Governance

The Federalists wanted to follow the filter model. This was a model of how they believed all the governments should be run. They wanted enlightened and superior men to govern because they were mainly high class. They also wanted to not have representatives directly responsible and they also did not want frequent elections. They also wanted a strong executive branch and an independent judiciary branch. This was called a mixed government. A big idea for the federalists was a large government and freedom of religion.

The Anti-federalists on the other hand believed the complete opposite. They thought that the people themselves should be involved and that they should gather in public to assemble. They also thought that the representatives should mirror the people. Small town farmers also made a big impact because the anti-federalists very mainly farmers. The representatives should be directly responsible and they should have frequent elections. They also wanted a small executive branch and a large legislature branch and also state centered. They also strongly believed that there should be one overall vision and also they wanted to be very simple.

The Federalists and the Anti-Federalist are two opposite types of people in their learning and work. Almost all of the Federalists were learned and had high paying jobs as either lawyer of delegates. They were very smart and wanted to have a strong executive branch so they could control the government. The anti-federalists were farmers and most likely did not have a very good education. They did not want a large executive because they did not want the higher class of people to rule. They thought that it should be even so it was fair the common man instead of the enlightened

man.

The Federalists and Anti-federalists are very different as proven in the last four paragraphs. The federalists were more smart and enlightened men than the anti-federalists who were in fact, only farmers. The Federalists wanted there to be a strong national government and to not have the representatives directly responsible. While the Anti-federalists wanted to have a weak government and for the representatives to be directly responsible because they did not want the government to control everyone.

The origins of the United States Federalism system dates back to the end of the Revolutionary War between the thirteen original colonies and the country of Great Britain. After the Revolutionary War, the new born country, the United States of America, began as a confederation, a loosely joined coalition where the states would have supreme power over all, even over the federal government. From 1783 to 1789, a weak federal government controlled the United States under the authority of the Articles of Confederation. The Articles of Confederation is actually the first document the United States had to use as a right of controlling the Republic. The Congress under the authority of the Articles of Confederation was so weak that it could not collect taxes. Congress could not collect taxes because the people feared of having another system of government that would be like Britain.

All states, large or small, had only one vote each to decide on amendments and other important businesses that concerned the country as a whole. The Congress in the end was not strong enough to force the states to follow the Articles of Confederation. At the time, this system was so weak that it had no chief executive and no central body to enforce the laws. Since it was hard to have the states follow the rules, a few states refused to follow the 1783 Treaty of Paris which officially ended the Revolutionary War, even though the Articles of Confederation allowed the Congress to create treaties for all the states within the Union.

With Congress making international decisions for the states, trade disputes with other countries stunted the economy, but the Congress under the Articles of Confederation was left powerless to take command of the international trade agreements. Some states in the United States further stifled commerce by imposing heavy taxes on goods from other states (Davidson). There was no authority within the political system that had the power to assume command over the ensuing economic crisis that had been threatening to demolish the young republic. At this time, government was delayed and could not be moved.

George Washington and other statesmen realized that the republic could live if, and only if, the federal government had actual power to use and control within the nation. However, these very same statesmen wanted to avoid violating the states’ rights. With these events in mind, the delegates decided to hold the Constitutional Convention to repair the damage to their democracy. This meeting produced the ideals of modern Federalism and the countries most sacred document, the United States Constitution (Davidson). This Constitutional Convention was created to only improve the Articles of Confederation, but this proved to be a task that could not be completed. Therefore, the delegates to the Constitutional Convention wrote up a completely different document. This document ended up to be the Constitution of the United States of America. The Constitution’s supporters, who called themselves the Federalists, imagined a national, central government. This new document, the United States Constitution, empowered Congress with powerful and important abilities, some of which are not shared with the individual states’ governments.

A few examples of Congress’s powers are: only Congress can declare war, create treaties with foreign nations, issue currency and distribute it, and control or regulate interstate and foreign trade and commerce. The national government’s laws will always prevail should they ever be in conflict with the laws of the individual states, for the Supremacy Clause, (Article VI of the U.S. Constitution), says that the federal constitution, and all the laws and treaties based on it, are the “supreme law of the land” (Davidson). As a result of a gradual increase in power at all levels of government within the United States, the authority of the federal/central government has grown to become very powerful. Ever since the adoption of the United States Constitution in 1789, all levels of government-whether it be national, state, or local governments-have acquired more duties and powers.

These systems of government were forced to increase due to the fact that the population was growing at a tremendous rate. There were also increases in huge industries, growth of towns and cities, and the need for better roads, railways, and communication systems. Issues such as crime and transportation once were local issues are now and will be national issues that concerns the whole country (Davidson). While the system for the United States is federalism now, there were also a number of other governmental systems that could have been tested with the new Republic of the United States of America. Some systems were tried and some failed to fulfill the citizens needs.

The Union could have tried a Unita the people feared of having another system of government that would be like Britain. All states, large or small, had only one vote each to decide on amendments and other important businesses that concerned the country as a whole. The Congress in the end was not strong enough to force the states to follow the Articles of Confederation. At the time, this system was so weak that it had no chief executive and no central body to enforce the laws. Since it was hard to have the states follow the rules, a few states refused to follow the 1783 Treaty of Paris which officially ended the Revolutionary War, even though the Articles of Confederation allowed the Congress to create treaties for all the states within the Union.

With Congress making international decisions for the states, trade disputes with other countries stunted the economy, but the Congress under the Articles of Confederation was left powerless to take command of the international trade agreements. Some states in the United States further stifled commerce by imposing heavy taxes on goods from other states (Davidson). There was no authority within the political system that had the power to assume command over the ensuing economic crisis that had been threatening to demolish the young republic. At this time, government was delayed and could not be moved. George Washington and other statesmen realized that the republic could live if, and only if, the federal government had actual power to use and control within the nation. However, these very same statesmen wanted to avoid violating the states’ rights. With these events in mind, the delegates decided to hold the Constitutional Convention to repair the damage to their democracy.

This meeting produced the ideals of modern Federalism and the countries most sacred document, the United States Constitution (Davidson). This Constitutional Convention was created to only improve the Articles of Confederation, but this proved to be a task that could not be completed. Therefore, the delegates to the Constitutional Convention wrote up a completely different document. This document ended up to be the Constitution of the United States of America. The Constitution’s supporters, who called themselves the Federalists, imagined a national, central government.

This new document, the United States Constitution, empoweredgovernmental systems that could have been brought into power within the United States, Federalism has been the major key system that has survived through thick and thin, throughout the history and the growth of the Union. In the early years of the Republic’s birth, a confederacy was tried and failed. A unitary system was not used because of the experience from confrontations with Britain and a dual federalism system is really not that different from the modern federalism system in place now. The only difference between the modern federalism system now and the dual federalism is that the states would, in the end, have more sovereignty. Throughout time, some systems were tried and some failed, but the only one that did not fail was the system of federalism.

Asoka was the ruler of the Mauryan Empire ( the main empire of India for 2000 years). After his remorse of the mass killing, for the land of Kalinga he was known for the spreading of the worldwide religion known as buddhism. The battle of Kalinga was Asoka’s most well known battle, it included the sudden gorey death of 200,000 citizens of Kalinga. Keep in mind Kalinga was a peaceful ruling, they paid their tribute to the Mauryan empire, never started conflict and strived to live in harmony with the Mauryan empire. Asoka conquered them as well as mercilessly obliterated the people of the kingdom. Asoka took control of the whole Mauryan empire in 268 BCE. Thinking he was a good guy for this action, would be incorrect, the peoples of today are clouded with nostalgia and only focus on the part of him spreading buddhism. Asoka was a ruthless conqueror and his practice of being one is still evident, yet still is neglected by today’s people. Asoka was a ruthless conqueror and it is evident if you glance at the battle of Kalinga. In document A it states that 100,000 were slaughtered in the capturing of Kalinga, 100,000 were killed by disease infection (infections may of been caused by Ashoka’s army as well as the wounds may not of been tended to properly and had a high chance of getting infected.) This supports the claim of ruthless conqueror by showing how many were killed, not to mention the the 150,000 citizens driven out of the city to find new land. A popular question for an uninformed reading this may be “There has to have been a motive.” and it would be correct to think that. According to document B it states that Kalinga was a very important trading route for the Mauryan, in order to trade with China.

