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AMAZON AND GLOBAL BUSINESS

AMAZON AND GLOBAL BUSINESS

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Question one

According to the Hofstede cultural dimensions ranking, and Amazon’s operations in the United States, United Kingdom, China and Australia, the results are a portrayal of the subject countries’ cross –cultural communications analysis framework (The Hofstede Center, 2013). The choice of the four countries can be used as a representation of the main continents where the company has interests and runs active operations. The exclusion of Africa is to be considered non-vital in the course of trying to understand the main issue of cross-cultural communications from Amazon’s perspective since the concept of online commerce is relatively new and irregularly spread on the continent. However, this should not be taken to mean that the company is absent in Africa. Amazon runs successful offices and has profitable operations in South Africa, parts of Eastern, Northern, and West Africa.

From the perspective of Hofstede’s ranking, we find that the framework analyses cross-cultural communications using five dimensions. These are; Individualism (IDV), The power Index (PDI), Masculinity (MAS), The Uncertainty Avoidance Index (UAI), and Long Terms Orientation (LTO). IDV means the extent to which the society is willing to recognize individual and collective achievement. According to our choice of countries, China scored just 15, while United States scored 91. These examples show how the United States society reinforces achievements regardless of their being individual or out of collective effort. The second dimension, PDI, refers to the general degree of equality or inequality in a society. Asian countries such as China score very highly in this dimension due to a high degree of inequality in the otherwise communist state. On the other hand, the largely capitalist Western states score lowly on this dimension due to a level playing field and access to capital resources. The third dimension, MAS, refers to the degree to which a society is ready and willing to accept the traditional male model that exudes power, achievement and control. Herein, we find that, with the exception of the United Kingdom, the West and East scores are relatively equal.

The fourth dimension refers to the level of tolerance for uncertainty and ambiguity within the society. According to the ranking of our four countries, the Western countries score highly due to their liberal nature. However, the East is more superstitious and would like to be more in control of their future outcomes. Finally, with the LTO, or a society’s willingness to overcome obstacles with time, we see that China scored very highly, while the Western countries scored so low. This means that Westerners do not empower time to influence their actions as their Eastern counterparts do. A good example of this intolerance to time is Chinese delays in sealing deals.

Among the ways that a United States manager can modify his behavior to communicate better with foreign associates, especially those from Asia, is to adopt a cultural integration strategy. This would include attempts at trying to learn the other countries’ language cues, communication methods and dynamics as well as cultural practices. In addition, the U.S manager could also identify the differences that might bring clash between them. For example, the Western style of communications employs liberal use of jokes, while the Eastern one is more respectful. So, he might need to tone down on such destructive communication skills. There might also be a need to change the environment in which he communicates as this has a profound effect on the results. Europeans, for example, might be comfortable with an outside set-up, while Asians prefer more formal set up. As is the case, the communication dynamics usable in these two settings would have to change in order to keep the new associates happy.

Question two

Amazon’s global reach has seen it start operations in some countries with security issues. Most of these countries are the victims of political and social unrest but they are all unsafe from a business and investment perspective. A good example of such countries is Colombia. While the country is relatively safe from a political perspective, the risks associated with doing business in the country are real (Bureau of Western Hemisphere Affairs, 2013). Other regions of the world have been subject to political unrest. Some parts of Asia such as Kazakhstan and Pakistan are also politically unsafe. There is a rich history of politically motivated, ethnic war in these countries that subjects Amazon and its subsidiaries to larger risk than is permissible. African operations too are subject to the problems that make Amazon operations in the region a difficult affair. Areas of Central Africa such as Nigeria and Niger are currently experiencing a lot of political unrest, as is most of the Central African regions of Congo and DRC.

From an economic perspective, Amazon operations are also under constant threat due to the risk of market collapse and economic meltdown (Standard and Poor’s.com, 2014). The market crash of 2007 presents a good example with many regions in the Western and Central Europe suffering almost irreparable damage to their economies. Spain and Greece are two examples from Europe that make Amazon operations in Europe a tricky affair. In addition, Asian regions of Vietnam, Mynmar, and Cambodia also face the constant risk of inflation due to political tensions and internal wrangles that undermine development and a widespread shunning of Western influence. Africa too has its own fair share of countries that offer a substantial amount of economic risk to Amazon and its operations in the area. Until recently, Libya, Egypt, and Uganda were under intense economic pressure due to political wrangles. The resultant economic issues were not conducive for foreign companies to operate in.

