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Management and organizational behavior

Conflict at work is detrimental to the effectiveness of the organization and should be minimized as much as possible.   Abstract             This paper analyze the accuracy of the statement that “Conflict at work is detrimental to the effectiveness of the organization and should be minimized as much as possible.”  In this report, it has been shown that although conflict can be detrimental to effectiveness of the organization, it also has some benefits for the organization. In addition, the paper also provides insightful details about specific conflict like diversity or cultural difference, and how this conflict can be solved through effective conflict management.   Introduction Conflicts normally arise in organizations. It is said that conflict cannot be avoided especially between individuals or groups of people who regularly work together. This is because working together allows people to use their skills, bring out their ideas and show their personalities. As each person is made unique, personal differences on these mentioned aspects are likely to collide among workers in the organization. The statement says that having a conflict is unfavourable for the effectiveness of an organization and should be minimized as much as possible. In this report, the accuracy of its statement and provide possible solutions to specific conflicts.   Conflict: Sources and Effect             According to  (1998), conflict may be defined as the perception of personal differences among individuals. Other meanings of conflict defined the term as the process of social interaction between struggling parties over beliefs, status, power, resources and other desires or preferences. The goal of the contradicting parties may vary from a simple aim of gaining acceptance to securing a resource advantage; in worst cases, conflicting parties will go even to the point of harming or eliminating their opponents (2001).             Conflict can result due to a number of sources; in most literature, types of conflicts are often categorized based on the source or origin. Affective conflict for instance is a type of conflict that arises when two contradicting parties have incompatible emotions or feelings. This is why this type of conflict is also termed as relationship, emotional or psychological conflict. According to (1997), affective conflict happens when interpersonal clashes are observed between the contradicting parties. Oftentimes, this type of conflict is characterized by frustration and anger. When two or more organizational parties argue over content or task issues, substantive conflicts result. Also known as cognitive, task or issue conflict, this type of conflict occurs when group members disagree on each other’s opinions or ideas in relation to the task at hand ( 2001). An example of this conflict is when organizational members disagree on which marketing strategy or alternative is to be applied; arguing over company data to develop a business plan is also a common example.             Organizations also often encounter conflicts due to differing interests or cultures. In this type of conflict, two parties realize and understand the problem; however, the solution they intend to use to solve it is different from one another.  Ideological conflict or the conflict of values is yet another source of this organizational problem. Basically, this conflict type occurs when two or more social entities have contradicting ideologies over certain matters. This conflict is often observed in human resource issues especially when one party prioritizes what is best for the company while the other is after the interest of the employees. Conflict may also occur in an organization due to contradicting goals. When social entities have different preferred results or decision outcomes, conflict may also result. A person or group may feel the need to cause conflict so as punish an opponent. This is referred to as retributive conflict. Lastly, conflict may also be considered as displace conflict; this happens when conflicting parties direct their emotional disturbances or negative feelings towards other who are not involved in the issue ( 2001).             Other authors also raised similar sources of conflict in the workplace. In a literature review for example, the author noted that intra-organizational conflict occurs due to differences in beliefs, basic values or knowledge; personal dislike; differing attitudes or perceptions generated through organizational structure; and competition for power, position or recognition. Diversity in the workplace is said to be an important aspect for efficient and optimized organizational performance. Diversity does not only pertain to people’s gender, age and race; differences in role expectation. Goals, thoughts and values are also part of this concept ( 1993). The concept of diversity is a notion of individual differences. While others may consider this as a way of expanding one’s perspectives, experience or ideas, diversity may be taken negatively and be seen as a factor that hinders organizational effectiveness. In the article written by  (1995),  provided a summary of conflict sources by developing the three main levels of organizational conflict. These levels include intrapersonal, intragroup and intergroup conflicts. The researchers stated that intrapersonal conflicts occur when an organizational member is asked to perform a particular task that does not match his of her interest, values, goals or skills. Intragroup conflict on the other hand, happens between organizational members or groups disagree over a certain issue. When the organizational members’ leaders or representatives are the ones arguing, intergroup conflict results.  The effect of conflict to the organization is not purely negative. In some instances, positive outcomes may also arise out of disagreements. For example, conflicts may result to the development of and better goals. Rather than draw contradicting parties apart, conflicts can actually bring people together, resulting to closer interpersonal relations. As conflicts may be taken as a challenge, its presence can motivate others to become more positively involved and committed to the assigned task. Conflicts can also promote better understanding of each person’s personality, views and attitudes. Nonetheless, conflicts in the organization can also result to negative outcomes. The goals of the company for example may be distorted or not reach achievement at all. Conflicts on tasks can cause delays, resulting to resource wastes or misapplication. The emotional impact of conflicts can also cause adverse effects on people and may draw them further apart. As conflicts can results to even worst outcomes, it is important that managers apply appropriate conflict management styles.   Conflict Management Conflicts had been occurring even from way back; thus, traditional methods of managing conflict had been introduced and applied. One of these conflict management styles is through compromise where one party would just have to agree to one side of the argument. Postponement or procrastination is another style of conflict management; in this method, action will be done in order to determine the cause of the conflict while the solution to the problem is delayed. Another traditional method of conflict management is avoidance. Here, both the cause and the solution to the conflict are simply avoided. The win/win strategy is the most effective conflict management style among the three mentioned negotiation strategies. This is mainly because this strategy leads to the most favourable outcome. With this strategy, a solution is developed and all parties involved are satisfied with these solutions (2003). Though the parties may not obtain what they initially intend to achieve, both sides receive at least part of their objectives. As both conflicting parties gained something beneficial out of the disagreement, friendship is established. Furthermore, both are likely to participate in implementing the solution they agreed upon. Although this strategy results to the best outcome, it is the most difficult to apply. Compared to the two other cited styles, the win/win strategy takes the most time, energy and effort. Since both parties would have to benefit in the situation, all possible alternatives would have to be considered.   Conclusion             In this analysis, it shows that the statement is not always true or accurate. Although there are negative effects which can be attributed from conflicts, this report has shown some of the positive effects of conflicts with a certain organisation. This positive effect can be yielded from the consideration of conflict management style when resolving some organisational conflicts. One of the conflicts is in terms of cultural differences; hence the company must be able to identify the most effective conflict management system so as to solve such problems.     Credit:ivythesis.typepad.com

Management and organizational behavior

Conflict at work is detrimental to the effectiveness of the organization and should be minimized as much as possible. Abstract ...

