Can someone give me some clue about this assignment?? thanks a lot, the assignment is about ethic.

Group Assignment #1: Executive Compensation You have recently been appointed to the board of directors of Large Corporation (LC). LC is a sizeable business of 10,000 employees. You have been named to the board because of the active role you played in local community organizations, including a shelter program for the homeless, and because you have a growing reputation as a promising corporate lawyer. You have become aware of the increasing inequalities in society, and you have uneasy feelings about these trends. You wonder about the extent to which the policies of LC contribute to these inequalities. The compensation levels of senior executives have been raised several times over the past few years. These raises have far exceeded the normal costof-living increases. Not only have their salaries risen sharply, but executives have also been offered various stock options, perks, and benefits. The overall increases in executive compensation have been much greater than the increases in LC's return on investments. Twenty-five years ago, senior executives received overall compensations that were 15 times greater than the compensation for the lowest level of regular full-time employees. Today, compensations for senior executives are often more than 50 times higher. Because a large part of compensation for executives is in the form of shares in the firms they manage, the higher levels of compensation in large part reflect the tremendous increase in the value of the firm's shares during the two decades prior to 2007. What should be done? You wonder how the level and forms of executive compensation affect workplace morale. In the face of public outcry exhibited in the recent Occupy demonstrations, you think current practices and rationales for executive compensation need to be re-examined. Arguments have been made that senior executives deserve these compensation packages because of their leadership, because they work proportionately longer hours, because otherwise they might look for employment elsewhere, and because other corporations are providing similar compensation packages. And yet, you wonder about the validity of these arguments. To what extent have boards, often constituted in large part by executives from other firms, become complicit not only in creating an inflated market in executive compensation but also indirectly fostering and remaining uncritical with respect to possibly inflated markets in share values? Questions: 1) What are the relevant issues and how important are they? 2) Who are the relevant stakeholders and what are their positions? 3) What are the relevant normative standards (i.e. ethical theories) that have bearing on this case? 4) What are the viable alternative ways of acting in this situation? To answer the above questions, please consider the following: 1. What policies with respect to compensation packages would you recommend? 2. How would you raise this question with other board members? 1 3. As you decide how to proceed, you may wish to consider the following questions: a. What are the most important criteria for determining levels of compensation for any workers? b. To what degree is it legitimate - and/ or realistic - to simply set remuneration levels in terms of market forces and trends? c. What degree should compensation levels be determined by years of education, background preparation, seniority, risks that workers are exposed to, skill level, hours of work, and/ or actual contributions (however these may be measured) to the economic well-being of the organization in question? d. Also if employees receive what they regard as unfair compensation, the quality of their work may suffer, they may be absent more often, and they may seek employment elsewhere. In your answer you can use outside research to support your analysis. Kindly include the research in your bibliography and notes. Group Assignment 1 INSTRUCTIONS: The group assignment reports must be typed (double space) for a maximum of six pages. Your mark will be first based on content, and second, on presentation. Presentation includes effective and correct use of the English language. The assignment is due as follows: Assignment #1 is due by 11:55 pm on Friday, May 19, 2017 Late assignments will not be accepted unless the student and the professor have made prior arrangements. Each report must include an executive summary (maximum length of one page) outlining key issues and conclusion. Figures and tables should be put in an appendix at the end of the report. All tables and figures must be numbered and all pages (including pages with tables and figures) must also be numbered. The assignments are an opportunity for you to think critically about the material we are covering in class as well as discussion points brought forth by others. Drawing up on multiple sources, the group will present a detailed description of the situation, their analysis using various ethical theories and materials discussed in class, and provide recommendations. While the content is important, the quality of the writing (for example, grammar, spelling, organization, clarity) also matters. Reference all material (including material from the textbook, class videos, lecture PowerPoint slides). Assignments are to be submitted via SAKAI by 11:55 p.m. on the due date. Students are responsible for uploading the correct document. Late assignments and emailed assignments are not accepted. Please note that Turnitin is used in this course. 2 1 CHAPTER 8 Corporate Governance 2 Introduction Corporate governance: the controls put in place to ensure that a corporation acts in an ethical, legal, and transparent manner in the best interests of shareholders and other stakeholders It can also be defined as a relationship among stakeholders that is used to determine and control the strategic direction and performance of an organization 3 The Principal-Agent Problem The separation of control and ownership gives rise to the principal-agent problem: represents the conflict of interest between the principal and the agent. Principal: a person or entity first in rank of importance or level of ownership (shareholders) Agent: a person or entity that represents the interests of another party (managers or executives) 4 Corporate Governance structure in a Corporation OWNERS/SHAREHOLDERS BOARD OF DIRECTORS EXECUTIVES AND MANAGEMENT TEAM 5 Agency relationship between shareholder and manager Seeks profits, rising share price, etc. Principal: Shareholder Seeks remuneration, power, esteem, etc. Agent: Manager 6 The Principal-Agent Problem, cont'd Managerial temptations Shirking (i.e., not working hard) Nepotism (i.e., hiring friends and/or family) Exhibiting favouritism in compensation and promotion practices Self dealing and/or engaging in non-arm's length transactions Consuming excessive perks Building empires Taking no risks or chances in order to avoid being fired Taking excessive risks to earn large bonuses Having a short-run horizon if the manager is near retirement 7 Control and Monitoring Two possible solutions to the principle-agent problem are control and monitoring Controls take the form of incentives designed to align managerial and shareholder interests Monitoring involves various methods of policing and oversight 8 Control and Monitoring, cont'd Incentives can be internal or external Internal incentives revolve around executive compensation External incentives are market driven insofar as they include the market for executive employment Performance contrary to the interests of shareholders would reflect poorly on the executive, thus decreasing the prospects of future employment 9 Control and Monitoring, cont'd 10 Control and Monitoring Board of Directors Original purpose Represent the shareholders in overseeing the executive level of management Ensure that management was acting in the shareholders' best interest Board of Directors is elected by shareholders to represent this purpose Role of Board Members 11 Board of Directors, cont'd 12 Control and Monitoring - Internal Incentive-based executive compensation: the use of salary, bonuses, and long-term incentives to align managers' interests with shareholders' interests Examples include performance bonuses, stock options, profit-sharing plans, and stock purchase plans 13 Control and Monitoring - Internal Shareholder Activism : Shareholders have the right to vote on critical matters, the right to be heard and to propose shareholder resolutions, and the right to organize and challenge the management of the corporation they have invested in Shareholders with significant levels of shareholdings have greater power and influence over the management team 14 Control and Monitoring - External Market for executive employment: an external control that naturally motivates corporate executives to act in the best interests of the shareholders in order to maintain or increase their desirability in the external job market 15 Control and Monitoring - External Market for capital control: the purchase of a firm that is underperforming relative to industry rivals in order to improve its strategic competitiveness Executives who fail to act in the best interests of the corporation are often subject to capital control due to the decreased profitability and resulting loss of share value 16 Control and Monitoring - External Government oversight and regulation is the most obvious form of external control Revenue Canada and the provincial securities commission and exchanges dictate corporate reporting requirements for the purposes of taxation and public disclosure, respectively 17 Government Oversight and Regulation cont'd Sarbanes-Oxley Act of 2002 Established in response to high profile accounting scandals, namely Enron and WorldCom An oversight body designed to regulate public accounting firms regulate legislation pertaining to corporate responsibility institute increased punishments for corporate fraud and white-collar crime 18 Weaknesses in the Board of Director Model, cont'd 19 Corporate Citizenship and Corporate Governance Governance mechanisms are designed to reduce Conflicts between management and owners Typically the success of these mechanisms are measured in monetary terms 20 Corporate Citizenship and Corporate Governance, cont'd Corporate governance has increasingly moved in the direction of stakeholder theory (for example, the German model where employee representation on corporate boards is mandated) Many CEOs also advocate corporate citizenship Triple bottom line reporting is another example of the fair consideration of stakeholders Shareholder's Relationships with other stakeholders: Different Frameworks of Corporate Governance Globally : Source Business Ethics Crane and Matten 21 USA, UK (AngloAmerican Model France, Germany, Italy '(Rhenish Capitalism') Russia India China Ownership structure Dispersed Concentrated, interlocking pattern of ownership between banks, insurance companies, and corporations Concentrated in either the hands of ownermanagers or the wider circle of employees in joint-stock corporations Highly concentrated; recent tendency to more dispersed ownership Highly concentrated in state-owned companies; fairly concentrated in private enterprises Highly concentrated ownership by family owned business groups; wave of privatization since 1990 has reduced state ownership Ownership identity Individuals Pension and mutual funds Banks Corporations State Ownermanagers Employees State Families Foreign investors Banks State Families Corporations Family owned business groups State Changes in ownership Frequent Rare Frequent, but decreasing tendency Traditionally extremely rare, but recently changing Rare, but increasingly dynamic Rare Increasing influence of foreign investors Goals of ownership Shareholder value Short term profits Sales, market share, headcount Long-term ownership Profit for owners Long-term ownership Long-term ownership Sales, market share Long-term ownership Profit for owners Board controlled by Executives Shareholders Shareholders Employees Ownermanagers Other insiders Owners Other insiders Owners State Owners/share holders Key stakeholders Shareholder Owners Employees (trade unions, works councils) Owners State Owners Customers in overseas markets Owners/State Guanxi-network of suppliers, competitors, and customers (mostly) in overseas markets Owners Customers in overseas markets Long-term ownership Growth of market share Brazil 22 INSTRUCTOR: SUMIT BOSE MBA CFP FMA CIWM FCSI Contact: sbose2@brocku.ca Running head: RELEVANT NORMATIVE STANDARDS Relative Normative Standards Name Institution 1 RELATIVE NORMATIVE STANDARDS 2 Control and monitoring The principal-agent problem arises when a principal creates an environment whereby the interests of the agent are not in line with those of the organization. The agency cost is an issue related to control and separation and these two issues are key to the principal agent problem. Moral incentives are therefore crucial in encouraging the agent to behave in a particular, desired manner. Principal agent problem arises because of the differences in the objectives of the agent and the principal. For example, Shareholders have been interested in acquiring dividend payments at a high price. Agency Theory Agency theory outlines how the agents and