But also according to document B, Kalinga the small kingdom regularly paid tribute to the Mauryan empire to stay on good terms judging by the edicts. Another reason for this immense bloodbath was to rid of neighboring opposing power. This supremely supports my claim of Asoka being a ruthless conqueror. All of the facts brought up in this essay point to the fact that Ashoka was a ruthless conqueror. Asoka killed many people in Kalinga therefore putting him on the naughty list. He conquered land that paid tribute/tax to the mauryan empire, and allowed the mauryan empire to use the trade port. Ruthless is to have or show no pity or compassion for others. Asoka demonstrates this through the battle of Kalinga. He supported, led as well as partook in the murder of 200,000+ citizens for an unjustified reason. 200,000 is a lot now but think about how immense that number was back then. Many argue Asoka is an enlightened ruler due to his feeling of remorse after the battle as well as spreading the religion of buddhism. Even then he cannot shed his ruthless skin, if one did not abide by the law he created they were to be executed, even for a minor misdemeanor. If the truth about Asoka is continued to be shunned by historians as they spread false information, the image of Asoka shall be positive when he deserves a negative one.

Human Resources Coordinator: Supports the efficient operations of the Human Resources Department by coordinating and delivering a diverse range of Human Resources Management activities with a focus on recruitment, on-boarding & induction training, Human Resources system administration, organization development and information management. Business Plans: To work closely with Government, health practitioners, researchers, cancer advocacy groups, charities and cancers sufferers to help eradicate cancer.

Business Goals: To eradicate cancer by reducing smoking prevalence. Ever exposure to ultraviolet light by behavior modification, create healthy environments thus having healthier lifestyles for patients, increasing cancer survival rates by encouraging screening participation, improving earlier detection, reducing cancer outcome variations, reducing the gap between outcomes and the care patients receive by defining key areas, Improve models of service delivery, embedding health services research In cancer care and arranging policies & procedures to support them.

Policies & Procedures: Government Information (Public Access) Act 2009, Annual Reports & Cancer Plans, NEWS Cancer Plan 2011-2015, Conflict of Interest, Corporate Credit Card, Corporate Governance Statement, Data Governance, Employee Code of Conduct & Ethics, Fraud & Corruption Control Strategy, Information Technology – Third Party Service Management, Public Interest Disclosures Policy, Receiving gifts & benefits, Records Management, Reporting Corrupt Conduct to IAC, Responding to Requests for Information & Advice, Smoke Free Workplace and Sponsorship. ) Goals Coordinate the on-boarding of new staff Coordinate the separation of exiting staff Coordinate Performance Development Process (PDP) cycle milestones Coordinate organization wide training initiatives Coordinate organization wide reward and recognition programs The Human Resources (HRS) Coordinator’s role is to ensure the above goals are met by working independently as well as working closely with HRS Management. By gathering the required Information, the HRS Coordinator must take it and use It accordingly to the organizations polices and procedures.

The HRS Team can only function correctly if everyone plays their part. The HRS Coordinators primary role is to coordinate – to reduce plans for the organization in order for the organization to follow them in accordance with policy and procedure. 3) KIP: On-boarding Staff – Produce letters of employment offer, develop starter kits for new staff and organize enrolment into HRS Learning Systems for new staff. KIP: Separation of Exiting Staff – Conducting exit interviews, produce separation checklists, closure of employee profiles and removal of employee from HRS Systems.

KIP: PDP Cycle Milestones – Develop documentation & follow-up to ensure milestones are completed in accordance with organizational requirements and generate a rarity of performance outcome reports. KIP: Organization Wide Training Initiatives – Organize invitations to get people involved in training, keep a formal attendance record, organize qualified facilitators to train students, keep & maintain training calendar for important training dates (assessments) and book venues for training to be held.

KIP: Coordinate Organization Wide Reward & Recognition Programs – Be in charge of the organizing and running of the Purple Jersey Program, distribution of movie & lunch vouchers and developing 5 year service awards by keeping track of employee attendance. The above Kepi’s will be used to measure goal-related performance by how well each task is performed. Every goal that each employee completes makes up the organizations overall performance outcome. Every task has its own set of conditions and difficulties.

These conditions and difficulties can vary from minimal to maximum depending on what the task is and how the task is handled. By using the urgent-important matrix, we can eliminate the most important tasks first and work on the smaller tasks at a later time that way the sit of tasks does not seem as bad as originally planned as they are broken up into more manageable tasks. By using the matrix, it can eliminate the stresses of having so much on one’s plate to do.

It will make it easier to look at each task and say “It is manageable” or “l can achieve this” instead of lacking the confidence to do so. 4) Coordinate organization wide training initiatives Coordinate PDP Cycle Milestones Coordinate separation of exiting staff Coordinate organization wide reward and recognition programs The two goals that I choose to develop work plans for are: I chose these two goals as I believe they are the most important tasks to manage for the organization would be going nowhere. Putting on new staff replaces those that exit the organization.

I will maintain a healthy work-life balance by finding my best two hours of the day to strongly strive awards getting my urgent-important tasks done. I also truly believe that work stays at work and home stays within home boundaries – do not mix the two together as it can cause problems in either area. My stress levels can be managed by sticking to my work plan of doing the urgent-important tasks first to eliminate worrying about trying to do several tasks at once. I can maintain my health by taking regular breaks away from the computer screen as it is unhealthy to be sitting staring at a computer the brief walk from my desk to the staff room and back.

Running head: CORPORATE GOVERNANCE BENCHMARKING Corporate Governance Benchmarking University of Phoenix Corporate Governance MMPBL 570 November 30, 2009 Corporate Governance Benchmarking McBride Financial Services Inc. is a low cost mortgage provider located in Boise, Idaho, Montana, Wyoming, as well as North and South Dakota. Recently, Beltway Investments became the majority investor in McBride Financial Services, Inc. As a result, McBride’s CEO needs the board of directors’ collaboration while setting up internal governance controls and ensuring proper auditing.

To secure that corporate governance benefits the company and investors, McBride’s CEO needs to consider benchmarking. Thus, the authors of this paper examine the benchmarking of Adelphia Communications, Tyco, Calpine Corporation, and Tyson Foods to help develop best practices for McBride Financial Services, Inc. Accordingly, Chew and Gillan (2005) state, “The role of top management is no longer just control and coordination; it is anticipating, leading, and managing change and articulating the rationale for such change to employees” (p. ). Hence, the lack of corporate governance could not be demonstrated better than the rise and fall of Adelphia Communications. Adelphia Communications was at one time the fifth largest cable provider in the United States. The company was controlled by John Rigas, the founder of Adelphia, and his family; they controlled 60 percent of the total voting shares. The family considered Adelphia funds their own personal funds and spent them lavishly on everything from airplanes to professional sports teams.

When all was finally revealed, the Rigas family received $3. 4 billion in loans from Adelphia. The company eventually filed for bankruptcy and was split up in a buyout by Time Warner Cable and Comcast (Comcast, 2006). McBride Financial Services, Inc. (MFSI) is a small company controlled by McBride, the CEO. He is looking to move to the next level, like Adelphia. MFSI has recently formed a partnership with Beltway Investments to allow growth into a regional financial services provider and form a board of directors.

It is not a partnership. It is a corporation and owned by Hugh and Beltway. They are not partners which is a different legal form of business. The company needs to embrace the board of directors as an independent oversight committee and not as rubber stamp committee, yet this is the initial direction the CEO wants the board to take (University of Phoenix, 2009). Adelphia Communications failed because the board was part of the corruption and independent from the daily operations of the company.

