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MG309 2nd Assignment

Due date: Friday 22nd September 4.00pm Fiji day and time
Value: 15%
Length: 3,000 words (approx. 6-8 pages)
Coverage: Chapter 10 of the prescribed textbook

You are required to do the following:


1. Select a global organization from the Oceania Region. Discuss the following issues related to this
organization:
a) What is the nature of corporate governance in the organization of your choice?
Response:

Amalgamated TelecomHoldings reviewed and revised its Code of Corporate Goverannce Principals in 2010 to
ensure that it adheres to best practice in corporate governance. This revision includes incorporation of new
policies that promote zero tolerance towards money laundering, corruption, discrimination, and harassment
(based on sex, race, nationality, age, religion, disability, educational background, marital status or other similar
identifying characteristics). (source: intext-referencing)

b) How can corporate governance in this company foster ethical decisions and behaviors on the part of managers
as agents?

c) How is each of the three internal governance mechanism-ownership concentration, board of directors and
executive compensation used to align the interests of managerial agents with those of the firms owners?

Governance mechanism-ownership concentration:


Board of directors:
Executive compensation:

References (wherever in the Assignment references have been made to course material or any other current
practice or research cite the full bibliographical details.)*Also keep in mind the marking rubric. Pay attention to
each criterion as per the rubric. Methodology would be secondary sources.

Targeted entity:
Amalgamated Telecom Holdings Limited with its subsidiary Companies corporate governance nature implicitly
state the importance of maintaining and continually improve minimizing the existence of possible causes and
factors of conflicts within their workforce from top level to the lowest level. Corporate governance is a set of
systems used by stakeholders to efficiently and effectively control and direct an organizations strategic direction
and performance (prescribed textbook pg #292). Directly from ATH website, they states that they had further
more improved their corporate governance by

Amalgamated Telecom Holdings reviewed and revised its Code of Corporate Goverannce Principals in
2010 to ensure that it adheres to best practice in corporate governance. This revision includes incorporation of
new policies that promote zero tolerance towards money laundering, corruption, discrimination, and harassment
(based on sex, race, nationality, age, religion, disability, educational background, marital status or other similar
identifying characteristics). (source: intext-referencing)

This statement covers a broad area of subjects but they are all derived from the basis of maintaining and
improving all of ATH subsidiary companies performance compliance while maximizing all of their companies
performance harmonization with that of stakeholders end goals as well as within their different organizations.

Corruption with money laundering are the two most common causes of agency relationship costs. Corruption is
the misuse of entrusted power for private gains that highly related with that of money laundering. This occurs
that mostly the cause of entrusted managers have a different end-goals with that of owners of the business hence
executive managers of an organization seek their own interest with misapplication of their authority in a guile,
cunning and deceitful manner. For instance, (Give two examples). This act is mostly identified in the academic
and real world of market as managerial opportunism that the perfect example of the lack of mutual interest
between stakeholders or owners and appointed executive managers.

Another contributing factor of work conflict within the organization is that of discrimination and harassment.
(Creditable definition for both terms and their application in business context). (Give two examples).

One of the commonly known strategies stakeholders uses to foster ethical decisions and behaviors on the part of
managers is the application of relevant regulations and compliances with demonstration of possible negative
consequences of unethical actions. Stakeholders should always emphasis that the costs of all unethical actions
always far outweigh the benefits. For instance, a very relevant case is that of major corporate collapses along
with major corporate frauds. As in the case of Enron Scandal in 2001, the current CEO Jeff Skilling and former
CEO Ken Lay had been working under-table deals and as well manipulate accounting books to further enhance
their operation performance. They were able to maintain this scandal for 6 years until they were caught by the
internal whistleblower Sherron Watkins. As a result these two CEOs were sentenced 24 years in prisons, Lay
died in his serving time and Skilling is still now serving his remaining 8 years imprisonment whereas
shareholders lost $75 billion (Intext referencing). Another relevant case is that of WorldCom scandal during
2002. In this case the main protagonist is its CEO, Bernie Ebbers and he managed to inflate assets in value of
$11 billion by capitalizing accounts that are to be expensed and make irrelevant accounting entries to highly
inflate revenues. He was caught by internal auditing department by identifying a whopping $3.8 billion fraud.
Once found, Ebbers was fired and sentenced for 25 years of imprisonment while the CFO is fired, controller
resigned and the company filed for bankruptcy impacting as well all it employees with loss jobs (Intext
referencing). Another relevant case is of Tyco Scandal in 2002. What happen is that both its CEO and CFO,
Dennis Kozlowski and Mark Swartz respectively, misappropriate $150 million and at the same time inflate the
company income by $500 million. They managed to do this by packing such amount of money in a form of
executive benefits or bonuses. They were found by SEC and Manhattan groups and were sentenced for 8 25
years in prison whereas the company have to pay $2.92 billion to investors (intext referencing). With a clear
emphasis on the heavy consequences of unethical acts by stakeholders and top running executive managers, the
whole organization would be mostly motivated to operate within their ethical scope of work as clearly they have
a two way street relationship.