Question three

Amazon runs its online business in many countries with diverse judicial systems. With regards to the parameters given, that is countries that use the common law, and those that use the civil law, we find that Amazon has professional relationships with all. Since countries that use the common law system are those that were under British rule, we find that their High Courts are very powerful entities. This means that High Court rulings within their boundaries are only overturned through legislation making commercial agreements binding. In addition, their freedom of expression makes for better business relations with each other and an easier entry by foreign companies like Amazon. On the other end, countries that use the civil law system are mostly those that utilize the communist economic systems, like China, and Russia. This results in oppressive business environments that have unfair trade terms for companies from capitalist countries like US-based Amazon. This results in difficult business environments for such companies.

Question four.

Amazon has procured insurance services from the Overseas Private Investment Company for its operations in some politically risky nations, especially in Asia and Africa. However, it has been reluctant in furthering the same over the recent years mainly due to its business model in many overseas markets that does not necessarily rely on a tangible platform. The company’s online presence enables it to evade the actual risks other physically present foreign companies have to contend with.

Question five.

Amazon owns the intellectual property rights to its proprietary e-book reading service and devices under the Kindle brand. In addition, under the Digital Rights Management Scheme (DRM), the formats its Kindle e-book reader supports, such as KF4, are primarily under its protection. While these intellectual property rights do not necessarily expire, their success is getting eroded by the emergence of more modern methods of reading online publications. However, Amazon is keen to recoup on the lost revenue by remaining competitive in other aspects of its online-based businesses, and has recently introduced same-day delivery to its online market place.

Question six

According to Transparency international, in 2014, Finland, New Zealand, and Denmark scored 89, 91 and 92 on the Corruptions Perceptions Index. These are the highest scores in the same index and indicate a low latency to corruption in the countries indicated. On the other hand, Nigeria and Equatorial Guinea scored very low in the same scale. In addition, the Equatorial Guinea country went on to exemplify its high affinity when in 2013, its second vice president Teodorin Nguema Obiang, son the president was brought to the limelight for corruption alongside the Minster of defense (Lazuta, 2014). Allegedly, the country lost more than 30million US dollars in this corruption case that is still underway. On the other hand, in Nigeria, the former governor of one of its oil-rich states jumped bail and fled out of London. Mr. Diepreye Alamieyeseigha is reported to have done so in full view of the current government which President Jonathan Good-luck is head. Surprisingly, the president once served under the fleeing fugitive, a scenario that raises many eyebrows (Nossiter, 2013). The United States might face a large array of risks in the two countries since local officials might try to cut corners by introducing corrupt deals to United States workers. Though Amazon rarely has physical presence in such countries, the probability for online platforms to be used to corrupt its officials is still a threat.

Question seven

Amazon’s strategy in terms of penetrating foreign markets is heavily reliant on the existence of an already thriving online commerce potential. In addition, we find that Amazon has the habit of riding into its new foreign market on the back of an already existing, but struggling local e-commerce company which is assists put back on track and then takes over as a strategic partner. This has been the case in many affluent Asian markets such as Hong Kong and Japan. From a risk-return tradeoff perspective, Amazon often carries out its due diligence in target markets based on two main parameters. These are; the economic development among the middle class, and internet infrastructure and the government’s control over the same. This is a good strategy since any prudent business organization has to carry out its due diligence before investing in any new markets (Thorpe, 2011). The fact that Amazon is an online-based company does not exempt it from doing that.

Question eight

Amazon has an exit strategy in place for every entry one. This is in line with the afore-mentioned due diligence that sees a business plan its entry based on some investigation of the dynamics of the subject country and its likelihood of profiting from entry. In addition, the same is done in case the organization feels unsure of the likelihood of profiting from operating in certain markets. The recent spate of violence, economic collapse, and terrorism has forced many companies to exit the countries suffering these unfortunate circumstances since its own interests come first.

