Discussion 3

Part 1:

Agency relation occurs when the stakeholders hire a skilled workforce in the form of managers who are tasked with managing stakeholder’s investment. The main reason for this relationship is wealth maximization. However, in the quest to maximize wealth, conflict of interest arises when managers start to push for their own financial gains and forgetting the stakeholder’s welfare. My current employer is an organization that deals in the construction industry. The organization is led by a group of managers tasked to oversee the major operations like procurement and contracting.

In one event, the managers collaborated with the procurement officials to award all the major contracts to companies owned by close relatives. This led to denying other potential and well-established companies a chance to offer their services. The action was aimed at benefiting the rogue managers financially. This is wrong and unethical due to the fact that managers have other motives for stealing from the stakeholders without their knowledge. At a later date, it was established that the companies underdelivered and led to conflict between managers and the owners of the organization (stakeholders).

Stakeholders may, in their best knowledge, employ some measures that will lead management to act along with their expectations. One of these motivating tools is a threat for expulsion to any manager who acts indifferent from the stakeholder’s interest. The second motivating tool would be a threat to sell out the organization to a more performing organization rendering the managers jobless (Abhulimhen-Iyoha, 2020).

The application of these tools is possible as they tend to make managers rethink all their actions and possible implications that might befall them and ruin their career. A threat to fire the managers instills fear of job loss-making managers work in good faith on behalf of the organization. Managers adhere to stakeholders' wishes and directives to harmonize and foster good relationships among the two groups. No manager is willing to get fired in the name of gross misconduct, thus the threat to fire and replace them fits best to solve the conflict genesis.

Stakeholders may motivate the management to keep their personal interests that may escalate conflict of interest by threatening to sell out the organization to competing firms. This action would mean that the immediate managers will have no company to manage, leading to an automatic job loss. This threat if executed will lower the confidence of the managers, thus making it necessary for them to evade any eventuality that may lead to conflict (Ali, 2019).

Part 2: Time Value of Money

Time value money is a technique used and applied in business decisions to help management settle for the best investment decisions. Time value of money can be applied in making purchasing decisions in a given organization. The decision to withhold financial resources instead of committing them to purchase an income-generating asset can involve the time value of money to know which options to settle. It is of great benefit to have money entering the organizations through investment returns over the investment period than to stick with money that is dormant.

The company calculated the expected returns from an asset and found out that within 2 years’ time, the initial invested amount would have been recovered and still have excess amount inform of returns. This made the company to buy the asset for $24000 with an expected return of $15000 per annum. At the end of two years, the total returns were $30000, meaning an excess of $6000 was made. Comparing $26000 current money with $30000 in two years’ time, this was a great investment with a better time value of money (Faseruk, 2018).

References

Mrabure, K. O., & Abhulimhen-Iyoha, A. (2020). Corporate Governance and Protection of Stakeholders Rights and Interests. Beijing Law Review, 11(1), 292-308.

Nurdiono, N., Farichah, F., Wibowo, B., Kusumaningrum, N. D., Mirfazli, E., & Ali, M. M. (2019). THE EFFECT OF GOOD CORPORATE GOVERNANCE IMPLEMENTATION IN DIVERSIFICATION

Willcott, N., & Faseruk, A. (2018). Making Sense of Time Value of Money and Agency Considerations in Structuring Legal Settlements in Canada. American Journal of Management, 18(3).