Corporate Governance in Australia After Hih Essay Example for Free

Corporate Governance in Australia After Hih Essay In the light of various corporate scandals, regulatory bodies and corporate governance were placed under pressure by shareholders and stakeholders to form a tighter grip in governing corporation’s conduct. The obligations, roles and responsibilities of company’s stewards are under scrutiny of Corporations Act, listing rules, country’s code of corporate governance, ethics as well as social standards. At the same time, advocates of market forces as a replacement to regulations and legislation continue to pursue for market deregulation and liberalisation based on the believe that government intervention will only distort resources allocation and hinder market growth. The collapse of Australian company HIH Insurance Ltd (HIH) in 2001 was analysed in terms of its conduct and compliance to the Corporations Act, listing rules as well as code of corporate governance as released by the Australian Securities Exchange (ASX) Corporate Governance Council (CGC). Reforms in regulations and the Corporate Governance Principles and Recommendations 2007 by ASX CGC were used to recommend best practices in corporate governance that should have taken place in HIH. Lastly, the effect of globalization and challenges to good corporate governance resulting from globalization were discussed from the perspective of national government, regulatory bodies as well as the corporation itself. Justice Neville Owen, The Royal Commissioner in the HIH Royal Commission Report described corporate governance as the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations, and the Australian Securities Exchange (ASX) Corporate Governance Council added that corporate governance relates to and influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimized (The HIH Royal Commission, 2003; ASX Corporate Governance Council, 2007). The meaning of corporate governance has evolved over time but, in the strictest sense, is linked to the legislation that allows its existence. The law sets forth a company’s rights and responsibilities but this can differ from country to country. However, it is generally accepted that corporate governance extends beyond the law to include a consideration of best practices and business ethics (Birt, Chalmers, Beal, Brooks, Byrne, Oliver, 2008). The structure of corporate governance as put forth by Farrar (2005) and represented in the figure below illustrates the relationship within the corporate governance structure: Figure: The structure of corporate governance (Farrar, 2005). The issues surrounding the rights and responsibilities of corporations are complex and ever changing as financial markets become more global, corporations become larger and more powerful, and society’s perception of the corporate role changes. A school of thoughts advocates for market forces to be the regulator of the financial market. The neo? liberals assume that factor markets work efficiently without government intervention if property rights and competition are guaranteed. They considered government interventions as less efficient than market? based solutions and stresses that government interventions hamper private sector development and that government should concentrate on improving the enabling of business environment through deregulation (Emeseh, Ako, Okonmah, Obokoh, Ogechukwu, 2010). Neo-liberalism challenges the conventional structuralist orthodoxy of government intervention by highlighting the negative effects of â€Å"financial repression† on economic growth and development. They refer financial repression to be the set of government legal restrictions preventing financial intermediaries in the economy from functioning at their full capacity. The distortion of domestic financial markets through rules and legislation is claimed to have negative impact on economic growth. In essence, corporations should be relied on in the main to self? regulate in the critical aspect of business activities. Neo-liberalism has prompted many countries to implement liberalisation and deregulation of their financial markets on the recommendations of the World Bank and IMF (Emeseh, Ako, Okonmah, Obokoh, Ogechukwu, 2010). The significant role of market forces in contributing to good corporate governance and strong corporate performance has for some time been emphasised in economic literature on the corporation and corporate law. In fact, advocates consider the influence of market forces to be an effective substitute for formal legal regulation (duPlessis, McConvill, Bagaric, 2005). However, through-out the last two decades, legislation reforms and corporate governance has also grown rapidly, particularly since the collapse of Enron Corporation in 2001 and the subsequent financial problems of other companies in various countries. As financial scandals continue to emerge, there will be continued attention placed on corporate governance issues, especially relating to transparency and disclosure, control and accountability, and the most appropriate form of board structure that may be capable of preventing such scandals occurring in future (Mallin, 2007). In pursuance of good corporate governance, an area of interest would be how directors’ conduct and decisions should