Micromax Info Essay

Micromax Info Essay.

Regd. Office: 21/14, Naraina Industrial Area, New Delhi-110028. CODE OF CONDUCT FOR DIRECTORS, SENIOR MANAGEMENT, OFFICERS AND EMPLOYEES OF MICROMAX INFORMATICS LTD. MICROMAX INFORMATICS LIMITED is committed to conducting its business in accordance with the applicable laws, rules and regulations and with highest standards of business ethics. This code is intended to provide guidance and help in recognizing and dealing with ethical issues, provide mechanisms to report unethical conduct, and to help foster a culture of honesty and accountability. Each Director, senior manager, officer and employee is expected to comply with the letter and spirit of this code.

The Directors, senior management, officers and employees of the Company must not only comply with applicable laws, rules and regulations but should also promote honest and ethical conduct of the business.

They must abide by the policies and procedures that govern the conduct of the Company’s business. Their responsibilities include helping to create and maintain a culture of high ethical standards and commitment to compliance, and to maintain a work environment that encourages the stakeholders to raise concerns to the attention of the management.

A present, overall, contents of this Code are in practice, being already followed by the Directors and the Senior Management, however, in compliance with the new Clause 49 of the listing agreement, the Code as set out below, is to take effect from the date, when approved by the Board in its meeting


The Code is applicable to all the members of the Board of Directors, Senior Management, Officers and employees of the Company. Senior Management shall include all executives holding the positions of Director (Non-Board Member/s), Sr. Manager, Managers, Asst. Managers and all head of the departments excluding Board of Directors. Such personnel shall hereinafter be treated as members of its core management team.


The Directors, senior management, officers and employees are to exercise due diligence in attending to their respective duties and obligations in the best interest of the Company.


The Directors, senior management, officers and employees should be scrupulous in avoiding ‘conflicts of interest’ with the Company. In case there is likely to be a conflict of interest, he/she should make full disclosure of all facts and circumstances thereof to the Board of directors or any Committee / officer nominated for this purpose by the Board and a prior written approval should be obtained. A conflict situation can arise:

a. When an employee, officer, senior manager or Director takes action or has interests that may make it difficult to perform his or her work objectively and effectively, b. The receipt of improper personal benefits by a member of his or her family as a result of one’s position in the Company, c. Any outside business activity that detracts an individual’s ability to devote appropriate time and attention to his or her responsibilities with the Company, d. The receipt of non-nominal gifts or excessive entertainment from any person/company with which the Company has current or prospective business dealings, e. Any significant ownership interest in any supplier, customer, development partner or competitor of the Company, f. Any consulting or employment relationship with any supplier, customer, business associate or competitor of the Company.


The Directors and the Senior Management are to ensure that their action/s in the conduct of business are transparent, except where the confidentiality of the business requires otherwise. Such transparency shall be brought through appropriate policies, procedures, and maintaining supporting and proper records.


Each director, member of core management team, officer, and employee should deal fairly with customers, suppliers, competitors, and employees of group companies. They should not take unfair advantage of anyone through manipulation, concealment, abuse of confidential, proprietary or trade secret information, misrepresentation of material facts, or any other unfair dealing-practices.


The Directors, senior management, officers and employees shall act in accordance with the highest standards of personal and professional integrity, honesty and ethical conduct not only on Company’s premises and offsite but also at company sponsored business, social events as well as any places. They shall act and conduct free from fraud and deception. Their conduct shall conform to the best-accepted professional standards of conduct.


Directors, senior management, officers and employees owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. Directors, senior management, officers, and employees are expressly prohibited from: a. Taking for themselves personally, opportunities that are discovered through the use of Company’s property, information, or position, b. Competing directly with the business of the Company or with any business that the Company is considering. Using Company’s property, information, or position for personal gain. If the Company has finally decided not to pursue an opportunity that relates to the Company’s business activity, he/she may pursue such activity only after disclosing the same to the Board of directors or the nominated person/committee.


The Directors and the Senior Management are to ensure that the Company carries out its business as per accepted practices of business integrity, ethical standards, fair play and conduct, honestly, legitimately and as a fair competitor.


The Directors and the Senior Management are to ensure that there is gender friendly work place, equal opportunities are given to men and women, and there exists good employment practices. 1


The Directors and the Senior Management are to endeavor that the products / services of the Company meet the accepted standards of quality including that of ISO 9001 and any other standard/s, and also the specifications of the legal authorities/laws so that customer satisfaction is ensured. Moreover costs are kept reasonable.


The Directors and the Senior Management are to ensure to protect Company’s assets and property and the same should be used only for legitimate business purposes.


The Directors, Senior Management, Officers and Employees shall maintain the confidentiality of confidential information of the Company or that of any customer, supplier or business associate of the Company to which Company has a duty to maintain confidentiality, except when disclosure is authorized or legally mandated. The Confidential information includes all non-public information (including private, proprietary, and other) that might be of use to competitors or harmful to the Company or its associates. The use of confidential information for his/her own advantage or profit is also prohibited.


he Directors, senior management, officers and employees shall comply with all applicable laws, rules, and regulations. Transactions, directly or indirectly, involving securities of the Company should not be undertaken without pre-clearance from the Company’s compliance officer/Company Secretary. Any Director, member of core management team, officer or employee who is unfamiliar or uncertain about the legal rules involving Company business conducted by him/her should consult the legal department of the Company before taking any action that may jeopardize the Company or that individual.


The Directors and the Senior Management are to endeavor that their dealings with the customers are given due importance, value is created and relationship of trust is built. In dealing with suppliers it should be the endeavor that supplies are based on need, quality, service, price, and appropriate terms and conditions.


The Directors and the Senior Management are to ensure that the rights of shareholders are met as per law and good corporate practices, and all efforts are made to provide best services to them.


The Directors and the Senior Management are to endeavor that the Company be a trusted corporate citizen and, as an integral part of the Society, fulfills its responsibilities and duties to the societies and communities in which it operates.


Honesty, integrity and sound judgment of the senior financial officers is fundamental for the success and reputation of Action Construction Equipment Limited. The professional and ethical conduct of the senior financial officers is essential to the proper functioning of the Company. The senior finance officers as well as Directors of the Company shall be bound by the following code of ethics: 1. Act with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal, financial and professional relationships, 2. Make full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits or makes periodically, to the shareholders, government authorities, and to the public, 3. Comply with governmental laws, rules, notifications and regulations applicable to the Company’s business,

4. Disclose to the Board or any committee/officer designated by the Board for this purpose, any material transaction or relationship that reasonably could be expected to give rise to any violations of the code including actual or apparent conflicts with the interests of the company, 5. Promote prompt reporting of violations of the Code of Ethics to the Board of Directors or any person/committee designated for this purpose, as may be necessary, 6. Respect the confidentiality of information acquired in the course of employment unless legally obliged to disclose and ensure that no such confidential information is used for personal advantage/benefit, 7. Maintain the skills necessary and relevant to the Company’s needs, 8. Act in good faith, responsibility, with due care, competence and diligence without misrepresenting material facts,

9. Refrain from any inappropriate or undue influence of any kind in all dealings with independent auditors, and avoid any actual or apparent conflicts with analysts, 10. Achieve responsible use of and control over all assets and resources employed or entrusted to them, 11. Promote ethical and honest behavior within the Company and its associates, Chief Finance Officer should adhere to both the code of business conduct and the code of ethics of the Company. Violation of the code of ethics will lead to appropriate disciplinary action including dismissal from the services of the Company any deviation/waiver from this code can only be affected on the sole and absolute discretionary authority of the Board or any person/committee designated by the Board for this purpose.


Any question or interpretation under this Code of Ethics and Business Conduct will be handled by the Board or any person /committee authorized by the Board of the Company. The Board of Directors or any designated person/committee has the authority to waive compliance with this Code of business conduct for any Director, member of core management team, officer or employee of the Company. The person-seeking waiver of this Code shall make full disclosure of the particular circumstances to the Board or the designated person/ committee


Compliance with this Code of Conduct is an obligation. The Directors and the Senior Management are to ensure that this Code is communicated to, and understood and observed by all employees. The Directors and the Senior Management shall affirm compliance with the Code, on an annual basis. The Board expects employees to bring to their attention, or to that of Senior Management, any breach or suspected breach of this Code. Compliance with this Code is subject to the review by the Board and complemented by the Audit Committee of the Board. Any modification/s, amendment/s, or review of this Code shall be done by the Board.

Micromax Info Essay

Lifting the Veil Essay

Lifting the Veil Essay.

The general reasoning of the Court in this area of Veil Lifting the Corporate veil has been confusing and, at times, contradictory:


The question requires an analysis of whether the parent company (A); will be liable for the claims against its subsidiary, (b): in other words, whether the corporate veil can be lifted in this group structure. Both the parent company and its subsidiary are incorporate which have been legally formed. A company once incorporated, is a separate, and distinct legal entirely from the people who set it up: The Veil of incorporation is created by the principle of separate legal personality and that limited liability which are established in Salomon v Salomon & Co Ltd (1897)

A company, once incorporated is a separate and distinct from the people who set it up.

In a company limited by shares, a member’s liability for the company debts is limited to his subscribed shares. The courts are very protective of the Salomon principle and only lift the Veil in a small number of exceptional cases at common law and by statute.

As there are no clear rules or guidelines for lifting the corporate veil, it is correct argued that this area of law is confusing, contradiction and difficult to rationalize.

Example: in Solomon v Solomon& Co Ltd (1897):

In a company limited by shares, a shareholder is not liable for the company’s debts. As (A) hold shares in (b) , it enjoys the protection of limited liability in respect of debts of (b), if the corporate veil could be lifted and the separate legal personality of (b) be ignored, (a) would be liable for claims against (b). The court may lift the corporate veil if the corporate group structure is used as the: example in Adam v Cape Industries plc [1990] Cape Industries plc (cape) was an English mining company and its products were marketed through its subsidiary companies in the United State. A number of workers suffered from inhaling asbestos. The question can Cape mother company in England be liable for the subsidiary in the state.

The judgment in Adams v Cape Industries Plc [1990] has significantly narrow the ability of the court to lift the Veil in case, subsidiary companies were incorporated in the United States of that the parent company in the United Kingdom could avoid future asbestosis claims in the United State. The Court of Appeal reviewed this complex area of law and concluded that the Veil could only be lifted in three circumstances.. The only way that the veil of incorporation would be lifted by the Court was only in thee circumstances, (i) view cape group as a single entity, (ii): find the subsidiary as a mere façade, (iii) the subsidiary were agents for cape. The Court exhaustively examine all the three possibility (i): find the subsidiary as a mere façade

First, the veil may be lifted when the corporate structure is a mere sham or façade concealing the true fact. It is difficult to clearly define mere façade or decided whether the arrangements of a corporate group involve a façade. In Adam v Cape the Court of Appeal held that the company structure was a façade when it had been used by a defendant to evade limitations imposed on his conduct by law or when it had been used to evade rights which third parties already possessed against him.

In Gilford Motor Co v Horn [1933]

A former employee who was bound by a covenant not to solicit customer from his former employers set up a company to do so. The defendant formed the company as a device to avoid liabilities in breach of his pre-existing legal duty and the Veil was lifted .

Jones v Lipman [1982]:

The Veil was lifted when the company was set up by the defendant to avoid specific performance in relation to transfer of land. The Court described the company as a device, a sham, a mask which he hold before his face in an attempt to avoid recognition by the eye of equity. The defendant formed the company as device to avoid liabilities in breach of his pre existing legal duty and the Veil was lifted.

The company structure is a façade only when it has used by a defendant to evade limitations imposed on his conduct by law ; Example in Jones v Lipman [1962]; Mr. Lipmann had entered had entered into a contact with Mr. Jones for the sale of land. Mr. Lipman then changed his mind and did not want to complete the sale. He formed a company in order to avoid the transaction and conveyed the land to it instead. He then claimed he no longer owned the land and could not comply with the contract. The judge found the company was but a façade and granted an order for specific performance. But the of Appeal in Adam Court in held that each company was a separate legal entity from its shareholders and the presence of the US subsidiaries did not automatically amount to the presence of the English parent company. (ii): view cape group as an Agency:

Secondly, the Court may lift the veil if a express agency relationship exist between a company and its shareholders, or between a parent and subsidiary company in a group structure. Although a company is a separate legal entity instead an agent of its shareholders, it is possible that there is evidence of day to day control and that an agency relationship can be established on particular facts. It is, however, difficult to prove an agency relationship without express agreement. Somme guidance is provided in: Smith, Stone & Knight Ltd v Birmingham Corp [1939]

In order to maximize the amount of compensation, the parent company argued that the subsidiary carried on the business as its agent. It was held that whether there was an agency relationship was a question of fact in each case, such as who was actually carrying on the business, who received the profit, who was actually conducting the business and who was in effective and constant control of the business. As the subsidiary was operating on behalf of the parent company the court lifted the Veil on the basis of the existence of an agency relationship. It can be argued that third is not a true exception to Salomon principle it is merely an instance where the normal agency principles applies.