Question nine

Just like any other global player in existence today, Amazon has tried to be a good corporate citizen from the global perspective. There are very few ethical issues that are attached to this global brand mainly because of its strict policy on ethics and corporate responsibility. In addition, as an online-based entity, there are advantages to this from an ethical perspective since operations are better monitored. In addition to a good ethical operation, Amazon has in place some strategies in place with regards to the concept of corporate social responsibility. The company always donates a fraction of online sales to charitable organizations and disaster victim funds when they are created. In addition, the mother company has put in place some off-line philanthropic operations in the form of support for cancer research and other common, but chronic illnesses.

Question ten

Amazon’s mission statement is centered around its dedication to being the planet’s most customer-centric company where people can easily find and access online commerce solutions The company has largely been adherent to this mission statement and over the last almost two decades has been one of the most influential in e-commerce. Amazon’s actions have reflected a commitment to aligning itself with its most important partner who is the client. The development of such innovative devices such as the Kindle and Kindle Fire demonstrate this commitment by way of trying to extend the customer’s access and use of its products. Not only can the customer buy e-books, he can also read them using the company’s proprietary reader. In addition, the company has tried to expand its operations and range of merchandise available online in order to make things easier for its customers once again demonstrating their commitment.

Question eleven

With regard to strategy formulation, Amazon can be categorized as shareholder model due to its loyal commitment to the shareholders whose interests it protects. There are many shareholders within the company’s ranks and these are the main beneficiaries the company prioritizes. However, Amazon should not be considered careless in terms of stakeholder welfare. Thought the company prioritizes with a bias towards its shareholders, it has visible risen to the occasion many times in the past to cater to the welfare of its stakeholders (Moody’s.com, 2014). A good example of Amazon’s dedication to the society as part of its stakeholder group lies in its corporate social responsibility record.

Question twelve

Amazon is already a stateless corporation due to the extent of its reach globally. The company’s international operations have seen it spread its wings to more than one hundred countries which make it a global or stateless corporation (Scherer & Pallazzo, 2008). There are many advantages to being a stateless company, and Amazon has successfully manipulated these to emerge among the top in the global e-commerce industry.

Question thirteen

Amazon’s organizational structure is a matrix or hybrid one. This means it is a combination of both the functional and divisional organizational structures. The functional structure is comprised of groups that serve the same purpose while the divisional one is made of those that handle similar products of market segments (Writing, 2012). Amazon uses a mix of both organizational structures to ensure its global operations are smooth and effectively working.

Question fourteen

Amazon benefits from a hybrid organizational structure since the business is global and has many segments within its operational capacity. The use of either functional or divisional organizational systems alone could be problematic due to the scale or operations and diversity of company products. Therefore, a system that caters well to the complexities of handling each of these individual structures would be better (Kolbaia, 2013). In any case, the company’s current business performance is a clear indication of a good organizational structure given the size and scale of its operations.

References

Bureau of Western Hemisphere Affairs. (2013). Colombia. Retrieved from http://www.state.gov/r/pa/ei/bgn/35754.htm

Kolbaia, G. (2013). Amazon.com Organizational Structure ( Flowchart) | Creately. Retrieved from http://creately.com/diagram/example/haguvble1/Amazon.com+Organizational+Structure

Lazuta, J. (2014, October). US Seizes More Than $30M From Guinean Official. Retrieved from http://www.voanews.com/content/us-seizes-property-from-guinea-vice-president-in-corruption-case/2481179.html

Moody’s. (2014, September). Retrieved from Moody’s.com

Nossiter, A. (2013, March). U.S. Embassy Criticizes Pardons in Nigeria Corruption Cases – NYTimes.com. Retrieved from http://www.nytimes.com/2013/03/16/world/africa/us-embassy-criticizes-pardons-in-nigeria-corruption-cases.html?_r=0

Scherer, A. G., & Palazzo, G. (2008). CORPORATE CITIZENSHIP IN A GLOBALIZED WORLD: INTRODUCTION TO THE HANDBOOK OF RESEARCH ON GLOBAL CORPORATE CITIZENSHIP.