THE CONTRIBUTION OF CHARLES HANDY: ORGANIZATIONAL THEORY, MANAGEMENT AND ADMINISTRATION

Charles Handy’s Contribution to Organizational Theory, Management and Administration   Themes in Charles Handy’s Works             Reading Charles Handy’s works in the area of organizational theory, management and administration shows that his approach to the general topic revolves around a number of major themes. Perhaps this is because of his Irish upbringing or experiences in the corporate world or even a combination of both that influenced his perspectives. Regardless of the factors that influenced him, many recognize his perspectives as a great influence or better yet an eye-opener for organizations by urging them to value lessons derived from its experiences and use these to support change in the organization towards improvement in structures, processes and relationships. However, he prefers to be considered as a social philosopher instead of an organizational guru. Again, this is consistent with his stand of empowering organizations to help themselves instead of prescribing solutions for organizational dilemmas. First theme revolves around Handy’s position of urging organizations to utilize, consciously and with awareness, learning from organizational experiences and treat the organization as a constantly evolving entity decisively responsive to change in its internal and external environment. Instead of introducing outright models for application by organizations, Handy offers a guide for analytical processes for organizations. The key analytical foundation that Handy proposed is the non-prescriptive view of organizations. In his work ‘Gods of Management’ which came out in 1995, Handy propounds that there can never be prescriptions for the ills or organizations because there is no single solution or answer even for similar issues arising in different organizations. However, this does not mean that organizations are totally in the dark with regard to what they should do in case they encounter management and administrative problems. Another related analytical tool is the recognition that every organization can draw lessons from generalizations but it should always consider its unique experiences in actual implementation (, 1984). This means that organizations initially look upon the best practices of similar organizations in determining its options, understanding the possible consequences of these options, and forecasting the future effects of these options to the business characteristics, experiences and environments of the organization but it should also consider the appropriateness of these options to its actual operations. This further means decisive output for business organizations. Second theme revolves around the holistic approach of Handy to business organizations. This is in response to existing organizational theories that either focus only on specific aspects of the organization or centre on one organizational component over the others. Although  (1985) recognizes that these organizational concerns are important in management and administration, he also drew attention to an organizational component that is given little attention, socio-political component of organizations.  (1984) mentions that in modern organizations, the common perspectives arising from the functioning of these entities cover the individual, organization including its form, and organizational systems and interactions. The underlying concept behind these perspectives is the organization as a structure governed by standards on processes and relationships. Limited works also exist that provide a link between these perceptions in order to provide a complete understanding of organizational functioning. Handy proposes two alternative perceptions useful to organizations. One perception considers the organization as a collective of individuals. This is based on the recognition that the organization is made of up of individuals with differing personalities and competencies. Instead of looking at the individual as a core unit of the organization, Handy proposes the perspective of different individuals working collectively. The individual becomes not only a core element of the organization but also as a social being capable of influencing the organization as well as being influenced by the organization. The other perspective looks at the organizational functioning as composed of complex intertwined political systems. This means that the organization is a social body that involve defined boundaries or the extent of membership of the organization is known; common values and goals for the members of the organization that define the power relations; administrative mechanisms that define roles, functional links, and collaboration relationships; and power hierarchies that defines the structure, management and administration of the organization (, 1984; 1985). Handy’s proposed perceptions constitute a holistic approach because it reminds modern organizations that the socio-political aspect of the organization remains at the back of management and administrative activities when this should not be so. Organizations are comprised of vibrant individuals existing within the organization not only as individual contributors but also as social beings interacting with other members to collaborate in deriving output. The third theme is the recognition of context.  (1984) provides that “every organization is different” (). Due to the uniqueness of every organization, it is incumbent upon managers and administrators to rely upon its ability to understand the workings of the organization, master its potentials and capabilities, and build upon this information to define the strategies of the company on functions, roles and output expectations. Context pertains to the unique characteristics and functions derived from the facts and situations where the organization is operating. The design for the organization and its management depends upon context. In conjunction with context,  (1984) also mentioned the concept of ‘organizational cultures’ encompassing the “total of the inherited ideas, beliefs, values and knowledge, which constitute the shared bases of social action” () as well as “the total range of ideas and activities of a group of people with shared traditions which are transmitted and reinforced by members of group” (). Due to the unique context of the organization, it also develops a unique form of management and administration. The consideration of context is necessary in all endeavours of the organization. This means that the organization cannot truly understand its workings including both strengths and weaknesses without first mastering its context. This is also a necessary consideration for organizational change. Organization cannot understand their problems, define options and select from the range of options without first dwelling on context. However, as mentioned earlier,  (1984) also recognize the value of generalizations on best practices to understand issues, available options and the consequences of options. However, the determination of actual solutions and the implementation should largely depend on context.       Analytical Thinking for Organizations             Charles Handy contributed to general management and administration as well as particularly in the case of educational organizations. True to his holistic perception,  (1995) considered various organizational aspects covering motivation of people in the workplace, roles and interactions between and among members of the organization, leadership, power and influence, working group dynamics, organizational cultures, and politics of differences and the management of differences arising within the organization.             In the case of motivation,  (1995) looked into various theories and classified these into theories focusing on satisfaction, incentives and intrinsic values. Although, these provide explanations for the factors that motivate people to contribute to the organization, not one of these theories applies universally. The basis for this is that motivation depends upon the consistency of the psychological contract expected by the organization and individual. If there is a match, regardless of the nature of contractual relationship, then motivation emerges on the part of the individual and the organization in general. This implies that there is no universal theory for motivation because this depends entirely upon whether consistency arises within the activities, processes and relationships of the organizations.             On one hand, Handy’s perception seems overly simplistic especially with the consideration of motivation as highly dependent upon the emergence of consistency in the psychological constructs and the organization and individual members. If there is no consistency, then the organization cannot expect to have motivated employees but with consistency, motivation develops and organizations have a lesser problem to consider. On the other hand, Handy’s view on motivation highlights a clear explanation of the complexities of human relations in organizations. This is because arriving at a meeting point for organizational and individual psychological constructs requires the consideration of a number of factors such as understanding of basic human conditions, wants and needs.              (1995) suggests that apart from the common consideration of money, job satisfaction, and job security as causes for motivation, an important  tying factor for all these considerations is equity. This means that even if the company increase the compensation of their employees, offer regularization options, and provide benefits for members of the organization, this may not necessarily result to motivation or the desired levels of motivation without equity. Equity then in the context of matching psychological constructs such as compensation mean that the employee agrees with the organization that the compensation provided by the organization is commensurate with the performance of the individual and his contributions to the organization.             