1. There are potential agency conflicts in the exchange between HP director Sam Ginn and McKinsey experts. McKinsey consultants wanted the merger between HP and
Compaq to occur because they might have been able to collect higher fees. Therefore, they immediately squashed any doubts and gave advice for the merger to happen, even if carrying out such an acquisition would have destroyed value for HP shareholders. 2. For Patricia Dunn, the past successful consolidation mergers are vulnerable but overcome key challenges in the first two years. She believes that the merger between
HP and Compaq will ultimately help her company. The cost savings mentioned by
McKinsey consultants provides confirming evidence in…show more content… Group members search for information that would support a proposal and would not share information that wouldn’t support the proposal. Levin’s actions involved not sharing information about a course of action on his part to which other executives might have objected. 8. Because managers hire the consultants, consultants are likely to perceive themselves in principal-agent relationships, with managers being the principals and consultants beings the agents. That is, managers rather than directors, play the role of the principal. As a result, consultants will perceive their own interests being served by supporting the interests of managers over the directors, who are actually the ones in charge. 9. HealthSouth’s interest to engage in fraud would naturally be in conflict with the interest of its auditors. Therefore, the “pristine audit program” can be construed as a device to most closely align the interests of the principal (HealthSouth) and agent
(Ernst & Young). HealthSouth did not have to pay their auditors a non-auditing fee that was twice the amount of their auditing fee in order to have magazines and toilets inspected. An auditing firm that receives consulting fees of this magnitude might find that its partners think twice about conducting auditing activities that might jeopardize the relationship with the client.
10. Both firms used top tier accounting firms as auditors, engaged in deceptive practices