Earon Company Decision-Making Model - Case Study Example

Name: Course: Tutor: Institution: Date: Managing Under Uncertainty Executive Summary This report is a review of the organizational decision making models and theoretical issues surrounding such a decision making process. In particular, the report reviews the Earon Company decision making model. As such, it summarizes the process, reviews its weakness and strengths based on a theoretical perspective analysis as well as offering recommendations. On one hand, the report establishes that the organizational management adopted the use of derivatives and lack of transparency in financial statements preparation is a bid to safeguard the organizational declining image. Theoretically, the review analyses the decisions based on their ethical application as well as corporate governance policies inclusion. In this regard, it establishes the application of the utilitarian approach as well as lack of transparency and possible accounting fraud practices. Under the recommendations, the report recommends the adoption of virtual ethics approach and incorporation of the corporate governance principles in organizational decision making processes. Finally, the report offers a conclusion arguing that had these recommendations been implemented in the organization, it would have averted its market failure. Table of Contents Executive Summary 1 Table of Contents 2 1.0 Introduction 1 2.0 Background Summary 1 3.0 Theoretical Analysis 2 3.2 Corporate Governance Principles 4 4.0 Reflective Recommendations 5 4.1 Virtual Ethics Application 6 4.2 Corporate Governance 7 Conclusion 8 References 9 1.0 Introduction Organizational decision making process involves the development of alternative strategic options that seek to develop and establish appropriate and best possible organizational results. However, the development of these decisions is based on a range of factors including information availability, ethical considerations as well as possible outcomes implications. This report forms a review of the Earon Company. In this regard, the report evaluates the cause of its failure based on both the short and long term decisions developed by the organizational management. In this regard, the report evaluates the components and theoretical perspectives involved in Earon Company derivatives development and use decision making processes. Thus, the report is structured through a case study analysis, theoretical review, recommendations and finally a conclusion. 2.0 Background Summary A review of the organizational case study reveals a range of strategic decisions formulated by the organizational management. On one hand, the study establishes that the organizational management faced decreasing profits and the subsequent risks of reduced credit ratings. As such, such reduced ratings would reduce the organizational capabilities as a trading and investment banking corporation. Therefore, the organizational management resulted to the application and use of derivatives. The adoption of this approach enabled the organization mitigate its trading risks through off the balance sheet trading under the derivatives. As such, the corporation increased its credit rating allowing for increased creditors and stakeholder perception. However, in the long run, the organization could not meet its liabilities in the long run. As such, the decisions developed by the management led to the collapse and failure of the organization. In its analysis, the study establishes that the organizational management was faced by a bounded rationality decision making process. In this case, the management was required to develop decisions based on the balance sheet records that did not represent the actual company figures in the market. In addition the organizational management resolved to the use of special purpose entities, that are sepia projects with the intention of investing funds collected from the derivatives, a off the balance sheet earnings. Further, the review establishes that the organizational accounting firm doubled up as its advisor and consultant on financial matters. As such, this resulted to increased opaqueness in the organizational financial reporting and management processes. Therefore, the case study analysis establishes that the unethical approach in the organizational decision making process led to its eventual failure as well as that of Anderson, its accounting partner. In addition, the analysis establishes that the corrupt hiring system and faulty compensation and sanctions led to its eventual collapse. 3.0 Theoretical Analysis A theoretical review in the Earon Company case study reveals the application as well as the violation of a range of theories and decision making models as well as principles. 3.1 Ethics Application On one hand the case study establishes the concept of ethics in organizational decision making. Ethics, as Ferrell, Fraedrich and Ferrell (34) argued incorporates the process through which organizational management develop decisions based on the overall societal good. In decision making ethics, organizations are bound by a series of alternative ethical alternatives. On one hand, is the utilitarian ethical approach? Under this approach, organizations evaluate the benefits and utility derived from a decisions outcome. However, under a utilitarian theoretical approach, organizations perceive on the short term implications of their decisions on the direct impacts. Therefore, this ethical approach negates on the long term and indirect implications of organizational decisions. On the other hand, is the deontological ethical decision making approach? Under this approach, actions are based as either appropriate or inappropriate in regard to their legality and allowance by principles. Finally, under the ethical decision making approach is the use of the virtual ethics approach as a decision making criterion in organizations is the adoption of the virtual ethics approach. Intezari and