Handy was able to provide a factor that ties the different theories on motivation through equity. Regardless of whether the organization prefers one motivation theory over another, equity should always be considered as an important factor. It is through equity that individuals and the organizations reach a meeting point for psychological constructs.             Apart from motivation theories, Handy also applies a similar analytical process for the other organizational topics to come up with a classification of the different theories and a reading of their implications to organizations. With this system of thought, organization do not only depend on what commonly applies but explore options that work best for the organization based on its unique features. Thus, the process of learning matters equally relative to the learning itself. Vibrant and successful organizations optimize their output when they engage in analytical thinking, have a holistic approach, and consider their particular context. Change & Adaptability to Change of Organizations             Apart from urging organizations to apply an analytical approach in management and administration,  (2004) also advocates the necessity of organizational change amidst changing conditions. In particular, Handy covers the current trend of outsourcing. He does not explicitly promote or decry outsourcing as an organizational management approach but provides an explanation for this phenomenon.             According to  (2004), the core idea of outsourcing is that organisations pay for the output delivered by employees instead of paying for the time invested by employees in the workplace. This provides flexible conditions because organizations only demand for an output equivalent to an agreed upon compensation and the individual or group can work for as long as they please or wherever venue they want as long as they come up with the output at the time agreed upon.              (2004) provides that this organizational relationship means a change in the working relations of managers and individual employees from manager-worker to client-provider relationship. Moreover, the arrangement also fosters independence, creativity and innovativeness since the provider has to meet output expectations by depending upon his competencies. In addition, the organization stands to save on paying for output instead of working time. In this sense, outsourcing is a rational choice for organizations.             However,  (2004) also recognize that shifting organizational relationships from office-based to outsourcing is not simple or easy. It is not simple because individuals shifting from worker to provider pose a number of challenges especially in developing creativity. People who have gotten used to the level of dependence in the office setting may find it difficult to become independent providers. It is not easy becomes this would likely be faced with resistance. Individuals secured in their office position may not be willing to take the risk of solely making their compensation dependent upon output. Apart from risk, the shift would also involve the investment of individuals on their competencies and skills, which may constitute a too big change for some employees.             Nonetheless, since outsourcing has become a trend, organizations and employees need to recognize that this system is here to stay. Handy meets two concerns arising from organizations and employees regarding outsourcing.             Organizational issues revolve around the concern that engagement in outsourcing may lead to hollow organizations. This means that organizations may only be made up of managers and supervisors. With this change in organizational structure, the organization may crumble especially since the providers are accountable only to themselves and the fulfilment of tasks depends greatly upon a fiduciary relationship between the organization and its providers.  (2004) answers this by providing that there could be a good way for organizations to trust the interdependency with providers. He proposes the doughnut model to explain this. The model contends that the organization is like an inverted donut with the middle portion filled and the outer portion hollow. The solid portion in the middle represents the salient job requirements and the tasks that need to be fulfilled. The hollow space surrounding the middle area expresses opportunities for innovativeness and creativity. However, the hollow portion has limits for creativity and innovativeness.             Previously, organizations were not very keen on providing their employees with space for creativity and innovativeness. The result is that employees become stuck-up with what they have to do, the desired output determined by the company, and the processes that need to be fulfilled without necessarily adding value to their work through the enhancement of work processes and output creation. In applying the doughnut model, the organization opens its providers with the freedom to explore creative and innovative ideas in order to replace effectiveness with efficiency.  (2004) provides that effectiveness is concerned with output improvement so that this may require cost while efficiency seeks to lower the cost involved in creating an outcome. To achieve efficiency, the organization need to consider insiders as outsiders—which means engaging in outsourcing—but managers should be able to successfully negotiate with providers on various terms of output delivery such as the quantity, quality, period for delivery, and other concerns.             ’s doughnut theory (reverse doughnut theory) provides organizations with an understanding of outsourcing so that they do not merely engage in this arrangement juts for the sake of keeping-up with the trend but because they are in control of the situation or refuse to engage in outsourcing because of fear based on the lack of understanding of what this is all about.             However, although Handy was able to provide a thorough explanation of outsourcing, he was not able to consider some factors arising in actual organization-employee relations, particularly the innate inequality in the relationship between organizations as employers and employees based on the Marxian perspective. The Marxist view on labour relations provides that there is an innate inequality in the employer-employee relationship to the disadvantage of employees (, 2002). This strongly applies in instances when there greater labour supply relative to demand. Although the special skills of employees determine their bargaining power relative to the employee, there are only a limited number of people with the power to negotiate on equal footing with the employer and take the role of providers. Schools as Organizations              (1984) also focused on schools as organizations so that schools design the organization and implement management decisions based on the particular culture of the school organization. The author provided as basic guide, four types of organizational that may be adhered to by school organizations singly or in combination based on their contextual needs and objectives. First is club culture expressed by a web of relations focused on the centre of the web so that the school leader controls various relationships. Second is the role culture represented by a Greek temple that operates through standards, with the fulfilment controlled by the top management. Third is the task culture represented by a net and involves small but networked organizations making the group flexible to the assumption of tasks. Fourth is the person culture that focuses on the individuals and the relationships that arise solely depend on its necessity for accomplishing tasks. Although these may be applied singly, these rarely work if not applied in combination. In this sense, Handy urges school organizations to look at their context to determine their organizational culture. Contextual considerations include size, workflow, environment and history (, 1984) as well as the quality of relationships arising among the parties such as teachers and administrators, teachers and students, school and parents, and school and the community ( and , 1986). These factors assist the school in organizational design and management. Conclusion             Handy contributes a number of lessons to organizational theory, management and administration. First, organizations are vibrant and dynamics entities able to decide its own direction, move towards this direction, and shift direction as needed. Second, organizations need to be analytical in managing and administering itself because there is no single explanation or solution even for common problems faced by different organizations. There would always be a unique explanation for the experiences of an organization. Third, context is the key to understanding the organization and determining its needs because this allows the organization to fully understand how it functions to determine how to manage the organizations. Fourth, change is inevitable since organizations are living entities that constantly change so that organizations should be flexible and ready for change such as in dealing with the trend of outsourcing. Fifth, decisive utilization of best practices and generalizations is required since organizations cannot rely on the experiences of others to understand and improve its functioning. Sixth, holistic approach is necessary for organizational success because the organization cannot move forward without a complete understanding of the organization and what it wants to achieve. Seventh, socio-political underpinnings of organizational relationships are also equally important relative to the concentration of organizations on revenue generation, profitability, cost efficiency, and returns on investment. References Credit:ivythesis.typepad.com