The CEO needs to also allow an external accounting firm to conduct regular audits, regardless of the results, of the company to ensure the corruption of Adelphia is not duplicated because “The way boards are structured, meeting every other month, they have to rely on outside advisers” (Patsuris, 2002). Another situation to consider is the decline of the stock prices for Tyco, turning out to be quite detrimental because of the same actions of Kozlowski, the former CEO; he failed to lead the company affectively. Kozlowski was found guilty of using company funds for his personal expenses (Cummins, 2006).

Even though he was found guilty, the company’s image is still flawed and questioned, the same as the value of company stock prices. Nevertheless, Eric Pillmore is in the process of reclaiming the company’s image by reconstructing and communicating a well built ethical atmosphere. Pillmore may be strict and enforce control to help the company; perhaps if the control had been maintained through corporate governance in the past, and if employees had been at ease in bringing issues to the fore front, Kozlowski would not have been able to send the company into the tailspin it has experienced (Cummins, 2006).

MFSI can learn valuable lessons from Tyco; in conjunction with legal action and a marred company because of inadequate corporate governance, Tyco has made strides in changing its business environment. Tyco has managed to make improvements, from restructuring the company ethics statement, to meeting each employee personally, supplying them with a company ethics statement, and publishing a quarterly report on any problems employees brought to the company’s attention, and compiling the findings and disciplinary actions (Cummins, 2006, para. 3). Pillmore may be strict and controlling but he has turned Tyco around by improving employee behavior, creating a trustful environment and communicating with Tyco employees. MFSI’s CEO needs to consider such changes as Tyco has implemented, to be in compliance with federal guidelines, build trusting relationships with his employees and change the tone of MFSI’s corporate culture by adhering to a new corporate governance plan.

Basically, in critiquing and analyzing the roles of the key leaders of corporate governance to assess the function of ethics in compliance, key concepts and the best practices of Calpine Corporation have also been considered to help MFSI. According to Chew and Gillan (2005), “During the past decade many CEOs of large companies have become highly visible public figures,” and while MFSI is still evolving, pressure to act appropriately exists (p. 1). This visibility increases accountability for leaders’ corporate governance.

In the case of MFSI, the CEO is faced with critical decision making. MFSI’s CEO’s corporate governance has the potential of creating undesirable outcomes. However, to help MFSI, the best practices of Calpine demonstrate how decision making can be executed through the code of conduct guidelines. Calpine is a successful company that despite its business strategies, it was challenged with uncontrollable environmental forces. In 1998, Calpine experienced the effects of deregulation; yet leadership followed the company’s good corporate governance to address the issue.

Hence, in comparing MFSI with Calpine, it is noted that Calpine’s leadership is committed to act with integrity and transparency while MFSI’s CEO is behaving unethically by disregarding the board of directors’ and shareholders’ input. Chew and Gillan (2005) declare, “The performance of companies, good or bad, is often attributed—not only by the press, but by the directors and shareholders of the companies—to the CEO’s personal business savvy and leadership” (p. 2). Therefore, in providing MFSI with good corporate governance best practices, Tyson Foods is also considered. Tyson is a company from which MFSI can learn.

MFSI’s CEO wants to control the board of directors. He tells them not to worry about doing any work or meeting more than a few times a year; “I will handle the real work,” exclaims the CEO (University of Phoenix, 2009). Tyson entered into a settlement agreement that not only cost them a considerable amount of money but also required them to practice proper corporate governance. By trying to control the board of directors, and by not offering incentive compensation and stock options, MFSI’s CEO may soon find that investors do not appreciate his self serving financial gain at the cost of their right to a good return n investment. MFSI’s CEO must take seriously, as Tyson now takes seriously, the need to allow the board of directors to be active in the business of the company and to carry out their duty to protect shareholders’ interests (Friedlander, 2008). Also, MFSI’s CEO must set up proper audit procedures, using an impartial outside auditor while setting up internal controls. MFSI’s CEO needs to understand that corporate governance procedures are not only for his benefit but also for every investor’s welfare. The CEO needs to include others in the decision making, helping to enhance every stakeholder’s benefits.

By creating transparency in their procedures and corporate governance, MFSI can help encourage the board of directors to work collaboratively to provide a good return to investors while creating long term gains that will keep the company running strong. If MFSI’s CEO continues to try to circumvent the company’s processes and make the board of directors a powerless figurehead, his investors might soon become disgruntled and take their investments elsewhere. Conclusion Maintaining state and federal guidelines and staying within the company’s code of conduct can be challenging.

Thus, top leaders need to delineate the roles of each person in charge of decision making and correct any incompatible behaviors contrary to good corporate governance. In the case of McBride Financial Services, Inc. , for instance, corporate governance was identified as incongruent with the overall ethical code of conduct and responsibility of top leadership. While the best practices of the companies mentioned in this paper offer fundamental principles to executing decision making in managing the interests of stakeholders, it is also critical to adhere to all Federal ethical guidelines to help mitigate any potential undesired outcomes.

Synopsis of Adelphia Communication by Michael Gillespie Issue in the Scenario that is facing the company Adelphia Communications was a publicly held company owned mostly by the founder John Rigas and his family. Adelphia had a board of directors the consisted of nine people, five of them appointed by the Rigas. Over a five year period of time the Rigas family “loaned” $3. 1 billion dollars from Adelphia. This was $800 million more than what was initially reported during an SEC investigation (Patsuris, 2002). These “loans” financed everything rom real estate ventures, airplanes, country club memberships, and operating the Buffalo Sabres hockey team. The Board of Directors fired the auditor of the company, Deloitte & Touche, when they began to question some inconsistencies found during an audit (Farrell, 2002). Ironically, Adelphia sued Deloitte & Touche for incompetence. If Adelphia’s board of directors had been independent, the board would have had to rely on reports from management, external auditors and consultants, in order to determine the company’s status. Unfortunately, Adelphia’s board was so packed with insiders it was hardly in this position.

Company response to the issue Soon after the termination of Deloitte, PriceWaterhouseCoopers was selected as the new auditor for Adelphia. The first step for PWC was to re-audit previous year’s financial statements. Two weeks after the hiring of PWC, Adelphia filed for Chapter 11 Bankruptcy protection and was able to secure $1. 5 billion in debt to continue operating. The company hired a new board of directors. To fill these positions the firm went outside the Adelphia umbrella and searched for ethical industry veterans to become board members.

John Rigas was sentenced to 12 years in prison and his sons were sentenced to 17 years. Outcomes from the company’s response Adelphia Communications was never able to recover from the lack of corporate governance and the corrupt management of the company. In 2006, Time Warner Cable and Comcast Cable purchased Adelphia for $12. 7 billion in cash and stock options (Comcast, 2006). This deal took over 40 months to complete due to fraud and security investigations and the fact that Adelphia was operating under bankruptcy protection. Synopsis of Tyco by Colleen Holdahl

Issue in the Scenario that is facing the company Tyco faced major legal issues in 2002 and was responsible to pay a “$50 million fine to settle claims that it inflated profits from 1996 through 2002” (Cummins, 2006, para. 3). Dennis Kozlowski, the company’s CEO, was found guilty of embezzling funds to such extravagance as reporting he purchased “a $6,000 shower curtain” (Cummins, 2006, para. 2) and hosting a “$2 million birthday party for his wife” (Cummins, 2006, para. 2). With all the turbulence Tyco has gone through, the present leadership is making progress to clean-up the company’s reputation.

Eric Pillmore, the current senior vice president of corporate governance, has been the leader of the clean-up. Outcomes from the company’s response Pillmore started ‘cleaning-up’ Tyco by implementing a new corporate governance plan; starting with the replacement of the previous board of directors, developing, and forming a new ethics code. The newly implemented governance plan “first principle calls for strong leaders who see themselves as stewards of the company and mentors for its future leaders” (Cummins, 2006, para. 9).

