Business: Problem Solving - Assignment Example

Business: Problem Solving Name Institution Course Date Problem Solving Q1. Agency theory is relevant in explanation of the relationship between the principal and agents in organizations. In fact, the theory is concerned with solving problems that exist between principals such as shareholders and agents including company executives. Agency theory provides ample insights into information systems, outcome uncertainty, incentives and risk in the company. In addition, the theory is important in addressing problems relating to the desires and goals of principals and agents conflicts. In this context, the theory can be applied in solving the hurdles existing between the shareholders and the executive officer of the Commonwealth Bank on the bonus and incentive awards[Ass16]. The involvement of the theory can lead to informed decision making regarding the performance of the executives, sustainability and diversity as well as the culture of the organization. This is concerning the comparison of the laws that govern the Australian corporations and companies to the other countries governance. It is important to mention that shareholders have rights at Annual General Meetings of the organizations. The strength of the shareholders is subject to the share ownership in the organization. The shareholders are entitled to the rights of voting in making decisions on the remuneration of the executives. In this context, the shareholders are obliged to vote for the remuneration report or against the report thereby influencing the outcome of the process. Therefore, they use AGM as platform to address and introduce campaigns on single issues. The shareholders in other countries such as India borrow a lot from Australian corporate governance of companies as controlled by the Corporation Act 2001[GUP14]. In addition, stakeholders enjoy the right to ask questions that helps in unfolding the performance of the employees and the entire organization. Rights to be heard, to enquire on the relevant issues concerning performance and prospects and to obtain response are the rights that shareholders are entitled to at AGM. The rights to approve the remuneration packages for directors and executives in Australia hold that shareholders have a binding vote for or against the motion while in India there is no similar concept under the Companies Act 2013[GUP14]. Furthermore, shareholders have the rights to approve director’s approval or rejecting it on issues concerning fundamental transactions. In addition, shareholders have a very broad right to dispose their shares. Shareholders have the rights to check the balances on the directors through participation in voting for or against the proxy rules in the company. The connection between the shareholders and the directors as well as executives’ compensation in U.S and Australia differs[Hod13]. In U.S, there are standards to measure the compensation amounts for executives based on the salary, annual bonuses, long-term incentive plans, restricted option grants and restricted stock grants unlike in Australia. Shareholders have the ability to influence the activities of organizations it the sense that they can alter the internal and external environments strategy leading to success or failure of the company. The engagement of the shareholders in making decisions affecting the company provides them with the ability to approve or reject proposal that may have detrimental impacts on the company’s functioning[Ass16]. Shareholders influence the performance of the company through taking part in decision making on the remuneration and practices in the company’s set up. They streamline and simplify the remuneration reports, rewards that motivate the task force, diversity and promotion of changes. Q2. In Australia, the rights of the shareholders regarding the remuneration report are dictated by the Corporation Act 2001 in conjunction with ASX listings rules. However, there exist a dozen of similarities as well as differences on the rights of shareholders in determining the remuneration and compensation to the directors and executive officers in companies. There is a significant distinction between the United States and United Kingdom rights of shareholders as compared to Australia. In UK and U.S, shareholders do not vote for proposal made by the directors on remuneration report[SAP11]. On contrary, the Australian the stakeholders are allowed to take part in binding vote that provides approval for the remuneration process. The fact remain that the rights of the shareholders in this countries are determined by specific body that provides the guidelines on the procedural process to follow during the decision-making on the remuneration. The contrast of the rights of the between Australia, U.S and U.K is surfaced on the tenet that the Australian shareholders decide the remuneration process based on strikes where the first strike may lead to the reject of the report. However, the second strike that implies the replacement of the board members can be reversed by the right enjoyed by the shareholder vote in favor of the report. In this context, the difference between the procedures followed in Australia, U.S and U.K are based on the right that was provided in 2011 that gave the Australian shareholders responsibility to set the remuneration of executives through casting binding vote[SAP11]. Interestingly, the U.K government regulates the power of the shareholders in voting for through placing limitation on the binding vote. The U.K government generates the remuneration policy for company’s executives rather than the Australian approach that allows the participation of shareholders through vote in the entire remuneration report through the two-strike rule. In addition to the voting similarities and differences in the corporations influence on the rights of shareholders on remuneration report and the requirement of numbers to pass the report there exist surfaced differences on the levels of shareholders required to pass the report. In Australia, the remuneration report requires 75% of all the shares voted to reach a resolution. The rights of the shareholders are important to both the shareholders and the companies[SAP11]. On the side of the shareholders, they benefit from the rights through safeguarding their interests and protection of the excess remuneration that in turn reduces the dividends to the shareholders. In addition, the shareholders are provided with the opportunity to question the performance of the executives in relation to the remuneration and the status quo of the company as Commonwealth Bank executive who endangered the shareholders return and customers