Standard and Poor’s. (2014). S&P | Ratings Retailing| Americas. Retrieved from http://www.standardandpoors.com/ratings/retailing/ratings-list/en/us/?subSectorCode=17§orId=1221186658319&subSectorId=1221187347304

The Hofstede Center. (2013). United States – Geert Hofstede. Retrieved from http://geert-hofstede.com/united-states.html

Thorpe, W. (2011). A Look At Amazon.com. Retrieved from http://www.valueline.com/Stocks/Highlight.aspx?id=10395

Writing, A. (2012). Different Types of Organizational Structure | Chron.com. Retrieved from http://smallbusiness.chron.com/different-types-organizational-structure-723.html

Discrimination has been a thorn in the flesh of many countries and especially the United States.

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Introduction

Discrimination has been a thorn in the flesh of many countries and especially the United States. This may go back to the history of slavery in the 16th and 17th century when certain groups of people were only thought as unfit to have certain rights. However, this seems to have changed with time especially after the enactment of varied Legislations like the Universal Declaration of Human Rights, among others. Nevertheless, discrimination especially on the basis of one’s color has not been expunged entirely from the United State’s fabric. It has only taken other forms, the most prevalent of which is racial profiling.

Racial profiling refers to a form of discrimination, where law enforcement agencies use an individual’s cultural background or race as the key reason for suspecting that the person has broken one law or another. Evidently, this form of discrimination emanates from stereotypes that certain individuals are more apt to doing something wrong than others simply because of their cultural background or race (Kops 45). There have been concerns that the police are targeting certain groups of people for certain offenses. For example, the phrase “driving while black”, is widely used to define the practice where African American drivers and motorists are incarcerated by the law enforcement agencies for no apparent reason apart from the fact that that they were black. This, therefore, came with certain stereotypes. However, racial profiling became increasingly manifest after the September 11 attacks on the twin towers in Washington DC by a terrorist group that had Muslim affiliations. Since the terrorists were of Arab descent, there have been numerous complaints among Muslim Americans and Arab Americans that they have undergone intense scrutiny in varied locations, especially airports. It is noteworthy that while there are white who may have committed terrorist attacks in the American soil, they are yet to undergo a similar treatment as the Arab Americans. Evidently, that speaks of racial discrimination. It is noteworthy that, as much as the terrorist attacks may have led to the heightening of security measures most of which involve scrutiny, these measures have been targeting certain races more than others.

However, racial profiling is not a new phenomenon in the American society or rather its system of laws. The FBI and RCMP among other agencies have been routinely profiling serial killers in an effort to speed up or increase the likelihood of catching them. More often than not, race has been a fundamental part of the profiling since a large number of serial killers are historically known to be loner white males (Kops 56). Of course, there exists some exceptions to the rule, but profiling of such monsters has been fundamental to their speedy apprehension and may even have helped in saving lives. In essence, the war on terror has been founded on saving lives, as well as preserving the society’s way of life.

The legality of racial profiling

However, the legality of this form of discrimination has come under intense challenge. This is especially considering the United States constitution’s 14th Amendment, which states that no state shall come up with or implement any law that abridges the immunities or privileges of the United States’ citizens without the due process of law. Moreover, it states that no state should deprive any individual of liberty, property or life or even deny any individual within its jurisdiction the equal protection of the laws. This language may be interpreted to mean that only citizens of the United States are protected or guarded from laws that might infringe on the immunities and privileges of the US. However, all people are protected or guarded against the deprivation of liberty, property and life without being taken through the due process of law.

In the Canadian Charter of Rights and Freedoms, individuals are protected against unreasonable seizure and search. They have the right to liberty, security and life and are protected against deprivation of these rights except when the principles of basic justice demand it. In addition, all people have the right not to be subjected to arbitrary imprisonment or detention. In section 15 of this charter, all people are considered equal under the law and, therefore, are entitled to equal protection. They should benefit equally from the law without discrimination regardless of their sex, ethnicity, religion, national origin, color, disability or even race.

However, there exists the National Emergencies Act in the United States, which allows the president to take all the necessary measures to protect and defend the country from external and internal threats until such a time when security has been restored. This is the act that President George W Bush summoned after the September 11 terrorist attacks. Nevertheless, the act comes with a number of safeguards that ensure that this form of constitutional dictatorship is not in place for longer periods than necessary. In addition, the act is subject to reviews by the congress after every six months. In the review process, the congress votes on whether to end or continue the powers incorporated in the act.