In the absent of an express agency agreement or the evidence of day to day control, it is very difficult to establish an agency relationship: In Smith, Stone & Knight v Birmingham Corporation [1939] In Smith, Stone and Knight Ltd v Birmingham Corporation (1939) All ER 116, Atkinson J lifted the veil to enable a subsidiary company operating business on land owned by the holding company to claim compensation on the ground of agency. The parent company held almost all the shares in the subsidiary and profit of the subsidiary were treated as the profits of the parent was in effective con troll of the business and also the personnel who conducted the business and also appointed the personnel who conducted the business.

It was held that whether there was an agency relationship was a question of fact in each case, such as who was really carrying on the business, who received the profit and who was in effective and constant control of the business. The veil was lifted in this case on the ground of any agency relationship. Although (a) hold all the shares in its subsidiary and all the profit flow back to it, there is no evidence of day to day control of an express agency agreement. It is therefore unlikely that the court would consider (b) as the agent of (a): (iii): view cape group as a single entity Single economic Unit): Third, in relation to the debate on single economic unit, Lord Denning in: DHN Food Distributors Ltd v Tower Hamlets LBC (1976):

Argued that a group of companies was in reality a single economic entity and should be treaty as one. This view was disapproved by the House of Lords in: Woolfson v Strathclyde Regional Council (1979)

Which held that the Veil would be upheld unless it was a façade, In Adam v Cape held that, whether or not this is desirable, the rights to use a corporate structure in this manner inherent in our corporate law. The fundamental principle is that each company in a group of companies is a separate legal entity possessed of separate legal rights and liabilities. The Court, however, will ignore the distinction of particular statutory or contractual provisions, the meaning of which is disappointingly unclear. There is controversy as whether the Veil can be lift in the interest of justice. This idea of lifting the corporate Veil in pursuit of justice was championed by Lord Denning in: Wallesteiner v Moir [1974]

It is held in Adam v Cape that the Veil cannot be lifted merely in pursuit of justice. Another ground for lifting the Veil is where the Country is at war and it is in the Country’s interest to do so. Daimler v CRT (1916) :

The application of this category is limited and it is more about politics than law. In addition to the examples at common law, the courts may lift the Veil and hold individuals shareholders or directors liable for the company’s liabilities according to statutory provision. Section 761 of the companies Act 2006, for example, reauires that the directors of a public limited company be jointly and severally liable to indemnify the other party in respect of any loss or damage suffered by reason of the company failure to comply with the provision that company should not trade before its registration. According to section 213 of the insolvency Act 1986 on fraudulent trading, the Court may declare that any person, who carries on the business with the intention to defraud the company assets.

Lord Diplock in: Dimbleby v National Union of Journalists [1984]

States that the statutory provision must be in clear and unequivocal language The judicial approach towards lifting the corporate Veil is still unclear and lacks precise guidance despite the judgment in Adam v Cape. The Courts appear to proceed on a case-by-case basis in deciding whether to lift the corporate Veil. The few number of examples at common law and in statute reflects the court reluctance to ignore the Salomon principle which are the foundations of company law and have promoted the economic growth.

This theory was first put forward by Lord Denning in: in the case DHN Food v Distributors’ Ltd v Tower Hamlets (1976); who agreed that a group of companies was in reality a single economic entity, and should be treated as one; the court was entitled to look at the realities of the situation to lift the corporate veil. The Court in Adam rejected the argument by stating that there was no general principle that all companies in a group of companies were to be regard as one.

The fundamental principle is that each company in a group of companies is a separate legal entity with separate legal rights and liabilities. The disapproval of the single economic unit theory was confirmed in the case Ord v Belhaven Pub Ltd (1998): where the Court did not allow a plaintiff with a claimed against one subsidiary company to substitute the parent company as defendant merely because the group might be a single economic units.

Lord Denning in the Court of Appeal examined the major single economic units’ case where group structure were as single entity. It found that the case all involved the interpretation of the statute or a document. The Court reject the argument that cape was the group should be treat as one; and confirm the principle of Salomon.

It can be argued, therefore, that the group structure of (b) and its subsidiaries is legitimate and it is very unlikely that the court will hold the parent liable on the ground of fraud, sham or mere façade.


Given the judicial reluctance to ignore the Salomon principles, it is highly unlikely that the court will hold (a) liable for the claims against (b) on the basis that the group structure is a mere façade, or there is an express agency relationship between them or that they should be treated as one economic unit

Lifting the Veil Essay

Corporate Finance AIG Accounting Scandal Essay

Corporate Finance AIG Accounting Scandal Essay.

On February 9th, 2006, the SEC and the Justice Department settled with AIG for an amount in excess of $1. 6B related to alleged improper accounting, bid rigging (defined by Investopedia as a scheme in which businesses collude so that a competing business can secure a contract for goods or services at a pre-determined price), and practices involving workers compensation funds. Both the CEO and CFO of AIG were replaced amidst the scandal.

This closure ended a 5-year period, beginning in 2001, which tarnished the 80-year old institution’s reputation that had become the world’s largest reinsurers, and included Buffet’s Berkshire Hathaway as an owner.

Several of fraud’s culprits were convicted of Conspiracy, Securities Fraud, False Statements to the SEC, and Mail Fraud. Each offender was handed various degrees of penalties, including jail sentences.

AIG’s CEO Hank Greenberg was left unindicted and “pleading the 5th. What led these executives down a path that would forever change their careers and left many convinced that corporations are willing to go to any extent to satisfy their greed for profits? This paper will examine the intricacies of AIG’s accounting fraud, and discuss the hypothesis that accounting fraud and other unethical decisions focused on short-term profits are positively correlated to long-term value destruction.

“The corporate scandals are getting bigger and bigger.

In a speech on Wall Street, President Bush spoke out on corporate responsibility, and he warned executives not to cook the books. Afterwards, Martha Stewart said the correct term was to saute the books. ” —Conan O’Brien While there are many techniques to distort the financial condition of a publicly traded company, the most frequent types of improprieties involve revenue recognition, cost or expense recognition, accounting for reserves, and accounting related to business combinations. Below are the laws that Elliot Spitzer’s prosecution based their AIG case on: §? §? §? §? §?

Using or employing manipulative devices, in connection the purchase or sale of securities Making untrue statement of a material fact or to omit to state that a material fact Engaging in any practice or business which operates or would operate as fraud or deceit Falsification of accounting records and conformity with GAAP Conspiracy of two or more persons to commit offense or to defraud United States What does this mean in layman’s terms? Essentially, AIG improperly accounted for the reinsurance transaction to bolster reserves, and detailed numerous other examples of problematic accounting. PricewaterhouseCoopers LLP, 2009)

For example, AIG booked as income $500 million in premium for the loss portfolio transfer and then added $500 million in reserves against future claims to its balance sheet. ” AIG counted the transaction as an insurance deal, but later concluded that, “the Gen Re transaction documentation was improper and, in light of the lack of evidence of risk transfer, the transaction should not have been recorded as insurance. ” (Hulburt, Ph. D. , H. , 2005) What turns the deal from mistake to blatant fraud was that no underwriting risk transferred in the deal.

Instead, the loss portfolio transfer was effectively a $500 million loan from Gen Re to AIG that AIG would repay through $500 million in claims payments to Gen Re. (Hulburt, Ph. D. , H. , 2005) In the end, AIG’s revised financial statements lowered 2004 net income by $1. 3 billion, or 12%, and reduced 2004 shareholders’ equity by $2. 3 billion, or 3%. Details of the adjustments required 22 pages in the AIG 2004 10K, which was included into the Annual Report to Shareholders. The restatement reduced net income by more than 10% over the 5-year period. (Verschoor, C. , 2005)

Ethics is recognition of the difference between what you have a right to do and what is right to do. – Potter Stewart AIG’s culture and lack of ethical controls exemplify how the greed of few can impact the value of many. Some have attempted to use this case as an example to SOX’s failure to overhaul corporate accounting practices. However, in AIG’s first report mandated by the Sarbanes Oxley Act of 2002, a number of material weaknesses in control were disclosed, emphasizing that the first and most extensive weakness was in the ethical culture of AIG or its control environment.

The report states verbatim “Certain of AIG’s controls within its control environment were not effective to prevent certain members of senior management, including the former Chief Executive Officer and former Chief Financial Officer, from having the ability, which in certain instances was utilized, to override certain controls and effect certain transactions and accounting entries. In certain of these instances, such transactions and accounting entries appear to have been largely motivated to achieve desired accounting results and were not properly accounted for in accordance with GAAP. (McGee, S. , 2005) Specific overrides noted resulted in (1) creation of a special purpose entity to improperly convert underwriting losses to investment losses, (2) improper recording of reinsurance transactions, (3) improper “top level” adjustments and covered call transactions, and (4) unsupported “top level” adjustment of loss reserves. ([email protected], 2005)

“Leadership is the capacity and will to rally men and women to a common purpose and the character which inspires confidence. ” – Bernard Montgomery Tom Lin’s article titled “The corporate governance of iconic executives. explored corporate governance challenges posed by iconic executives such as Hank Greenberg. To better understand the state of AIG, it is beneficial to discuss the iconic executive that led them to water. Hank Greenberg grew up on a New York dairy farm, joined the U. S. Army during World War II, became an Army Ranger, and stormed the beach at Normandy. He attended the University of Miami and New York Law School, where he earned his LLB. As a captain, he received a Bronze Star in the Korean War; Greenberg then entered the insurance business in 1952.

He became the youngest person to be appointed vice president at the Continental Casualty Company. As president of AIG’s major subsidiary American Home Assurance Company, Greenberg was credited with developing substantial reinsurance facilities, which allowed insurers who were forced to take unwanted assignments, or “bad risks,” the opportunity to reinsure those risks. Greenberg’s strategy enabled American Home to write large quantities of major-risks policies and thus control the pricing of those policies. He established a bottom-line philosophy on underwriting only those companies that made profits.

Greenberg’s business was successful, aggressive and profitable. Greenberg would acquire companies that were troubled or fighting off takeovers, buying controlling interests in the companies, and ultimately integrating them into the AIG corporate structure. When AIG’s founder and CEO Cornelius van der Starr died, Green was named to head the company. Two years later AIG went public with Greenberg as the CEO where he would reign with an iron fist, terrorizing underlings, intimidating a compliant board and delivering stunningly impressive earnings for the next 40 years.

As Tom Lin described, Iconic executives are complex, bittersweet figures in corporate governance narratives. They are alluring, larger-than-life corporate figures who often govern freely. Iconic executives frequently rule like monarchs over their firms, offering lofty promises to shareholders, directors, and managers under their reign. But like many stories of powerful and influential figures, the narratives of iconic executives also contain adversity and danger resulting from excessive deference, overconfidence, and licentiousness. Lin, T. , 2011) “Money is like a sixth sense- and you can’t make use of the other five without it” – William Maugham Contemporary economic thought presumes that individuals in a society always act according to their self-interest or private economic incentives, while important ethical motivations for action, such as a concern for others and public interest, are largely ignored. (Kulshreshtha, P. , 2005) As is often the case in accounting cases, the CFO tends to be a central enabler to the fraudulent activities.

There are two primary schools of thought when attempting to understand the incentive for CFO’s to become involved in these ethical dilemmas. The first school of thought states that CFOs may instigate accounting manipulations for immediate personal financial gain. There also has been research indicating that CFO equity incentives are more important than CEO equity incentives in explaining earnings management, measured by accruals and frequency of meeting earnings benchmarks (Feing, M. , 2011). Corporate boards have reduced CFOs’ incentive compensation after passage of the Sarbanes-Oxley Act in an effort to undermine this conduct. Bhagat, Sanjai; Romano, Roberta, 2009) Looking at AIG’s share price over the reporting time frame of these actions, the fraudulent accounting did not seem to have significant impact on its market valuation. Analyzing the share price over the months that AIG reported their annual statement in 2002, 2003, and 2004, AIG’s market share price moved approximately -4%, -3% and . 5% respectively. Although a hypothesis could be made that the fraud occurred as a defense against stock devaluation rather than an enabler of increased valuation.

