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Strategy Analysis Summary 4
With the assessment of the case, CompuSoluciones: Corporate Governance. There are
two ways that created agency problems and the opportunity for an agency problem to emerge due
to CompuSolucione's rapid growth, which are the setup of independent business units and the
improper composition of governing groups. CompuSoluciones should keep transparency,
establish a strict monitoring system, and create independence among the top management team
to solve these problems.
The setup of independent business units is the first factor that creates agency problems
within the CompuSoluciones. According to the case study, CompuSoluciones has 18 business
units that control its own profit-and-loss financial statement, and there was no sharing of
information between these cells. Such a setup would bring agency problems of information
asymmetry and the financial monitoring problem. The company's fast growth makes the financial
monitoring laxer, and as each business unit's financial statement is standalone, the company's
general economic status would be easier overlooked. Because the company's scale goes larger,
knowledge transfer between each business unit is impeded, so information asymmetry problem
arises.
Composition of CompuSoluciones' governing body is another influential factor that
creates opportunities for agency problems to emerge. The company's policy is to select company
insiders for senior positions; The invitation is exclusive and non-transferable, leading to the
problem of lax monitor and group thinking, and creates opportunism and unconscious actions
that harms the company's collective interest. Moreover, case study indicates that the CEO is a
member of both the board and the executive committee. As the company becomes more
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extensive and more complex, the CEO can gain more power, and it would be harder for the board
to monitor and control the CEO.
To eliminate or minimize these problems, several concrete changes should be made. As
for the financial monitoring problem, CompuSoluciones should strictly surveil and verify both
the standalone financial statements and the consolidated financial report to ensure the company's
general financial health. Also, by monitoring and comparing the standalone financial statements
and consolidated statements, the company would judge if there are an adverse selection and other
problems. Keeping transparency and releasing the information to every business unit to enable
them to work corporately is another change to make. As every business unit gets transparent
company information and can share the information with each other, the information asymmetry
problem can be easily solved.
Creating more independence on the board and other groups can help reduce the
possibility of group thinking and opportunism. To do so, CompuSoluciones should consider
hiring outside talent at a senior position. Unlike insiders, outsiders are not susceptible to CEOs
and internal executives' influence, nor are they easily accept decisions that benefit personal
interests. CompuSoluciones should also build an enterprise value for the CEO and management
that they are stewarding instead of owning the company and eliminating symbolic rewards.
In conclusion, CompuSoluciones would have great potential for growth and sustainability
if it can address the agency problems mentioned. By keeping transparency and step up
monitoring, business units can overcome the problem of information asymmetry and be more
efficient. Hiring outside talent at a senior position and building the corporate value of dedication
can reduce the likelihood of opportunism and self-centeredness of top executives.
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