satisfaction. The company benefit from the rights through ensuring transparency in financial matter handling. Q3. The increasing complexity of the remuneration structures has brought it to the attention of the shareholders in relation to their interests. The Australian Shareholders Association is concerned about the hurdles regarding the executives’ compensation to ensure that the pay structures are measured in terms of company’s status quo to safeguard the interest of the firm as well as for the other affiliated members. The concern of the shareholders on the increasing the use of qualitative hurdles in executive compensation is based on the effort to eliminate the complication between the performance of the executive versus the company’s performance in relation to short and long-term goals[Mon13]. The qualitative hurdles would essentially help the companies under ASA to measure the value of compensation depending on performance. The degree at which the executives achieved the company’s objectives is linked to the compensation policies that are useful in development of strategic risk management framework. Some executives set cheap goals and objectives thus being unfair to the shareholders who wait to see improvement in the company operations and productivity. While the performance efforts are regularly focused on the financial metrics, ASA is concerned to involve the non-financial metrics in developing the risk-based compensation hurdles. The qualitative hurdles play a vital role in ensuring the risk adjustment by taking into consideration the potential adverse developments in future[Mon13]. The commitment of the company in encouraging the hurdles is to align the compensation value with the long-term performance of the company. Through redefining the compensation terms, ASA aims at creating a sustainable performance. The preference of the long-term compensation goals enhance the cost discipline and the efficacy and support sustainable development in the financial institutions. In the same point, the compensation practices ensure compatibility with capital, liquidity planning and compliance with regulations. Yes, the hurdles are relevant in adjusting the behaviors of the executives from the rewards and motivational compensation for the objectives achieved. The approach ensures the shift of interests from individual to collective in the bid to ensure productivity of the entire firm. In addition, the approach is essential in enhancing integrity and transparency as well as efficacy in the operations by the executives. The alignment of the compensation with the performance drives the soundness in the functions and the reflection of the risk assessment[BOW09]. The long-term incentives plan for the executives provides them with the driving power to run the company’s business in a shareholder’s wealth maximization generation. The agency theory in combination with the ASA provision helps in luring the executive officers to work hard and bring about improved company performance in subsequent years. The drive supports the changing of the executive’s behaviors in relation to the productivity of the company. Q4. Directors serving in different boards in the same company pose challenges to the directions followed by the employees in the operation as well as the communication of the company’s vision and objectives. The directors are the ultimate managers of the company’s and are responsible for the accomplishment of business process. The problem occurs, as the authority of the directors is not limited to specific areas of specification. The presentation of the directors in numerous boards can lead to complication, as they are not expertise in diverse areas but in specific area of specialization. In this regard, directors authority is considered original and undelegated thus may influence the decision of numerous boards[RED12]. The challenges is on identification of the motives of the directors where the agency theory might intervene to correct the bad will of the directors against the principals of the company as well as other stakeholders such as the employees and executives. The directors are prone to fatigue and cause misinterpretation and flow of information due to the inadequate time and limited ability as well as efficacy to participate in numerous boards. The directors therefore are rendered non-active in all the board meetings thus leading into failure in the flow of information and the recording as well as reservation of the important data. They are too obsessed with the things discussed in every board meeting thus unable to articulate the requirements and procedures to be followed effectively[RED12]. The communication of the adjusted rules and policies of production and services provision are barely comprehended because of the limited time to place the notice in a strategic area and form for every staff to access. This is a drawback to the company as the performance is affected by wrong and inefficient director’s roles. Directors are like trustees in a company and therefore use their judgment to manage the operations in the company. The judgment affects the beneficiaries positively or negatively in cases where the directors are corrupt and not honest in several boards thus spreading the wrong decisions that may influence the financial generation thus affecting the profitability of the firm. The body that regulates and formulate the duties and functions of directors set boundaries that define the jurisdiction of the director’s roles and authority[RED12]. ASA director noticed the atrocity of the Commonwealth Bank board influenced the decision on bonus structure allowing Narev, the then executive officer to continue receiving large payouts in future without considering the status quo of the institution. The directors Metcash violated the rights of the shareholders who elected them to safeguard their interests, their rights and the investments to save the incumbent chairperson who nearly made Dick Smith company bankrupt. The director’s power of discretion is challenged when they act to satisfy and serve their own interests in various boards that culminate into insolvency of the business. References Ass16: , (Association, 2016), GUP14: , (GUPTA, 2014, pp. pp. 48-54), GUP14: , (GUPTA, 2014, p. p. 51), Hod13: , (Hodne, Murphy, Ottenbacher, & Ruggles, 2013, pp. p. 58-61), SAP11: , (SAPPIDEEN, 2011, p. pp. 136), SAP11: , (SAPPIDEEN, 2011, p. pp. 137), SAP11: , (SAPPIDEEN, 2011, p. pp. 138), Mon13: , (Monem & Ng, 2013, pp. pp.3-6), Mon13: , (Monem & Ng, 2013, p. pp. 4), BOW09: , (BOWEN, 2009), RED12: , (REDMOND, 2012, p. pp. 321), RED12: , (REDMOND, 2012, p. p.318), RED12: , (REDMOND, 2012, p. p. 318), Read More