The second thought states that CFOs may become involved in accounting manipulations because of pressure from CEOs. As CFOs’ superiors, CEOs can exert pressure on financial reporting decisions through their influence on CFO’s future opportunities and compensation (Feing, M. , 2011). This aligns to what we understand of Hank Greenberg’s style of management. When the judge handed out sentencing to Elizabeth Monrad, the CFO of Gen Re, he made the following statements. §? §? §? The fact that she did not benefit personally from the scheme, does not excuse her conduct.

Her involvement in the fraudulent scheme was “central to its success. ” There were many opportunities for her to shake this shady deal, but she never did… Although these two schools of thought help one to better understand the drivers behind the accounting fraud in AIG and other cases academically, they are not mutually independent. In practice, pressure grows like a virus when it attaches to personal gain. Without personal gain, there is hardly a sustainable environment for pressure, which indicates some level of correlation to realizing a self-centered objective.

Some of the best lessons are learned from past mistakes. The error of the past is the wisdom of the future. – Dale Turner One may never be able to understand the full extent of the motivations at AIG that resulted in over $1. 6B in penalties, $2. 3B in reduction of shareholder equity, and the destruction of lives and careers. There appeared to be a significant amount of both pressure and personal gain involved. In the end, the AIG case became another brick in the wall for opponents of capitalism pointing to the greed of executives and their boards.

With the benefit of writing this in 2012, we know this was merely a minor speed bump in comparison to what would come for AIG in the future global financial crisis of 2008. We now live in a world where greed, profit, share price, and financial institutions are synonymous to each other. However tarnished the reputation of corporations are, there are glimmers of hope in the details. The numbers and results of these actions begin to illustrate a telling story that greed, fraud, and deception are destroyers of value rather than enablers.

Cases such as AIG can be reference points to dissuade future decisions of unethical nature. In AIG’s case, their share price fell more than 30% from the period of 1/2/2001 to 5/22/2006 further strengthening our initial hypothesis. The announcement also caused Standard & Poor’s (MHP) to downgrade AIG’s debt rating from AAA to AA+, leading to higher funding costs and decreased long-term value. We may not be able to prove that all of the AIG’s value destruction is directly related to the case beyond a reasonable doubt, it can be arguably assumed that a significant portion is directly related.

Even if that destruction is associated to confidence over financial health. (McGee, S. , 2005) In the time since this case, AIG has made considerable steps to prevent future occurrences of financial misrepresentation. The AIG management report on internal control related remediation efforts emphasizing the need for higher integrity and a culture of ethical values throughout the organization. The report notes: “AIG has taken, and is developing further plans to take, significant actions to improve its control environment, starting with a clear statement of the tone and philosophy set by its current senior management.

The Corporate Governance Committee Report in the 2005 AIG Proxy Statement gives further details: “AIG enhanced its Code of Conduct for employees, mandated that all employees complete formal ethics training, and implemented a Director, Executive Officer, and Senior Financial Officer Code of Business Conduct and Ethics to provide reasonable assurance that all members of the Board of Directors, executive officers, and senior financial officers adhere to the stated principles and procedures set forth in that Code. At the Committee’s recommendation, AIG is developing a corporate level compliance framework, including implementation of compliance programs at AIG’s major business areas. “

Corporate Finance AIG Accounting Scandal Essay

Black&Decker Corporation Essay

Black&Decker Corporation Essay.

Black & Decker was incorporated in 1910. Begun by Duncan Black and Alonzo Decker, Black & Decker’s first power tool was an electric drill in 1916. They went on to develop and offer the first portable screwdriver, electric hammer, as well as finishing sanders and jigsaws all the way up to the hugely successful dust buster in 1978. Over the next 70 years, the company established itself as dominant name in power tool and accessories, first in the United States and then accros a broad global front but particularly in europe.

Growth was achieved by adding to its lineup of power tools and accessories and by increasing its penetration of more and more foreign markets

Symptons, Issues and Problems

Issues in this case is diversification strategy runned by Black & Decker corporation. As a diversified global manufacturer and marketer of household, commercial, and industrial product, Black & Decker need to develop and choose the right strategy for diversification.

This case particularly discuss diversification of Black & Decker corporation during late 1980’s to early 1990’s, where Black & Decker which is established as dominant name in power tools and accessories, began to pursue diversification.

It is because the continuing maturity of its core power tools business.

During the 1980’s Black and Decker had established themselves as a leader in the power tool industry. However, they were feels that the market for such tools was maturing to the point where expansion within the industry would provide little or no additional revenues so they decided to diversify.

Black and Decker began their expansion operation by acquiring General Electric’s housewares business, the leader in the industry, for $300 million in 1984. The success of the GE deal, and the reorganization efforts of their new CEO Nolan Archibald, led Black and Decker to continue on this path of acquisitions and diversification in other areas. Then, various acquisitions and acquisition attemp made by Black & Decker in their strategy to diversified. But the biggest and most noticed was the acquisition of Emrat Corporation, a diversified manufacturer of industrial product, for a $2.8 billion in March 1988. This steps is considered to be very bad decisions made by Black & Decker.


Change in strategy

In the mid 1980s, Black & Decker feels that the power tool market had matured to the point where there is no much room for further growth. Black & Decker then decided to change their corporate strategy from single business firm into diversified company.

In 1984 they began to diversify. First they tried to get into the small household appliance market. Rather than create their own line, Black & Decker decided to acquire General Electric’s unit of household appliances for $300 million. Although it was a small part of GE’s company, it held more market share than other houseware distributors (25 percent of the market and the leadership position). That acquisition gives an additional $500 million a year in revenue for Black & Decker because it was able to offer products like irons, coffee makers and toasterswhich.

This began a trend of acquisitions by Black and Decker expanding into various related and unrelated markets with varying levels of success. This various acquisitions allowed Black & Decker to offer even more new products such as portable woodworking tools and stronger drill bits. After all the new changes, Black & Decker Manufacturing Company also changed its name to Black & Decker Corporation to help market those changes

The successful story of GE’s household appliance division acquisition in 1988, has triggered Black & Decker to tried again. Only this time the company of interest was American Standard Inc. American Standard had an impressive $127 million profit in 1987, which towered above the mere $70 million for Black & Decker. But then, the acquisition was unsuccessful.

The Emhart acquisitions

The failed attempts by Black & Decker in 1988 did not stop Black & Decker moves to acquiring other company. In 1989, Black & Decker acquiring Emhart for the price of $2.8 billion, a price that 33% premium over Emhart’s preannouncement value. This acquisition may not have been the best move for Black & Decker because its stock price dropped 15 points after the announcement of the acquisition. After difficult negotiation of exactly how the acquisition would occur, Black & Decker decided to pay for Emhart for the next 48 years.

The deal put over $2 billion in goodwill on Black & Decker’s books and increased debt to over $4 billion just before the credit markets were about to contract severely. With the exception of a few businesses like Price Pfister faucets and Kwikset locks, which represented just $600 million in sales, Emhart made no sense for Black & Decker. Several of its subsidiaries were quickly placed on the block.

But then suddenly the economy became sluggish and the market slowed down, Black & Decker stock slumped from a pre-acquisition $25 to $8 per share. Archibald (Black & Decker’s CEO at that time) had to scramble to keep the company solvent. Archibald’s plan was to sell off about $1.8 billion of Emhart assets to pay down debt while merging the company’s line of Kwikset locks and Price Pfister Inc. plumbing fixtures with Black & Decker’s offerings. According to Archibald, the plan would have been successful enough under normal economic conditions. However, he failed to sell the Emhart businesses for the set prices leaving a long term debt of a hefty $3 billon and annual interest payments of more than $300 million.

Black & Decker initially sold $1 billion in Emhart assets to reduce the interest costs. It met this demand by selling whole divisions of Emhart and also by selling equipment and other assets. By 1991, Black & Decker reduced the debt acquired by more than 25%. From 1993 to 1996, Black & Decker sold off three segments of Emhart that did not prove to be strategic parts of the acquisition. By 1997, Black & Decker was able to meet its liquidity requirements and management chose to amortize the costs on a straight-line basis for the next 40 years.

This shows that the acquisition of Emhart Corporation is a Black & Decker’s bad move. Black & Decker’s decision to acquire a company that was larger than $2.3 billion (revenues) Black & Decker itself, (the Emhart Corporation were $2.7 billion in revenues), was too risky and apparently Archibald didn’t too aware about it.

The purchase and acquisition of Emhart had proven a lack in the synergy required to make such purchases profitable. Also the company had not been able to reduce its amount of debt (primarily from the purchase of Emhart) over the subsequent 10 years. Archibald made poor decisions in the Emhart acquisition, which impacted its profit margin, lowered its competitive advantage, and killed any chance of creating above-average returns.

There are things that has to be done in order to ascertain whether the acquisition may create value for the shareholders, which is the CEO’s primary responsibility. Effort should have concentrated on three essential tests:

· The attractiveness test.
The industries chosen for diversification must be structurally attractive or capable of being made attractive.
· The cost-of-entry test.
The cost of entry must not capitalize all the future profits.
· The better-off test.
Either the new unit must gain competitive advantage from its link with the corporation or vice-versa. Conceding the point that the purchase provided some benefits, such as increased market share and well-known consumer brands, the cost-ofentry and better-off tests provide evidence that the Emhart purchase was very risky.

Black & Decker SWOT Analysis
· Brand recognition is a strong attribute for Black and Decker. Black and Decker has a reputation for producing electrical engines, power tools and appliances.
· Black and Decker produce a variety of products in its respected industry, and it is involved in constant research and development (e.g., developing cordless appliances and tools, rechargeable batteries that are compatible with both tools and small appliances). · Black and Decker have penetrated the market causing it to dominate market share in the industry.

· Black and Decker’s reputation for quality tools and appliances has been decreasing. This was likely due to the fact that Black and Decker was busy dealing with its non-strategic businesses.
· Opportunities to gain more market share by sponsoring home improvement shows.
· Gain more market share with industrial market, by offering quantity-based deals and advertising the quality of its products.
· Sears is the strongest competitor in the power tools division with 13.4 percent of the US market share.
· Black and Decker needs to be aware of new items that the
consumer can use and develop them before their competitors.

Conclusion and Recommendation

When an industry became mature and not offered enough room for further growth, it is important for a company to change their strategy to keep growing continuously. This is what Black & Decker did, although being a dominant player in power tools and accessories for many years, Black & Decker realized the industry is being mature, so they decided to change their strategy into a diversified company.

To be successful, a diversified company should have a portfolio of product with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows. High-growth product, that important for company to keep growth in the future, need lot of cash inputs. Low-growth product, product that already in maturity growth, should generate cash. How to balance between this two is the most important things in managing multi-business (diversified) company.

The Emhart acquisitions is an example of bad acquisitions from Black & Decker in their strategy to diversified. There can be many reasons that an acquisition strategy fails to earn its cost of capital. An acquirer may have no real strategy to begin with and thus pay an unjustified acquisition premium right from the beginning. Or there may be a complete failure in executing a fundamentally sound strategy. One major risk in acquisitions is the failure to close the gap that may exist between the strategic objectives and organizational design of the new organization and those of the old. Issues such as new information systems and channels, management succession, new decision rights, and incentive systems must be planned carefully in light of where competitive performance gains are expected to result.

This case is also an example of the problems where mismanaged growth can bring diversification away from core businesses and core competencies rarely creates value for the shareholders. High leveraged acquisitions put the firm at higher financial risks, particularly when the firm’s products depend on business cycles. Shocks to the economy may result in insolvency and possible bankruptcy. The company may have to sell assets at low prices to meet debt obligations. As financial markets become more and more sophisticated, investors may diversify more easily, thereby making corporate diversification less attractive. Firms must continue to strengthen their core competencies and sustain their competitive advantages.

In conclusion, the fundamental reason for the failed acquisition is due to lack of long term planning, forecasting and predicting of the return on investment relative to cost. The highly leveraged acquisition of Emhart placed Black & Decker at higher financial risks, primarily when the firm’s products depended on business cycles. As result of the inherited debt and the unanticipated market fluctuations and weak economy may result in collapse or possible bankruptcy of the corporation. Black & Decker Executives’ lack of strategic direction and poor application of funds may lead the corporation to sell of assets at low prices or lay off employee to meet debt obligations.

