New York University Managers and Corporate Governance Discussion discussion needs two different copies for me and my friend then response needs four for f
New York University Managers and Corporate Governance Discussion discussion needs two different copies for me and my friend
then response needs four for four different classmates (classmates’ discussions have been posted)
reference should incorporate business press sources (e.g., Wall Street Journal, Financial Times, CNBC, etc.).
source must be a business press source
and dont copy classmates’ work and source Question? Why do managers go bad? The powerpoint on Corporate Governance mentions
of several reasons. Here, managers refer to top management members (particularly the
CEO). Take any one reason and describe the mechanism for managers to ‘go bad’ because of
it. [For example, the last reason is ‘desire to diversify risk’ — this is a reason for managers to
‘go bad’ because (a) unlike individual investors who can buy and sell stocks to adjust their
portfolio instantaneously, companies cannot buy and sell business units on an immediate basis
and (b) while individual investors do not have to know details about how to run the businesses
for which they own the stocks, firms are obligated to know how to run the businesses that
they own in their portfolio. Therefore, although diversifying risk will theoretically lower the
risk exposure of the firm and thereby make the CEO’s job more secure, it may force the firm
to develop a business portfolio that the firm cannot support with its existing resource
base. Worse yet, the firm would be stuck with such a business portfolio as buying and selling
business units cannot be done on an immediate basis.]
1.There are several external governance control mechanisms. One of
them is the market of corporate control, which may create opportunistic
behavior like shirking managers responsibilities, on the job consumption,
and excessive product-market diversification. Shirking means the
managers fail to exert themselves fully as required. On the job
consumption means that consumptions, including private jets, club
memberships and expensive artwork in the office, do not increase
shareholder value. Managers may act opportunistically when
shareholders are passive and do not do any actions to the monitor
managers.
Take Enron as an example. The Enron Scandals happened in 2001
addressed many issues. One of them is the opportunistic behaviors of
some accounting companies. To sell more consulting services, many
accounting firms use audits to establish relationships with companies.
Therefore, some of them turned into business advisors, like Arthur
Andersen, Enrons auditing firm. This is just one of the reasons ruined
Enron.
References
(2004) BYU Fraud Expert Dissects Causes of Enron, WorldCom
Scadles. BYU, https://news.byu.edu/news/byu-fraud-expert-dissectscauses-enron-worldcom-scandals-0.
2. Mangers refer to these employees who work in middle to high level and they also have power to
make decisions in the company . Investors and shareholders are the true owner of the company. They
hire managers for working in order to maximize company’s stock value, however, there is one problem
called “Agency Problem” which will become the major concern for why mangers will go bad.
Managers can get their paycheck in anyway, so, there is no incentive for them to try really hard in order
to benefit the shareholders. They can enjoy their power and wait money to get into their own pockets.
According to Forbes, “The agency dilemma arises when an individual needs to enlist the support of
another person in order to accomplish work on his/her behalf; the former becomes the principal and the
latter becomes the agent. The agent performs tasks on behalf of the principal. The dilemma develops
around the inability of the principal to perfectly control the actions of the agent.” Agency problems
become really common in the U.S business world today. That’s why the shareholders will launch the
incentive portfolio plan to motivate managers in order to maximize the company’s value.
Reference:
Forbes(2017)”The Agency Dilemma Facing Today’s Board Of Directors”Retrieved from:
https://www.forbes.com/sites/forbeshumanresourcescouncil/2017/04/25/the-agency-dilemma-facingtodays-board-of-directors/#48c25c092a5c
3. Managers go bad for a plethora of reasons. What I will specifically focus
on here is the greed for perks. There was no bigger time in my opinion for
corporate glut and mismanagement of shareholder interest than in the
1970’s in corporate America. The book Barbarians at the Gate is a great
example of this and how all the unnecessary largess of corporations made
them prime targets for corporate raiders fueled with junk bonds. At the
time of the biggest leveraged buyout in history, KKR bought RJR Nabisco
who had one of the most controversial CEO’s of his era at the helm, Ross
Johnson. He had what was called his own personal airforce, containing
multiple planes its own hangar.
The reason for this at the time was it was just something that everyone
was doing and interest rates were so high that it was hard for innovators
to come in and eat the breakfast of the old established class of big
business types who lived some of the most lavish lives I have ever read
about. All this started to change when Reagan came into office and
interest rates were brought astronomically down and the rise of cheap
debt which built up the private equity and similar high finance
occupations. Though now villains in the main stream media, these guys
were able to cut out all of this greedy waste at the executive level and
make companies more efficient, a lot of times at the expense of the old
guard executives and corporate boards who were wasting the
shareholders equity by seeking their own thrills through fringe benefits or
personal gain financially.
Hershey, R. D., Jr. (2016, December 31). F. Ross Johnson, Symbol of 80s
Corporate Excess, Dies at 85. Retrieved June 30, 2020, from
https://www.nytimes.com/2016/12/31/business/f-ross-johnson-dead-rjrnabisco.html
4. Among many reasons, I think that greed for perks is a very clear reason
for managers to go bad. In this article, it is said that their salaries are
nothing compared to the luxury benefits package. Perks are those
additional benefits beyond the normal salary. For example, if a company
can provide company stock for an outstanding manager, the manager
may do anything that can increase the company’s stock price. This is
actually just a company’s incentive policy, but it may also guide the
manager to do something that is not good for the company in the long
run, or something that does not conform to the company’s long-term
plan. This makes the manager often short-sighted, but will not benefit the
company’s shareholders in the long run. In addition, greed for perks may
increase the possibility of financial fraud. The article says that a system
that lavishly rewards executives for success tempts those executives, who
control much of the information available to outsiders, to fabricate the
appearance of success. Enron is such an example. In addition, Jet service,
extensive retirement packages, and frequent corporate meetings in
resorts all potentially increase the possibility of financial fraud, because
no manager is willing to lose these perks. Many perks may not be
necessary. Even if there is no jet service or corporate meetings in resorts,
the company will operate normally. It is understandable that the company
attracts better managers through such perks, but it is also conceivable
that such perks are more to satisfy the vanity of managers.
Krugman, P. (2002, June 4). Greed Is Bad.
Https://Www.Nytimes.Com/#publisher.
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