THE CONTRIBUTION OF CHARLES HANDY: ORGANIZATIONAL THEORY, MANAGEMENT AND ADMINISTRATION

Charles Handy’s Contribution to Organizational Theory, Management and Administration Themes in Charles Handy’s Works Readin...

The truth behind Enron’s collapse

ACC3116 FINANCIAL ACCOUNTING THEORY             Executive Summary             The purpose of the report is to derive learning from the experience of Enron from the research and analysis of relevant literature that contributed to its demise.  The key theories that were considered are the efficient market hypothesis, information asymmetry and positive accounting theory.  It is found that voluntary disclosure of pertinent information to stakeholders and the public can provide the optimal shield for contemporary firms to prevent the fate of Enron.             Table of Contents   Table of Contents………………………………………………………………………2 1. Introduction…………………………………………………………………………..3 2. Efficient Market Hypothesis……………………………………………..……….. .3  3. Implications of EMH Failure to Capital Market Research……………………….6 4. Asymmetrical Information…………………………………………………………..8 5. Option Grants………………………………………………………………………10  6. Conclusion………………………………………………………………………….13 List of References…………………………………………………………………….14                            Introduction             Enron is already a history but contemporary firms can learn substantially from the mistakes its executives had committed which ultimately led to a sudden demise from the short-lived fame of its ground-breaking share performance.  This paper discusses several topics that directly and indirectly relates theories, studies and evidences to Enron’s collapse.  First, efficient market significance will be implied by discussing the reasons and effects of the failure to impound corporate factors to its share price.  This will guide the learning towards capital market research.  Second, the nature and role of information asymmetry to Enron’s demise will be explained.  Third, strategic actions of corporate executives will be evaluated using the positive accounting theory.  Lastly, conclusion is attached to highlight the learning and other relevant findings.             EMH             In a general analysis, there are some factors that should have affected the publicly-held share of a firm but are disregarded by its market price because market value are not exhaustive basis of firm performance.  According to 2006), this is tackled in US cases way back in the advent of Great depression in 1934 (see Chicago Corp. v. Munds) to contemporary valuation parameter disputes (see Weinberger v. UOP Inc.) ().  In the case of Enron, its complex financial structure is impounded in the share price because certain banks colluded in meeting the financial targets of the firm (2006).  These banks intensify the complexity of how Enron’s reports are prepared that tagged the former as “problem solvers”.  In effect, the efficient market hypothesis (EMH) semi-strong form () did not hold due to the fact that financial intermediaries that should have evaluated and restricted Enron in its doings are tolerated and even supported.  Thus, new information that should have change the decision of the market as well as the share price did not take place.                   Secondly, off-balance sheet (OBS) entities formed its part to distort share price as Enron misuse the good side of such legal provision which primarily aims to aid corporations to finance ventures (2002).  As a result, EHM strong-form did not emerged in share price adjustment due to insider agreements within the firm ().  If only Enron did not overuse the socio-economic spirit of OBS, the market may not erred in interpreting the corporation’s financial reports.  In fact, OBS gave Enron high rating evaluation from rating agencies ( 2002).  OBS entities are bounded for special purpose like access to capital and hedge risk available for Enron transforming its return on assets (ROA) and leverage looks excessively profitable and “on-boom”.  The company abused OBS opportunity that ultimately led to its removal and the introduction of more stringent GAAP codes and other related laws (2002).                         Perhaps, one of the biggest obstacles for EMH application (2003 ), the lack of disclosure of its financial and corporate reports helped Enron to skip from the market’s conservative analysis.  This is because Enron failed to explain to shareholders among others factors that may affect their stake in the company like the complex financial structure or excessive OBS entities.  These are methods and communications which do not have numerical/ financial equivalents that can suit to financial reports.  Nevertheless, the firm’s Annual Report should have reflected them but  (2002) commented in its 2000 Annual Report that the content had “spectacle presentation of characters and dialogs”.  In effect, users of such reports (ultimately, consists the market for the firm’s shares) had unknowingly disrupted semi-strong and strong EMH.  However, the weak-form have been excluded as excess returns earned based on financial data have no bearing ().                            The independent audit that should have been provided by the facility between Andersen and Enron also prevented EMH especially the weak-form as the inclusion of fundamental analysis can create excesses returns ().  The inability of the market to picture how auditors evaluated and authenticated Enron reports took them away from such analysis.  This situation would not greatly distort share price, however, collusion existed between the client and the auditor that led to third party certification that was limited to compromised agreements of both parties ( 2003).  As a result, even the semi-strong and strong EMH were adversely affected.  Obviously, the public including the shareholders did not have audit dependence hints and information that would have impeded price escalation of Enron’s stocks due to positive (although, misguided) future outlook.  One such evidence that proved the vitality of client-auditor independence was the declaration of Sarbanes-Oxley Act of 2002 (2005).  According to (2001), the restriction will offer investors with financial information from a publicly-listed firm that has reliability and integrity.    Implications of EMH Failure to Capital Market Research              The historic Great Depression and Enron collapse are two cases in two different times that proved that EMH failure will not be discovered and addressed until adverse effects to stakeholders are at peak.  This calls for a pro-active approach in conducting capital market research in which the endeavor should be infused even if obvious effects are yet to emerge.  