Our recommendation for this case is, Black & Decker should stick with its original vision that includes the consolidation of their portfolio. The company should continue in investing in, and strengthening, its core products within its existing portfolio, so that these products will generate cash flow that will enable the company to embark upon expansion opportunities.

In the future, Black & Decker should consider international companies with strong recognition in the countries that they plan on expanding into, considering either acquisition, merger, or creating a joint venture. The affiliation between Black & Decker and these companies must create synergy in order to justify such deliberate moves and expansions. These planned executive decisions and actions will help Black & Decker to obtain competitive advantages which will result in aboveaverage returns, leading to greater investor wealth and value to its employees.

Black&Decker Corporation Essay

The 4 Basic Models of the BGS Relationship Essay

The 4 Basic Models of the BGS Relationship Essay.

1. What is the business-government-society (BGS) field and what is its importance? 2. Explain the Four basic models of the BGS relationship


Business, government and society are fundamental in this world. Business satisfies human’s needs by providing them products and services in exchange for profit. Government is a structure and process in society that with authority makes and applies policies and rules. Society is a network of human relations composed of ideas, institutions, and material things (Steiner, 2011). They all work together to create better solutions in all three elements.

Forces in BGS have shaped our world.

Content Analysis:

Business, government and society are subdivisions of economic, political and social activities. The BGS field is the study of the interrelationships among business, government and society and its importance to managers. These interrelationships change over time. Businesses operate in the environment created by the interrelationships between business, government and society. To make good business decisions it is crucial for manager to understand the interaction between BGS.

Managers have to do what’s right according to all three elements (Steiner, 2011).

BGS has a great importance. The importance of the business-government-society field is to understand the relationship between the three elements. Understanding those help managers make better business decision to run a business or to stop (make a business fail) a business. Businesses should be responsive to forces for its economic and noneconomic environment (pg 7). Businesses have a social contract. It is important to understand that there are several different ways to run businesses and if they don’t comply with society it will fail. All three elements work together to make better business decisions.

There are four basic models of the BGS relationship: the market capitalism model, the dominance model, the countervailing forces model and the stakeholder model.

According to “Business, Government and Society” capitalism is an economic ideology with bundle of values including private ownership of means of production, the profit motive, free competition, and limited government retrains in markets (pg 9). In the Market Capitalism Model it is easier for any individual to enter the market. Any new business that enters the market is in to make profit and to create competition. Competition creates and offers better value to customers and opponent firms. Businesses in this model focus on creative work and profitability. The creative work is well done therefore people are happy with the products, services etc. In the Market Capitalism Model management’s goal is to increase shareholders interests (investments). Government regulations are limited.

The dominance model represents the perspective of business critics. Society is in a pyramid but only a small group of privileged (corporations, government and business leaders) control society. Power and wealth are mostly concentrated in a selected group. In this model society does not have any control and it would probability experience difficulties. The corporations and the government take advantage of society. Business have too much power, changes in the systems is crucial.

The countervailing Forces Model consists of four forces: environmental catalysts, business, government and the public. None of the forces dominate; the countervailing forces model implies exchange of power and influence among all of them (check and balance). In this model the power of business is checked and controlled. The USA and other countries use this model.

In The Stakeholder Model the corporation is the centerpiece that holds several relationships with persons, groups and stakeholders. Stakeholders are critical to the corporation and it is believed that corporations have ethical duties and social responsibility toward stakeholders because the impact those stakeholders have on them. A corporation can benefit or burden stakeholders by its actions. Corporations have primary stakeholders and secondary stakeholders.


BGS are fundamental for Business decisions. it started to shape humanity since the beginning of the civilization and BGS would definitively continue to make changes in this world. The expectations are to have business, government and society to continue to change our world in a positive way, but for that managers have to understand the interrelationships among business, government, and society. The four basic models of the BGS relationship are interesting, but I believe that the countervailing forces work better because it is more democratic. It’s not just one group (government), person (society), or corporation (business) deciding for everyone, it’s everyone making decisions that would have an effect on everyone.


Steiner, S. (2011). Business, government, and society. (13 ed., pp. 4-20). New York: McGraw Hill.

The 4 Basic Models of the BGS Relationship Essay

Valve Corporation Essay

Valve Corporation Essay.

Valve Corporation, (also known as Valve Software or simply as Valve), is an American video game development and digital distribution company based in Bellevue, Washington, United States. It is also well known for its social-distribution network steam; and for developing the Source engine, which has been used in every Valve game since its introduction in 2004. A BRIEF INTRODUCTION TO THE HISTORY OF THE COMPANY :

Valve was founded by long-time Microsoft employees Gabe Newell and Mike Harrington on August 24, 1996 as an L.

L.C. based in Kirkland, Washington. After incorporation in April 2003, it moved from its original location to Bellevue, Washington, the same city in which their original publisher, Sierra On-Line, Inc., was based. After the success of Half-Life, the team worked on modifications, spin-offs, and sequels, including Half-Life 2. All current Valve games are built on its Source-Engine, which owes much of its success to modification and sequels. The company has developed six game series: Half-Life, Team Fortress, Portal, Counter-Strike, Left 4 Dead and Day of Defeat.

Valve is noted for its support of its games’ modding community: most prominently, Counter-Strike, Team Fortress, and Day of Defeat. Valve has branched out with this tradition to continue developing the Warcraft III-based mod Defense of the Ancients with Dota 2. Each of these games began as a third-party mod that Valve purchased and developed into a full game. They also distribute community mods on Steam. Since Valve Corporation’s debut, it has expanded both in scope and commercial value. On January 10, 2008, Valve Corporation announced the acquisition of Turtle Rock Studios. On April 8, 2010, Valve won The Escapist Magazine’s March Mayhem tournament for the best developer of 2010, beating out Zynga in the semi-final and BioWare in the finale.

When you give smart talented people the freedom to create without fear of failure, amazing things happen. We see it every day at Valve. We’re always looking for creative risk-takers who can keep that streak alive. “IT’S ALL ABOUT YOU”

We are not satisfied unless you and your family feel secure, happy, and taken care of. We create Happiness world over.

* Freedom
* Employee Satisfaction
* Equality
* Creativity & Innovation

* Highly Flat organization structure.
* The atmosphere of freedom nurtures high creativity.
* Its’ not just about the development of the company but the employees and their families as well. * One of the most talked about success stories in gaming world.

The general environment factors that we have considered in our case are the ones effecting Gaming Industry in particular.

Technical Factors:
The company has to be abreast with the technical aspects to survive the competitors , although the hardware is only as useful as the software running on it, and there’s a vast web of intertwined issues and questions to be resolved about how the combined hardware-software system might work and there exists a technological inflection point after which everything has to be changed.

Social Factors:
It has always been a challenge for the gaming companies to predict the changing gaming requirements of the consumers. Apart from this parents do not have high regard towards present gaming culture.

Economic Factors:
Gaming which is considered as the luxury may not be opted in economic conditions such as high inflation resulting in low income for the company. Another economic threat is piracy and its very predominant in the gaming industry.

Political Factors:
The Supreme Court has struck down few laws that have banned selling “violent” video games to children, a case balancing free speech rights with consumer protection recently and such regulations hinder the market of many interesting games.


Specific environment mainly consists of the customers/gamers, Censor board, Competitors, retail shops and employees.
The main customers for our company are in the age group between 12 and 35 and they are the life blood of our company.
Censor Board
All games developed by our company have to be certified by censor board to be launched in market and this board checks various criteria’s on which the game is categorised.
E.g. 18+, A rated, etc Competitors

The main competitors of VALVE are Electronic arts, Rock star games, Ensemble studios, Microsoft studios, Activision etc Retail shops
The sale of games from retail shops and internet downloads are inversely correlated.
We provide abundant freedom for our employees and encourage creativity. We also facilitate innovation and cares for employee’s satisfaction. Currently Valve has 293 employees. One among the prominent feature of our company is that we don’t have any stakeholders. Ownership is diluted within the owner and the employees.

Specific Environment General Environment
Social- Mentality


Censor Board



Piracy, Free Games

Specific Environment| General Environment| Interdependence| Censor Board| Political| Politicians may use clout to censor more games considering them to be too violent.| Censor Board| Social| Based on the social background of a particular region/country games may not go through. | Customers| Social| While gaming in some societies is considered to be a professional sport in others it may be considered as a useless pastime.| Customers| Technology| While some customers will be having the latest hardware technology there will be many who may not have the latest.| Competitors| Technology| Competitors may come up with better software to utilize the current hardware and thus attract more customers.| Competitors| Economic| Pirated games may hit hard more on the company if our game is more successful than our competitors. Also there are quite a few companies which cater to the same crowd but give out their games for free.|

Stable Environment
* The company is self-funded, so it is not dependant on some outside economic factors. * The social stigma that people have would not change in a very short span of time like in India people are more passionate about cricket so we can’t shift our customer base to games like rugby very easily. This thinking according to the demography would remain stable.

Unstable Environment

* The competition of the gaming company can be termed as unstable due to which regular updating of the games is needed. * The customer base is controlled by various economic and social factors which keeps on changing as time progresses. * The economic factors are unstable as the buying pattern also changes with changing global economy. * In today’s world when the technology keeps on changing so with this changing technology the games are also needed to be changed. * The policies of government may keep on changing which would have an impact on our gaming software in the market.


VALVE is a self funded company which operates majorly in gaming industry which happens to be a luxury in most of the regions. So there exist a huge market and large population base to operate. The organization is located in a developed country where there is no shortage of supply of resources for the company. The major resource for the company is the man power, apart from this the infrastructure and hardware setups required for the company to run are available in plenty. Despite the “Resource Advantage”, there exists a tough competition in the markets. Company has a huge market base to operate but easy susceptibility of its consumers to move to another option is very high.

1. http://www.valvesoftware.com/
2. http://en.wikipedia.org/wiki/Valve_Corporation
3. http://blogs.valvesoftware.com/abrash/valve-how-i-got-here-what-its-like-and-what-im-doing-2/ 4. http://www.forbes.com/sites/erikkain/2012/04/16/valves-michael-abrash-hierarchical-management-bottlenecks-innovation/

Valve Corporation Essay

Universal Robina Corporation Essay

Universal Robina Corporation Essay.

I. Background of the Study

Organization is a social unit of people that is structured and managed to meet a need or to pursue collective goals. Any operating organization should have its own structure in order to operate efficiently. For an organization, the organizational structure is a hierarchy of people and its functions. The organizational structure of an organization tells the character of an organization and the values it believes in. Organizational structure determines how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management.

It consists of activities such as task allocation, coordination and supervision, which are directed towards the achievement of organizational aims.

Therefore, when you do business with an organization or getting into a new job in an organization, it is always a great idea to get to know and understand their organizational structure. Organizational structure affects organizational action in two big ways. First, it provides the foundation on which standard operating procedures and routines rest.

Second, it determines which individuals get to participate in which decision-making processes, and thus to what extent their views shape the organization’s actions. Depending on the organizational values and the nature of the business, organizations tend to adopt one of the following structures for management purposes.

Although the organization follows a particular structure, there can be departments and teams following some other organizational structure in exceptional cases. Sometimes, some organizations may follow a combination of the following organizational structures as well. To further understand the concept of organizational structure, the group will research on the organizational structure of a known company, Universal Robina Corporation, and analyze how this organizational structure helped in the success of the company.

II. Company Profile

Head quarters: 43/F Robinson-Equitable Tower ADB Ave cor Poveda St Ortigas Ctr; Pasig; National Capital Region; 1600 Legal Address: 110 E Rodriguez Ave Bagumbayan; Quezon City; National Capital Region; 1110 Legal Form: Public Limited Company

Operational Status: Operational
Financial Auditors: SGV & Co. (2011)
Incorporation Date: September 28, 1954
Total Employees: 8,938
Tel: (63 2) 6337631

Universal Robina Corporation (URC) is among the Philippines’ pioneers in the food manufacturing business having been operating in the country for over 40 years. URC is engaged in manufacturing, marketing and the distribution of a wide range of consumer food products such as snacks, candies, biscuits and crackers, instant coffee, instant noodles, tomato sauces, pasta, and ice cream, among others. Universal Robina Corporation (URC) traces its beginnings all the way back to 1954. John Gokongwei was doing very well then as a trader/importer. He had learned the trade when his father died before the war, and had worked hard through the war and postwar years to prosper. However, while he thrived, he took a long hard look at his company, and correctly predicted that trading would remain a low-margin business.