It is noteworthy that, the power to enforce racial profiling to eliminate terror threats is available only when the country faces emergency with severe proportions. Nevertheless, once the government has invoked such powers, it should eliminate the existing threat as fast as possible.

The legality of racial profiling may be examined from the aspect of the Fourth Amendment. Racial profiling amounts to a violation of the Fourth Amendment, which has guaranteed all people the right to be safe, and protects them from unreasonable seizure and search without any probable cause. In addition, the Department of Justice in June 2003 came up with report known as Guidance Regarding the Use of Race by Federal Law Enforcement Agencies. This report forbids the use of race or an individual’s cultural background as the basis for suspecting that the person has broken a law. Quite a large number of states have also come up with certain laws and procedures that are designed to eliminate racial profiling.

The case for racial profiling

As much as racial profiling has come under intense attack from various quarters, some scholars pine that it is for a nation’s own good.

First, racial profiling has been extremely effective in eliminating threats of terrorism in the American soil. It is noteworthy that, since the September 11 attacks, the United States stepped up its efforts to eliminate the possibility of such acts being carried out in the airports again. True to the word, there has never been such an act on the jet liners since that time. In support of racial profiling, the United States Department of Justice, Civil Rights Division came up with Guidance Regarding the Use of Race by Federal Law Enforcement Agencies. This report stated that, due to the immeasurably high stakes that investigations and prevention of future attacks entailed Federal Law enforcement officers charged with the responsibility of preventing catastrophic events and protecting national security could consider ethnicity and race among other relevant factors as allowed by the constitution and laws. In essence, racial profiling in prevention of terrorist attacks is perfectly within the constitutional and statutory standards.

In addition, Heather MacDonald opines that the crusade against racial profiling thrives on ignorance of policing, as well as a willful blindness to crime demographics. Conversations with law enforcement agents in New Jersey have suggested that some carried out soft racial profiling. They may have pulled over a person because the car driver, as well as the type and number of occupants, exhibit the component of courier profile. Officers’ experience has over time corroborated DEA intelligence reports than minority groups were carrying the largest amount of drugs. In essence, if the police were to be accused of racism each time they follow leads and go where crime is, the United States would be sacrificing its public safety (MacDonald 46).

In a January 2003 article that was titled “Better Unsafe Than (occasionally) Sorry?”, Scott Johnson argued that the thesis underlining the anti-profiling complaint, that disparities in the rates of crime and arrests among races is a reflection of racially biased policing, is shredded by fundamental criminological data. He stated that centrally to the commonly held views, racial variations in law enforcement are a reflection of the racial disparities in the rates of crime. There exist racial disparities at varied stages of the criminal justice system. However, scholars have studied these disparities and come up with the conclusion that the increased levels of incarceration and arrests in the United States based on ethnicity and race have resulted to substantially high crime levels in these areas. In essence, the police appear to be concentrating on behavior that is legitimately suspicious rather than simply picking on individuals by race or ethnicity (Johnson 46).

In addition, scholars have stated that if homicide statistics are accepted as the yardstick for violent crimes, which are the crimes that officers should focus most on, the truth is that out of over 600 murders carried out in 2002, in Los Angeles, approximately 90 percent were carried out by Latinos and Blacks (Dunphy 34). Each of these groups was responsible for approximately 45 percent of the homicide crimes. In essence, when police officers are deciding whether they should order an individual from a vehicle or even carry out a search, the information they are relying on may be coincidental to the color of the skin but not entirely dependent on it.

The case against racial profiling

The basis for racial profiling has been attacked for quite a long time. These attacks have mainly been founded on the morality and illegality of the act itself.

In an opinion article that went by the title “The Fallacy of Racial Profiling” in December 2001 in the San Francisco Chronicle, Jack Glaser stated that since racial profiling entails pursuing individuals based on their ethnicity and race while there may be other factors that may serve better than such basis, it is inefficient. He felt that criminals from other groups would be acting with impunity since their chances of even being targeted are relatively lower than those of the targeted groups (Glaser 34). In addition, quite a large number of Muslims and Arabs who have been detained for the sole reason of their race are eventually found innocent, yet they would have endured suffering without any probable cause or even court appearance. This violates the United States’ constitutional principles.