Pauleen (394) conducted a study to evaluate the role and implications of virtual ethics in organizational decision making processes. In this regard, the study established that the use of virtual ethics was among the most commonly used approaches in modern day organizational decision making models. As such, the study established that under the virtual ethics approach, organizational decision making considers both the short run and long term implications of the developed alternatives. In addition, unlike other ethical perspectives’, the study established that the virtual ethics approach considers both the direct and indirect implications of the respective decisions. Based on this theoretical background on ethical approaches in Earon Company decision making process establishes that the organization adopts the utilitarian approach. This is evidenced by the organizational adoption and use of the derivatives approach as an alternative credit rating enhancement tool. In this regard, the organizational management considered the direct implications of the derivatives use in the short run. In this regard, the organizational decisions through profitable in the short run, had negative implications in the organizational performance and reputation in the long run (Corb 13). Further, the organizational management decision to employ its accounting firm as its consultant and financial advisor enhances the engineering of its financial records that resulted to increased shareholders and stakeholders confidence in the short run. However, the management failed to consider the ethical implications of such an approach in the organizational actual performance in the long run. Therefore, through the adoption of the utilitarian ethical approach in the organizational decision making, the indirect and long term implications of the decisions led to the eventual organizational failure. 3.2 Corporate Governance Principles Besides the ethical theoretical perspective in the organizational decision making process, is the concept of corporate governance in decision making process. Gillan and Starks (6) conducted a study to evaluate the role of corporate governance in organizational decision making process. In this regard, the study evaluated the role played by corporate governance in enhancing increased organizational decision making quality standards. As such, the study concluded that organizations adopting a corporate governance approach in its management and decision making structures acquired increased decision success in the market. Thus, the study recommended corporate governance incorporation in respective organizations decision making processes. A further analysis by Macey (46) establishes that corporate governance incorporates a range of organizational practices such as participative decision making processes as well as transparency in respective organizations. In this regard, the author established that through inclusion in decision making, respective industry stakeholders raise their interests and concerns facilitating increased consideration of decisions impacts in both the short and long run periods. In addition, transparency facilitates the participation of external stakeholders in the respective organizational decision making process due to their ability to scrutinize the respective organizational processes and operations. Through such transparency resistance to respective organizational decisions is considerably reduced. A review of the Earon Company decision making process reveals a deficiency in the application of corporate governance as a decision making tool. On one hand, the organizational management fails to actively involve the external stakeholders in the decision making process (Surampalli and Tyagi 39). Moreover, the corporation contracts the services of the Anderson Company, its accounting firm as its financial advisor and consultant. As such, the management enhanced financial engineering a concept that led to the organizational financial statements misrepresentation, a concept used to conceal the actual organizational performance. Therefore, this report analysis concludes that the failure to adopt a corporate governance approach in its decision making process led to its eventual long term decisions failure. 4.0 Reflective Recommendations Based on the above report analysis, it is apparent that Earon Company decision making process failed and led to its eventual failure due to ethical and corporate governance consideration failures. Thus, the report develops a series of recommendations on likely alternative decision models the organization could have adopted to facilitate its success. Moreover, the report develops recommendations for adoption into the future. 4.1 Virtual Ethics Application On one hand, the report recommends the adoption of virtual ethical perspective in decision making process. As already argued, the virtual decision making process evaluates both the short and long term implications of a decision. The merits for the adoption of this approach can be evidenced through the argument developed by Camarinha-matos and Macedo (289) in a study to evaluate the advantages of virtual ethics decision making perspective. The study established that the adoption of a virtual ethics approach has a range of merits to both the organization and the decision makers. On one hand, the adoption of the approach enhances inclusivity in the decision making. As such the approach enhances the development and inclusion of corporate social responsibility programs. In this case, the report recommends that the organization would have incorporated increased use of corporate social responsibility programs. The adoption of this approach is a recipe for reduced decisions resistance in the market. Polonsky and Jevons (329) conducted a study evaluating the role of CSR programs in organizational management and decision making processes. In its review, the study established that through the programs, organizations facilitated increased