The more stringent policies may defer and discourage Enron-like firms temporarily but pro-activity to determine the culprit (client alone) or culprits (client plus auditor) is conceded to have its strategic merits for capital suppliers.  Every potential and existing shareholders and creditors are now bound to get all the help they need from financial advisors, government and peers to secure their funds to entities that have at least a sprinkle of EMH or some degree of the weak-form.  Otherwise, their investment can be easily diluted by the market and/ or the entity without even imploring some contingent measures.  In simple terms, they will lose the battle without pulling out their swords and shields.               Being in chorus to the behavior of a certain financial market proved to be beneficial and less complicated for shareholders.  The case of Great Depression and Enron is not an everyday case while the general pulse of market participants is oftentimes correct and profitable.  However, there are several factors to consider when shareholders will completely give their trust and relate investment options to the capital markets.  For example, the efficiency of stock exchanges in which corporate shares is traded out of their traditional operations.  In economics, the role of the stock market is merely to provide a venue in which demanders and suppliers of capital can meet (1965).  Today, this venue becomes complicated due to brokers and traders, regulation from the government and involvement of foreign firms and investors as well as complexity and uncertainty of the environment.                For example, the London Stock Exchange had abolished Big Bang scheme that led to de-motivated independent brokers and conversely allowing entities to have their own dealers (1999).  In effect, the exchange can fail to limit the marketing campaigns private brokers can use to attract investors.  As Enron primarily utilized the lack of corporate disclosure and insider trading to obtain its objective, this situation can mimic the manipulative feature by misleading promises and bias advises.  In addition, the abolishment can hinder broker efforts (both private and independent) to seek markets diligently due to their “focused” clients that can ultimately limit the flow of capital in the economy.  Limiting the access to capital and interested borrower stimulates as well aggravates the inclination of firms to implement actions that continuously mitigate the functions and invisible hand of EMH.  Another Enron or perhaps Great Depression can follow in the coming years.  Asymmetrical Information               According to , asymmetrical information is a condition when one party in a transaction has a more substantial and relevant information than the other party.  In this case, it is likely that the former party will have higher bargaining power throughout the transaction until the latter discovers the error or default in the agreement.  When applied in the corporate setting, the theory of the separation of ownership and management can illustrate this case.  The theory states that investors have an indirect access to inside information with regards to the real corporate value compared to directly managing executives (2002).  As observed, investors can be applied with management tactics to raise self-vested interests of executives.  Traditionally, the latter opt to sell and issue shares when the firm is overvalued as well as the investors are unaware of such condition.  However, this dogma had long been discovered by the market.  as such, investors repel this executive behavior by revaluing their shares causing a negative market reaction.  In the end, the management could not maximize the traditional tactic due to unfolded information of its significance to investors.                 The supposedly first stage of the collapse of Enron was derived from Skilling drastic imposition of rigid and hostile retention scheme (2002).  This is a condition of moral hazard (1999).  Before  took the post of Division Manager, former employees have symmetric information with the firm regarding their worth.  However, when  tackled human resource issues, he tried to abort loyal but change-averse staffs with master-level and doctorate degree holders without full disclosure of the plan so that former staffs have adjusted their work ethics accordingly.  In a different case, the unethical accounting practice of Fastow and his collusion with  auditors is an information asymmetry under signaling (2002;1999).  The victims are the shareholders unknowingly handed by non-transparent corporate and financial reports.   and  signaled to each other about the hidden action which transformed shareholders as one having asymmetric data from the start of the contract.               Information asymmetry to employees was regarded as the first dark stages of Enron collapse because staff resistance to change is one of the top causes of failure of major corporate changes (2002).  Skilling, who had substantial experience as financial advisor, undermined human resources when it insisted to be hostile on them.  Without loyal employees, quality management is adversely affected because highly-qualified but new employees are neither capable nor motivated in conforming to the new methods under Skilling culture. This scenario may have been integrative-planned by  and  to limit the size of familiar employees to minimize their unethical exposure.  At this point, Enron was not looking strategically rather financially.  The incomplete information staffs would have been received (like the transition to highly-qualified and scholarly recruits) sparkled the negative atmosphere throughout the organization.  It ultimately impeded cultural cohesion and deepened the opportunity of higher executives to execute their self-vested practices.             On the other hand, information asymmetry to investors as well as rating agencies led to unguided substantial investments.  This formed the foundation for the fame and fortune of Enron to emerge.  Although signaling is primarily evident to investors that purchase stocks or those who increase their holdings under Andersen regime, moral hazard can be more appropriately tagged to initial investors of the company way back in 1980s.  The loophole of this practice by colluding parties, however, is that the huge amount of stakes that used to support the firm’s operations, stock attractiveness and continuity of the unethical practices made them very crucial to the existence of Enron.  As a result, when the scandal cropped up in the offing of the new millennium, the firm had faced not a gradual demise rather instant shutdown.    Option Grants Under opportunistic perspective, the economic incentives of Enron can vary depending if they opt to engage in fraud or take risks with regards issuing options.  