be in the best interest of the company, its shareholders and other relevant stakeholders. In this context, the agency theory is a very suitable framework that can describe the problems associated with the principal-agent relationship caused by separation of ownership and control between shareholders (the principal) and directors (the agent) in corporations. Information asymmetry, moral hazard, difference in attitude towards risk and difference in interest between shareholders versus directors are common agency problems that would usually be at the expense of shareholders (Mallin, 2007; Rahman, Salim, 2010). For example, directors may have a wider range of economic and social needs (such as to maximize compensation, security, status and to boost their own reputation), while shareholders are interested only in maximizing return on investments. Furthermore, as directors are usually contracted to the company on short term basis, they may be eager for short-run payoffs within their contract term, whereas shareholders’ interest would be based on long-term success. Australian companies have a unitary board structure and the regulatory framework for corporate governance and directors’ duties is governed by (i) Statute (notably the Corporations Act), (ii) Common law rules (for example, cases relating to directors’ duties), (iii) The company’s constitution, and (iv) Guidelines issued by the Australian Securities and Investments Commission (ASIC) (Dibbs Barker Gosling Lawyers, 2003). ASIC plays a vital role in enforcing and regulating company and financial services laws to protect Australian consumers, investors and creditors. It acts as Australias corporate regulator and administers various legislations including the Corporations Act 2001, Australian Securities and Investments Commission Act 2001, etc. (Australian Securities ; Investments Commission, 2010a). By the Corporations Act, general duties imposed on directors and officers of companies are stated as (i) the duty to exercise their powers and duties with the care and diligence that a reasonable person would have which includes taking steps to ensure they are properly informed about the financial position of the company and ensuring the company doesn’t trade if it is insolvent, (ii) the duty to exercise their powers and duties in good faith in the best interests of the company and for a proper purpose, (iii) the duty not to improperly use their position to gain an advantage for themselves or someone else, or to cause detriment to the company, and (iv) the duty not to improperly use information obtained through their position to gain an advantage for themselves or someone else, or to cause detriment to the company (Australian Securities ; Investments Commission, 2010b). Beyond their legal duties and obligations, directors are also expected to meet commercial expectations in th e interest of stakeholders, which include, but are not limited to, shareholders. These commercial expectations essentially require directors to drive the bottom line and provide appropriate shareholder returns. Taking it a step further, many directors of today are challenged to embrace triple bottom line reporting and consider the economic, social and environmental ramifications of their corporate activities (Lucy, 2006). While the scope and laws governing the conduct of directors are wide and many, intentional and unintentional breach has shocked the financial market and public numerously. Till today, HIH Insurance Ltd (HIH) that went into liquidation in early 2001 is well remembered by almost every Australian as a collapse caused by mismanagement of the company, and various board members were brought to court on charges including giving misleading information with the intention of deceiving other board members and the company’s auditor. As one of Australia’s largest insurers, the company ran into debts of over AUD$5 billion and subsequent to the collapse, the government carried out an expensive exercise to underwrite many of the failed policies (Mallin, 2007). According to the HIH Royal Commission Report on the failure of HIH, it was concluded that investigators did not find fraud or embezzlement to be behind the collapse. The failure was more the result of attempts to paper over the cracks caused by over-priced acquisitions (notably FAI Insurance Ltd) and too much corporate extravagance based on a misconception that the money was there in the business. The primary reason for the huge loses was that adequate provision had not been made for insurance claims and past claims on policies had not been properly priced. HIH was mismanaged in the area of its core business activity (Bailey, 2003). In chorus, the HIH Royal Commission report fundamentally states that the main reasons for the failure of HIH was poor management and greed characterised by (i) a lack of attention to detail and skills, (ii) a lack of accountability for performance, and (iii) a lack of integrity in the companys internal processes and systems (Nicholson, 2008). Justice Neville Owen further commented in the report on what was the essence of good corporate governance: The governance of a public company should be about stewardship. Those in control have a duty to act in the best interests of the company. They must use the companys resources