On the other hand, a successful manufacturer controlling its own production and distribution would command more profitable margins. Mr. John decided to construct a corn milling plant to produce glucose and cornstarch, Universal Corn Products (UCP), the first linchpin of the company that would become the URC we know today. For a time, business was good. However, Mr. John was still looking ahead, working with an eye towards the future. While the business was doing very well, it was producing essentially a commodity, which a customer could easily access elsewhere. To stay ahead in the game, Mr. John had to diversify by producing and marketing his own branded consumer foods, similar to the multinational companies in the country like Nestle and Procter & Gamble.

Thus, in 1961, Consolidated Food Corporation was born. Their first ‘home run’ product was Blend 45, the first locally-manufactured coffee blend, dubbed as the “Pinoy coffee”. This became the largest-selling coffee brand in the market, even beating market leaders Café Puro and Nescafe. After coffee came chocolates. Nips, a panned chocolate was a staple of Filipino childhood.

In 1963, Robina Farms started operations, beginning with poultry products. This was also the beginning of the vertical integration of the Gokongwei businesses, as the farms would be able to purchase feeds from UCP in the future. Later that decade, Robichem Laboratories would be put up, to cater to the veterinary needs of the farms businesses. Robina Farms expanded as it entered the hogs business in the latter part of the 70s.

1966 saw the establishment of Universal Robina Corporation, which pioneered the salty snacks industry through Chiz Curls, Chippy, and Potato Chips, under the “Jack ‘n Jill” brand. Other snack products would follow over the years, as the company successfully introduced market leaders like Pretzels, Piattos, and Maxx.

The coming decades saw more acquisitions and expansion. In the early 1970s, the family entered the commodities business through the formation of Continental Milling Corporation, for flour milling and production. The late 1980s brought the acquisition of three sugar mills and refineries, under URC Sugar. These two businesses provided stable cash flows, and allowed for further vertical integration in the supply chain, to help URC weather any volatility in the cyclical commodities markets. In line with this strategy, the late 1990s saw the entry of URC into the plastics business, through URC Packaging.

While the businesses became more diversified, the companies were slowly integrated in order to streamline and minimize costs. In 2005, the present structure of the group was completed. All the different companies are now organized under the Universal Robina Corporation umbrella, divided into 3 focused groups: * the Branded Consumer Food Group, comprised of BCFG Domestic (including packaging) and International * the Agro-Industrial group, comprised of Universal Corn Products, Robina Farms, and Robichem * and the Commodities group, with the Sugar and Flour divisions

Company Analysis:

According to the Consolidated – Non-Audited financial statement for the first three cumulated quarters of 2012, total net operating revenues increased with 6.92%, from PHP 50,577,625 thousands to PHP 54,080,025 thousands. Operating result increased from PHP 5,454,074 thousands to PHP 6,801,796 thousands which means 24.71% change. The results of the period increased 24.45% reaching PHP 5,745,104 thousands at the end of the period against PHP 4,616,296 thousands last year. Return on equity (Net income/Total equity) went from 10.93% to 11.11%, the Return On Asset (Net income / Total Asset) went from 6.57% to 7.42% and the Net Profit Margin (Net Income/Net Sales) went from 9.13% to 10.62% when compared to the same period of last year. The Debt to Equity Ratio (Total Liabilities/Equity) was 52.88% compared to 66.48% of last year. Finally, the Current Ratio (Current Assets/Current Liabilities) went from 1.68 to 2.15 when compared to the previous year.

III. Body of the Report

Being one of the top food manufacturing businesses, Universal Robina Corporation has the following goals:
* To Lead among world-class brands
* To be Customer-focused
* To be the lowest cost organization
* To have innovative new products and processes
* To have inspired and competent Human Resources
* To be a responsible business and community partner
* To give superior return to shareholders

In line with these goals are the core values the Company believes each member must have in order to attain the set objectives and standards. These core values are innovation, proactivity, professionalism, responsibility and cost leadership. * Innovation- open to changes and respectfully challenges the status quo. * Proactivity- ability to act with a sense of urgency and make a difference, and take responsibility for and ownership of the quality of our work. * Professionalism- pursue excellence and self improvement while possessing integrity and discipline. * Responsibility. We team up with our co-workers, and together seek mutually beneficial long-term partnerships with the trade suppliers and service providers, government and community. * Cost leadership- a culture that safeguards resources against wastage and rewards efficiency. Pursuing growth and development opportunities ensuring responsibility in maximizing cost and resource effectiveness.

Top Officials of URC

John L. Gokongwei, Jr. founded URC in 1954 and has been the Chairman Emeritus of URC effective January 1, 2002. He had been Chairman of the Board until his retirement and resignation from this position effective December 31, 2001. He continues to be a member of URC’s Board and is the Chairman Emeritus of JG Summit and certain of its subsidiaries. James L. Go is the Chairman and Chief Executive Officer of URC. He had been President and Chief Executive Officer and was elected to his current position effective January 1, 2002 upon the resignation of Mr. John Gokongwei, Jr. as Chairman. He is also the Chairman and Chief Executive Officer of JG Summit and as such, he heads the Executive Committee of JG Summit. Lance Y. Gokongwei is the President and Chief Operating Officer of URC. He had been Executive Vice President and was elected President and Chief Operating Officer effective January 1, 2002. Patrick Henry C. Go is a director and Vice President of URC.

Frederick D. Go has been a director of URC since June 2001. He is the President and Chief Operating Officer of RLC. He received a Bachelor of Science degree in Management Engineering from the Ateneo de Manila University. Johnson Robert G. Go, Jr. was elected director of the Company on May 5, 2005. He is the President and Chief Operating Officer of Litton Mills, Inc. effective August 28, 2006, the textile manufacturing business of JG Summit. He received a Bachelor of Arts degree in Interdisciplinary Studies (Liberal Arts) from the Ateneo de Manila University.

Robert G. Coyiuto, Jr. – director of URC. He is also an independent director of RLC. He is Chairman of Prudential Guarantee & Assurance, Inc., PGA Cars, Inc., and Nissan North Edsa, and Vice-Chairman of First Guarantee Life Assurance Company, Inc. He is also President and Chief Operating Officer of Oriental Petroleum and Minerals Corporation and President of PGA Sompo Japan Insurance, Inc. He is Chairman of Pioneer Tours Corporation and a director of Canon Marketing (Philippines) Inc. and Destiny Financial Plans.

Senior Officers

Cornelio S. Mapa – Executive Vice President, URC BCFG Philippines Patrick O. Ng – Executive Vice President, URC International Eugenie M.L. Villena – Senior Vice President – Chief Financial Officer BJ M. Sebastian – Senior Vice President – Chief Strategist Constante T. Santos – Senior Vice President – Corporate Controller Nicasio L. Lim – Senior Vice President – Corporate Human Resources Geraldo N. Florencio – First Vice President – Controller Ester T. Ang – Vice President – Treasurer

Rosalinda F. Rivera – Corporate Secretary

IV. Conclusion

Every organization needs a structure in order to operate systematically. The organizational structures can be used by any organization if the structure fits into the nature and the maturity of the organization. In most cases, organizations evolve through structures when they progress through and enhance their processes and manpower. It is important to deal with structure early in the organization’s development. Structural development can occur in proportion to other work the organization is doing, so that it does not crowd out that work. And it can occur in parallel with, at the same time as, your organization’s growing accomplishments, so they take place in tandem, side by side.

This means that you should think about structure from the beginning of your organization’s life. As your group grows and changes, so should your thinking on the group’s structure. URC has a strong market position in the Philippines. The company is a dominant player with leading market shares in savory snacks, candies and chocolates, and is a significant player in biscuits market, with leading positions in cookies and pretzels, and tea. It is the second largest player in the coffee and noodle business. The company has built strong market positions in different segments based on its strong brand portfolio. Strong market position combined with well known brands provides the company with competitive advantage and also enables it to foray into new markets with ease.

URC focuses on R&D for developing new products, line extensions for existing products and also to introduce improvements in production and quality control processes. It also emphasizes on improving packaging and carries out R&D to customize products to meet the local needs and tastes in the international markets. In addition, the company hires experts from all from different parts of the world to assist its R&D staff. Strong focus on R&D enables URC to develop innovative products, leading to strong sales. In spite of the company having operations in China, Indonesia, Vietnam, Thailand and other countries the company is heavily dependent upon Philippines market.

The company’s small scale of operations may turn out to be a disadvantage in the fiercely competitive market. Lack of scale also reduces the bargaining power of URC. Also, high dependence on Philippines makes URC highly sensitive to the demand dynamics of this region and restricts its income growth to the local economy. Moreover, the company is also exposed to risks associated with the economy, while its competitors with significant operations in other countries are guarded against such a risk. The company has recorded strong performance in all its segments. The performance of URC reflects the financial stability and growing economy of the company, which is due to the excellent performance of its people and their innovative ways of thinking.

V. Recommendation

The greatest challenge facing business leaders in their drive for growth is complexity. As a business grows it finds it hard to avoid becoming more complex; and complexity ultimately makes a business less competitive. The process of increasing complexity was worst during the good times, when firms and management were faced with so much opportunity for growth that it was convenient for them to ignore (or hide) the organizational inefficiency they were creating by growing. Organizational structures with too many layers (tall structures) are an indication of firms that have grown too complex: “Layer upon layer of management resulting in bottlenecks, which create a detrimental effect not only on the financial operations of the organization but also for human resources.

Of course organizations need rigorous standards and cross-checks in their systems and processes, but they also need room for discretion, innovation, creativity and empathy – that very real human element which makes the most tremendous difference in successful companies.” Keep things simple and avoid organizational complexity at all costs. “Coordination, collaboration and communication are the key elements of radical simplification….delegate, hire, eliminate” Therefore the following recommendations are made.

The organizational structure should be made clear. When it comes to improving the structure of a company it is important to communicate the proper flow of information to everyone in the organization. Develop and distribute departmental hierarchy flow charts to everyone so that the managers and their responsibilities are clearly understood by everyone. When the company develops a decision making process it should be made sure that the process is understood by the entire organization, and training classes on work flow must be held if needed. Communication is one of the most powerful tools an organization has to work with, and communication regarding the flow of information and the structure of the company can help to reduce confusion and streamline the process.

Next, the organization must use management as support. Decision making for a company is usually reserved for the executives of the company. Middle managers should take on more of a support role to the decisions made by the company, rather than trying to dictate anything to employees. When managers are handed a task, they should pool the resources necessary to assist their employees to get the job done. An effective manager should be the go-between for employees and executives, and a facilitator that is assigned a task to complete.

Lastly, the organization must put checks in place. It is one thing to create an effective flow of information, and it is another thing to ensure that the information is being properly received and instructions are being carried out. When implementing a work flow plan it is essential to include a feedback portion, and a check on progress. Avoid creating systems that point blame at one group or one person, but rather look to improve the structure that broke down and created the problem in the first place. A constant system of checks and feedback can help to ensure that the corporate structure is working properly and that all information is being received.

Universal Robina Corporation Essay

McDonald’s Corporation (MCD) Essay

McDonald’s Corporation (MCD) Essay.


McDonald’s Corporation (MCD) is the world’s largest chain of fast food restaurants, serving nearly 47 million customers daily. McDonald’s primarily sells hamburgers, cheeseburgers, chicken products, french fries, breakfast items, soft drinks, milkshakes and desserts. More recently, it has begun to offer salads, wraps and fruit. Many McDonald’s restaurants have included a playground for children and advertising geared toward children, and some have been redesigned in a more ‘natural’ style, with a particular emphasis on comfort: introducing lounge areas and fireplaces, and eliminating hard plastic chairs and tables.

Each McDonald’s restaurant is operated by a franchisee, an affiliate, or the corporation itself. The corporations’ revenues come from the rent, royalties and fees paid by the franchisees, as well as sales in company operated restaurants. McDonald’s revenues grew 27% over the three years ending in 2007 to $22.8 billion, and 9% growth in operating income to $3.9 billion.

McDonalds’s success is the result of superior products, high standards of performance, distinctive competitive strategies and the high integrity of our people.