The perspective is an accounting policy used by an organization that is based on manger’s incentives to increase their wealth; however, this will be shouldered by other parties within and beyond the organization ( 1997).  When they employ fraud, they can manipulate accounting methods providing a tampered profits and performance ratios.  According to the survey of  (1997), most managers are remunerated from the profits or ROA of their respective firms.  In effect, executives will not only impress employees to undergo option grants but as well impress the investors to provide higher incentives believing that the firm is doing well.    Further, (1987) showed that restrictive covenants formed by corporate debts are surmountable by fraud to improve accounting numbers.  The process will begin after executives have manipulated financial ratios permissible to the constraints of creditors.  In effect, the firm can enjoy strategic actions it cannot implore when the manipulation did not take place.  In return, the firm can implement strategies that will ultimately lead to profitability and growth in either prospective or actual sense.  When this information is delivered to employees, they will think that stock options are attractive investments.  They will purchase stocks unknowing that they are merely funding the efforts of executives to conceal mismanagement or possible bankruptcy.  As a result, executives are rewarded two-fold.  They can manage the firm with the support of creditors and implementing strategies with employees in full support due to the stock options the latter is currently holding.  The cover-up ultimately leads effective fraud on the part of executive whose incentives goes beyond remuneration rather long-term employment, promotion and fame within the industry.                         In a similar case, political groups can impede strategic actions of the firm if it reports high earnings or disclose issues pertaining to adverse external effects of their operations (1997).  The government may impose tax sanctions or legal remedies on tax evasion while environmental groups can boycott its products when informed about negative externalities (like oil spills).  These situations have their adverse impacts in both short-term and long-term existence of the company.  In effect, fraud to accounting methods can result to lack of disclosure and computational manipulation to arrive at a standard level of accounting reports.  This is why the study of  and  (1996) found that firms with environmental disclosures still used them for corporate image building.  As a result, similar to the benefits of corporate ability to bypass creditor restrictions, the firm can induce its strong business outlook to employees deepening the need of the later to resort to option grants.  Executives can distort the likelihood of disruptions from external actors from a major mental lapse in decision-making through designing accounting methods that can hinder such mistake.                   On the other hand, under efficiency perspective, the efficiency of the contracting parties or transactions at hand is pursued to end at a minimum agency cost.   According to  (1999) accounting alternatives are adopted by executives because it reflects the underlying and true performance of corporate assets ().  This makes fraud selection for executives ineffective, if not, legally impaired.  In this case, risk taking is the more strategic choice for executives to maximize their incentives.  For example, there are different methods to compute for depreciation or amortization.  When this will be related to stock options, executives have minimal control over the options due to the absence of fraud.  In effect, it is left to accept the repercussions of the market.  Although this is ambiguous making a less enthusiastic employee to involve their investment in options, this can be an effective mechanism keep employees and executives “unattached” to corporate performance.                Due to this, executives will not be pressured to take unethical accounting practices.  One incentive of this is that employees may see the worth of their executives that can induce corporate cohesion.  By doing so, executives can freely implement their strategies and run the organization more smoothly.  Though this, they can rip the benefits of fraud tactics through similar economic benefits plus the recognition they can derive from complimenting and idolizing employees.  They can extend affect their investment decision in the long-run which inevitably acquire employee’s trust.  By this time, executives can opt to apply fraudulent actions as they wish.  Another incentive is that accounting best practice can be awarded to the company by external actors as well as investors. In effect, executives can go away from unethical practices and manipulation that can minimize the costs of hiring additional skilled accountants and the cost of “greasing” to auditors, politicians and other colluding parties.    Conclusion               There are a number of learning contemporary firms should adapt from the experience of Enron.  One is of the most plausible learning is voluntary disclosure.  This can be the most problematic and confidential of all administrative tasks as it is directly related to strategy and structure a firm has.  The procedure can also aggravate the position of executives and the firm itself.  However, users of corporate information are not demanding the whole truth rather the relevant ones.  White lies do exist but abuse of this angelic-cloak to evil makes the cloak immaterial with regards to the excessiveness of evil.  As discussed in the earlier topic, stock price does not readily emit the effects of unethical accounting practice.  In effect, to prevent over-speculation and omission of EMH, the firm should disclose change in accounting policies for user reference not only for awards sake but for maintaining is strategic position in an efficient capital market.  Voluntary disclosure can also positively impact the distorting effects of information asymmetry to corporate results and relations.  Employees and shareholders can have some level of open communication with executives that can minimize resistance to change and support for growth and strategies.  Executives can be seen as good shepherds and would be awarded accordingly.  This admonition is reflected by the dual benefits of executives (that is, both monetary and non-monetary) when efficiency perspective is adapted as a strategic framework not merely on employee stock options but more importantly on managerial planning and implementation.                                                                                                                                                                           Credit:ivythesis.typepad.com

