Explain the term “Agency Problem”, and identify four (4) ways by which shareholders can deal with it. CR
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You have just been employed as the new Chief Executive Officer of a medium-sized company that is listed on the Ghana Stock Exchange. At the maiden Board Meeting, the chairman advised you and your management team to avoid what he termed as “Agency problem”.
Explain the term “Agency Problem”, and identify four (4) ways by which shareholders can deal with it.
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- You just been employed as the new Chief Executive Officer of a medium-sized company that listed on the Ghana Stock ExchangeAt the Board Meeting the chairman advised you and your management team to avoid what he termed Agency problem"Explain the term "Agency Problem" in corporate governance, and briefly explain four () wys by which the shareholders of company encourage its managers act in wwys which are consistent with the objective of value maximizationAssume that you have finished your MBA program and have applied for a position in the FinancialAccounting Department of a large multinational company. The company is struggling with itsaccounting reporting matters and several accounting reports are under regulatory scrutiny. In theinterview board, the recruitment committee members have asked you the following questions. i. How can you contribute the Financial Accounting Department of this company if youare recruited? (PLEASE DO NOT GIVE OTHER OR EXISTING ANSWER OF BARTLEBY)Assume that you have finished your MBA program and have applied for a position in the FinancialAccounting Department of a large multinational company. The company is struggling with itsaccounting reporting matters and several accounting reports are under regulatory scrutiny. In theinterview board, the recruitment committee members have asked you the following questions. i. What have you learnt in the BUS 505 course relating to financial accounting?
- In which of the following cases will the agency problem between shareholders and managers be the greatest? a) 75% of the common stock is owned by the founder of the company who decided to retire and hired a manager to run his business for him. b)You own 50% of the common stock of the company. The other 50% is owned by 5 mutual funds. c) The common stock of the company is owned by many diverse shareholders, with no shareholder owning more than 2% of the outstanding stock. d)All top managers in the company own significant amounts of stock and stock options.In June 2001, in Oman, the Capital Market Authority issued the Corporate Governance Code, applicable to companies whose securities are listed on the Muscat Securities Market.The Code, drawn from codes of best practices from around the world but adapted to the local market, seeks to promote a "culture of compliance, transparency and accountability without limiting business initiative. Answer the following three questions Which of the following is not one of the International code of Corporate Governance? On retiring, a Chief Executive should become a chairman. At least half the board, excluding the chairman, should comprise non-executive directors Levels of remuneration should be sufficient to attract and retain directors The role of Chairman and chief executive officer should be separatedAssume that you have finished your MBA program and have applied for a position in the Financial Accounting Department of a large multinational company. The company is struggling with its accounting reporting matters and several accounting reports are under regulatory scrutiny. In the interview board, the recruitment committee members have asked you the following questions. What have you learnt in the BUS 505 course relating to financial accounting? How you can contribute the Financial Accounting Department of this company if you are recruited?
- You are the CFO of Clarke Company, which is publicly traded. At the annual shareholders’ meeting, you discussed the company’s recently reported results. As part of your presentation, you illustrated the minimum and maximum values for net income that Clarke could have reported using a range of accounting assumptions other companies in your industry use. Your statement prompted a cry of outrage from one of the shareholders present at the meeting, who accused you of being an unprincipled liar. This shareholder stated that any suggestion that there is a range of possible net income values for a given company in a given year indicates an overly liberal approach to financial reporting. This shareholder has moved that your employment contract be immediately terminated because of an apparent lack of moral character. The shareholder’s arguments have been persuasive to a large number of people at the meeting. What can you say to defend yourself?You are the CFO of Clarke Company, which is publicly traded. At the annual shareholders’ meeting, you discussed the company’s recent reported results. As part of your presentation, you illustrated the minimum and maximum values for net income that Clarke could have reported using a range of accounting assumptions other companies in your industry use. Your statement prompted a cry of outrage from one of the shareholders present at the meeting, who accused you of being an unprincipled liar. This shareholder stated that any suggestion that there is a range of possible net income values for a given company in a given year indicates an overly liberal approach to financial reporting. This shareholder has moved that your employment contract be immediately terminated because of an apparent lack of moral character. The shareholder’s arguments have been persuasive to a large number of people at the meeting. What can you say to defend yourself?Suppose you were a member of Company A’s board of directors and chairperson of the company’s compensation committee. What factors should your committee consider when setting the CEO’s compensation? Should the compensation consist of a dollar salary, stock options that depend on the firm’s performance, or a mix of the two? If “performance” is to be considered, how should it be measured? Think of both theoretical and practical (that is, measurement) considerations. If you were also a vice president of Company A, might your actions be different than if you were the CEO of some other company?
- A retail company is planning to list on a stock exchange within the next three months, and management has been advised by the company’s auditors about the need for compliance with corporate governance provisions. In particular, the finance director is looking to recruit non-executive directors as he understands that Angel will need to establish an audit committee. The finance director has two potential non-executive directors whom he is considering approaching to join the board of Angel. Joseph Lindon is currently an executive sales director of a listed multi-national banking company; he sits on an audit committee of another company as a non-executive director and is agreeable to being paid a fixed fee which is not related to profits. Mark Curly is currently a finance director of a small retail company, which does not compete with Angel; he has expressed an interest in a fixed seven-year contract, and he is the brother of Angel’s chief executive. Required: a) Define an audit…Suppose that the CEO of a firm has to make an annual reportto shareholders about 2 of the divisions of a firm. Suppose that the two divisionshave made profits, then should the CEO try to integrate or segregate the twoprofits when conveying company news to shareholders? If on the other hand,both divisions had made losses should the losses be integrated or segregatedwhen conveying company news to shareholders?Answer the following Questions: 1. What is Corporate Governance? Explain the Purpose of Corporate Governance. What are the main pillars of Corporate Governance as per the Code of Corporate Governance for Public Listed Companies in Oman? (300 words) 2. As per the Capital Market Authority of Oman, explain the principles on Board of Directors’ Formation, Roles and Responsibilities (200 words) 3. Explain in details and with examples the threats to compliance to the Fundamental principles of professional ethics. What are the safeguards against such threats? ( 500 words)