productively. They must understand that those resources are not personal property. The last years of HIH were marked by poor leadership and inept management. Indeed, an attitude of apparent indifference to, or deliberate disregard of, the companys underlying problems pervades the affairs of the group. † (The HIH Royal Commission, 2003). The above comment can be loosely translated to say that the directors of HIH have failed their duties. Notably, in April 2005, Mr Ray Williams, the former Chief Executive Officer (CEO) of HIH, was sentenced to four-and-a-half years’ jail with a non-parole period of two years and nine months. Mr William’s sentencing follows ASIC’s successful civil penalty proceedings on the three criminal charges which Mr. William pleaded guilty to. The three criminal charges were (i) that he was reckless and failed to properly exercise his powers and discharge his duties for a proper purpose as a director of HIH Insurance Limited when, on 19 October 2000, he signed a letter that was misleading, (ii) that he authorised the issue of a prospectus by HIH on 26 October 1998 that contained a material omission, and (iii) that he made or authorised a statement in the 1998-99 Annual Report, which he knew to be misleading, that overstated the operating profit before abnormal items and income tax by $92. 4 million (Australian Securities Investments Commission, 2005a). ASIC’s HIH investigation also led to criminal prosecutions of 9 other former senior executives, including directors of FAI, HIH and associated entities on 31 Corporations and Crimes Act charges. Of high public interest was Mr Rodney Adler, a former director of HIH and the majority owner of FAI was sentenced to four-and-a-half years’ jail, with a non-parole period of two-and-a-half years, on four charges arising from his conduct as a director of the HIH group of companies in 2000. ASIC’s chairman, Mr Jeffrey Lucy, in his public statement said, â€Å"Mr Adler was in a position of trust as a director of HIH but he put his own financial interests before the interests of HIH shareholders† (Australian Securities Investments Commission, 2005b). Mr Adler was sentenced after pleading guilty to four criminal charges: (i) two counts of disseminating information on 19 and 20 June respectively, knowing it was false in a material particular and which was likely to induce the purchase by other persons of shares in HIH contrary to s999 Corporations Act 2001, (ii) one count of obtaining money by false or misleading statements, contrary to s178BB Crimes Act 1900 (NSW), and (iii) one count of being intentionally dishonest and failing to discharge his duties as a director of HIH in good faith and in the best interests of that company contrary to s184(1)(b) Corporations Act 2001 (Australian Securities Investments Commission, 2005b). HIH’s disastrous business ventures in U. K. , U. S. , acquisition of FAI Insurance Ltd. nd the Allianz joint venture were identified as what ultimately brought HIH down. These instances of poor decision-making were caused by and reflect a poor corporate governance culture. Corporate governance issues identified included (i) an over-dominant CEO whose decisions were never questioned, (ii) an ineffective chairman who failed his responsibility to oversee the functioning of the board, (iii) an ineffective board who failed to grasp the concept of conflicts of interest, and was unable to monitor and does not question management performance, (iv) inappropriate conduct in remuneration setting and performance measurement (mostly made by Mr. Williams who, although not a member of the committee, attended all meetings by invitation), (v) an ineffective audit committee who showed no concern with risk management and internal control, and (vi) compromised auditor independence (the auditing company was Arthur Andersen and HIH’s board had three former Andersens partners one of them was the chair of the board yet continued receiving fees under a consultancy agreement. Andersens also derived significant fees from non-audit work which gave rise to a conflict of interest with their audit obligations) (Lipton, 2003). Subsequent to HIH’s collapse, The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (commonly known as ‘CLERP 9’) came into force on 1 July 2004. CLERP 9 incorporated a number of recommendations made in the HIH Royal Commission Report. Reforms were made relating to (i) disclosure of directors’ remuneration, (ii) financial reporting, (iii) auditors i ndependence, (iv) continuous disclosure, and (v) enhanced penalty provisions. CLERP 9 also deals with accounting standards, expensing of options, compliance controls, and encouragement of greater shareholder participation at meeting – all of which represents a significant development in the corporate law framework (Deloitte Touche Tohmatsu, 2005; Alcoc, Bicego, 2003). Prior to CLERP 9 coming into force, advocates of corporate governance were delighted with Australian Stock Exchange Limited (ASX) release of the â€Å"ASX Corporate Governance Councils (CGC) Principles of Good Corporate Governance and Best Practice Recommendations† in March 2003. ASX CGC adopted the same principles based approach as taken in the UK Combined Code which governs entities listed on the London Stock Exchange. ASX listed entities are at liberty not to comply with the recommendations, but if they do not, they must explain why not. The Guidelines were built on the belief that one size does not fit all companies. The Guidelines contained 10 essential Corporate Governance Principles (Principles) and 28 Best Practice Recommendations (Recommendations) which was later revised in August 2007 as â€Å"Corporate Governance Principles and Recommendations† (Guidelines) comprising of 8 Principles and 26 Recommendations (Farrell, Harding, ; Spilsbury, 2003). The Guidelines also reflect ASX CGC’s emphasis in continuous disclosure by listed companies. Each Principle has a Guide to reporting about the Recommendations at the end of the chapter discussing what should be disclosed and where. Under ASX Listing Rule 4. 