The truth behind Enron’s collapse

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PROSPECTIVE PAYMENT SYSTEM

PROSPECTIVE PAYMENT SYSTEM

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Particular Common Law

This paper will try to discuss and state a specific aspect of common law which is the duty of care. It will try to assess and to view the different features and characteristics of the duty of care and how it is applied to a particular situation.  It will try to identify and emphasize the different viewpoint that this particular common law advocates.             The situation and facts of the case are these. Robert had been asked by his next door neighbor, Edgar, to help clear Edgar’s garden. This work required him to use dangerous equipment such as a chainsaw and powerful chemical weed killers. Robert was working in the garden clearing a patch of ground that had become a wilderness. He told Edgar’s 6-year-old son, James, to keep away from the area. Unfortunately, whilst Robert was having his lunch, James went into the area that had been treated with weed killer and fell over a pile of rubbish, landing with one hand in the weed killer. James developed severe burns to his hand. Edgar was furious about what ad happened to his son and stormed into the garden to have words with Robert. Robert was using the chainsaw at the time and did not hear Edgar approaching and Edgar tapped Robert on the shoulder and Robert swung round in surprise, catching Edgar with the chainsaw and cutting off Edgar’s hand.             The vital questions that must be asked in this case is, does Robert owe and breached a duty of care to Edgar and the legal implications surrounding the damages that was sustained by Edgar. Before explaining and answering these questions a proper rationalization on the rule of law must be made.             In tort law, a duty of care is a legal obligation imposed on an individual requiring that they exercise a reasonable standard of care while performing any acts that could foreseeable harm others. For an action in negligence, there must be an identified duty of care in law. Duty of care may be considered a formalization of the implicit responsibilities held by an individual towards another individual within society. It is not a requirement that a duty of care be defined by law, but it will often evolve through the jurisprudence of common law. Individuals who are considered to be professionals within society are often held to a higher standard of care than those who are not. Engineers and doctors will be held to reasonable standards for members of their profession, rather than those of the general public in cases related to their fields. Breach of duty of care, if resulting in an injury, may subject an individual to liability in tort. Duty of care is an important prerequisite in the tort of negligence, as the duty of care must exist and must have been breached for the tort to occur. Important cases have been tried and decided by different levels of the judiciary that makes the exact definition and the legal explanation regarding the subject of duty of care. These decisions and cases are tried to further define and to characterize the aspect and the nature of the phrase duty of care. These decisions are also significant since they provide the jurisprudence and the outline for other cases that touches the same topic which is duty of care. Among the cases that full explain and central to the idea of duty of care is the case titled Donoghue v Stevenson. DUTY OF CARE Donoghue v. Stevenson is a famous House of Lords case in the area of delict and tort law. From this case springs the core principle of the modern law of negligence and duty of care. It establishes a principle that has guided the courts to this day, and places the notion of a duty of care at the heart of the law of negligence.  A duty of care is a term that the courts will use to determine whether the defendant is liable. It is only one factor that the courts will consider, but it will be the first question that the courts will ask. The case is perhaps most well known for the speech of Lord Atkin and his ‘Neighbor’s Principle’ where he applied Luke 10 of the Bible to law. The practical effect of this case was to provide individuals with a remedy against suppliers of consumer products, even if they did not have a contract with them. The case, brought under Scots law, did not technically bind England, but nonetheless, due to the commonality between the Scots civil system and the English common law, the principle has since been adopted across the United Kingdom and elsewhere in the world.  In 1990 in England the House of Lords restated the ‘Neighbor Principle’ of Lord Atkins to take account of public policy In this case, May Donoghue alleged that she drank some of the contents of a bottle of ginger beer manufactured by the respondent. When a friend of Ms. Donoghue poured the content of the bottle, they saw a rotting snail on their beer. As a result, May Donoghue allegedly suffered shock and severe gastroenteritis. Because of her injuries and the pain that she suffered she sued the respondent. In Donoghue v. Stevenson Lord Atkins stated the now famous “Neighbor Principle” with regards to the proper interpretation of the duty of case. Lord Atkin’s statement about the foreseeability of the effects of one’s acts on one’s neighbours is central to the existence of a duty of care in the law of tort/delict, especially on the then developing nascent tort/delict of negligence. In this judgement he formulates what is commonly known as the “neighbour principle”. In this legal principle he declared that; …there must be, and is, some general conception of relations giving rise to a duty of care, of which the particular cases found in the books are but instances. … The rule that you are to love your neighbor becomes in law you must not injure your neighbor; and the lawyer’s question: Who is my neighbor? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbor. Who, then, in law, is my neighbor? The answer seems to be — persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions that are called in question. In Donoghue v. Stevenson Lord Macmillan meanwhile asserted that ‘the categories of negligence are never closed’, in the sense that the courts possess the power to create new duty situations expanding the area of liability.  In this case, Lord Atkin’s formulation of the ‘neighbor principle’ was not qualified by reference to particular kinds of loss nor to the distinction between acts and omissions. Subsequent courts however, interpreting the Donoghue opinions, soon came to the conclusion that their scope was limited to personal injury and damage to property.  The broad ‘neighbor principle’ was treated as an obiter dictum, with the ratio limited to the particular case of the duty owed by a manufacturer to an ultimate consumer. Lord Oliver further explained, that the discussion of duty of care should be located by reference to specific areas of liability such as negligent misstatements, the distinction between acts and omissions, liability for the acts of third parties, and the exercise of statutory duties and powers which represent the outermost boundaries of liability. After Donoghue v. Stevenson, the law recognized a general duty of care protecting the personal safety and health and tangible property interests of an individual. Liability for physical harm caused by negligent misstatements is now well established as part of the Donoghue duty. The general duty may, however, be qualified in relation to certain types of plaintiff, such as trespassers, or may be specially extended to cover deserving claims such as those of rescuers. Certain defendants, such as public authorities and others serving the collective interest may benefit from a qualified immunity in respect of physical harm. The limited nature of liability for omissions also affects the protection accorded to physical interests.  