Over the past five years, Winston & Co. has been compensating its officers a management team with stock options and cash bonuses equal to 12% of profits. In the same time period, management has pursued numerous opportunities that have increased stock prices by 55%. At the end of year 4, the company faced a financial challenge in paying for two new initiatives. After 3 years without needing to borrow funds from banks, the company sought out loaned funds. They were surprised by the rate the bank was required to issue the current debt. They also required covenants they will impose to issue the debt. The company will struggle to be able to meet the terms of the loans, but it will not survive without the new initiatives.

Analyze what has taken place from a financial perspective and discuss the concepts for corporate governance in this scenario? Be sure to comment on all three parties to the governance structure.