company's performance and governance practices.
3. Improve Risk Management:
- Risk Management Framework: Develop a comprehensive risk management framework that identifies, assesses, and mitigates potential risks.
- Internal Controls: Strengthen internal controls to prevent and detect fraud and other financial irregularities.
- Contingency Planning: Develop contingency plans for potential disruptions to the company's operations, such as talent departures or economic downturns.
- Regulatory Compliance: Ensure compliance with all relevant regulations and industry standards.
4. Enhance Employee Incentives and Performance Management:
- Performance-Based Incentives: Implement performance-based compensation structures that reward employees for achieving financial and operational goals.
- Performance Management System: Develop a robust performance management system with clear performance targets, regular performance reviews, and appropriate rewards for exceeding expectations.
- Employee Training: Provide employees with training on ethical conduct, financial reporting, and risk management.
- Employee Communication: Foster open communication with employees about the company's goals, performance, and governance practices.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations are aligned with WWE's core competencies in entertainment and its mission to provide engaging and entertaining content to its audience.
- External Customers and Internal Clients: The recommendations aim to improve the company's financial performance and governance practices, which will benefit external investors and internal stakeholders.
- Competitors: The recommendations will help WWE stay competitive in the entertainment industry by improving its financial transparency and operational efficiency.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve WWE's financial performance by enhancing its financial transparency, reducing costs, and improving operational efficiency. This will lead to increased profitability, higher stock price, and greater investor confidence.
6. Conclusion
By implementing these recommendations, WWE can strengthen its governance framework, enhance financial transparency, and improve operational efficiency. This will lead to improved financial performance, increased investor confidence, and sustainable growth for the company.
7. Discussion
Other alternatives not selected include:
- Merging with another company: This could provide access to new resources and markets but could also lead to cultural clashes and integration challenges.
- Selling the company: This would provide immediate cash flow but would also result in a loss of control and potential job losses.
Risks and key assumptions associated with the recommendations include:
- Resistance to change: Some stakeholders may resist the implementation of these recommendations, particularly those who are accustomed to the current practices.
- Cost of implementation: Implementing these recommendations will require significant investment in time, resources, and expertise.
- Unforeseen challenges: There may be unforeseen challenges or risks that arise during the implementation process.
8. Next Steps
The implementation of these recommendations should be phased in over a period of time, with clear milestones and timelines. The following steps should be taken:
- Phase 1 (Short-term): Implement key governance reforms, including the appointment of independent directors and the establishment of board committees.
- Phase 2 (Medium-term): Enhance financial reporting and transparency by adopting GAAP, implementing activity-based costing, and engaging an independent audit firm.
- Phase 3 (Long-term): Develop a comprehensive risk management framework and implement a robust performance management system.
By taking these steps, WWE can create a more sustainable and profitable future for the company.
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Case Description
This case introduces students to an interesting and fun example of a proxy statement issued by World Wrestling Entertainment, Inc. (WWE). WWE is effectively run by the McMahon family, which provides opportunities for students to recognize conflicts of interest in related party transactions between WWE and family members, as well as how the dual class share structure can facilitate these transactions. Further, executive compensation is driven by accounting measures, allowing students to recognize the incentives managers face and the governance structures of firms that may impair a manager's flexibility in making self-interested financial reporting decisions. The class can also provide an opportunity to cover accounting for stock compensation.
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