Finally, it must be remembered that, despite the existence of a general duty of care, claims for compensation for physical loss may be limited by other considerations such as remoteness and causation as well as by the manner in which damages for loss are calculated in different cases.  REMOTENESS OF DAMAGES                         The purpose of the rules about remote damages is to prevent somebody who is in breach of a duty, be it delictual or contractual, to be held liable indefinitely and without any limitations for any and all harmful consequences that arise from his breach of duty.  Before looking in detail at the theoretical approach to remote damages as a method of seeing this, it seems useful to point out a few related issues to better understand the concept. The issue of remote damages can arise not only in the context of delictual liability, but anywhere in the legal system where a liability for damages can arise. Besides in delict this would be in contract. In both delict and contract generally the pursuer must not only show that the defender’s action caused the damages he suffered, but in addition he must also prove that these damages are not too remote. However, because of the different nature of contractual and delictual duties, the rules about the remoteness of damages are different in delict and contract. Basically, there are different tests in the law of delict and the law of contract in order to determine the sufficient remoteness of the damages in question. In this portion only the rules about remote damages in delict will be discussed.                 In order to receive damages, the pursuer has to show the chain of causation. This consists of two individual steps: There has to be a causal connection between the defender’s original conduct and the injury suffered as a consequence thereof, as well as between the caused harm and the losses arising out of it.  In each of those two steps the question of remoteness can arise. In addition to the factual causation, the necessary proximity between original conduct and injury respectively injury and loss has to be established.             If an injury is too remote to be legally connected with the defendant’s original conduct, as a consequence the defendant cannot be held liable at all. The concept of remoteness of injuries is therefore used to determine the existence of any liability on the part of the defender. Contrary to this, remoteness of damage is concerned with the extent of liability once it has been established. The more recent literature seemingly does not consider the concepts of remoteness of injury and remoteness of damage to be necessarily connected. The problem of remote injuries now obviously is sometimes seen as an aspect of the delictual duty of care.                        Although there is unanimous agreement on the fact that damages do not only have to be causally connected but also must not be too remote from the injury, there are different opinions on how it should be determined if a damage actually is too remote to be recovered from the defender.  The most commonly cited classical authority in determining the remoteness of damages is the Obiter Dictum by Lord Kinloch. He states that:. …the grand rule on the subject of damages is, that none can be claimed except such as naturally and directly arise out of the wrong done; and such, therefore, as may reasonably be supposed to have been in the view of the wrongdoer. Lord Kinloch’s statement suggests a direct and natural consequences test, whereas in the end it introduces the reasonable foresight of the defender as a criterion for determining the remoteness of damage. Therefore Lord Kinloch has actually referred to a series of test of tests that that will determine the remoteness and extend of damages or injuries. When the damages and injuries have been measured and assessed, the defendant through the orders of the courts has to pay the offended party for the damages that he/she had caused. Damages and compensations are awarded by the court to restore the plaintiff to the pre tort position.  Personal injury and property damage may both have economic consequences. A person who sustains an injury may lose not simply the use of a limb but also the earning capacity which goes with it. He will receive compensation for loss of future earnings as well as for loss of the limb and facility in question.  As far as property damage is concerned, the courts will have primary regard to the market value of the property in question when assessing compensation for its loss. In these cases the law of tort provides compensation for economic losses arising directly out of physical loss Damages are classified as physical harm and damage to property and pure economic loss. Economic loss is further categorized as liability for negligent misstatement, negligence in the performance of a service, economic loss arising from defects in building and products and relational loss arising from damages to the property of a third party. In the situation presented in the beginning of this paper, Robert owe a duty of care to Edgar in the scenario since he is inside the premise of Edgar’s property and he is working and dealing with harmful chemicals and dangerous equipments. Duty of care also exists on Robert since he was asked by Edgar to help clean the garden. Because of this duty of care, Robert must exhibit the a standard of care wherein every aspects of his work does not compromise and endanger Edgar and other individuals. In the circumstances that followed Robert was clearly in breach of the duty of care that is mentioned. First, he since he was working with chemicals namely the weed killer, he did not foresee that leaving a weed killer can do damage and injure someone, in this case, the son of Edgar. He was also negligent with regards to the circumstances on how the son of Edgar came into contact with the weed killer. Aside from carelessly leaving the weed killer without proper precaution and prudence he also neglectfully failed to clean up the a pile of rubbish causing the son to fell over. Another breach of the mentioned duty of care in the part of Robert is the accidental injury suffered by Edgar when he was injured by the chainsaw being used by the defendant causing the amputation of the hands of the latter. On the part of Robert, care must be properly observed in handling and using dangerous equipments such as a chainsaw. A standard of care should be implemented by Robert when he is using the chainsaw. When he injured Edgar he is negligent and careless since he immediately turned around without properly assessing the situation around him. It can be argued that Robert did not exhibit the proper caution and vigilance that is necessary in his part. With regards to the injury suffered by Edgar, he must be justly compensated for the damages that he endured. Compensations and monetary reparation must be made using factors such as loss of income and competitive advantages that his work would bring since he had lost the use of one of his arms due to the injury. Plaintiff can also be entitled for the loss of enjoyment of life, pain, suffering and embarrassment brought about by the accident. The court can also award money to give the plaintiff an alternative gratification equivalent to the lost of a main body part, namely the hand. Lastly damages can also be sought by Edgar with regards to the hospital bills, medicines and other expenses related to the treatment of his injuries.               Credit:ivythesis.typepad.com

Particular Common Law

This paper will try to discuss and state a specific aspect of common law which is the duty of care. It will try to assess and to view the...