Approximately 85% of McDonald’s restaurant businesses world-wide are owned and operated by franchisees .All franchisees are independent, full-time operators.

McDonalds Vision Mission Statement and Values

* Vision: To be the best & leading fast food providers around the globe.

* Mission: To be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.”

* Values: Our values summarized in “Q.S.C & V”. Provide good quality, services to customer . Have cleanliness environment when customer enjoys their meal .The value of food product makes every customer is smiling.

Management structure

Managing Director

Head of MarketingDirector of FinanceHuman
Resource head
Accounts Manager
Senior marketing executiveFinance managerEmployees

Marketing executive Brand ManageResearch & Development officer

Assistant Brand Manager

Customer service managerProduct Development

Sales managerMarket research TeamCompensation officer

Branch managerRecruitment & Selection

Training & Development

Branch employees

Porters Five Forces(in reference to McDonalds)
Competitive rivalry

According to Porter’s Five Forces Model, if entry into a market is easy then rivalry is likely to be high. Considering McDonald’s competitive rivalry, there is intense competition in fast food industry that many small fast food businesses fight with each other to improve their customer base. This makes a competition the major focus between businesses. Although, McDonald’s, with more than 32,000 local restaurants serving more than 60 million people in 117 countries each day, has a number of fast food outlet competitors across the countries such as Burger King, Taco Bell, KFC, Wendy’s, it is currently the leader of the industry in market capitalization with a cap of $39.31 billion.

The Threat of new entrants

The threat of new entrants in the fast food industry is high because there are no legal barriers which would keep them from entering the industry. The economies of scale and the access of the distribution are the major barriers that firms face in the industry. Firms must spend a large amount of capital on advertising and marketing in order to enjoy successful existence and long life of a fast food outlet. Large established companies with strong brand names such as McDonald’s make it more difficult to enter the market because new entrants are faced with price competition from existing chain restaurants. Thus, it takes a pretty much time for a new business to establish in the fast food industry.

Supplier bargaining power

The bargaining power of suppliers of McDonald’s is high because McDonald’s restaurants use the same products from the same suppliers and it doesn’t matter if you are in Rochester, MN or Beijing, China you can get the same Big Mac everywhere. This is a feature McDonald’s want to keep going on by encouraging consistency among its restaurants. Supplying these products to McDonald’s across the globe is the whole business for the suppliers and, however, if McDonald’s would lose even one supplier it would have to change one or more of its product lines and perhaps the whole menu what the McDonald’s customers were used to. This gives the suppliers of McDonald’s a high bargaining power.

Buyer bargaining power

Bargaining power of customers of McDonald’s is low because of low customer switching costs which are nearly zero; however, for example, one-fifth of the USA population eats in a fast food restaurant every day. Thus, fast food industry does not worry about customers’ loyalty. Fast food products industry is differentiated which are usually or almost always promoted by advertising – that is because of a vast competition between fast food firms Furthermore, if the fast food industry does not match the demands of the buyers and the general consumer trends, then the buyers can choose not to buy their product and convince others to do the same.

A good example of this is the movie ‘Super Size Me’. It is a movie showing an ordinary consumer trying to live of McDonalds fast food, and the purpose of the movie was to see what the traditional fast food from McDonalds could do to your health if you were to eat their products for every meal. This movie shows what the buyers possible reactions could be if not satisfied or not being pleased. The reactions from the whole market were a large change in consumer preferences and brand preferences.

The Threat of Substitutes

With so many firms in the fast food industry with low switching costs, vide variety of similar products that people can chose, and healthier alternatives, the threat of substitutes is very high.As there is intense competition between rival sellers in the fast food industry, the competition between firms selling substitute products is intense as well. One very important issue is that the customer always tends to find another product comparable or better in terms of the quality of fast food products.

Another thing is that fast food industry is unhealthy to its customers’ health. The majority of the public think that fast food restaurants primarily serve high in fat content foods which are unhealthy and as a consequence they tend to look elsewhere for healthier alternatives. While fast food products are not always associated with health and quality, fast food restaurants keeps a major advantage over other firms selling substitute products through the lower prices of their products and a quick, convenient service.

Competitive Profile Matrix

The above matrix re-establishes McDonald’s supremacy in the fast food market. * Pricing: McDonalds certainly gets an edge on the pricing front. Its competitors like Wendy’s are rapidly proliferating high-quality burger chains like Five Guys. Wendy’s has more premium products on its menu and therefore is relatively highly priced. The line “apke zamane mein baap ke zamane kaa daam” reinforces pricing edge enjoyed by McDonalds. They follow the value based pricing strategy * Financial Position: Wendy’s sales as in 2011 was 8.5 billion dollars closely competing with Burger King at 8.4 billion dollars. However McDonalds total sales were 27 billion dollars that is more than three times of its competitors.

* Advertisement : McDonalds spends on an average 6 percent of its sales on advertisement. Slogans like “I am loving it” are really catchy and every McDonalds customer can associate with it. Also McDonalds can be seen using a marketing mixture by being there as a sponsor for Olympics to TV advertisement. However McDonalds generally doesn’t use print media.

* Market Share:

McDonalds market share is much more than its competitors and all the above factors such as pricing, quality, marketing strategy have played their role in this.

* Global Expansion: McDonalds high sales are a result of its global expansion. McDonalds has its presence in 119 countries and serves 68 million customers daily which is way more than any of its competitors.

Since its inception, McDonalds has consistently emphasized on restaurant operations procedures, service, quality and cleanliness. Here are a few milestones which the firm accomplished:

1. Hamburger University:

It is a training facility which was designed to instruct personnel employed by McDonald’s in the various aspects of restaurant management. More than 80,000 restaurant managers, mid-managers and owner/operators have graduated from this facility. It is also located in Shanghai, China.

2. The Big Mac:
The Big Mac was created by Jim Delligatti, who was operating several restaurants in the Pittsburgh area.It was introduced in 1967. The sandwich was so popular that it was added to the menu of all the U.S restaurants by 1968.

3. Happy Meal:
A Happy Meal is a form of kids’ meal specifically marketed at childrensince June 1979. A toy is typically included with the food, both of which are usually contained in a box or paper bag with the McDonald’s logo. Frequently, the packaging and toy are part of a marketing tie-in to a popular film, TV show, or toy-line.

4. Drive-Thru:
The first McDonald’s drive-through was created in 1975 in Arizona on a military base to serve soldiers who weren’t permitted to get out of their cars while wearing fatigues.McDonald’s drive-through service is called McDrive.

5. McDonaldization:
McDonaldization is a term used by a sociologist, George Ritzer. It occurs when a culture possesses the characteristics of a fast-food restaurant. McDonaldization is a reconceptualization of rationalization, or moving from traditional to rational modes of thought, and scientific management. Its five components are Efficiency, Calculability, Predictability, Control and Culture.

6. Plan to Win Strategy
This strategy was adopted in 2003 with its strategic focus on being better and not just bigger. The 4 P’s of this strategy were People, Place, Price and Product.

SWOT Analysis

* McDonalds holds a very strong brand name worldwide.. * It is said that McDonalds was the first food outlet to provide its customers with nutritional facts. Nutrition information is printed on all packaging and more recently added to the McDonald’s Internet site. McDonalds offers salads, fruit, roasted chicken, bottled water and other low fat and calorie conscious alternatives. * McDonald’s uses only 100% pure USDA inspected beef, no fillers or additives. Additionally the produce is farm fresh.

McDonald’s serves 100% farm raised chicken no fillers or additives and only grade-A eggs. McDonald’s foods are purchased from only certified and inspected suppliers. McDonalds works closely with ranchers, growers and suppliers to ensure food quality and freshness. * Loyal employees and management and customers is their biggest strength * McDonalds makes sure that cultural and regional barriers are kept in mind while providing food to different countries. * Clean environment and play areas for children where they can enjoy their time.


* The weakness that hits the list is the employee turnover rate. Every year many of their employees are fired out of the restaurant * Health conscious people seldom complain that they do not provide us with the organic and healthy food. This becomes their weakness when they get in the complaints.


* Discounts given on every food item may help them gain more customers. * In today’s health conscious societies the introduction of a healthy hamburger is a great opportunity. They would be the first QSR (Quick Service Restaurant) to have FDA approval on marketing a low fat low calorie hamburger with low calorie combo alternatives. Currently McDonald’s and its competition health choice items do not include hamburgers. * In order to be environment friendly, they can use packing material which can be recycled later or material that does not create pollution.


* Emerging competition of similar outlets is becoming a problem for McDonalds. They have a threat of local food outlets in different countries.
* As it is a multinational food outlet, fluctuations in the currency of other countries becomes a problem for such companies
* Political factors

Political Factors

The international operations of McDonald’s are extremely under influence of a policy of the separate state put into practice by each government. For example, there are certain groups in Europe and the United States, which demand the acts of governmental power concerning medical values of meal of fast food. They have specified that harmful elements as cholesterol and negative influences as fatness are concerning consumption of products of fast food.

Economic factors

The organizations in the fast food industry aren’t excused from any disputes and problems. Definitely, they really have the separate problems involving business factors. Branches and privileges of networks of the enterprises of fast service as McDonald’s has a tendency to experience difficulty in cases where the economy of the corresponding states is amazed by inflation and changes in exchange rates. Clients hence face a survey stalemate through their separate budgets, whether they should spend more on these foreign networks of the enterprises of fast food. Hence, to these chains, possibly, it is necessary to take out problems of effects of economic environment.

Especially, their problem depends on the answer of consumers to these main principles and how it could influence their general sales. In an estimation of operations of the company, food chains as McDonald’s tend to import the biggest part of the raw materials to certain territory if there is a delivery lack. Exchange rate fluctuations will also play an essential role in company’s operations. The company’s international supply as well as the existing exchange rates is merely a part of the overall components needed to guarantee success for the foreign operations of McDonald’s.

It is besides obligatory, that the company has been informed on the existing tax requirements needed by the separate governments on which they operate. It basically guarantees smooth operations of McDonald’s privileges. In the same relation the company should consider also a state economic situation on which they influence. Level at which the economy of special state grows, defines purchasing capacity of consumers in that country. Hence, if the privilege works in the especially economically weak state, then their products should cost above than other existing products in the market, these privileges should take certain regulators to support economy at the expense of manufacture growth.


The main reason is the consumers’ worries had greatly increased with health fears so customers now opted for healthier options like subway, which offered more of a variety for health conscious customers. Social Considerations: To ease customers concern about health issues, McDonald’s has made changes to the following; McDonalds changed its image vastly by evaluating the current menu and making changes to it from using organic products to revising the whole menu entirely by offering salads and vegetarian burgers. McDonald’s serves a range of high-quality foods that can fit into a balanced diet. The accurate and accessible nutrition information help guests make informed menu choices. Social Considerations Emphasis on food safety: McDonald’s suppliers have food safety management systems in place, including Good Manufacturing Practices (GMP), a verified Hazard Analysis Critical Control Point (HACCP) plan and crisis management, food security and other applicable programs


Technological Advantages McDonald’s has taken advantage of technology to streamline their processes and improve efficiency. Through technology enhancements such as FPI’s Help Desk Service, network and application consolidation, and other technology implementations, operations of the company are greatly improved.

Technological Advantages:

* Technological Advantages Touch Order Allows You To Place Order At McDonald’s Via handset. * T The customers can place their order directly from their tables, dubbed as “Touch Order”. It’s the first self-ordering system in the world to use RFID* Technology Spotlight. * McDonald’s has also implemented technology to improve supply chain management, and allows customers to access this information to make more informed decisions about what they eat.

Supply Chain

They strive to ensure that every step of the McDonald’s supply chain contributes positively to the safety, quality and availability of their final products. They also want their product ingredients to be produced in ways that contribute positively to the development of sustainable agricultural and food manufacturing practices. Since McDonald’s does not actually produce any of the food they ultimately serve their customers, it’s essential that they work with suppliers who share our values, and we do.

They have a large number of direct suppliers – companies that make or deliver final products for their restaurants as well as an even larger number of indirect suppliers companies and farms that grow or process the ingredients that are eventually delivered to their direct suppliers. They work closely with their direct suppliers to continuously improve the practices that impact their employees, their communities, the environment, their own suppliers and, of course, McDonald’s customers.

