Discussion 1: Aligning Stockholder and Management Interests/TVM/Markets

(350 Words + 3 Student responses 250 word each)

Part 1: Stockholders and Management Interests

Part 2: Application of Concepts/Time Value of Money

Discussion 2: Describe the ethical challenges faced by organizations operating globally.

(350 Words + 1 Student response 250 words)

Journal Article : corporate social responsibility (CSR) 

APA format , No plagiarism

Part 1

There are definitely a few examples of managers who have put forward their personal motives into precedence even when the company was in a state of crisis financially. To name a few of them:

Bob Nardelli

Bob Nardelli was the CEO of Home Depot until he stepped down in 2007, when he had accumulated $223 million. Though the stock process of the company didn’t rise in the year 2006, Nardelli’s compensation for sure had shoot up to $131 million. When he was asked to align his pay with the interests of the company and it’s profits, he refused to do so and decided to step down after closing the deal with $100 million. This clearly is a case which demonstrates that though managers try hard to increase the performance of a company, failing to do so they tilt their gear towards enhancing their compensation.

Jack Welch

Jack Welch was the CEO of General Electric. In his role, he received great perks like an apartment in Manhattan which was owned by the company and had a rental price of $80000/month. He was also offered the box seats and the courtside seats of many extremely famous game tournaments like the U.S open, Wimbledon, Yankees, etc. During his retirement in 2001, his severance pay was marked at $417 million. This amount was the highest amount given during retirement to any American CEO in the last ten years.

There are two methods a company can employ to align the interests of the management and the stockholders. Those tools are Threat of firing and Managerial compensation. Satisfaction and happiness of the stockholders is of primary importance. When this is not taken care of, they have the power to push the board to replace the management of the company or they could even elect a company new set of board of directors that could perform according to their interests. When reward system in the management level of a company is strong it helps in retaining skilled managers. It also helps in driving them towards achieving the goals set by the stockholders. This usually is done annually during the performance review in the form of bonuses or they are awarded with company shares. They sometimes are also giving stock options which allow them to see through the eyes of stockholders.

Part 2:

It is financially extremely vital to own a certain amount of money and make sure to start rotating it as early as possible as the retrieving power of it keeps diminishing as times passes. The current value of money is what matters the most as it might or might not have the same value later. This is the main idea behind the time value of money. It is also important to know the possible limit that it might have in terms of security. Only when this is acknowledged one can reap the most out of it, Many strategies and formulations are used to generate more money over a period of time by either going with investment options or stock market or leasing costs.

The future value of money is nothing but the worth a certain set of amounts will have much later. This is calculated using a ton of tools and methodologies and applying them over various periods of time. This is essential if one wants to make the right decisions and drive towards profits in the future.

References

Bozhya-Volya, R., & Rybak, A. (2019). Why Should Money Lose Value with Time: Boosting Economy in the Era of e-Money. SSRN Electronic Journal. doi: 10.2139/ssrn.3318162

Cobb, J. A. (2019). Managing the Conflicting Interests of Workers and Shareholders: Evidence from Pension-Assumption Manipulations. ILR Review, 72(3), 523–551. 

https://doi.org/10.1177/0019793918789155

Part-1: Conflicts between a company’s management and its shareholders are usually referred to as agency costs and are borne by shareholders. Activist shareholders and increased corporate governance increasingly deal with agency-related conflicts, but these conflicts can be especially intense for shareholders of smaller, closely-held companies. Smaller companies can be subject to less-rigorous audits – depending on relationships with banks, customers and suppliers – and minority shareholders in closely-held companies are usually resistant to the only source of recourse, litigation, which can be expensive and risky.