10. 3, companies are required to provide a statement in their annual report, disclosing the extent to which they have followed the Recommendations in the reporting period. Where companies have not followed all the Recommendations, they must identify the Recommendations that have not been followed and give reasons for not following them – the â€Å"if not, why not† approach (ASX Corporate Governance Council, 2007). In relation to HIH’s case, a number of the Guidelines’ Principles provide fairly extensive coverage of corporate governance issues identified in HIH earlier. Principle 1 highlights the need for companies to establish and disclose the respective roles and responsibilities of the board and management. In the 2007 edition, the Guidelines added the Recommendation 1. 2 for companies to disclose the process for evaluating the performance of senior executives (ASX Corporate Governance Council, 2007). This Principle serves to provide disclosure in relation to HIH’s situation of an over-dominant CEO and ineffective chairman and board. Where HIH was highlighted to have a board that was ineffective and failed its duties, Principle 2 states that companies need to structure the board to add value with an effective composition, size and commitment to adequately discharge its responsibilities and duties. Recommendations in the principle placed importance in having a majority of the board and the chairman being independent directors to ensure independence in board decisions and prevent conflict of interest. Recommendation 2. 4 suggests that companies should establish a nomination committee to ensure appropriate selection and appointment practices in the company. This Recommendation also provides resolution in relation to HIH’s case whereby the board was mostly made up of directors hired by Mr. William, including the former Andersen partners. In the 2007 edition, the Guidelines added the Recommendation 2. 5 for companies to disclose the process for evaluating the performance of the board, its committees and individual directors (previously this was part of Principle 8 in the 2003 edition, titled â€Å"encourage enhance performance†). This Recommendation helps to ensure directors are given access to continuing education to update and enhance their skills and knowledge that are necessary in performing their duties (ASX Corporate Governance Council, 2007). Principle 3 discusses how companies should promote ethical and responsible decision-making. Beyond legal obligations, directors are expected to make decisions that satisfy not only the company’s shareholders but other stakeholders as well (this principal includes amalgamation from Principle 10 of the 2003 edition Guidelines which was to â€Å"recognize the legitimate interests of stakeholders†). To achieve this, Recommendation 3. 1 encourages companies to establish and disclose their code of conduct pertaining to integrity practices, legal practices and handling of unethical practices. Aligned with this, Recommendation 3. 2 promotes the establishment and disclosure of company’s policy concerning trading in company securities by directors, senior executives and employees (ASX Corporate Governance Council, 2007). Relating to Principle 3 and Principle 7 titled â€Å"recognize and manage risk†, HIH has been considerably questioned of its various business decisions, mostly of which contributed to huge loses and ultimately the company’s insolvency. Criticized decisions made by the company are many, and on top of the list include (i) the acquisition of FAI Insurance (majority-owned by Mr. Adler who later became a member of HIH’s board of directors) for A$300 million which FAI was later estimated to be worth just A$100 million, (ii) re-entering the California market in 1998 and failure to take the difficult decision to exit the market when it proved unprofitable, and (iii) the decision to enter a sector (insurance and re-insurance of film-financing) that has proved problematic for many market participants in London (Cagan, 2001). The lack of risk management within HIH was apparent and Mr. Adler’s unethical conduct was evident with his imprisonment. In view of the importance of risk management, Recommendation 7. 1 urges companies to establish policies for the over sight and management of material business risks (that is financial risks and non-financial risks) and disclose a summary of those policies while Recommendation 7. 2 call for the board to require management to design and implement risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively.

