Week 2: International value management

Shareholders are one of the most important aspects for the company in order to make the company keeps improving. The company should make their shareholders satisfied by making a profit in the company to gain a dividend for shareholders. The “agency theory” can help the company avoid the problem between the shareholders and managers. Normally in the company mangers are the parties who will operate most of the activities in the company. In some cases there are some managers who will take their own advantages from their role rather than stick to the company’s objective.   

Enron Debacle can be the example of the “Agency problem” within their board of directors. In Enron Company, there is some mismanagement and unethical behavior within its board of directors, included the top-level managers. The top managers in Enron Company is not the shareholders/ owners, so they can be trusted to give the best contribution to the company in order to satisfied the shareholders of Enron’s Company.

The Board of director in Enron’s Company is the parties that can solve the agency problem in the company, since they have the rights to observe all the activity by their top managers in the company to keep in track based on the company’s objective. However, in this case, the boards of directors also take parts of the agency problem because the CEO also serves as the chairman of Enron Company, so the CEO can sort the information that he/ she would share to the shareholders.

In my opinion for Enron case, the company should think carefully for the future, whether it is fine or not if the boards of directors in Enron Company also have the shares. Normally in real business life the more shareholders in the company, the more the company can improve their performance though out the years. But as we can see in from Enron case, when board members own shares in the company, the company is getting worse and made the stock price goes down.

It is very important to apply the agency theory in Enron cases to make the shareholders satisfied with the company, but there is some exception in some company like General Motors. In order to increase the shareholders wealth, the CEO get a new car every 3 months and the CEO have an increases for the compensation from $10.2 million to 14.4 million while the share price fell down by 17% during that year. It is unethical for the other share and stakeholders, since the company is not improving that year. The CEO should use that amount of money to create a strategy in order to maintain the operation of the General motor company.