Principle agent problem in business companies

Executive Compensation and WorldCom

When an executive uses company assets to underwrite personal loans, the agency problem occurs as the company takes on debts to provide its executives with higher incomes. In 2001, WorldCom CEO Bernard Ebbers took out over $400 million in loans from the company at the favorable interest rate of 2.15%. WorldCom did not report the amount on its executive compensation tables in its annual report. Details of the loans did not come out until the company's accounting scandal hit the news late that year.

In your essay, explain what justified Mr Ebbers to take out the loans from his company? How this example was considered as a conflict of interests. Was the compensation scheme in the best interest of shareholders’? Explain the justification of board of directos to approve these loans to Mr Ebbers and other members. What are the CEOs and shareholders? What alternatives and solutions would you suggest to solve this ethical dilemma?

Grading criteria:

Reading list:

http://www.nytimes.com/2011/11/08/opinion/end-bonuses-for-bankers.html?_r=0

http://euractivgreece.blogactiv.eu/2013/06/30/124/

WHAT YOU HAVE TO DO:

You should submit a 1000 words case study report on Principle agent problem in business companies.

You must follow Qatar University’s formatting guidelines and include references. The report will be graded on the detailed criteria outlined on page three of this document. The recommended layout of your report is given in the following bullet points.

·         Cover page (your names, date & number of words)

·         Executive summary (A high level summary of the project)

·         Table of contents

·         Introduction (background of chosen banks, firm or institution)

·         What the chosen company is doing regarding your chosen topic.

·         Analysis and evaluation.

·         Recommendations

·         Conclusion (summarize all the above)

·         References

Your project should be no more than 1000 words (executive summary and any references and appendices do not count towards the word limit).