of mice and men :: essays research papers

THEMES Major Theme The major theme of the book is the beauty of a dream, for it gives a person a purpose in life. George and Lennie dream of owning a farm that they can call their own and where Lennie can raise rabbits and stay out of trouble, free from the constraints of society. Both men constantly keep this dream in front of them. In fact, Lennie asks George to repeat the dream over and over. George, himself, refuses to frivolously spend any money, for he is saving every dime to buy the land. The dream keeps both of the working; it also keeps them close. Curley's wife and Crooks, two cynics, scoff at the dream of Lennie and George as being unrealistic, but Candy sees its possibility and its beauty. He offers to give his life savings to help make the dream a reality, for he wants to join George and Lennie on the farm, living out his last days in happiness. When the two men accept Candy, he suddenly has a new lease on life; the dream has given him hope for a better future. At the end of the novel, the dream dies. As soon as Candy sees the body of Curley's wife, he understands his own loss of a dream and curses her for it. George also knows the dream has died with Lennie's death, and the novel ends with his going off to spend his money on liquor. He no longer has a reason to save his pennies. Without a dream, his life is sad and meaningless.Minor Theme The pain of loneliness is another key theme of the novel. Early in the book, George sets the lonely mood by stating, 'Guys like us that work on ranches, are the loneliest guys in the world.' Candy becomes the picture of total loneliness caused by age. He is rejected by all for being old and handicapped. His only company, his faithful, old, blind dog, is taken from him and killed; Candy fears that he will be treated the same way in the future and wants to join Lennie and George on the ranch. Crooks is the picture of total loneliness caused by prejudice. Because he is the only black man on the ranch, he is forced to live alone in a shed of the barn, and no one will have any interaction with him. of mice and men :: essays research papers THEMES Major Theme The major theme of the book is the beauty of a dream, for it gives a person a purpose in life. George and Lennie dream of owning a farm that they can call their own and where Lennie can raise rabbits and stay out of trouble, free from the constraints of society. Both men constantly keep this dream in front of them. In fact, Lennie asks George to repeat the dream over and over. George, himself, refuses to frivolously spend any money, for he is saving every dime to buy the land. The dream keeps both of the working; it also keeps them close. Curley's wife and Crooks, two cynics, scoff at the dream of Lennie and George as being unrealistic, but Candy sees its possibility and its beauty. He offers to give his life savings to help make the dream a reality, for he wants to join George and Lennie on the farm, living out his last days in happiness. When the two men accept Candy, he suddenly has a new lease on life; the dream has given him hope for a better future. At the end of the novel, the dream dies. As soon as Candy sees the body of Curley's wife, he understands his own loss of a dream and curses her for it. George also knows the dream has died with Lennie's death, and the novel ends with his going off to spend his money on liquor. He no longer has a reason to save his pennies. Without a dream, his life is sad and meaningless.Minor Theme The pain of loneliness is another key theme of the novel. Early in the book, George sets the lonely mood by stating, 'Guys like us that work on ranches, are the loneliest guys in the world.' Candy becomes the picture of total loneliness caused by age. He is rejected by all for being old and handicapped. His only company, his faithful, old, blind dog, is taken from him and killed; Candy fears that he will be treated the same way in the future and wants to join Lennie and George on the ranch. Crooks is the picture of total loneliness caused by prejudice. Because he is the only black man on the ranch, he is forced to live alone in a shed of the barn, and no one will have any interaction with him.