principals in business should relate. The problem commonly arises between the executives and the shareholders. In this case, the shareholders are the principals, and the company executives are the agents. The theory is concerned with addressing problems that may emerge between the principal and the agent because of the different and unaligned goals. Such a situation happens when the principal is unaware of the agent's actions or in some cases; the shareholder is unable to acquire crucial information from the agent due to prohibitions by resources. For example, the principals may not be aware of the agent's plan to expand business in terms of market in order to increase short-term profit in the future. To eliminate this problem, there should be separation of management and control. Firms should diffuse the shareholder and managerial decisions. Agency theory also deals with the problem of risks that may occur at various levels between the agent and the principal. There are several situations whereby the resources owned by the principals are utilized by the agent. This relieves agent who is the decision maker the burden of incurring losses while on the hand, the principal carries the burden. In such a situation, risk distribution is distributed unevenly. Consequences of moral hazards can be eliminated through an improvement on performance of the managerial system that can be done through formulation of an accounting system that shows the managers efforts towards achievement of goals. Research that have been conducted on agency theory have suggested that agency loss can only be minimized only if the following statements are true: the first one is that both the principal and agent have one common objective of generating the same outcome, that is, both the agent and the principal do share the same interest. The second one is that the principal is aware about the impact of the actions taken by the agent. The challenge is that the agent must set aside self interest in favor of the principal who maximizes his wealth at the expense of the agent. Therefore, moral responsibilities lie in the hands of the agent. In conclusion, strategies that aligns with the interest of the two parties through ownership schemes such as partnership model and securing employment contracts. This theory suggests the only solution in solving agency problem is by altering the compensation structure. The agent RELATIVE NORMATIVE STANDARDS 3 should also be held accountable for the decisions that they make through issuing of evaluations and feedback on performance. The principals may also agree on paying an agent at the completion of a project instead of paying him or her on hourly basis. Debt is seen as a way of limiting agency costs. This is because a debt reduces amount of free cash flow that the manager controls and this minimizes misuse of funds. It has been observed that firms with higher debts do perform better than those with low level debts. Running head: RELEVANT NORMATIVE STANDARDS Relative Normative Standards Name Institution 1 RELATIVE NORMATIVE STANDARDS 2 Control and monitoring The principal-agent problem arises when a principal creates an environment whereby the interests of the agent are not in line with those of the organization. The agency cost is an issue related to control and separation and these two issues are key to the principal agent problem. Moral incentives are therefore crucial in encouraging the agent to behave in a particular, desired manner. Principal agent problem arises because of the differences in the objectives of the agent and the principal. For example, Shareholders have been interested in acquiring dividend payments at a high price. Agency Theory Agency theory outlines how the agents and principals in business should relate. The problem commonly arises between the executives and the shareholders. In this case, the shareholders are the principals, and the company executives are the agents. The theory is concerned with addressing problems that may emerge between the principal and the agent because of the different and unaligned goals. Such a situation happens when the principal is unaware of the agent's actions or in some cases; the shareholder is unable to acquire crucial information from the agent due to prohibitions by resources. For example, the principals may not be aware of the agent's plan to expand business in terms of market in order to increase short-term profit in the future. To eliminate this problem, there should be separation of management and control. Firms should diffuse the shareholder and managerial decisions. Agency theory also deals with the problem of risks that may occur at various levels between the agent and the principal. There are several situations whereby the resources owned by the principals are utilized by the agent. This relieves agent who is the decision maker the burden of incurring losses while on the hand, the principal carries the burden. In such a situation, risk distribution is distributed unevenly. Consequences of moral hazards can be eliminated through an improvement on performance of the managerial system that can be done through formulation of an accounting system that shows the managers efforts towards achievement of goals. Research that have been conducted on agency theory have suggested that agency loss can only be minimized only if the following statements are true: the first one is that both the principal and agent have one common objective of generating the same outcome, that is, both the agent and the principal do share the same interest. The second one is that the principal is aware about the impact of the actions taken by the agent. The challenge is that the agent must set aside self interest in favor of the principal who maximizes his wealth at the expense of the agent. Therefore, moral responsibilities lie in the hands of the agent. In conclusion, strategies that aligns with the interest of the two parties through ownership schemes such as partnership model and securing employment contracts. This theory suggests the only solution in solving agency problem is by altering the compensation structure. The agent RELATIVE NORMATIVE STANDARDS 3 should also be held accountable for the decisions that they make through issuing of evaluations and feedback on performance. The principals may also agree on paying an agent at the completion of a project instead of paying him or her on hourly basis. Debt is seen as a way of limiting agency costs. This is because a debt reduces amount of free cash flow that the manager controls and this minimizes misuse of funds. It has been observed that firms with higher debts do perform better than those with low level debts