“Your management team may be more willing to take on higher levels of risk, – operating, financial or investing – while your shareholders desire maximized returns in the form of capital gains and dividends. Shareholders are generally risk-averse, which is viewed as prudent and conservative. If your management team receives a large portion of its compensation in annual salaries and stock options, managers have less to lose because salaries are constant, and stock option values rise in response to increased volatility, a form of risk.”(Robert, 2019)

“Your shareholders desire minimized taxes, as opposed to maximization of shareholder wealth. Management teams sometimes exploit this by setting salaries in excess of industry norms, presumably because compensation expenses are tax deductible and lower taxable income.”(Robert, 2019)

It can be difficult to balance the return requirements of your shareholders with different long-term goals and tax situations. Your business could also form a plan that comes at the expense of shareholder returns. 

“Common examples fueling these decisions include concern about leaving a legacy, engaging in “empire building,” which involves acquiring companies at a fast pace, even if it involves taking on too much debt, or sacrificing profitability.”(Robert, 2019)

Part-2: The time value of money is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received. Time Value of Money is also sometimes referred to as present discounted value.

We all know that if we deposit money in a savings account, it will earn interest. That is why we prefer receiving money now than the same amount at a future date.

Time Value of Money is important in financial management. TVM can be used to compare different investment options and to solve problems involving mortgages, leases, loans, savings and annuities.

“Time value of money is based on the idea that people would rather have money today than in the future. Given that money can earn compound interest, it is more valuable in the present rather than the future. The formula for computing time value of money considers the payment now, the future value, the interest rate, and the time frame. The number of compounding periods during each time frame is an important determinant in the time value of money formula as well.”(James, 2020).

“Example: Imagine you lent a friend $1,000 and he paid you back today. You immediately deposit that money into an account that earns 7% annually. It will be worth $1,070 in exactly one year’s time.

If, on the other hand, you received the $1,000 in one year’s time, it would only be worth $934.58 ($1,000 ÷ 1.07), assuming a 7% annual interest rate.

If you asked people whether they would prefer to receive $1,000 now or that amount in one year’s time, they would probably all say they wanted it now, for several reasons:

– They want to be sure they get the money. Waiting a year increases the risk of not getting the money.

– They may want to go out shopping or go on vacation soon, and that money would be useful.

– If they invested that money today in a deposit account, the $1,000 would be worth more in one year’s time. They are aware of the Time Value of Money.

A key concept of TVM is that a series of equally, evenly-spaced installment payments or a single lump sum, or receipts of future pledged payments can be converted to an equivalent value now.

One may also determine the whole thing the other way round, the value to which one single sum or a series of future payments will have appreciated at a future date.”(Market Business News, N.A).

Reference: 

– Shaftoe, Robert. (2019, January 25). Conflicts Between Corporate Management and Shareholders. Small Business – Chron.com. Retrieved from http://smallbusiness.chron.com/conflicts-between-corporate-management-shareholders-75063.html.

– Chen, James. (2020, January 24). Time Value of Money (TVM). Investopedia Website Retrieved from https://www.investopedia.com/terms/t/timevalueofmoney.asp.

– Market Business New. (N.A). What is time value of money? Definition and examples. Market Business News Website. Retrieved from https://marketbusinessnews.com/financial-glossary/time-value-of-money/.

The ethical challenges faced by organizations operating globally.

The organizations which work all-inclusive breaks, there could be numerous moves not constrained to land, political, mechanical and worker manager relationship guidelines. One increasingly considerable test that surfaces as a piece of most different difficulties are the morals and comprehension of the morals of specific countries while working in them (Saxena & Gomes, 2016). The objective is to have a great agreement between morals that oversee the organizations and the morals that the nation has confidence in. Every nation has its very own guidelines as far as exchanging broadly and globally. A few organizations do pay off and offer endowments to various government authorities in various different nations to set up and grow their business. Only one out of every odd nation neither has similar standards nor should be nevertheless paying such payoff and blessings are denied by U. S Foreign degenerate practices act accordingly such kind of exercises falls under the untrustworthy conduct.