external stakeholders participation in decision making processes. Therefore, this report develops the argument that through the adoption of a virtual ethics approach, the Earon Company would have enhanced increased CSR programs consequently boasting its decision success rates. In addition, the adoption of a virtual ethics approach enhances the development of a consequences consideration approach in the Earon Company decision making model. In this regard, the virtual approach emphasizes on the need to develop a consideration for the organizational decisions implications. This involves the adoption and bearing of respective decisions consequences. This report argues that if the organizational management had adopted this ethical approach it would have attained increased decisions implications outcomes. The adoption of this approach would have facilitated the development of strategic decisions with a consideration of their long term implications rather than the short term consequences. Further, if this approach is applied in organizations into the future, it would facilitate increased organizational management and internal stakeholders’ connection with the external stakeholders, a virtual imperative in the development and sustenance of eventual organizational competitive edge sustainability (Leleur 39). 4.2 Corporate Governance In order to facilitate transparency and accountability in Earon Company decision making model, this report argues that the organization should have employed the corporate governance approach in its decision making process. A study developed by Grundei and Talaulicar (13) established that through corporate governance organizations enhance increased decision making processes transparency. Therefore, through the adoption of such an approach, the organization would have facilitated transparency, subsequently enhancing accuracy and transparency in the decision making process. For instance, the adoption of appropriate accounting and auditing procedures facilitate the development of accurate recording and reporting procedures (Nakamura and Fruin 127). Through the adoption of appropriate procedures and processes such as the matching concept allows for the matching of organizational expenses with revenue to subsequently enhance increased revenue gains in the market. Therefore, through the adoption of this approach, the report argues that organizations can enhance their long term implications of their decisions for long term organizational gains. Conclusion In summary, this report offers a review on the concept of organizational decision making process in uncertain circumstances. In this regard, the report evaluates the Earon Company decision making model and the subsequent reasons for its failure. In this regard, the analysis establishes that the organization adoption of derivatives, its use of the Anderson Company as its accounting firm as well as its financial advisor and consultant, and the non-transparent recruitment and hiring process were among the challenging organizational decision that led to its failure. Further, a theoretical review on the organizational decision making process established that the organizational decision making process faced two key theoretical issues including ethics in decision making as well as corporate governance role in decision making. As such, the study established that the organization adopted the utilitarian ethical perceptive in decision making as well as the lack of transparency in decision making processes. To this effect, the report develops recommendations through which their application would have resolved the organizational decision making challenges. Moreover, the recommendations are aimed for consideration in future business decision making processes. In this regard, the report develops two key recommendations namely the virtual ethics perspective application as well as the adoption of a corporate governance approach in management. As such, the report established that the adoption of a virtual ethics approach and corporate governance would facilitate long term implications consideration as well as organizational processes transparency. References Camarinha-matos, Luis, and Patrícia Macedo. "A Conceptual Model of Value Systems in Collaborative Networks." Journal of Intelligent Manufacturing 21.3 (2010): 287-99 Corb, Howard. Interest Rate Swaps and Other Derivatives. New York: Columbia Business School, 2012. Print. Ferrell, O C, John Fraedrich, and Linda Ferrell. Business Ethics: Ethical Decision Making and Cases : 2009 Update. Mason, OH: South-Western Cengage Learning, 2010. Print Gillan, Stuart L., and Laura T. Starks. "Corporate Governance, Corporate Ownership, and the Role of Institutional Investors: A Global Perspective." Journal of Applied Finance 13.2 (2003): 4-22 Grundei, Jens, and Till Talaulicar. "Company Law and Corporate Governance of Start-Ups in Germany: Legal Stipulations, Managerial Requirements, and Modification Strategies." Journal of Management & Governance 6.1 (2002): 1-27. Intezari, Ali, and David J. Pauleen. "Management Wisdom in Perspective: Are You Virtuous enough to Succeed in Volatile Times?" Journal of Business Ethics 120.3 (2014): 393-404. Leleur, Steen. Complex Strategic Choices: Applying Systemic Planning for Strategic Decision Making. London: Springer, 2012. Print. Macey, Jonathan R. Corporate Governance: Promises Kept, Promises Broken. Princeton, N.J: Princeton University Press, 2011. Print. Nakamura, Masao, and W. M. Fruin. "Implications of the Japan Model for Corporate Governance and Management for China and Other Emerging Economies in Asia." Journal of Asia Business Studies 6.2 (2012): 122-42 Polonsky, Michael, and Colin Jevons. "Global Branding and Strategic CSR: An Overview of Three Types of Complexity." International Marketing Review 26.3 (2009): 327-47. Surampalli, Rao Y, and R D. Tyagi. Advances in Water and Wastewater Treatment. Reston, Va: American Society of Civil Engineers, 2004. Print Read More