In an article that went by the title “Wrong Then, Wrong Now, Racial Profiling Before & After September 11 2001”, Civil Rights Org stated that arguments against conventional profiling are also applicable to terrorist profiling. Terrorism profiling is founded on extensive and inaccurate stereotypes pertaining to the propensity of certain religious, ethnic and racial groups to carry out certain criminal activity (Civil Rights Organization 25). In addition, racial profiling is an inadequate and crude alternative for behavior-based enforcement. It also tends to alienate communities that are otherwise natural allies of the law enforcement agencies.

In its February 2004 report, the American Civil Rights Union stated that racial profiling is inconsistent with the United States’ core constitutional principles of fairness and equality. The union argued that any law enforcement that is based on characteristics such as religion, national origin and race amounts to an ineffective and inefficient strategy for safeguarding public safety. This is especially having in mind that racial profiling alienates groups whose cooperation is necessary for gathering essential intelligence (Civil Rights Organization 26). In addition, if law enforcement agencies apply racial profiling, they may not look as hard at individuals from other races, which could lead to a breach of security.

Lastly, anti-profiling crusaders opine that if the efforts the concentration of police on certain groups of people were successful, then the return on investment in law enforcement should be better than that of traditional policing (Haris, 29). However, racial profiling has only ended up sweeping vast numbers of people into the net of law enforcement agencies. This is because ethnic and race are extremely inappropriate behavior predictors. It has made law enforcement agencies spread their activities too indiscriminately and widely with disastrous results. The alienation of most minority groups from the policy amounts to a critical, strategic loss as far as the fight against crime is concerned. This is because the war against crime depends on the full support and cooperation of the people being served.

In conclusion, racial profiling has become the new face of discrimination in the United States. It refers to a situation, where law enforcement agencies use an individual’s cultural background or race as the basis for suspecting that the person has broken or is going to break the law. This has become increasingly pronounced in the United States after the September 11 terrorist attacks with Arab Americans and Muslim Americans becoming the key victims. While there are legislations that seem to allow for racial profiling especially when there is a real terror threat, it is noteworthy that racial profiling is by its sheer nature illegal. Those who support racial profiling opine that it has led to a reduction of terror attacks especially affecting American airlines. In addition, they opine that since some ethnic groups have been known to commit certain crimes more than others, relying on race would not be a misguided effort. However, anti-profiling crusaders argue that racial profiling is against the fundamental constitutional principles of the United States. In addition, it only ends up alienating minority groups whose support and goodwill is crucial as far as the war against crime is concerned.

Works cited

Harris, David. “Flying While Arab: Lessons from the Racial Profiling Controversy” Civil Rights Journal. 2002. Print

Civil Rights Organisation. “Wrong Then, Wrong Now Racial Profiling Before & After September 11, 2001. Leadership Conference on Civil Rights Education Fund. 2001

MacDonald, Heather. “The Myth of Racial Profiling”. City Journal. 2001. Print

Johnson, Scott W.”Better Unsafe Than (Occasionally) Sorry?” The Claremont Institute. 2003

Dunphy, Jack. “No Surprises in LAPD Traffic-Stop Data” National Review Online. 2003

The US Department of Justice’s (USDOJ) Civil Rights Division. “Guidance Regarding the Use of Race by Federal Law Enforcement Agencies” 2003. Print.

The American Civil Liberties Union (ACLU). “Sanctioned Bias: Racial Profiling Since 9/11”: 2004. Print

Glaser, Jack. “The Fallacy of Racial Profiling,” San Francisco Chronicle. 2001

Kops, Deborah. “Racial Profiling, Volume 21”. New York: Marshall Cavendish. 2006 Print

HANOVER FINANCE COMPANY CASE STUDY

HANOVER FINANCE COMPANY CASE STUDY

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Introduction

When Lehman Brothers came down in 2008, it led to a negative economic domino-effect throughout the world. The recovery of financial companies – major investment tools for the world’s millions – suffered the brunt of this major calamity as they had to explain to their shareholders why their investments were disappearing. The ability to recover from the economic hardship relied on the country’s contingency plans. New Zealand lacked in these facilities thus exposing its shareholders to serious losses. This paper shall show how one example of this shortcoming on the government’s part caused the investors of Hanover Finance to suffer great losses. It shall explore the management’s role in this company’s action and its effects on the shareholders.