Pillmore is of the conclusion that some of the former leaders have more concern with their own self significance; seeing themselves as ‘wheeler dealers,’ instead of being responsible and looking out for the best interests of the company. Pillmore also believes one of the most critical functions of his job as chief financial officer is to monitor the finances and act as a mentor to everyone in the company (Cummins, 2006). Among Pillmore’s other philosophies is ‘a web of accountability’ and ‘a robust process to understand why people behave the way they do’.

He believes every employee has something to contribute to maintain an ethical business environment and leaders should not be intimidating. Employees should be free to approach their company leaders on ethics and company values issues. Outcomes from the company’s response Eric Pillmore takes the time to meet each employee, supplying them with the company’s ethics statement, and to discuss concerns or issues they may encounter. Tyco “publishes a quarterly report on any problems employees brought to the company’s attention, then the company’s findings and any disciplinary action- leaving out all employees’ names” (Cummins, 2006, para. 3). After the turbulence and with the help of Pillmore, Tyco has turned around and once again has a positive company image and the stock has recovered most of its value. Tyco received a rating by the Governance Metrics International as “one of the most improved companies globally; on a scale of one to ten, Tyco rose from a 1. 5 at the end of 2002 to 8. 5” (Cummins, 2006, para. 13). Synopsis of Calpine Corporation by Marisela Jimenez Issue in the Scenario that is facing the company

Calpine Corporation is a successful independent power company that has strived to improve its business operations to help it advance its mission, values, and vision. While Calpine has managed to sustain its record high profits, the company, nevertheless, has faced changes in the business environment, particularly in deregulation. In 1998, a national movement, led by state legislation across the country, passed a U. S. Congress bill to accelerate and spread nationwide electric deregulation (FindingUniverse, 2009). This issue affected Calpine’s overall business functioning.

Company response to the issue However, Calpine responded to the issue by focusing on the opportunities presented by deregulation. In other words, “The company’s foundation as a service provider to power plant operators and its subsequent development into a power plant operator itself engendered a vertically integrated enterprise primed for the new competitive era” (FundingUniverse, 2009). Calpine synergized its operations and focused on developing systems to maximize resources by improving conceptual designs, financing, construction, operation, fuel management, and power marketing.

Through the synergistic approach to the business of producing electricity, Calpine managed to remain competitive in the market by strategically preserving profits without cutting the highly aggressive rates. The changes in deregulation helped Calpine’s leadership take immediate action by addressing the uncontrollable forces affecting the company. Leadership realized the potential for deregulation and its implications in the company; therefore, when Congress passed the deregulation bill, Calpine’s leadership was competently prepared. Outcomes from the company’s response

Calpine’s outcome of the company’s response to the issue helped expedite the acquisition of 46 gas-fired turbines produced by Siemens Westinghouse. This acquisition radically enhanced Calpine’s market presence; leadership identified the opportunity of expansion as a result of deregulation. Basically, “The combination of Calpine management’s intuitive powers in foreseeing a growing demand for capacity and its willingness to gamble heavily paid handsome dividends,” enabling Calpine to grow into a successful company (FundingUniverse, 2009).

Calpine’s leadership, however, ensures that their commitment to good corporate governance adheres to the highest ethical standards; thus, leadership behaves with integrity and transparency while maintaining strong levels of communication with stakeholders, including the board of directors, employees, and the community. Calpine’s leadership decision making is guided by the company’s code of conduct, helping to discourage any illegal and unethical behavior (Calpine, 2009). Synopsis of Tyson Foods by Carole Kindt

Issue in the Scenario that is facing the company Over the years Tyson Foods has handled controversial issues concerning their business practices. They have been questioned over their ties to former President Clinton, unsanitary and dangerous conditions in their plants, plants staffed by low-paid workers, and even questionable campaign contributions (Unknown 1, 2009). In 2008, Tyson entered into a settlement with its investors over questionable practices in a case that named Don Tyson, members of his family, and the Board of Directors.

The case alleged misconduct in connection with related party transactions and granting stock options to officers and directors of Tyson (Chase, 2008). The settlement agreement approved by the judge in the case ordered Tyson to pay $4. 5 million to their largest shareholders and forced improvements to Tyson’s corporate governance policies (Chase, 2008). As part of the settlement agreement, Tyson agreed not to engage in any new related party transactions without the approval of the Board and also to hire a consultant to evaluate its internal audit and control processes (Chase, 2008).

Company response to the issue Tyson’s Board of Directors immediately began fulfilling the terms of the settlement agreement and they have worked to create a strong corporate governance structure. In 2008, the Board appointed a lead independent director and a new chairman of its compensation committee as well as establishing a nominating committee (Unknown 2, 2008). By focusing on their internal controls and corporate governance, Tyson’s board of directors has returned to their fundamental task, to work in good faith to assure they are upholding their fiduciary duties to the stockholders.

Outcomes from the company’s response Tyson’s board of directors received a wake-up call that shook them out of their lassitude and encouraged them to make changes that enhance the long term goals of Tyson Foods as well as the return for their investors (Friedlander, 2008). In this way, Tyson will rebuild its reputation and trust with investors as well as fulfill the company’s long-term goals. By creating committees made up of independent, non-biased members, Tyson will create the transparency necessary to rebuild investor trust and build their company for the future. Good choice of companies and relating some of the take-a-ways to McB.

Paper easy to read and follow but you could have worked the lesson into McB in more detail. Grade 96 References Calpine. (2009). Corporate Governance. [Online]. Available: http://www. calpine. com/ About/oc_corpgov. asp (2009, November 25). (Chase R 2008 Judge Approves $4. 5M Settlement Against Tyson Foods Directors. )Chase, R. (2008). Judge Approves $4. 5M Settlement Against Tyson Foods Directors. CNA Insurance Journal. Retrieved from http://www. insurancejournal. com /news/national /2008. thm? print=1 database. Chew, D. H. , Gillan, S. L. (2005). Corporate Governance at the Crossroads: A book of readings. 1 ed. ). New York: The McGraw-Hill Companies, Inc. Comcast Press Release. (2006). Comcast and Time Warner Complete Adelphia Acquisitions. July 31, 2006. Retrieved on November 26, 2009 from http://www. comcast. com/About/PressRelease/PressReleaseDetail. ashx? PRID=55. ComcaCCummins, H. J. (2006). Tyco exec makes the rounds spreading the word on corporate ethics. Star Tribune, p. 1D. Retrieved November 23, 2009, from ProQuest database. Farrell, M. (2002). Deloitte Blasts Adelphia on Audit. Multi Channel News. July 8, 2002. Retrieved on November 25, 2009 from http://www. allbusiness. om/company-activities-management/company-structures-ownership/6355799-1. html. (Friedlander J 2008 Overturn Time-Warner Three Different Ways)Friedlander, J. (2008). Overturn Time-Warner Three Different Ways. Delaware Journal of Corporate Law, 33(3), 631-649. Retrieved November 24, 2009, from Business Source Complete database Web Site: http://support. ebsco. com. FundingUniverse. (2009). Calpine Corporation. [Online]. Available: http://www. fundinguniverse. com/company-histories/Calpine-Corporation-Company- History. html (2009, November 25). Patsuris, Patricia (2009). Adelphia Hypocrisy. Forbes. om. Retrieved on November 25, 2009, from http://www. forbes. com/2002/06/10/0610adelphia. html. (Unknown 2 2008)Unknown 2. (2008). Retrieved November 23, 2009, from http://www. tyson. com//Corporate/PressRoom/ViewArticle. aspx? id-2879 Web Site: http://www. tyson. com. (Unknown 2009 Tyson Foods, Inc. )Unknown 1. (2009). Tyson Foods, Inc. Retrieved November 24, 2009, from http://www. fundinguniverse. com/company-histories. /Tyson-Foods-Inc-Company-History Web Site: http://www. fundi nguniverse. com. University of Phoenix (2009). McBride Financial Scenario. Retrieved November 16, 2009 from rEsource student website.