Profit Pyramid Model

The key is to get customers to buy at a low price, low price, entry point and move them upto high price and high margin products where the company makes its profit. For example McDonalds uses products like Mc Aloo Tikki to get the customer inside the restaurant. Once the customer establishes a taste for its products his focus is shifted to products belonging to the higher strung of the ladder such as Mc Paneer Spicy, Chicken Maharaja Wrap etc. This is where it makes it profit.

Thus McDonalds follows a Profit Pyramid Model.

Corporate strategy

Corporate level strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses. McDonald’s is engaged in. Mc Donald’s only deals in the restaurant business, so its corporate strategy is a single business unit strategy, likely of growth.

Business strategy:

A strategic business unit may be a division, product line, or other profit center that can be planned independently from the other business units of the firm.McDonald’s has pursued two strategies since 2003. To keep up with rapidly changing consumer preferences, demographics, and spending patterns, McDonald’s has introduced new items (Premium Chicken sandwiches and the Angus Beef Burger) and campaigns to create more healthy foods (Premium Salads). The strategy reflects the philosophy that novelty, as opposed to loyalty to traditional products, is the key determinant of sales in the fast food industry.

McDonald’s has also focused on increasing sales at existing restaurants instead of opening new ones. To do so, McDonald’s has remodelled many restaurants, kept stores open longer, and increased menu options.

Marketing Strategy

McDonalds uses marketing mixture by using the different sources of media to reach the consumer: * Medium: Marketing medium of McDonalds ranges from TV advertisement to sponsoring the Olympics.It normally doesn’t use the print media for advertisement. * Branding: When someone says McDonald’s things like the golden arches ,Ronald McDonald Big Mac, etc come automatically comes to our mind. McDonald’s is loaded with brand images that are embedded into our souls from a very early age, and the company’s influence has been profound. * They Speak to the Children: McDonalds has established strong relationships in their brand by marketing directly to children, and giving them the products they want—little meals with lots of color, happy faces, and a toy (hence, Happy Meal).

Core Competency

The only core competency that Mc Donalds has is developing localized products. We can explain this with the example of the products that were provided to their French customers. They included beer in their menu. All their hamburgers also included a tinge of mustard to it since the French are extremely fond of mustard sauce. To overcome their unhealthy image they also began to include salads in their menu. In Thailand some of their dishes also included rice since all their meals have rice. To cater to the taste buds of Indians they have started dishes like Paneer McSpicy. McDonalds also focuses mostly on children by providing Happy Meals and toys along with it which attract the kids. There no other fast food brand which has customized its product to such an extent and therefore it is a core competency for McDonalds.

Distinctive Competency
The distinctive competencies of McDonalds are as follows:

* Price
* Standardized products
* Quick service

VRIO Analysis

* Value: McDonalds provides value to the customer’s because of its competitive pricing. There are not many brands which can match the same prcing, standardized product, quality which McDonalds provides therefore it does provide value to the customer’s. * Rareness: McDonald’s approach towards children is very rare and no other competitor has the same to this extent. Also localizing their products is one more rare feature of this brand. * Imitability: Designing a business model which has been successful in 119 countries with annual sales of 27 billion dollars and with so much brand recognition is definitely not easy to imitate. * Organization: They exploit their resources because they cater to the local customers in an extremely efficient manner.

McDonald’s Corporation (MCD) Essay

Marriot and Body Shop Aims and Objectives Essay

Marriot and Body Shop Aims and Objectives Essay.


Marriot is an international brand however the purpose of this controlled assessment, they will be my local business known as London Heathrow Marriott-LHM. Marriott is currently a private limited company (PLC) and has two other private investors as owners of the company. The Marriott hotel was founded in 1993 and is located in Harlington, Hayes. Currently its labour turnover for the month of September (2010) is an increase of 10.1%. Marriott acquires approximately 133,000 employee’s world wide and between 8,000-9,000 employees in the UK.

My other local business is The Body shop. The Body Shop is an international business

Definition of Aims

The long-term goals a business wants to achieve. Goals that a business wants to achieve to be successful.
Explain what aims are
Definition of objectives
The specific steps taken by a business to achieve a goal
Objectives have to S.M.A.R.T, this stands for:
* Specific
* Measurable
* Achievable
* Realistic
* Time

Marriott’s aims
* Guest Satisfaction Superiority
* Marriott Profitability & Owner Return on Investment
* Associate Satisfaction

Marriott’s objectives
* GSS (Customer Target) 75% (satisfied with overall service) * Sales turnover of £20m per annum
* Labour turnover less than or equal to 25%

Summarising Marriott’s aims and objectives

Marriot have set themselves three aims that they hope to achieve.

These three aims vary from making a profit on their investment to guest and employee satisfaction. Marriott’s first aim and objective focuses on customer satisfaction. They are going to meet this goal by being customer focused and meeting customer needs. To achieve this they will do everything in their power to keep their customers happy to give recommendations to other people and for them to keep coming back to their hotel. They need to deliver the “wow factor” by providing the best quality of service. They intend to meet this aim by encouraging their guests to complete a “Guest Satisfaction Survey”.

To achieve their aim they need 75% of their customers to be satisfied. The management team reviews all these surveys to find out what they need to improve on to make the hotel and make it the best in the industry. They also focus on associate satisfaction which focuses on the employees. They are striving for labour turnover less than or equal to 25% therefore Marriott hope not to lose more than 1 in 4 of their employees. They aim to make employees satisfied by ensuring their staff is happy. They will achieve this aim by motivating their staff and rewarding them with staff benefits for example LHM offer “Valuable room rate, food and beverage, and retail discounts at global Marriott locations.”

This gives the employees the feeling that Marriott cares about them. Also the amount of pay that is offered by Marriott is higher than most equivalent jobs. This makes the employees want to stay as they know that there is a very slim chance that they will find this amount of pay anywhere else, or they may not get the same amount of bonuses-motivating them to do better- The want the communication between the staff and Marriott management to be strong as this gives the employees the sense that they are involved within the business.

Their third aim and objective focuses on Income and money made. Marriott want to make a profit and have a sales turnover of £20m per annum. By doing this they will be able to maintain share prices and reward shareholders with dividends. Furthermore they will be able to do this by increasing sales revenue for this hotel. This has been set out by the management & senior Marriott personnel in the US. The will achieve this by providing the best quality of service.

body shopAims

* Leading business in the beauty industry
* Fair trade
* Protect human rights – customers and staff
* Protect the Environment and planet

body shop objectives

* Continue to grow by maximizing sales * All our suppliers have signed the Code of conduct supporting ethical, fair trade program. * Improving working conditions for body shop employees and protecting their Human rights * Every product packaging is made from 100% recycled materials Summary of the body shop aims and objectives

Marriot and Body Shop Aims and Objectives Essay

Case Study on Sumitomo Corporation Essay

Case Study on Sumitomo Corporation Essay.

1.Case Study on Sumitomo Corporation on Derivative Losses and Lesson Learned 1.1Introduction

Sumitomo Corporation was top in market in copper business in the world prior to 1996 in term of trading size and it operations. Copper business is part of their portfolio and it was delegated to Yasuo Hamanaka who was the Head of Copper Trading and he was engaged in illegal copper trading and faced extensive losses and massive cover-up. As the result of this loses, he attempted to avoid losses many times.

This was against the rules and regulation of the London Metal Exchange (LME). LME created new regulation to prevent the market domination, as the result of this; he faced losses on his operations. There were two malfunctions recorded; he maintained two types of books, one is to showing big profit, and the second one is to keep secrete account, unauthorized trades over 10 years. No one except Hamanaka was not aware of accumulated loss of $ 1800 million.

1.2Background of the Company

Sumitomo Corporation is one of the subsidiaries of Sumitomo Group which is one of top 5 “Sogo Shosha” general trading in Japan.

It has 120 overseas branches in 65 countries, and having diversified business of Metal, Mineral Resources, Energy, Chemical & Electronic and Infrastructure. Copper Department is one of the departments in Copper Corporation which is owned Mineral Resources, Energy, Chemical & Electronic Business unit. In 1800s, Sumitomo Corporation was diversified the business into Sumitomo Bank, Sumitomo Metals, and Sumitomo Corporation. In 1980, they obtained strong position & positive reputation in the Copper market. Competition in Copper industry was very high; Copper was traded on LME listed in London and COMEX in USA. Copper was placed 3rd used Metal after Iron & Aluminum.

There were two types of market participants i.e. one is supplier who does physical supply, and the second is speculators who arbitrage deal without delivery. Sumitomo was acted as speculator and after acquiring mines in Philippines in 1984, Sumitomo changed from speculator to supplier. After 1988, they made of $3 to 4 million profit and they followed cost leadership strategy which caused huge loss because of having high inventory while declining demand. LME is popular for providing spot and future markets where clearing systems reduce counter party risks. The delivery would be taken place for the authorized warehouses and storage facility.

The specification of copper would be included i.e. quality, trading unit, price quotation, trading month, minimum fluctuation, and tick value. The copper contract would meet the following conditions i.e. counter party information is open, and delivery condition is by the party, not LME. Yasuo Hamanaka was the Chief/Head of Copper Corporation. He was committed wrongful Act during the 1985-1996. He was referred as by many Mr. Five percent/Mr. Copper. He traded 0.5 million metric tons per year which was the 5 % of total world demand and having experience of 23 years in copper trading.

1.3Sumitomo Copper Scandals

From 1985, Hamanaka lost a total of $1800 million. He executed as many as $20 billion worth of unauthorized trades a year. His main strategy was the “short squeeze”. The future market was particularly vulnerable to manipulation since the market volume was relatively small. By buying up futures and choosing physical delivery, future seller ended up buying copper in a spot market, which resulted in backwardation: the spot price is higher than the forward price. As far as LME concern, it considers only the inventory in their authorized warehouses. If someone moves away from copper inventory outside of an authorized warehouse, LME inventory appear to decrease and therefore, copper price rise due to a perceived tight supply in the market.

Hamanaka implemented such strategy because of all his illegal trades was not booked, but is clear that this was a possible way to induce backwardation. In December of 1991, the LME decidbed to set new regulations that would limit the range of backwardation within 25 pounds to prevent market manipulation. Backwardation shrunk to almost $0 or even negative, thus causing a huge loss in Sumitomo’s portfolio. To recoup the loss, he conducted a Radr transaction in June 1993, but at the end he ended up closing their Radr position and incurred a $1.1 billion loss. Hamanaka tried to recoup the loss by increasing the trade volume and made a contract with Winchester for1 million metric tons over two years at the price of $2,800, however, due to price declines, the loss kept expanding.

Hamanaka’s next step was to create an option portfolio named “Radr” transactions. He made six different transactions in Radr. The counterparty of these transactions was Credit Lyonnais Rouse (“CLR”, currently Calyon Group). Since the position held by CLR was large and caused backwardation, LME tightened the backwardation limit to $5 in September 8 1993. In addition, LME informed Credit Lyonnais that they were to cancel part of their transactions with Sumitomo on September 17th,, Thus resulting in a $1.16 billion loss for Sumitomo. 1st: In June 25, 1993, Hamanaka buys call option with an average price of $2,400 and which expires after 2 years. The transaction is totally irregular because the total volume was 1 million metric tons as compared to all LME inventory of 0.5 million.

The portfolio could make a profit if the price went up to $2,480. To pay a premium of $69 million, Hamanaka made a 2nd trade. 2nd: Hamanaka made a short strangle, combination by selling a 0.5 million $2,100 call and $1,900 put option. The portfolio could make a profit if the price remained between $1,900 and $2,140. From this transaction, he got $94 million of premium and paid for the 1st option. With 1st and 2nd strategy, total breakeven was $2,700. 3rd: Selling future at a price of $2,000 which increased payoff to around $1,900. 4th: Buying 1.35 million metric tons of $1,750 put, breakeven was $1,580.

He predicted that the copper price would go down below $1,600 level. 5th: Buying 1.35 million metric tons of $1,800 put again, breakeven was changed to $1,680. This portfolio could make a profit slightly if the price went down below $1,700 level. 6th: Selling 1.2 million metric tons of $1,950 call to get $29 millions of premium. With this transaction, breakeven was changed to $1,680. However, if the copper price exceeded $1,950, Sumitomo suffered a huge loss.

1.4Lesson Learned from Sumitomo Case

The Sumitomo Case explains following lessons base on internal control and risk management prospective, and it believed that if controls were in place, losses would have been detected much earlier.