Facts, research and findings concerning the Hanover Finance company

The utilitarian perspective is an ethical perspective seeking to create a balance of benefits in circumstances that involve multiple parties affected by a common occurrence. In the world of financial companies, the prevailing economic climate is sometimes not favorable to warrant a continued involvement in trading and financial activity since it exposes all stakeholders to high risks. While the technical aspects of forecasting the effects of such economic climates are well known by finance managers and professionals involved in the actual trading process, their shareholders might not appreciate the need for proactive action (Bryant, 2004). The Hanover Finance case presents such a scenario since the firm’s management froze investors funds to try and mitigate the effects a hard economic market in New Zealand, and indeed the world over, was facing. By so doing, the finance company protected the shareholders’ funds from a similar fate to that of firms that went down, such as Five Star Finance.

Before the current economic doldrums, New Zealand witnessed economic sector growth as more people found themselves in sustainable employment while exchange rates brought in cheap imports. Finance companies came up and rode on the success of the favorable economic climate by providing funds for small and medium-sized enterprises, consumers, and other players in financial sectors commercial banks shunned. This fueled their growth as well as shown by RBNZ (2009), where large finance companies – those worth above $ 100million – rose in terms of total assets from less than $ 2billion dollars to more than $ 9 billion dollars. Unfortunately, most of this growth went unchecked as finance companies concentrated more on the profit-making activities at the expense of risk mitigation strategies. Hanover Finance presents one such case as it failed to put in place measures to buffer the shareholders from the effects of a financial meltdown. One example of this lack of contingency plans was the company’s failure in sealing leaks to investors’ pools of funds in the form of overstated real estate deals. The second example of this problem is borrowers who seeked to challenge their loan repayment obligations in court.

Hanover Finance decision to investment in television advertising can be analyzed from various perspectives. From the optimist’s side, this is an investment made to provide the company with a safety net in case the prevailing economic conditions prove to be unsupportive for normal trading and financial activity. Bollard (2004) states that it is a general practice in finance companies to look for opportunities to invest some of their shareholder’s funds in investments that are resilient to economic hardships (p. 20), which probably explains Hanover’s choice of television advertising. However, from the less optimistic perspective, Hanover’s management could have been trying to create an illusion of financial security for their shareholders by investing in the media industry which is very resilient to harsh economic times.

If a finance company can continue trading, it has the ability to refund its stakeholders during economic hardships (Jensin & Meckling, 1976). Financial companies that can sustain and recover from damage during these times of economic uncertainty are very impressive. These companies should formulate agreements with their shareholders to enact repayments programs in the form of shares or funds. Hanover finance and its senior management seem to have been trying to avoid the obligation of repaying their shareholders. This materialized as a hasty freeze on debt-repayment funds to render them unable to repay shareholders. In addition, fully knowing their company’s cashbook reflected nothing illegal, the owners of the company felt confident in the continuation of court proceeding against them knowing they would blame a few errant real estate developers.

As the global economic condition worsened, Hanover Financial along with its partner company United Financial froze funds intended to repay more than 36500 investors. The disgruntled investors held meetings to discuss their predicament and try to look for the best course of action. More than three quarters of the investors voted to a plan suggested by Hanover Financials top management to repay all debts owed to them over a 5 year period. This plan of action by Hanover Financial showed a genuine feeling of compassion towards the angry shareholders, some of whom had lost substantial amounts of money. One such individual was an Olympic medalist called Hayden Roulson who lost more than $ 250 000 (Savage & Cleaver, 2008).