The genius of public corporations teems from their capacity to allow efficient sharing or spreading of risk among many investors, who appoint a professional manager run the company on the behalf of shareholders. However, the public corporation has a key weakness – namely, the conflicts of Interest between managers and shareholders. The separation of the company ownership and control, which Is especially prevalent where corporate ownership Is highly diffused, gives rise to possible conflicts between shareholders and managers.

In theory, shareholders elect the board of directors of the company, which in turn ire’s managers to run the company for the Interests of shareholders. Managers are supposed to be agents working for their principals, that Is, shareholders, who are the real owners of the company. In a public company with diffused ownership, the board of directors is entrusted with the vital tasks of monitoring the management and safeguarding the interests of shareholders. Unfortunately, with diffused ownership, few shareholders have strong enough incentive to incur the costs of monitoring management themselves when the benefits from such monitoring accrue to all shareholders alike. The benefits are shared, but not the costs. When company ownership is highly diffused, this “free-rider” problem discourages shareholder activism. As a result, the interests of managers and shareholders are often allowed to diverge. With an ineffective and unmotivated board of directors, shareholders are basically left without effective recourse to control managerial self-dealings.

Recognition of this key weakness of the public corporation can be traced at least as far back as to Adam Smith’s Wealth of Nations (1 776), which stated: The directors of such Joint-stocks companies, however, being the managers rather of other people’s money than of their own, it cannot well be the partners of a private cooperator frequently watch over their own…. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.

Agency theory in a formal sense originated in the early asses, but the concepts behind it have a long and varied history. Among the influences are property-rights theories, organization economics, contract law, and political philosophy, including the works of Locke and Hobbes. Some noteworthy scholars involved in agency theory’s roommate period in the asses included Airmen Lucian, Harold Demesne, S. A. Ross and the famous paper “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure. ” of Michael Jensen and William Neckline.

In an ideal situation the manager (or entrepreneur) and the investors sign a contract that specifies how the manager will use the funds and also how the investment returns will be divided between the manager and the investors. If the two sides can write a complete contract that specifies exactly what the manager will do under each of all possible future unforeseen events, there will be no room for any inflicts of interest or managerial discretion. Thus, under a complete contract, there will be no agency problem. However, it is practically impossible to foresee all future contingencies and write a complete contract.

This means that the manager and the investors will have to set up the control rights to make decisions under those contingencies that are not specifically covered by the contract. Because the outside investors may be neither qualified nor interested in making business decisions, or if there will be too many of investors, the manager often ends up acquiring most of this residual control right. The investors supply funds to the company but are not involved in the company’s daily decision making. As a result, many public companies come to have “strong managers and weak shareholders. The agency problem refers to the possible conflicts of interest between self – interested managers as agents and shareholders of the firm, who are the principals. In the described circumstances the manager will end up with residual control rights to allocate investors’ funds, and sometimes the disclosure of investment channels may not be clear and full. So the investors are not longer assured of achieving fair returns on their funds, in other words the agency problem lies in a loss of trust for the manager by the shareholders of the company.

In the following paper examples of the agency problem, proposed ways of solving and controlling methods and their analysis will be presented and discussed. Chapter 1 . Prerequisites of the agency problem and different approaches to solving it 1. 1 . How we detect an agency problem Agency theory suggests that the firm can be viewed as a combination of different relationships – some of them well and others can be loosely defined – between resource holders. The primary agency relationship in business is between stockholders and managers.

The relationships are not necessarily harmonious; indeed, the agency theory is concerned with so-called agency conflicts, or conflicts of interest between agents and principals. This has implications for, among other things, corporate governance and business ethics. When the agency problem occurs sustain an effective agency relationship, those will be discussed a bit later. So what can be signals for managerial self-interested behavior? Sometimes, the manager simply steals investors’ funds.

Alternatively, the manager may use a more pesticides scheme, setting up an independent company that he owns and diverting to it the main company’s cash and assets through transfer pricing. For example, the manager can sell the main company’s output to the company he owns at below market prices, or buy the output of the company he owns at above market prices. Some oil companies are known to sell oil to manager-owned trading companies at below market prices and not always bother to collect the bills.

Self- interested managers may also waste funds by undertaking unprofitable projects that benefit themselves but not investors. For example, managers may allocate funds the ay to take over other companies and overpay for the targets if it serves their private interests. Needless to say, this type of investment will destroy shareholders’ value. What is more, the same managers may take anti-takeover measures for their own company in order to secure their personal Job and perpetuate private benefits.

In the same vein, managers may resist any attempts to be replaced even if shareholders’ interests will be better served by their resignation. These managerial entrenchment efforts are clear signs of the agency problem. One of the clearest signals for the existence of the agency problem can be management of free cash-flow. High level of free cash-flows are usually presented in companies on a maturity stage of life cycle, with a low level of growth, so those free cash?flows are supposed to be distributed as dividends or should be invested in some projects, both of the actions can probably increase the firm’s value.

But there are a few important incentives for managers to retain cash flows. First, cash reserves provide corporate managers with a measure of independence from the capital markets, insulating them from external scrutiny and discipline. This will make life easier for managers. Second, growing the size of the company via retention of cash tends to have the effect of raising managerial compensation. As is well known, executive compensation depends as much on the size of the company as on its profitability, if not more.

Third, senior executives can boost their social and political power and prestige by increasing the size of their company. Executives presiding over large companies are likely to enjoy greater social prominence and visibility than those running small companies. Also, the company’s size itself can be a way of satisfying the executive ego. Consequently, managers of those companies either sit n a huge bunch of money, or bound to invest in a lot of not so successful projects or to take over some other firms in attempt to diversify and not to pay dividends or at least too high dividends.

In the contrast in high-growth industries, such as biotechnology, financial services, and pharmaceuticals, where companies internally generate funds, which fall short of profitable investment opportunities, managers are less likely to waste funds in unprofitable projects. After all, managers in these industries need to have a “good reputation”, as they must repeatedly come back to capital markets for funding. Once the managers of a company are known for wasting funds for private benefits, external funding for the company may dry up quickly.

The managers in these industries thus have an incentive to serve the interests of outside undertaking their “good” investment projects. Generally, the heart of the agency problem is the conflicts of interest between managers and the outside investors over the disposition of free cash-flows, so in the following part I would like to present different approaches on how owners of the firm can hedge and maintain managers of the firm to lower the risk of agency problem ND, subsequently, agency costs. 1. 2.

Remedies of agency problem Obviously, it is a matter of vital importance for shareholders to control the agency problem; otherwise, they may not be able to get their money back. It is also important for society as a whole to solve the agency problem, since the agency problem leads to waste of scarce resources, hampers capital market functions, and retards economic growth. Several main governance mechanisms exist to manage or completely remove an agency problem: 1. Board of directors 2. Incentive contracts 3. Concentrated ownership 4. Debt 5.

Overseas stock listings 6. Market for corporate control (takeovers) In most of the countries, shareholders have the right to elect the board of directors, which is legally charged with representing the interests of shareholders. If the board of directors remains independent of management, it can serve as an effective mechanism for curbing the agency problem. For example, studies showed that the appointment of outside directors is associated with a higher turnover rate of Coos following poor firm performances, thus curbing managerial entrenchment.

In the same vein, in a study of corporate governance in the United Kingdom, Daddy and McConnell report that the board of directors is more likely to appoint an outside CEO after an increase in outsiders’ representation on the board. But due to the diffused ownership structure of the public company, management often gets to choose board members who are likely to be friendly to management. The structure and legal charge of corporate boards vary greatly across countries.

In Germany, for instance, the corporate board is not legally charged with representing the interests of shareholders. Rather, it is charged with looking after the interests of stakeholders (e. G. , workers, creditors, etc. ) in general, not Just hardliners. In Germany, there are two-tier boards consisting of supervisory and management boards. Based on the German extermination system, the law requires that workers be represented on the supervisory board. Likewise, some U. S. Companies have labor union representatives on their boards, although it is not legally mandated.

