Principles of Business - Assignment Example

UPMC is a global health enterprise that has recently experienced negative press about its financial dealings with insiders. It is a multinational company that is financially worth an amount of $8 billion consisting of international and commercial services, 20 hospitals and other assets. According to the company’s annual report of 2010, operating revenue from 2006 to 2010 has grown at an average rate of 9%. However in 2009, UPMC had losses amounting to a negative net income of $489 million. The losses might have resulted from the negative press that the company received about making cozy deals with companies that were owned by members sitting on the board of UPMC.

The result might have been conflicts of interest that had negative effects on the financial health of the company. According to the company’s federal tax returns, financial dealings with companies that were owned by board members cost UPMC $10 million. $5 million worth of transactions between businesses connected to the board members were reported in the tax records (Roche Jr., 2010). In reviewing the financial activity, the concept of corporate governance becomes relevant. It is defined as the standards which are deemed as appropriate in the running of the company.

Because the management of UPMC engaged in cozy business deals with insiders, costing the company $10 million, it clearly was not recommended by the corporate governance system. The concept of fair market value is also relevant. Because the transactions were affected by the board members’ relationships as reported by the press, the financial activity might not have been conducted at fair market value. A financial transaction is conducted at fair market value when the transaction happens at the rate that is set by the market mechanism.

Because UPMC awarded contracts to the board members’ companies at favored rates, it cost the company $10 million, resulting in $489 million losses in 2009. As a result of cozy business deals such as legal fees paid to law firms connected to board members, the mechanism of corporate governance was not maintained and this meant that any transactions that did not maintain the fair market value were allowed without any questions asked. Because UPMC is a global enterprise, it has the capital based upon which it can recover.

The enterprise has a substantial asset base which can serve as the platform from which the company can launch a charm offensive. Because of the issues raised about its financial transactions, the company will have to invest in public relations to address the concerns raised about corporate governance. Unless the company can assure the public that its financial activity is conducted in strict accordance with corporate governance, it is bound to lose market share. However, given its global presence which has generated a lot of brand equity, the company can turn public perception around.

Because the company offers a broad range of services delivered through different business units, it has carved out a strong presence in the health system. This has enabled the global health enterprise to develop a strong financial health which will not be substantially affected by the negative press. Given the $8 billion asset base, UPMC can recover from the present situation. The management at UPMC can hire an external consultant to apply a corporate governance methodology. This will ensure that the appropriate standards are imposed in ensuring the fair market value of financial transactions.

The company should also pay attention to the risk management structure. This will ensure the integrity of the investment decisions. Because of the concerned business deals, the company’s financial performance recently has been less than exemplary. Therefore the management needs to make sound investment decisions. Only in this manner can the company become financially strong again. UPMC has a robust asset base globally. Even so, unless the management can impose the corporate governance methodology and conduct its financial transactions within a stringent risk management framework, its financials are stake.

By applying corporate governance and risk management tools, UPMC can create an organizational structure in which the management can ensure that any contracts are awarded legitimately. In this manner, the company can become financially strong again. References Roche Jr., W. F. (2010, May 23). Experts say UPMC’s financial dealings with insiders seem ‘cozy’. Pittsburgh Tribune Review. Retrieved from http://www.pittsburghlive.com/x/pittsburghtrib/news/s_682523.html. 2010 Annual Report. Retrieved from http://www.upmc.com/aboutupmc/Pages/default.aspx.