Governance and Corporate Social Responsibilities

Governance and Corporate Social Responsibilities

2007-09-08 Contents

TOC \o "1-3 " \h \z \u HYPERLINK \l "_Toc8 " 1 : Use Agency Theory to analyze the governance issues in this case . Discuss board responsibilities , board independence , and executive compensation and shareholder interests . PAGEREF _Toc8 \h 3

HYPERLINK \l "_Toc9 " 2 . Use Robins (2006 ) Problem Analysis Framework covering Technical , Political and Cultural categories to discuss the issues in this case . This framework will be together with the case study . PAGEREF _Toc9 \h 8

HYPERLINK \l "_Toc0 " 3 . What exhibited more influence in

making this company secure - Markets , Professions or Regulations PAGEREF _Toc0 \h 14

HYPERLINK \l "_Toc1 " Bibliography PAGEREF _Toc1 \h 16 1 : Use Agency Theory to analyze the governance issues in this case Discuss board responsibilities , board independence , and executive compensation and shareholder interests

Theoretic strategic management is often influenced by agency theory which examines that managers are not willing to maximize shareholder returns without strong legal implications within larger firms (Jensen and Meckling

305 1976 . The relationship of the multinational firm 's market environment , stakeholders , resources , and values to the development of strategic social planning and strategic social positioning determines functional roles (Husted and Allen 345 2007 Thus , the board of director 's functional role is to mediate the relationship between the chair and executive officers , where shareholder interests are protected only when the CEO is not the board chairman and the CEO and shareholder interests are aligned appropriately . At its most basic definition , agency theory explains that the principals of a firm are the owners and agents are the managers , where agency loss occurs when the principal owners maintain direct control of the firm (Jensen and Meckling

306 1976 . Incentives for management as agents of the firm are financial rewards that occur when the shareholder 's interests are exceeded , which allows financial interests of shareholders to be aligned with the manager 's functionality (Jensen and Meckling

307 1976

In the case study of WMX Technologies , the management , as agents of the firm , were not meeting the needs of the shareholders interests . Stocks had plummeted , largely due to WMX 's managerial decisions where "They continue to allocate resources as if they were still participating in a growth industry (WMX Case Study . This opportunistic behavior was at the expense of the shareholders , where stocks plummeted because the monitoring of management actions and resource allocation was not aligned with the needs of the shareholders

The board of directors has the responsibility to control managerial opportunism . Their responsibility is to monitor the manager 's actions as an agent of the firm owners for the shareholders benefit . This means that the board of directors has a responsibility to be impartial and behave independent of executive management team . However , in the WMX case study , it may have been impossible for the board to behave entirely independent of executive management because of the 12 member board two were full-time insiders , three were former employees , three were affiliated due to consultancy arrangements , and four were...