Fortu Powercell GmbH Case

Nowadays, it is critical for the companies of many industries to pay a lot of attention and efforts on the management of technology and innovation. Indeed, the development of new technologies is a potential source of competitive advantage and the ability of the companies to innovate and/or to respond to competitors’ innovation determine their survival in a long-term basis. This ability is more or less developed in companies, regarding their maturity and their structure. Most of the start-ups, which usually function as adhocracies, have a good ability to innovate but struggle to bring these innovations to the market. fortu Powercell GmbH represents a typical example of a start-up with a promising technology offering a lot of possibilities, a new type of battery, but which does not know what strategic direction to take in order to achieve long-term profitability. Studying its situation would the occasion for us to present several concepts that managers in fields where technology and innovation matter need to embrace if they want to take relevant strategic decisions. We are going to start our analysis with a quick reminder of the case, what are the critical points to keep in mind before to present some considerations relative to the work of several experts, researchers in the management of technology and innovation. Finally, we will conclude with some suggestions for the executive team of fortu Powercell. It would help us to answer adequately to the questions of fortu Powercell’s executive team. Another work we would like to quote is the work of Christensen on disruptive innovation. To summarize, we can differentiate two type of innovation: sustaining and disruptive. A sustaining innovation targets demanding, high-end customers with better performance than what was previously available. A disruptive innovation consists in the introduction of a product, a service which is not as good as currently available products but compensates thanks to its simplicity, its convenience, its low cost which would appeal new or less-demanding clients. Thus we distinguish two types of disruptive innovations, the new-market disruption and the low-end disruption. The first one is competing with non-consumption, at the beginning, before pulling out customers out of the mainstream market into the one because of the convenience of the product/service. The second one is focusing at the low-end of the original mainstream value network, on the customers whose expectations regarding the product are lower than what is actually proposed on the market. It is quite critical to define what kind of innovation is the fortu Powercell because the way people should manage sustaining and disruptive innovations are totally different. A sustaining technology strategy is not a viable way to build new-growth businesses for instance and usually once they have developed and established the viability of their superior product, entrepreneurs who have entered on a sustaining trajectory should turn around and sell out to one of the industry leaders behind them. Also, an idea that is disruptive to one business way be sustaining to another. If this is the case, it is better to redefine the product or the service in a way that it would be an opportunity which is disruptive relative to all the established players in the targeted market space or another solution is to not invest at all. Otherwise, it could be extremely difficult to beat the established companies which would defend their positions. Burgerlman and Siegel would also contribute to our analysis with their work on the minimum winning game. This is the â€Å"first ajor market opportunity that is limited enough to provide a clear target for technology and product development efforts in the short-to-medium term, and sufficiently large that successfully pursuing it provides a foundation for long-term corporate development†. When the MWG has been defined, the top management can set relevant milestones against which meaningful progress can be measured. The risk of an undefined MWG is a focus on a set of feasible but fairly limited and unconnected milestones along a road that leads nowhere or the elaboration of a serie of vague visions. The first MWG is influenced by 3 drivers, the technology development, the product development and the business strategy. The management team should put a lot of efforts to balance their influence in order to prevent one of them to dominate the interplay, because of the potential negative effects related to each one of these driver. Nevertheless, one of them should be the main driver but not all the time the company is trying to achieve its MWG. Shifting the balance of drivers in due time is necessary to achieve this goal. We mention this work because we would like to determine if one of the options considered by the fortu Powercell management team is a correct MWG, if they have developed a correct thinking about the options they defined. Considering the nature of the product fortu Powercell wish to sell, we must consider the work of Henderson and Clark on architectural innovation or the technology S-curve for components of Christensen. About the first named, it raises a distinction between several innovations as they could be