In the United Kingdom, the majority of public companies voluntarily abide by the Code of Best Practice on corporate governance recommended by the Catbird Committee. The code recommends that there should be at least three outside directors and that the board chairman and the CEO should be different individuals in USA there are a lot of examples of CEO and chairman being the same individual, what is in author’s opinion, can be one of the most crucial factors of top-managerial frauds).

Apart from outside directors, separation of the chairman and CEO positions can further enhance the independence of the board of directors. In Japan, most welfare of the keiretsu to which the company belongs. As previously discussed, managers capture residual control rights and thus have enormous discretion over how to run the company. But they own relatively little of the equity of the company they manage. To the extent that managers do not own equity shares, they do not have cash flow rights.

Although managers run the company at their own discretion, they may not significantly benefit from the profit generated from their efforts and expertise. In the end of sees researches showed that the pay of American executives changes only by about $3 per every $1,000 change of shareholder wealth; executive pay is nearly insensitive to changes in shareholder wealth. This situation implies that managers may not be very interested in the minimization of shareholder wealth. This “gap” between managerial control rights and cash flow rights may enlarge the agency problem.

When professional managers have small equity positions of their own in a company with diffused ownership, they have both power and a motive to engage in self-dealings. Aware of this situation, many companies provide managers with incentive contracts, such as stocks and stock options, in order to reduce this gap and align better the interests of managers with investors’. With the grant of stocks or stock options, managers can be given an incentive to run the company in such a way that enhances shareholder wealth as well as their own.

Against this backdrop, incentive contracts for senior executives have become common among public companies in the United States. As will be shown in the second chapter of the paper, however, senior executives can abuse incentive contracts by artificially manipulating accounting numbers, sometimes with the connivance of auditors (for example, Arthur Andersen’s involvement’s with the Enron debacle), or by altering investment policies so that they can reap enormous personal benefits.

It is thus important for the board of directors to set up an independent compensation committee that can carefully design incentive contracts for executives and regularly monitor their actions, and these incentives contracts should be composed in accordance to the characteristics of firm’s operational activity, as will be demonstrated in the third part of the chapter. An effective way to mitigate an agency problem is to concentrate shareholdings. If one or a few large investors own significant portions of the company, they will have a strong incentive to monitor management.

For example, if an investor owns 51 percent of the company, he or she can definitely control the management (he can easily hire or fire managers) and will make sure that shareholders’ rights are respected in the conduct of the company’s affairs. With concentrated ownership and high stakes, the free-rider problem afflicting small, atomistic shareholders dissipates. In the United States and the United Kingdom, concentrated ownership of a public company is relatively rare. Elsewhere in the world, however, concentrated ownership is regularly implemented.

In Germany, for example, commercial banks, insurance and other companies, even families often own significant blocks of company stock. Similarly, extensive cross-holdings of equities among keiretsu member companies and main banks are commonplace in Japan. Also in France, cross-holdings and “core” investors are common. In Asia and Latin America, many companies are controlled by founders or their family members. In China, the government is often the controlling ownership has a positive effect on a company’s performance and value, examples of Japan and Germany.

This suggests that large shareholders indeed play a significant governance role. Of particular interest here is the effect of managerial equity holdings. Previous studies suggest that there can be a nonlinear relationship between managerial ownership share and firm value and performance. Specifically, as the managerial ownership share increases, firm value may initially increase, since he interests of managers and outside investors become better aligned (thus reducing agency costs).

But if the managerial ownership share exceeds a certain point, firm value may actually start to decline as managers become more entrenched. With larger shareholdings, for example, managers may be able to more effectively resist takeover bids and extract larger private benefits at the expense of outside investors. If the managerial ownership share continues to rise, however, the alignment effect may become dominant again. When managers are large shareholders, they do not want to rob themselves. To summarize, there can be an interim range” of managerial ownership share over which the entrenchment effect is dominant.

Studies showed (Merck, Shellfire, and Vishnu) that the “entrenchment effect” is roughly dominant over the range of managerial ownership between 5 percent and 25 percent, whereas the “alignment effect” is dominant for the ownership shares less than 5 percent and exceeding 25 percent. A relationship between managerial ownership and firm value is likely to vary across countries. Although managers have discretion over how much of a dividend to pay to shareholders, debt does not allow such managerial discretion.

If managers fail to pay interest and principal to creditors, the company can be forced into bankruptcy and its managers may lose their Jobs. Borrowing and the subsequent obligation to make interest payments on time can have a major disciplinary effect on managers, motivating them to curb private perks and wasteful investments and trim bloated organizations. In fact, debt can serve as a substitute for dividends by forcing managers to disgorge free cash flow to outside investors rather than wasting it.

For firms with free cash flows, debt can be a stronger mechanism than stocks for credibly bonding managers to release cash flows to investors. Excessive debt, however, can create its own problem. In turbulent economic conditions, equities can buffer the company against adversity. Managers can pare down or skip dividend payments until the situation improves. With debt, however, managers do not have such flexibility and the company’s survival can be threatened. Excessive debt may also induce the risk-averse managers to forgo profitable but risky investment projects, causing an underinvestment problem.

For this reason, debt may not be such a desirable governance mechanism for young companies with few cash reserves or tangible assets. In addition, companies can misuse debt to finance corporate empire building. Companies domiciled in countries with weak investor protection, such as Italy, Korea, and Russia, can bond themselves credibly to better investor protection by listing their stocks in countries with strong investor protection, such as the United States and the United Kingdom.

In other words, foreign firms with weak governance mechanisms can opt to outsource a superior corporate governance regime available decision to list its stock on the New York Stock Exchange (NYSE). Since the level of shareholder protection afforded by the U. S. Securities Exchange Commission (SEC) and the NYSE is much higher than that provided in Italy, the action will be interpreted as signaling the company’s commitment to shareholder rights. Then, investors both in Italy and abroad will be more willing to provide capital to the company and value the company shares more.

Generally speaking, the beneficial effects from U. S. Listings will be greater for firms from countries with weaker governance mechanisms. Studies confirm the effects of cross-border listings. Specifically, Dodge, Karol, and Stall (2002) report that foreign firms listed in the United States are valued more Han those from the same countries that are not listed in the United States. They argue that firms listed in the United States can take better advantage of growth opportunities and that controlling shareholders cannot extract as many private benefits.

It is pointed out, however, that foreign firms in mature industries with limited growth opportunities are not very likely to seek U. S. Listings, even though these firms face more serious agency problems than firms with growth opportunities that are more likely to seek U. S. Listings. In other words, firms with more serious problems are less likely to seek the remedies. Suppose a company continually performs poorly and all of its internal governance mechanisms fail to correct the problem. This situation may prompt an outsider (another company or investor) to mount a takeover bid.

In a hostile takeover attempt, the bidder typically makes a tender offer to the target shareholders at a price substantially exceeding the prevailing share price. The target shareholders thus have an opportunity to sell their shares at a substantial premium. If the bid is successful, the bidder will acquire the control rights of the target and restructure the company. Following a successful takeover, the bidder often replaces the management team, divests some assets or divisions, and trims employment in effort to enhance efficiency.

If these efforts are successful, the combined market value of the acquirer and target companies will become higher than the sum of stand-alone values of the two companies, reflecting the synergies created. The market for corporate control, if it exists, can have a disciplinary effect on managers and enhance company efficiency. In the United States and the United Kingdom, hostile takeovers can serve as a rustic governance mechanism of the last resort. Under the potential threat of takeover, managers cannot take their control of the company for granted. In many other countries, however, hostile takeovers are quite rare.

This is so partly because of concentrated ownership in these countries and partly because of cultural values and political environments disapproving hostile corporate takeovers. But even in these countries, the incidence of corporate takeovers has been gradually increasing. This can be due, in part, to the spreading of equity culture and the opening and deregulation of capital markets. In Germany, for instance, takeovers are carried out through transfer of block holdings. In Japan, as in Germany, inter firm cross-holdings of equities are loosening, creating capital market conditions that are more conducive to takeover activities.