Another form of Stakeholders corporate governance is the enforcement of both internal control and international
financial standards regarding financial reporting. Financial reporting have certain standards to follows that it is
must be strictly followed as the incompliances to such standards have alter significantly the overall report of a
certain organization. Independent auditors role of compliance engagement ensures that a particular organization
is consistently complying with all internal control policies as well as international financial standards specifically
International Financial Reporting Standards. It provides reasonable assurance that an organization is working in
compliance with regulations, contractual obligations and other statutory requirements of a company (modern
auditing, pg 172). For instance, Amalgamated Telecom Holdings Limited (ATH) is a listed company under
South Pacific Stock Exchange (SPSE) which make this company to be in legal capacity of SPSE. Being listed, a
company is required to immediately disclose any information that is have significant effect on price of listed
securities and this information is also considered to be important for investor for making investment decisions
(South Pacific Stock Exchange, pg 17). Also a listed company is required to inform SPSE right away if it no
longer meets the public shareholding with working capital requirements as well a company should place no
restrictions on the transfer rights on its securities (South Pacific Stock Exchange, pg 19). Beside from SPSE
listing rules, ATH is also held liable to be in compliance with that of Companies Act 2015. This act then acts as
an internal policy of an whole organization that dictates every details ranging from how the business should run
to the naming and assignment of directors role. For instance, under part 4 division 2 section 46 subsection 1 to 4
states that a company internal management is stated by it articles of association given that specific conditions are
met (Companies Act 2015, pg 65). And under part 10 division 1, section 91 to 93 specify for a type of company
minimum and maximum number of directors with minimum qualifications. Since there are many types of
companies, this act further covers its parameters (Companies Act 2015, pg 85). These internal and external form
of regulations and policies acts as a guidelines for stakeholders, managing executives and independent auditors
for the assurance of regulation and internal control compliances.

Additionally, the stakeholders could use to the maximum application of forensic auditing engagements to
increase the accuracy of accounting reports whereas at the same time minimize unethical acts within their
organization. Mostly scandals are carried out by top employees under the belief that they cannot be caught.
However the further implementation of such practice will make the top employees to think thrice. Forensic
auditing engagements is auditing process that investigate all possible factors and causes of fraudulent activities
and identifies proofs of system failures via the analysis of employees messages, log-on times, emails with
address, duplicates of numbers on payments and receipts, lists of customers, inventory with suppliers movements
and transactions (modern auditing, pg 179 -181). For instance, independent external auditors can quickly
identifies fraud activities by relying on past auditing practices specifically the application of internal control to
their maximum use. Any out of ordinary transactions can be questioned and traced back with backing up
evidence as in the case of WorldCom Scandal in 2002 (intext referencing). Furthermore, the full access to all the
employees emails and addresses will further enhance the accountability and transparency of information
movement within an organization. The critical analysis of both electronic and hardcopy information will
improve the overall perspective of independent auditors for an organization business context. With nearly
complete and thorough view of information flow within a company, all employees will be find it hard to initiate
any scandal moves under such a strict supervision annually (modern auditing, pg 181). Plus, a thorough
investigation of duplicates payments and receipts also help in the assessment of an organization financial
reporting faithful representation and reliance. This approach further enhance the creditability of financial
transactions as any out of the blue transactions will be easily identified and questioned (modern auditing, pg
181). Thus with an almost thorough supervised system, it is a perfect environment for compliances toward to
stakeholders biddings and ethical actions with proper provided incentives.

Stakeholders implement certain strategies in order to properly control and align their managerial agents interests
with theirs. Among these strategies is governance mechanism ownership concentration. The ownership
concentration refers to the number of large-block shareholders with their total percentage of shares they own that
is usually at least 5% of an organization issued shares (Hanson, Hitt, Ireland, Hoskisson : pg 299). It is the
ownership of shares that dictate whom to follow their bidding, the one with the highest number of shares own
then controls how the internal operation of the organization going to be. However with such control, the
shareholder with majority share will still have to face and minimize the agency cost due to the separation of
actual and practical managerial control on an organization if it does not directly manage an organizations
operation. This results in an agency problem due to possible different interests of entrusted agents (managers)
and that of owners. One way of shareholders to control their agents work is to prefer, emphasis and legally
enforce the adequate product diversification to the point that it creates maximum value for shareholders instead
of product over-diversification (Hanson, Hitt, Ireland, Hoskisson : pg 296). Theoretically, the level of optimal
product diversification differs greatly between that of entrusted executive managers and that of shareholders.
Entrusted executive managers prefers a level of product diversification that decreases their employment risk
while it maximizes their compensation and maximizes their firm size whereas shareholders prefer a more
focused diversification which enhanced an organizations value via economic of scale that is the complete
opposite of what entrusted agents desire (intext referencing of a relevant textbook!). Thus with a complete
opposite effects of product diversification, shareholders can go lighter with their entrusted executive managers
with actual results due to likely and possible consequences of their preferred level of product diversification.