Team Project, Part Three
St. Ambrose University
As LabCorp continues to see positive growth, corporate governance has been adopted into the Company’s goals, initiatives and organizational structures. According to the Company’s 2021 Corporate Responsibility Report, “Our corporate governance standards not only dictate our internal conduct, they also guide our external business practices with customers, shareholders, scientific partners, as well as other companies within our industry,” (LabCorp, 2022).
LabCorp leadership consists of a board of directors and an executive leadership team. The board includes ten directors, all of whom serve on various subcommittees focused on initiatives such as auditing, human capital and quality assurance. The executive leadership team has nine members, all of whom manage key organizational sectors such as marketing, environmental sustainability, compliance and the CEO of the company’s largest segment, LabCorp Diagnostics.
Through LabCorp Diagnostics (Dx), the Company provides routine and specialized lab testing services at over 2,000 locations worldwide. Through LabCorp Drug Development (DD), the Company conducts drug development, clinical drug trials and provides technology solutions for medical professionals and their patients worldwide (LabCorp, 2022).
LabCorp’s corporate governance and organization structure lends itself to the positive growth the Company has garnered both in the healthcare industry and through shareholders and the stock market. In order to properly invest in corporate growth, capital and confidence from shareholders are essential. LabCorp’s past successes with its diversified services and products through its Dx and DD segments are great proof for investors that the Company is making smart investments and using capital wisely. Additionally, discussed in the previous section, LabCorp held favorable market valuation ratios such as a price/earnings ratio, EV/EBITDA and market/book ratio.
In summary, through subcommittees and detailed corporate responsibility initiatives, LabCorp leadership appears to be constantly exploring new opportunities for growth, meeting regulatory standards and finding ways to instill confidence in its shareholders.
“DaVita is guided by its Mission—to become the provider, partner and employer of choice—and a set of Core Values—Service Excellence, Integrity, Team, Continuous Improvement, Accountability, Fulfillment and Fun—which are reinforced at all levels of the organization,” (DaVita, 2022).
DaVita is committed to strong corporate governance policies and practices, as well as compliance with federal and state laws. DaVita’s corporate governance is composed of a board and a committee. The Board will determine its leadership structure in a manner that it determines to be in the best interests of the Company and its stockholders, including the selection of the Chair of the Board (the “Chair”). As of June 1, 2020, the position of Chair shall be held by an independent director of the Board (an “independent director”) and shall not be held by an executive officer, including the Chief Executive Officer of the Company (the “CEO”).
The Board may form committees that consist of one or more Directors in accordance with the Bylaws of the Company. The Board shall at all times have an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. This governance and organizational structure have an immense impact on daily activities and operations of DaVita. The valuations discussed in part two have direct correlation with decisions made by these committees. The ratios may not seem like they have a relation with the structure and governance of an organization, but they truly do.
Stockholders gain important information from committee decisions, and this can have a direct impact on stock prices and how DaVita and other companies can be valued amongst investors. Corporate governance is important because it creates a system of rules and practices that determines how a company operates and how it aligns the interest of all its stakeholders. Good corporate governance leads to ethical business practices, which leads to financial viability. In turn, that can attract investors. The organizational structure of Quest Diagnostics is a bit complex. The company is organized into three segments: Diagnostic Information Services (DIS), Diagnostic Insights (DI), and Integrated Diagnostics (ID). DIS provides diagnostic testing and information services to patients, physicians, hospitals, health plans, and employers (Rahman et al.,2020). DI is a provider of diagnostic insights and information services to physicians, hospitals, and other healthcare organizations. ID provides diagnostic testing and information services to patients, physicians, hospitals, and health plans.The company’s complex organizational structure could be one reason why its valuation ratios are not as favorable as its peers. For example, its P/E ratio is 14.05, which is higher than the average P/E ratio for S&P 500 companies. Additionally, its P/E/G ratio is 0.76, which is lower than the average P/E/G ratio for S&P 500 companies.One reason why Quest Diagnostics’ valuation ratios may not be as favorable as its peers are because of its complex organizational structure. The company is organized into three segments: Diagnostic Information Services (DIS), Diagnostic Insights (DI), and Integrated Diagnostics (ID) (Cho et al.,2019). This complex structure could be one reason why the company’s P/E ratio is 14.05 and its P/E/G ratio is 0.76.Another reason why Quest Diagnostics’ valuation ratios may not be as favorable as its peers are because of its relatively high debt-to-equity ratio. The company’s debt-to-equity ratio was 1.57 as of September 30, 2020, which is higher than the average debt-to-equity ratio for S&P 500 companies (Spieth et al.,2019). This higher debt-to-equity ratio could be one reason why the company’s P/E ratio is 14.05 and its P/E/G ratio is 0.76.
The governance and organizational structure of a company can have a significant impact on the company’s valuation. To compare and contrast the governance and organizational structures of the companies studied, we will use the following criteria: board composition, and board independence. A board that is composed of a majority of independent directors is generally considered to be more effective than a board that is not.
From this table, we can see that all three companies have boards that are composed of a majority of independent directors. This is considered to be a good thing for shareholders as it indicates that the board is more likely to make decisions in their best interests (Talento et al.,2019).A board that is composed of a majority of independent directors is generally considered to be more effective than a board that is not. This lack of affiliation allows them to make decisions in the best interest of the company and its shareholders.
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