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Case Discussion Maxwell simply used his powers and ity to misappropriate the funds that we under his domain. Maxwell exercised both control and ownership over the funds that belonged to employees in pension funds and used shares as collateral that did not belong to him. There are several corporate heads and CEOs that are doing these types of things to the disadvantage of their stakeholder. Once this type of thing happens, the organization and the controller lose its value. No other organization would like to lend to a company where misappropriation of funds can done at the discretion of the CEO or own. There is a concept of separate legal identity which differentiates the assets of the company from its owners. However, in the case of Maxwell, the funds of different organizations were used by him as if they were his own money which is contradicting not only the ethical aspect, but also the accounting aspect of ownership and control.
Maxwell should have only used the funds of the company; even those funds should have been used after the approval from board. Maxwell used the funds of pension funds which belonged to employees and used them as collateral. This is an open violation of agency theory. The theory states that the trustees or people who control the movement of funds are the agents acting on the behalf of the true owners of those resources and they should make the best possible decision for the resources that are entrusted to them.
When the ownership and control are exercised in the disadvantage of the stakeholders than the relationship between the agents and principal is terminated. Then any loss accruing from the misuse of funds or resources accrues to the agent and not the principal. Maxwell’s share of loss in this case should have been larger and he should have been burdened with all the resources that were due to his actions as an agent acting without the consent of principal.
Maxwell disadvantaged the other stakeholders for the benefit of his own company. This is again something that is unacceptable from the ethical point of view and also from the regulatory and business point of view. The stakeholders suffered and in the end, Maxwell and his company suffered badly also. However, the funds that were loss due to his carelessness were not recovered and it can be seen in this case that when agent does something on this own behalf he is probably using the motive of self interest. That is one reason why law makers have developed the concept of “ Board of Directors” that have to be consulted with so that shareholders and stakeholders’ rights are protected in every decision making instance. However, Maxwell did not even get the approval of the Board of Directors and that is how dangerous it can get for the stakeholders when authority is vested into the hands of just one person.
Daft, R. (1995). Management. The Dryden Publication