Manfold Toy Company: Corporate Governance and Ethics for Directors and Professionals - Case Study Example

This concept largely occurs in relationships that are of a fiduciary nature such that the involvement of trust becomes mandatory. Moreover, Boatright also outlines the nature of agency relationship in the context of conflict of interest in which an employee is expected to not only safeguard but also advance the interests of the employer and the organization as a whole. An analysis of the operations and activities of Manfold Toy Company Ltd. reveals that the interests and relationships between the individuals controlling the firm have resulted in the incidence of several conflicts of interests.

The founder of the company Joseph Wan intends to sell the business to Mitchell & Meyer, however, the board of directors of Mitchell & Meyer is only interested in the pursuing this decision if Manfold Toy Company is able to demonstrate a 20% growth in its year-end audit report. The first conflict of interest which can be reported is that Mitchell & Meyer’s consultant firm titled Big Capital is owned by Maggie Mok who also serves as an executive director for Manfold Toy Company and would be paid HK$20 million on Big Capital’s account if a takeover bid is recommended by her firm.

Maggie Mok however has failed to disclose this relationship to the CEO of Mitchell & Meyer for the sake of protecting the valuable account. In order to enhance the accounts of Manfold Toys for the sake of a successful transaction, Joseph Wan took advantage of his relationship with Wu Jiaxong and Daniel Kot to influence them into improving the company’s financial performance. In doing so, Jiaxong contacted the production manager Peter Lee to approach suppliers who were willing to supply lower quality material at cheaper rates in a bid to cut costs rather than identifying ethical means to improve the cost efficiency of the business.

Peter Lee’s position as the production manager and his personal relationships with suppliers that were established through interactions at night clubs also serves as a conflict of interest. On the other hand, Daniel managed to secure undisclosed agreements with distributors which classifies as the fourth conflict of interest to be identified. In both scenarios Jiaxong and Kot are misusing their authority and position within Manfold Toys to improve the accounts of the business. In another conflict of interest, Daniel Kot strengthened his relationship with Francis Yen by offering a trip to Phuket and numerous scuba trips to receive an exceptional and highly positive coverage regarding Manfold Toy’s stock performance from Yen’s firm.

The external auditor Ken Tse identified the inconsistencies in Manfold Toys’ records that were a result of the actions conducted by Jiaxong and Kot to improve the financial performance of the company however, Ken’s firm was not only responsible for the auditing service but also handled the taxes at Manfold Toys additionally, it appears that Tse also shares a relationship with Wan on a personal level which is why he refused to investigate further into the matter and passed a biased judgment, which yet again reflects conflicting primary and secondary interests which is a grave violation of his responsibilities as an external auditor as per the code of conduct created by Hong Kong Institute of Certified Public Accountants.

Fred Wong, the chairman