1. What is the core idea behind agency theory?
2. Can you use agency theory to analyse:
a. the rise and downfall of RBS;
b. the mortgage debt crisis more generally?
3. Who is/are the principal(s) and who is/are the agent(s) in your analysis?
Can you think of one threat that arises from the use of agency theory in developing measures aimed to prevent future banking and/or financial failures?
The emergency rescue of the Royal Bank of Scotland in 2008 has cost the UK government thus the British taxpayer a huge amount of money. Many people are upset about the high bonuses the RBS management board have received, both because of the outrageously high amount and because the performance of the bank on the long-term was not good at all. According to the agency theory managers do not always act in the interest of the shareholder, but often act in the interest of themselves. The downfall of RBS could have been prevented if managers were not paid out a bonus based on their performance of one year, but rather a combination of a bonus based on their performance of multiple years and a bonus ...
America’s newfound favorite pastime, football, came from a bizarre chain of events. Football started when a soccer player got fed up with just kicking the ball, so he picked up the ball and ran to the goal. His actions of picking up the ball and running with it fathered a new European sport, rugby, which was soon brought over to American shores, and was altered slightly, the shape of the ball and a few other small rules. The sport became organized into a league and produced the NFL(National Football League). The NFL had a slow beginning, but has picked up popularity, currently having a 9 billion dollar yearly revenue. Playing football comes with great costs, including physical and mental health deterioration, plus the amount of time spent prepping before game day. Which can pose several questions, “Why suffer for a game, Is it worth the money? Is it worth the fame? How great is the cost?” I believe that football, should have stricter regulations for the treatment of injuries, along with informing players of just how devastating a concussion can be, along with the other major injuries that commonly occur while playing football.
“To be the best you got to beat the best; therefore I am the best cause I’ve beaten the rest” (Barry Sanders). The game of football only requires 22 men, but only one man can be the running back. The running back position is considered the most prestigious of the game. To be a great running back in the N.F.L. you must possess certain qualities such as: speed, strength, agility, field vision, quick feet, and good stamina. Barry Sanders, Walter Payton, and Marcus Allen all possess these qualities and are three of the best running backs the National Football League will ever see.
The presence of systemic risk in the current United States financial system is undeniable. Systemic risks exist when the failure of one firm may topple others and destabilize the entire financial system. The firm is then "too big to fail," or perhaps more precisely, "too interconnected to fail.” The Federal Stability Oversight Council is charged with identifying systemic risks and gaps in regulation, making recommendations to regulators to address threats to financial stability, and promoting market discipline by eliminating the expectation that the US federal government will come to the assistance of firms in financial distress. Systemic risks can come through multiple forms, including counterparty risk on other financial ...
Management should share the responsibility with employees to calculate how fast bonuses are generated and earn. This may be a sensible strategy explained by the Vroom 's Expectancy theory; which suggest that people will be motivated to accomplish an objective if they feel it benefits them and also help accomplish the objective. Thus, the employees feel a significant worth of respect, and their sense of liberty increases. The modification to the Scanlon Bonus Plan directly relates to the motivation of employees and has them embrace the social system they operate in at the organization. These adjustments of the Scanlon Bonus Plan straightforwardly identifies with the motivation of employees and how they embrace the social
the huge compensation plans with incentives led to the financial crisis. Mr. Thompson develops a solid
This is actually an example of mixed corporate governance. There are independent board members in order to make sure that the operational and financial health of the company can gauged accurately from time to time. Peter Langerman did an in depth enquiry into the financial matters just because Dunlap had offered to resign in response to a trivial question. The board should have kept a watch on the firm’s financial health from the beginning. But after realising the gravity of situation, board was prompt and unanimous in firing Albert Dunlap which shows good corporate governance.
CEO compensation has been a heated debate for many years recently, and it can be argued that they are either overpaid or that there payment is justified by the amount of work they do and their performance. To answer the question about whether CEO compensation is justified it must be looked at by the utilitarian viewpoint where the good of many outweighs the good of one. It is true that many CEO’s are paid an exorbitant amount of money; however, their payment is justified by the amount of money that they bring back to the company and the shareholders. There are many factors that impact the pay that the CEO receives according to Shah et.al CEO compensation relies on more than just the performance of the CEO, there are a number of factors that play a rule in the compensation of the CEO including the fellow people who help govern the corporation (Board of Directors, Audit Committee), the size of the company, and the performance that the CEO accomplishes (2009). In this paper the focus will be on the performace aspect of the CEO.
Struggling to maintain consciousness as well as retain my vision after embracing a brutal hit enforced from an opposing player really makes me question the seriousness of football related trauma. How many injuries does it take until it really matters? For me, after having experience with concussions, I came to the realization that the positive externalities of football do not make up for the numerous negative externalities. Football, as well as any other contact sport, can be very dangerous and potentially threatening to a persons overall health and future.
In contrast , the shareholder theory organisations or organisation's decision-makers only have the responsibility to their shareholders by increasing the organisation profits and should only make the decisions to increase as much as possib...
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
If financial markets are instable, it will lead to sharp contraction of economic activity. For example, in this most recent financial crisis, a deterioration in financial institutions’ balance sheets, along with asset price decline and interest rate hikes increased market uncertainty thus, worsening what is called ‘adverse selection and moral hazard’. This is a serious dilemma created before business transactions occur which information is misleading and promotes doing business with the ‘most undesirable’ clients by a financial institution. In turn, these ‘most undesirable’ clients later engage in undesirable behavior. All of this leads to a decline in economic activity, more adverse selection and moral hazards, a banking crisis and further declining in economic activity. Ultimately, the banking crisis came and unanticipated price level increases and even further declines in economic activity.
As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose. The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board. The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company. It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves. The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position. Furthermore, there are specific provisions within the CA 2006 that empower third parties such as shareholders to influence directors’ remuneration.
Although at the same time functional goals encourage unnecessary risk-taking and increased the probability of unethical and possibly unlawful behavior (James, 2015). All the same, the purpose of executive compensation is an incentive for well-trained executives that make the most of the firm’s value (James, 2015). Further, the benefit that is put in place for the executive is structured to remove all conflicts of interest amongst the executive and shareholders (James, 2015). Although, some workers feel as though the executive compensation is unethical; but according to James (2015) it is given to the executives that are well trained, therefore, it is ethical from his point of view. Additionally, the compensation package assists as an enticement for executives to participate in potentially risky, maximizing activities, and profits that benefit the shareholders whenever ventures are successful (James,
The Remuneration committee should help the board of directors in its responsibility for setting remuneration policies that are in line with the company’s long-term interests. The committee deliberates on and recommends remuneration policies for all employee levels in the company, but it should pay special attention to the remuneration of the company’s senior executives and the remuneration of non-executive directors on the board.
The incentive management plan was a model to achieve high worker productivity. The legacy left by the founders allowed the company to enjoy success achieving higher earnings; therefore, continuing providing bonuses which maintain employee morale high and a very limited turnover staff, if any at all. Any employee leaving the company was either for retirement or something more attractive than what he was obtaining as a Lincolns employee.