incremental, modular, architectural or radical. Incremental innovation basically refines and extends an established design whereas radical innovation establish a new dominant design. A modular innovation is an innovation that changes a core design concept without changing the product’s architecture and finally a architectural innovation change a product’s architecture but leaves the components and the core design concepts that they embody unchanged. Qualify the fortu Powercell innovation would give us some clues about how established firms would react if the product is commercialized. The input of the S-curve theory in our thinking is that it forces us to not forget that the other technologies are maybe not mature and still have some potential that could lead to a fierce competition between them and the fortu Powercell technology. Finally, we would like to mention the work of Christensen, Musso and Anthony about capturing the returns from research, which talk about when, where and why integration is needed and introduce the notion of decoupling point. Basically, it illustrates the fact that a product with proprietary, interdependent architecture is subject to an interdependence of its components. The way one component is designed and made depends on the way the other components are being designed and made. In this case, the control of the design and manufacturing of every critical component of the system by a process of integration allows companies to develop a competitive advantage. A product with a modular architectures means that individual sub-systems can be upgraded without redesign everything. In this case, being specialized, not-integrated, is the best solution. We think it is important to keep in mind these notions as fortu Powercell is looking to enter the market of batteries for defined products. If the product has an interdependent architecture or a modular architecture, that makes a difference on how fortu Power should define its strategy. As a conclusion for this part, we want to remind that these theories and works presented are what we mainly used to mold our thinking about this case, to evaluate the situation of fortu PowerCell and its possibilities. III. Suggestions In this part, we are going to present a few suggestions for the fortu Powercell executive team regarding what we presented before. They should give them enough indications to help them find satisfying answers to their questions. If we look at the theories we mentioned, it seems that we can just start by defining a set of questions related to them and to other constraints and see if the first option, the plant in Lepzig, is such a good solution. We could also try to see if there is another solution, another market segment which appears to be better to the point it overcomes the loss of a potential market segment. First option: The plant in Lepzig (Market segment: Power Tools) -How well the fortu battery respond to the four set of questions of the management criteria theory, in the case of the power tools market ? Quite well actually. It appears at first sight that the fortu battery technology would be a profitable technology for the power tools market as it lift a fundamental prior constraint, provide enhanced effectiveness†¦ -Is the fortu battery a disruptive innovation or a sustaining innovation for the power tools battery market ? This question is subject to debate but as we see it, the fortu battery system is in part a disruptive innovation for the power tools battery market. Indeed, it would allow the creation of more powerful cordless tools which lead us to think that this is a new-market kind of disruptive innovation. On the other hand, if we only consider only the less powerful tools such as the screwdrivers, we can see the fortu battery technology as only a sustainable technology. It represents a battery with better characteristics compared to nickel based batteries and that is all. -Is the conquest of the power tools battery market a suitable MWG ? What are their following milestones ? We do not think that the power tools battery market is a suitable MWG because this is only a sustaining innovation for the single largest product category, which means than established players in the market would try to defend their market shares and, in a long-term perspective, we can imagine they would have to sell the business.    Second option: fortu Powercell gives up the power tools battery market and license its technology Another way to formulate the relevance of this option is to ask the question: is there a better MWG that fortu Powercell could choose ? A MWG that will compensate the loss of the power tools battery market segment ? After what we said in the previous argument, that the power tools battery market segment was not a very good MWG, and considering all the other opportunities offered by this technology, it would be surprising not to find a better one. The advantage with this option is that the first entrant with this technology in the global market won’t be fortu Powercell. They would have the chance to have a concrete feedback about what their technology is really capable of when it comes to mass production, what would be the reactions of major players in the business. Quick reminder: the first