Moral difficulties will emerge if the items offered by worldwide organizations have untrustworthy practices. Moral difficulties will experience in the generation zone of the worldwide organizations if the creation procedure is done untrustworthy practices. So as to wind up viable as a worldwide association, there must be changes in different divisions inside the present association (Saxena & Gomes, 2016). For example, the organization division must consider the best methodology of procedures that will work associations situated in different areas comprehensively, and they should likewise start an appropriate arrangement of the cross-useful procedure.

As political, legitimate, financial, and social standards shift from country to country, different moral issues ascend with them. A typical practice might be moral in one nation however unscrupulous in another. Worldwide supervisors should be touchy to these changing contrasts and ready to pick moral activity as needs are (Smith, Rohr & Panton, 2018). For this situation, the business can pick up by demolished nations by enrolling a workforce at base rate remuneration. The resulting things are then imported to first-world countries and sold at an imperative markup. While this preparation inside and out extends the edge and profitability, the workers lose when they are paid a not actually sensible pay and are gotten into a work environment that essentially holds them, detainee.

References

Saxena, A., & Gomes, M. (2016). Ethical challenges to responding to the Ebola epidemic: the World Health Organization experience. Clinical Trials, 13(1), 96-100.

Smith, S. S., Rohr, S. L., & Panton, R. N. (2018). Human resource management and ethical challenges: building a culture for organization success. International Journal of Public Leadership, 14(2), 66-79.

Stockholders and Management interests

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Every business organization dream is to get profits and makes more money of it. There won’t be any business that don’t want profit. Every business organization has stockholders and managers and all of them wants their business to grow more and make more money.Even though the dreams and goals remains the same among them, there are slight differences between them.  There will be many different situations where we can see the different scenarios between the managers and business stockholders even though there final goal is to improve the revenue. All the business functions and operations are controlled by business managers. Each organization has projects and the timeline for those will be decided by those managers. Each project has team leads and all of them will report to managers. Team lead responsibility is to make sure the project is going smoothly without any issues and get its done on time and submit it to the manager. All the stockholders have some share in the business and they will make money out of it and all the companies future depends on it.

The only common thing between managers and business stockholders are taking risk and reacting where there is any risk to the organization. All managers are supposed and capable of taking risk and resolve issue when there is any. Managers has direct contacts with the directors because they will update each and everything that is happening in their organization because managers are capable of taking risk. Managers are ready to take risk because they don’t invest money in them. All managers have constant salary and that will not be increased even if they solve any issue. Business organizations mostly offers annual salary for performance or shares to the managers and stock holders who really performs well. Organizations shares are spitted as performance shares where the best performance manager will receive a number of shares offered by the organization.Executive stock options helps managers to buy stocks for future use.

Application of concepts/Time value of Money:

All of us knows that time is money, we cannot buy time which is lost. So making of money depends on calculation of time. The video covers most of all the things like differences between the future and past annuities and bonds. Let us take an example from a company perspective as we know every organization has executive managers and its upon them completely whether they has to invest money or take a loan when they needed money. Having money today means a lot then having money in future because we never know we will have money at that time how this situations will be at that time. Managers has to be mastering about managing the money of the organization because they should know when and where they has to invest the money which will help the growth of the organization. By this it will also helps and understand the organization when to take loan when they needed of it. The total numbers of payments that any organisation is paying to and the rate of the interest that the organization owns will tells us the total amount a organization has to repay it. Basing on the time payment we can say that the decision taken by organization about taking loan will help them to understand that decision is a good financial decision or not.

If i was manager to any business organization i will make sure that all the concepts that are applicable of taking final decisions. If my organizations wants some money then i will raise bonds more for money. I would also like to implement the plans of taking loans with proper interest and not heavy burden on it. Because heavy interest may costs more money from business.

References:

· Irena, M., & Mariana, B. (2017). The Time Value of Money in Financial Management. Ovidius University Annals, Series Economic Sciences, 17(2), 593–597.

· Milton, Harris, 2011, Shareholders vs. Management: Split Decision. Retrieved from 

https://insight.kellogg.northwestern.edu/article/shareholders_vs_management_split_decision

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