To the extent that companies with poor investment opportunities and excess cash initiate takeovers, it is a symptom, rather than a cure, 1. 3. Different approach for different types of companies In the Journal of Financial and Strategic Decisions Robert L. Lippies wrote an article named “Agency conflicts, managerial compensation and firm variance”, where e described different situations where one type of managerial compensation would be more effective than others as a solution for an agency problem.

The recent literature on agency conflicts between managers and shareholders is characterized by studies that test whether the implementation of incentive compensation schemes mitigate the manager-shareholder conflict. While these studies present evidence that incentives do influence managerial decision-making, no dominant class of incentives has been found. This finding is consistent with evidence that suggests firms must compensate according to their particular characteristics.

The article of Robert Lippies will consider incentive compensation in relation to the manager’s ability to increase the risk of future cash flows. In this context the relationship between compensation, risk taking, and managerial behavior can be evaluated. I would like to introduce some of his findings with short arguments. 1. Managers who receive a large portion of their total compensation in fixed wages will make efforts to reduce the variance of future cash flows. 2. Managers who receive a large portion of their total compensation in the form of fixed wages will have interests aligned to those of bondholders.

Both wage and bond payoffs are negatively affected by increased dispersion because any values beyond these fixed claims are of no concern. This result implies that the interests of the manager and the bondholder become increasingly aligned as the manager’s fixed wage increases. In the case of the pure fixed wage earner or pure bondholder, minimizing variance increases expected utility. Specifically, in this scenario, bondholders and wage earners have interests that are naturally aligned, and that is in direct conflict with the manager’s role as an agent for the shareholders.

The manager should consider bondholders interests to the extent that they impact the value of the firm but there should not be a direct alignment of interest between the manager and bondholders because this would violate the agency agreement between the shareholders and the manager and ultimately lower the value of common equity. Thus, the incentive compensation scheme must encourage the fulfillment of the principal-agent relationship. 3. Managers who receive a large portion of their total compensation in equity-related securities will make efforts to increase the variance of future cash flows. Managers who receive a large portion of their total compensation in equity-related securities will have interests aligned to those of shareholders. If the manager has significant control over the dispersion of firm values, the compensation scheme should reflect this fact by providing a lower fixed wage and more equity-related rewards. Of course, when the firm compensate its manager by equity-related reward, there is always a threat that the manager will manipulate with a price of shares, those manipulations may harm the real market value of the firm and may even lead to the firm’s edge.

If, however, the manager has little control over the dispersion, a different type of remuneration package should be developed which limits the manager’s exposure to risk which is beyond his control. 5. Managers of earning high wages will choose to hold larger amounts of the firm’s equity-related securities. Assuming that a manager receives a wage, in case of high level of variance the manager should hold enough stock to offset any potential loss in wages.

For example, if a firm is subject to large dispersions in value over which the manager has no control, the manager could hedge against a possible loss in wages by holding an mount of stock proportional to his wage claim. This wealth allocation would allow him to offset his potential loss of wages with potential capital gains. 6. Managers of stable firms who have little control over the dispersion of future cash flows and who earn high wages should receive fewer equity-related rewards from the firm.

Clearly, if a manager has a little control over a firm’s cash-flows, there is no need to connect his reward to the particular indexes of the firm, but as far as the firm is stable and has a lot of cash, it can allow high wage for its manager, what in turn is expected to be fair reward for the manger to prevent him from wrong-doings. 7. Firms which provide their managers with the ability to increase the dispersion of future cash flows should include more equity related rewards in the manager’s compensation system. 8.

The existence of compensation in the form of stock options lowers the incentive of managers to expropriate wealth from shareholders and increases the incentive to expropriate wealth from bondholders. While prior research has focused on managerial compensation and its motivational qualities; this model suggests that firm-specific characteristics relating o the propensity for firm variance and the degree of control that the manager has over this variance should be the fundamental determinants of managerial reward.

In the second chapter of my paper various examples of agency problem will be presented, also how different aforementioned solutions were implemented for these examples will be analyzed and discussed. Chapter 2. Practical examples of agency problem’s solution 2. 1. Good intentions usually backfire Executive loans. In the asses and early asses, loans by companies to executives with low interest rates and “forgiveness” often served as a form of compensation. Before ewe loans were banned in 2002, more than 30 percent of the 1500 largest US firms disclosed cash loans to executives in their regulatory filings, sum totaled $4. Billion, with the average loan being about $11 million. Half of these companies, charged no interest on executive loans, and half charged below market rates, and in either case the loans were often “forgiven”. An estimated $1 billion of the loans extended before 2002 (when they were banned) will eventually be forgiven, either while the executives are still at their companies or when they leave. For executives in companies that went bankrupt during the informational genealogy bubble collapse (when in the most of cases value of Internet-based or oriented companies could have been created by adding e- in front of their names or . Mom after), when investors lost of billions of dollars, this was very useful. According to the Financial Times, executives at the 25 largest US public firms that went bankrupt between January 2001 and August 2001 sold almost $3 billion worth of their companies’ stock during that time and two preceding years as the collective shares fell by at least 75 percent, 25 had executives sell a total of “$23 billion before their stocks plummeted”.

Large loans to executives were involved in more than a couple of these companies, one of the most notable being World. World loaned (directly or indirectly) hundreds of millions of dollars?approximately 20 percent of the cash on the firm’s balance sheet?to its CEO Bernard Beers to help him pay off margin debt in his personal brokerage account. The loans were both unsecured and about half the normal interest rate a brokerage firm would have charged.

World filed for bankruptcy a few months after the last loans were made. As a reaction to these scandals and clear frauds by top-management of huge impasses, the Serbians-Solely Act was passed in mid-2002 to improve financial disclosures from corporations and prevent accounting fraud, but also involved executive compensation. It banned loans by companies to directors and executives, also included the return of executive stock sale profit if overstating earnings will be revealed.

Enron’s compensation and performance management system was designed to retain and reward its most valuable employees, the system contributed to a dysfunctional corporate culture that became obsessed with short-term earnings to maximize bonuses. Employees constantly tried to start deals, often disregarding the laity of cash flow or profits, in order to get a better rating for their performance review, such actions helped ensure deal-makers and executives received large cash bonuses and stock options. The company was constantly emphasizing its stock price.

Management was compensated extensively using stock options. This policy of stock option awards caused management to create expectations of rapid growth in efforts to give the appearance of reported earnings to meet Wall Street’s expectations. At budget meetings, target earnings were developed on the basis “What earnings do you need to keep our stock price up? And that number would be used, even if it was not feasible. At December 31, 2000, Enron had 96 million shares outstanding as stock option plans (approximately 13% of common shares outstanding).

Enron’s proxy statement stated that, within three years, these awards were expected to be exercised. Using Enron’s January 2001 stock price of $83. 13 and the directors’ beneficial ownership reported in the 2001 proxy, the value of director stock ownership was $659 million for the chairman of Enron Kenneth Lay, and $174 million for the CEO Jeffrey Killing. Employees had large expense accounts and many executives were paid moieties twice as much as competitors. In 1998, the top 200 highest-paid employees received $193 million from salaries, bonuses, and stock.

Two years later, in 2000 the figure Jumped to $1. 4 billion. As we all know Enron had gone bankrupt on November 30, 2001, before that the price of Enron’s share fell to 0,61 $, yet Just in the beginning of the year the CEO promised 2001 will be “their easiest year”. All in all we can conclude that pay-for-performance policy in combination with excessive stock- options for top-management result in shadowy deals and non-deliberated decisions on all levels of the company.

National Association of Software and Services Companies (NASSCOM) is a trade association of Indian Information Technology (IT) and Business Process Outsourcing (BPO) industry established in 1988. NASSCOM is a non-profit organization, funded by the industry, its objective is to build a growth led and sustainable technology and business services sector in the country. NASSCOM is the global trade body with over 1200 members, of which over 250 are global companies from the US, UK, EU, Japan and China.