entrant is rarely the one that would capture the value of the technology. Also, it would give them some funds to be relatively independent from external capital, to keep doing some research or for a potential new venture. They will not have to use such a complicated financial operation to gather the funds and maybe they would not have to deal with conditions defined by their partners or at least it would be less constraining. Finally, they will have some time to think about everything we mentioned and there will maximize their chances to define what could be the perfect MWG for them and what milestones it could imply. But they have to keep in mind that is possible that this technology is not a disruptive technology for any market and consequently that long-term development would be difficult. So we think that there must be a better MWG for fortu Powercell and its technology but what would that be Final suggestions In this final part, now that we have defined that the second option is the best, as we see it, we are going to present what we think is a proposition of better MWG for fortu Powercell and we will conclude with a few recommendations. It is important to precise that this is only a proposition, we are not going to develop this thought too further as we think that the question of the fortu Powercell management team is answered and that they consequently have time to evaluate their different options. We think that the pedelecs (bicycle with electric assistance) would be a good MWG for fortu Powercell as it is limited enough to provide a clear target for technology and product development efforts in the short-to-medium term, and sufficiently large that successfully pursuing it provides a foundation for long-term corporate development. Indeed, the prices and margins are high in this market segment and most of the price depends of the battery. The segment size is important, around 100 million, which is big but not too much. It would be a low-end disruptive innovation compared to the NiCD and Li-on cells in the sense where the bicycles would be simpler, with a smaller battery that won’t need to be recharged too often, which is much more convenient. Indeed, we think that the technological advantage of the fortu Powercell would lead to these improvements, these enhancements for the product. The bicycles could also be cheaper as the price per Wh would be lower which could drive new customers, previously repelled by the high price. The important market of Netherlands will not be far from Karlsruhe, so a plant could be build over there. If this MWG would be a success, it would be possible to move to a sequence of MWG: electrical scooters (Italy is also not that far from Karlsruhe) – electrical cars (which can be considered as the ultimate target, the maximum winning game). Beyond the choice of the MWG, and as a conclusion, we would like to recommend fortu Powercell to pay attention to develop its absorptive capacity, in order to remain to the peak of the battery technology and then be able to respond with energy to the responses and attacks of other players, and in a long-term perspective, in the case they would be successful, to put a lot of efforts to define clearly its strategic intent.

The Cost Of Capital Is Calculated For Midland On A Firm...

Executive Summary The cost of capital is calculated for Midland on a firm-wide and divisional level in this paper. On a divisional level, asset betas of 0.9325 and 1.0490 are calculated for EP and RM respectively based on comparable firms. The asset beta for PC is back-calculated based on a formula relating the divisional betas to the firm-wide beta, thus resulting in 0.4517. Divisional betas are re-levered at target D/E ratios as provided in the case and the resulting costs of equity (using a simple CAPM) are 11.25%, 12.32%, 7.89% while the resulting WACCs are 7.81%, 9.71%, 6.18% for EP, RM and PC respectively. On a firm-wide level, the resulting cost of equity is found to be 11.30% and the WACC is 8.50%. 1. Introduction Midland Energy Resources, Inc. (hereafter Midland) is an energy company with global operations in three main lines of business: oil and gas exploration and production (EP), refining and marketing (RM) and petrochemicals (PC). The divisions have different weights in terms of asset bases and revenues as well as different asset betas. EP is the most profitable business of Midland with margins among the highest in the industry. It has an asset base of $140bn and it generated revenues and earnings amounting to $22.4bn and $12.6bn respectively in 2006. RM is the largest division of Midland. It is a low-margin commoditized-products division and it has assets worth approx. $94bn and it generated revenues and earnings of $203bn and $4bn respectively. Lastly,Show MoreRelatedMidland Energy Resource Inc2068 Words   |  9 PagesMidland Energy Resources, Inc. Executive Summary Midland Energy Resources was fortunate enough to have a skilled financial manager in Mortensen. Her expertise had come to be respected as was evidenced by her promotion and the reliance on her calculations. However, her cost of equity numbers were used as a starting point and manipulated rather than used as presented. 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