(a)Management Level Control: Sumitomo Corporation failed to execute a risk management practices and they believed the expertise and specialized knowledge of Hamanaka. The essence of the problem was unauthorized trading that the culprit undertook to enhance his firm’s profitability and then his own career and pay. Hamanaka tries to cover up the losses through taking more risk that end up with further losses. Setting up corporate discipline and sound Management structure is important to manage the risks.

(b)Independent Transaction Monitoring: Sumitomo should create a separate and independent supervisor system within the company hierarchy to avoid these agency issues; specifically the issues between recording and checking procedures. Segregation of duties is important to prevent the malpractices. Middle and bank office should be totally separated from the front office.  (c)Corporate Responsibility: We should also consider corporate responsibility with regard to timely reporting. In the Sumitomo case, the management waited ten days until issuing a press release. Sumitomo needed some time to calculate their losses; they could have avoided additional declines in copper prices that were caused because of the rumors and uncertainty in the market.

(d)Government Regulations: The regulatory agency should execute more stringent rules on the derivatives market to avoid price manipulation and impose new regulations on corporate reporting obligations so as to provide investors and other market participants with greater information regarding the organization’s willingness to take risks and capability to manipulate market prices. The official and market pressures of stringent regulation will strengthen the internal auditing and information systems of many firms and provide a check against possible management discretions.

2.Case study on the Orange Country on Derivatives Losses & Lessons Learned The purpose of this case is to explain how a municipal lost $1.6 billion in the financial market. In December 1994 Orange County stunned the market by announcing that its investment pool had suffered a loss of $ 1.6 billion this was the largest loss ever recorded by local government investment pool and led to the bankruptcy of the county shortly thereafter. The loss was the result of unsupervised investment activity of the Bob Citron, the county treasure who was dealing with the $ 7.5 billion portfolio belonging to the county schools, cities, special districts, and county itself. In the tome of fiscal restrains Citron was viewed as a wizard who could painlessly generate greater results to the investors.

Citron generate 2% higher than the comparable state pool

Figure 01 citron’s track record

Citron was able to increase returns on the pool by investing in derivatives securities and leveraging the port folio to the hit. The pool was such demand due to its track record that citron had turn down investments by agencies outside Orange County. Some local schools districts and cities even issued short term taxable notes to the investment in the pool by increasing the leverage even further. For that there was a repeated public warning, which was by notably by John Moorlach, who ran for treasurer in 1994, that the pool was too risky. Unfortunately, he was widely ignored by Citron when he was re elected. The investment strategy worked excellently until 1994, when fed started a series of interest rate hikes that caused severe losses to the pool. Initially it was announced as a paper loss. Shortly thereafter, the county declared bankrupts and decided to liquidate the portfolio.

This occurred because citron expect that interest rates would fall or stay the same, the citrons main purpose was to increase income by exploitation that the fact that medium term maturities had higher yield than short term investments. On Dec 1993, for instance short term yields were less than 3%, while 5year yield were around 5.2% .which such positive sloped term structure of interest tares , the tendency maybe to increase the duration of the investment to pick up extra yield . The boost, of cause comes at the expense of great risk .the strategy went as long as interest rates went down. In February’94 however the Federal Reserve Bank starred a series of six consecutive interest rate increases, which led to a bloodbath in the bond market. The larger duration led to a $1.6 billion loss

2.1. Lessons Learned from Orange Country Case

Due to the activities of Bob Citron the municipality lost $1.6 billion in financial markets. Therefore, it is essential to understand the lessons to be learnt from the Orange Country case. (a). No autocratic decisions should make in investment activities Bob Citron was investing the funds owned by the taxpayers in risky securities in Wall Street as per his own interest. Since he managed to generate higher returns for the funds invested in the early stages Citron was viewed as a wizard. This made him over confident on his actions which resulted in huge losses at the end. When the leverage increase due to these activities Bob Citron, the treasurer was warned by John Moorlach thath the pool was too risky. However, counter arguments were widely ignored and Citron was re-appointed as the treasurer.

(b). Local governments need to maintain high standards for fiscal oversight and accountability. As noted in the state auditor’s report following the bankruptcy, a number of steps should be taken to ensure that local funds are kept safe and liquid. These include having the Board of Supervisors approve the county’s investment fund policies, appointing an independent advisory committee to oversee investment decisions, requiring more frequent and detailed investment reports from the county treasurer, and establishing stricter rules for selecting brokers and investment advisors. Local officials should adjust government structures to make sure they have the proper financial controls in place at all times.

(c). State government should closely monitor the fiscal conditions of its local governments, rather than wait for serious problems to surface The state controller collects budget data from county governments and presents them in an annual report. These data should be systematically analyzed to determine which counties show abnormal patterns of revenues or expenditures or signs of fiscal distress. State leaders should discuss fiscal problems and solutions with local officials before the situation reaches crisis stage. (d).

Always aware of the negative side on risky investments

The treasurer was assuming that interest rates would fall or stay low when he goes for huge investment activities. However, when the things moved the opposite direction and the interest rates went up the pool suffered severe losses. Therefore, always be cautious when making predictions on market phenomena. (e). Use proper statistical risk assessing methods before invest in securities An investor could use a proper risk assessment method such as Value At Risk (VAR) method to assess the market risk of the portfolio. VAR is the maximum loss over a target horizon such that there is a low, pre specified probability that the actual loss will be larger. Therefore, shareholder and managers can decide whether they feel comfortable with the given level of risk.

3.Case study on the Procter & Gamble on Derivatives Losses & Lessons Learned

Procter & Gamble Co. is a Fortune 500, American global corporation based in Cincinnati, Ohio, that manufactures a wide range of consumer goods. In late 1993, Proctor & Gamble financial managers, well known for actively managing their interest costs, expected interest rates to drop and went to Bankers Trust searching for aggressive interest rate swaps that would allow them to profit on these expectations. P&G told to Bankers Trust about ways of replacing a fixed-to floating swap that was maturing. P&G’s specific objective was to negotiate a new $100 million swap that would

•Again put it in the position of paying floating rates and •Squeeze these to a minimum.

Specifically, the company wanted to pay 40 basis points (0.4 of 1%) less than its standard, upper-crust commercial paper rate (then about 3.25% for six-month paper). Bankers Trust responded with a highly levered, extremely risky, and extremely complex five-year interest-rate swap agreement. In this the P&G had to pay 75 basis points less than rate of Commercial Paper, if the interest rates of 30 years and 5 years treasury bills will remain constant or go down. Five-year Treasury rates rose from 5% in early November 1993 to 6.7% on May 4, 1994. P&G’s other benchmark, 30-year Treasury rates, went from about 6% to 7.3%. Because of large duration the effect of rise in interest rate on long term bonds was very high. When interest rates headed up, Proctor & Gamble’s treasurer realized the magnitude of the company’s potential derivatives losses and decided to get out of the swap.

Because of the intricate complexities and linked derivatives of the agreement, however, P&G lost $157 million to lock-in interest rates (which were 1,412 basis points (14.12%) above the commercial paper rate) in only six months of a five year contract. When interest rates headed up, Bankers’ trust entered into another contract with P& G- a wedding band. When this strategy also failed, it led P& G to pay even higher rate of interest from 14.12% above Commercial Paper (CP) to 16.40% above CP. CEO Edwin Artzt, called the swaps “a violation of the company’s policy against speculative financial transactions” and banned all leveraged swaps. As the Bankers Trust had suggested the contracts, P& G blamed them for the losses.

3.1Lesson Learned from Procter & Gamble Case
The Procter and Gamble Case explains following,

(a)Legal dispute between P&G and Bankers: Therein lies the crux of the legal dispute between P&G and Bankers. P&G claims that before the swaps were signed, Bankers repeatedly assured it that in the early stages of the swaps, the company would be able to do lock-ins at acceptable prices. Court papers, in fact, include letters from Bankers that make such assurances, though these consistently cite assumptions of stable or only slightly rising rates. P&G says, however, that on one occasion it “pointedly” asked the Bankers Trust person with whom it was dealing what the lock-in situation on the first swap would be if rates and volatility were not “stable.”

The answer, P&G says, was that “possible changes in rates or volatilities would not have a material or significant effect” on the company’s lock-in position. (b) Purpose of Deliveries: A P&G spokeswoman stressed that the transaction was “speculative and goes outside the P&G policy of conservatively managing our debt portfolio.” Asked whether the company’s treasury was expected to be a profit center. In a speech, William J. McDonough, president of the Federal Reserve Bank of New York, warned that top managements of financial and nonfinancial companies have a responsibility to understand and constantly monitor derivative markets when their companies are involved in them. Also Mr. McDonough said. “To put it simply and directly, if the bosses do not or cannot understand both the risks and the rewards in their products, their firm should not be in the business.”

4.Case study on the Showa Shell Sekiyu on Derivatives Lossess & Lessons Learned Showa Shell Sekiyu is one of Japan’s leading oil refining companies and is engaged in producing gasoline, diesel fuel, fuel oil, kerosene, lubricants etc. It was established in 1876 under Samuel Samuel & Co, and was later became a subsidiary of Royal Dutch Shell group, in 1985. And presently, 50% of shares are owned by Royal Dutch Shell Group. In the year 1993, the Company made history by making approximately USD 1.4 Bn with unauthorized forward currency transactions. As an oil importer, company imported crude oil in US Dollars and sold the end products in Yen. Showa Shell had been used to hedge a proportion of its currency exposure using foreign exchange forward contracts. In 1989, company entered into a series of forward options where it agreed to buy dollars forward at an average rate of USD 145. Over the next few years Yen strengthened ageist the dollar.

However, at the time of maturing of these contracts, the foreign exchange rate was at USD 125, indicating a difference of USD 20 or a drop of approximately 14%. But, treasury department of the company decided not to recognize the losses and chose to roll over the forwards using historical rates, without appropriate internal authority. And consequently, the actual losses made were concealed within the new forward contracts, and this actually meant that the company was borrowing money under the guise of forward contracts. This practice or rather malpractice was continued until the end of 1992, and at that time the company had in excess of USD 6.4 Bn of forward contracts on their accounts, and out of this, it was revealed by the management of the company that hidden financial losses were USD 1.4 Bn. And the losses amounted to more than five times of its annual oil import at that time.

Four senior executives of the company had resigned following the discovery of unauthorized currency dealing including, Kiyoshi Takahashi chairman of Showa, Takeshi Hemmi the president, who took responsibility for the dealings that resulted in the huge losses. The resignations were made as shell, one of the biggest world oil groups , reported a 28% decline in net profits. Main reason for the losses was that treasury department of the company, entering into unauthorized forward currency transactions, with the expectation of US Dollar to rise against Yen, and attention was not given to the fact of worsening the situation in case of Yen strengthening against Yen.

John Jennings, then Shell Group managing director, had stated that, an unauthorized currency speculation was like “A gross contravention of established rules and practices which was deliberately canceled”. The continued dealings that were made were the result of one treasury manager trying to recoup losses amounting to single figure millions, incurred during normal course of his job, although with failures in attempts made, continues dealings were made by exposing the company to increasingly large exchange rate risks.

4.1Lessons Learned from Showa Shell Sekiyu Case

These huge losses made, forced the company to focus on more tight internal controls and focus on the importance of having internal controls. Although defining of risk limits is not necessarily provide results, if proper controlling is not there to take corrective measures, in case of deviations. And furthermore, it is never advantageous to assume that market fluctuations can be predicted accurately, at all times. And if being successful in the past, it can purely be due to luck and it does not guarantee that next time would be the same. Company incurred the losses on the assumption of currency value increasing rather than decreasing. The purpose of using derivatives is to hedge the risk and not to make profits by speculating and speculators take huge risks, rather than hedging risks.

Company should have focused on the fact of maintaining their crude oil import price by mitigating exchange rate risks by using the forward contracts. If a loss is made in the process of trying to maintain price level, although losses are made in the profit and loss account, the objective of maintaining price level is still achieved. This fact is very important in dealing with derivatives and should not make harsh judgments on losses made when trying to maintain price level. It is difficult to measure the exact point, where, the hedging of risks ends and being speculative starts.

And in Showa case, treasury department of the company, who were there to hedge risk, had dealt as a speculator and without adhering to the internal controls and not obtaining proper approval for its dealings. In addition, it took more than four years to recognize this malpractice by the higher authorities, which pin points the lack of transparency in accounting practices. And it was blamed by some experts on the Japanese accounting system, since the dealings were not identified earlier. And the dealings were only revealed by chance, during a conversation between a Japanese bank manager and Showa manager.

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