NASSCOM’s member companies are in the business of software development, software services, software products, IT-enabled/BPO services and e-commerce. NASSCOM is the supporter of global free trade in India. It encourages its members to adopt world class management practices, build and uphold highest standards in quality, security and innovation and remain competitive in today’s changing technology. NASSCOM undertakes several activities and initiatives and works with multiple stakeholders within the global IT-BPO eco-system.

NASSCOM collaborates with the Government of India at the centre and states to build a policy framework that is helpful to the growth of the IT-BPO industry in the country. NASSCOM engage with member companies to encourage them to share best practices and services and mentor small organization which are at growing stage. It conducts industry research, surveys and studies on emerging IT-BPO trends and sector performance for industry growth opportunities ahead. It organises national and international events to showcase new opportunities, collaborate, build thought leadership and networking.

NASSCOM have different forums which fulfill the need of specific sectors and help them with different future opportunities in their specific segments or programmes. NASSCOM works for global trade development, workforce development and committed in promoting and nurturing small-and-medium companies within the IT-BPO industry. Nasscom has three affiliated organizations focusing on corporate social responsibility, data security and e-Governance. Nasscom foundation Nasscom Foundation (NF) is a charity registered under the Indian Trusts Act, 1882 and under Section 12A of Income Tax Act.

Its aim is using information and communication technologies (ICT) for development, knowledge sharing which help in generating employment, reducing poverty and to make technology accessible at a low cost to non-profits and under-served communities and provide them with technical tools and skills to overcome the barriers that hamper their progress . NASSCOM Foundation brings together implementing agencies, industry, government bodies and people for integrated development through the use of ICT.

NASSCOM Foundation has developed various robust programs like NASSCOM Knowledge Network, ConnectIT Poverty Alleviation Programme, BiGTech and BiG Bridge. NASSCOM Foundation facilitate and strengthen Corporate Social Responsibility within the IT-BPO Industry and encourages its members to plan their CSR initiatives, presenting best practices and promoting and assisting their implementation. NASSCOM Foundation encourages its members to engage in capacity building initiatives by transferring technical and other skills to the under privileged to enable long term development.

NF programmes involve an integrated ICT learning framework,hardware and software donation programmes and employee volunteer initiatives through Mykartavya. com to make most use of industry resources. Data Security Council of India Data Security Council of India (DSCI) is a not-for-profit organization set up as an independent Self Regulatory organization by NASSCOM. Its objective is to frame data security and data privacy and encourage the IT-BPO industry to implement the same. DSCI has developed in line with global standards Best Practices for Data Protection.

The goal of DSCI is to raise the level of security and privacy of IT-BPO service providers so that their clients and stakeholders are assured that India is a secure destination for global sourcing. DSCI is comprised of Independent directors , Nasscom nominees and Academics. The Board is chaired by an Independent director. Members from leading IT-BPO companies from India and abroad provides guidance to DSCI. DSCI is engaged with IT-BPO industry,their clients,industry associations, data protection authorities and other government agencies in different countries.

DSCI organizes workshops, seminars, projects and other initiatives for data protection awareness. The Best practices approach to data protection is the key message of these programmes organized by DSCI. National Institute for Smart Government National Institute for Smart Government (NISG) is a not-for-profit organization set up in 2002 under section 25 of companies Act 1956 to promote e-Governance in India on public private partnership with NASSCOM, Government of India and Government of Andhra Pradesh.

The vision Of NISG is to make all government services accessible to the common man in his locality through common service delivery outlets and ensure efficiency, transparency and reliability of such services at affordable costs to realize the basic needs of the common man. To transform Government departments and agencies from department-centric mode of working to a citizen-centric way of working. NISG offers the orientation and efficiency of the private sector combined with the accountability of the public sector.

NISG is helping the Government of India and State Governments realize the national e-governance vision. Over the years, NISG has grown as a reliable advisory body for Central and State Governments as well as public sector undertakings. NISG services include advising the Government of India on issues of strategic importance such as architectures, standards, localization etc. NISG also help government to improve the delivery of government services, design IT systems to improve internal efficiencies and develop leadership capability and skill sets within the Government.

NISG also build up nation wide capacities for capacity building through institutional partnerships with government as well as private partners. Some of NISG projects are Banglore One –Integrated Citizen, Bhu Bharti – Integrated Land Information System, Commercial Taxes – Mission Mode Program, Delhi Online:Jeevan, Passport Seva – A Mission Mode Project. NASSCOM is playing a key role in corporate governance within the Indian IT-BPO sector. NASSCOM has set high benchmarks for the industry in corporate governance.

When Satyam fraud episode came into existence questions were raised on the high standards of ethics and corporate governance. Satyam scandal was the failure of corporate governance. NASSCOM treated it as an isolated case and made a point that it is not the reflection of Indian IT industry. After the failure NASSCOM constituted a committee and reviewed further for strengthening the corporate governance practices in India. In years 2009, After Satyam scandal, NASSCOM constituted a committee headed by Infosys founder, non-executive chairman and ‘chief mentor’ Mr.

N. R. Narayana Murthy , issued its recommendations and with the help of introduction of the amended Clause 49 by the government strengthen corporate governance practices in India. Beside report focuses on company structure, the independence of non-executive directors, audit committee and disclosures to shareholders substantially, NASSCOM recommends a distinctive feature to focus heavily on the protection of stakeholders in a company such as customers, employees, other partners and competitors.

NASSCOM recommends to detail the role of the board of directors where they move from traditional advisory to strategic oversight of company affairs. The Report says that confidentiality of information, protecting company assets and adherence to company policies and processes would enable the company and its employees to align to common goals. The recommendations emphasizes the need of providing a congenial and safe work environment, equal opportunity to all, appropriate grievance handling and enabling processes for promoting learning and fair practices

To help customers, it promotes ethical practices for contracts, clear accountability, compliance with legal issues, data security, privacy as well as thrust on customer satisfaction. On competition, it stresses the need of sharing of best practices, respecting intellectual property and ethical hiring . To build a framework for ethical practices with vendor partners fair and transparent procurement processes and clear guidelines on related party transactions and gifts / donations should be practiced.

Creating awareness across various levels of management and encourage formulating and strengthening of whistle blower policy . NASSCOM enhance its focus on ‘e-Governance’. E-Governance is the application of Information and Communication Technology (ICT) for delivering government services, exchange of information communication transactions, integration various stand-one systems and services between Government-to-Citizens, Government-to-Business,Government-to-Government as well as back office processes and interactions within the entire government frame work.

It has made a detailed report:-“eGovernance ; IT Services Procurement – Issues, Challenges, Recommendations – a NASSCOM Study”. It identify key issues and challenges, faced during various stages of an eGovernance project lifecycle, from Conceptualization through Bid process, Contracting to Execution and Post Go-Live phases. NASSCOM recommendations are only voluntary in nature and companies can adopt them by way of good practices.

Here when we talk about voluntary recommendations, question arises that if these are good practices then why they are not to be mandated or regulated ? The answer to this is that even with the best intentions regulators may not have all the information available to design efficient rules. Another issue is that there is a fear that by legally mandating several aspects of corporate governance, the regulators might unintentionally encourage the practice of companies ticking checklists, instead of focusing on the spirit of good governance.

The other concern relates to fear of excessive interference. There is an fear that over-regulation of corporate governance could disrupt the functioning and quality of boards without resulting in any substantial improvement in the standards of corporate governance. This arises a question that how to draw a line that divides voluntary from mandatory. In ideal situation where there is an efficient capital markets, market can recognize which companies are well governed and which are not and reward and punish them accordingly.

But the fact is that these markets are only in theory and in real world markets are careless or negligent and leave policies and regulation much on desire. Thus, what is needed a small collection of legally mandated rules; strengthen by a much larger body of self-regulation and voluntary compliance. To make its suggestions and recommendations more applicable, NASSCOM has to facilitate a series of interactions with the organizations and share their practical and implementable insights.