While the shareholders pursued legal redress over the freezing of their funds by Hanover Finance, its owners had started gifting the affected individuals to try and soften the blow caused by the firm’s actions. Mr. Watson and Hotchin made property, cash, and property pledges worth more than $ 90 million, portraying compassion for those affected by this firm’s recent actions. Although property market prices had lowered the value if these pledges, Uche (2001) states how this act proves these seemingly greedy individuals could find it in themselves to extend some form of assistance to affected shareholders (p 69). As the company started actual repayment of the debt, payments of six cents in the dollar went to investors once more demonstrating a commitment to assisting them recover from this situation.

After a year of negotiations, meetings, and other attempts at trying to unfreeze investor assets, Hanover Finance accepted advances from Allied Farmers in 2009 to transfer their debt obligation to them. After meeting with its shareholders, three-quarters of them voted to allow Allied Farmers to purchase the majority assets in Hanover Finance thus saving it from receivership. For the shareholders, this arrangement meant their bonds and debentures could be changed for shares in Allied Farmers. Compared to their former position as creditors of a struggling finance company, the new shareholders were happier as shareholders of a larger, more resilient company (Mulholland, 1985). Hanover Finance management might have transferred obligations and large debt to their new owner, but suggesting the move was clearly in their former shareholders’ best interest since it provided a better chance at recouping their investments.

In 2010, Allied Farmers found themselves in a position that could no longer sustain the firm’s operational capacity and placed their assets into receivership. A year later, the firm’s shares were noticeably overstated in the stock market necessitating the Financial Market Authority (FMA)’s intervention. The FMA started legal proceedings against Hanover Finance promoters and company directors for statements made in its brochures. The company had made misleading advertisements that caused gross overstatement of Allied Farmers stocks. After the FMA stated its intention to pursue legal action on Hanover Finance, the company’s directors cooperated with the investment teams in order to bring restitution to the affected (McManus, 2010). Willingness to cooperate with the FMA was obviously a self –preservation tactic, but it proved to bring the whole matter to rest much sooner after recovering $ 13.5 million dollars worth of assets.

Hanover Finance directors faced legal action after their company suspended repayments angering its shareholders. A moratorium raised by these individuals was delayed using gifts. Pledges, property and other forms of small incentives offered to the disgruntled shareholders provided a form of delays tactic for these directors to try and pass on their liability to another company (McManus, 2010). From a moral and ethical perspective, the directors acted in a slightly insensitive manner to the welfare of shareholders. Instead of offering a more transparent form of debt payment, the directors tried to buy time by offering incentives and later transferring this debt to Allied Farmers. A better option would have been to try and look for a way of directly repaying the investors instead of paying them off with small pledges.

Investors involved in the Hanover Finance case suffered many losses due to the firm’s carelessness. In 2008, at the same time this company started reporting performance problems, the bad financial climate had also led to the collapse of more than 45 other finance companies putting more than $ 6 billion of depositors’ funds in jeopardy. Many more were operating under a lot financial strain as the global financial crisis worsened after the collapse of Lehmann brothers in the same year (Edmundson, 2008). Hanover Financial suffered a similar fate since it had to suspend repayments to its investors thus placing its operations in the cross hairs of the country’s financial watchdog – the FMA.

The dynamics preceding the collapse of these companies has been the object of numerous scholarly studies, all at the expense of the real losers in the whole issue – the actual investors. In addition to the bad prevailing economic conditions, some conditions have come up as contributors to the financial problems investors faced. Lack of adequate government regulation and ignorance on the investors’ part is perhaps the greatest of these.

The greatest problem, which precipitated the widespread collapse of financial companies leading to investors losing money, was inadequate regulation of financial activity. As many countries seek to protect their investors, New Zealand had no regulation in place to protect their interest, as well as the financial operations of these companies (Mortlock, 2004) until 2008 when it was too late for many investors. Financial companies such as Hanover operated in very much a liberal manner as shown by the haphazard decision regarding handling of investor funds. After the performance had been affected by the prevailing economic crisis, Hanover Finance directors took advantage of the lack of a regulatory structure to orchestrate the transfer of fiscal obligation. This was further aggravated by the government’s lack of deposit insurance mechanisms to protect the shareholders’ investments.

The second issue that precipitated the collapse and subsequent loss of investors’ funds was a healthy portion of ignorance on the shareholders part. Most investors in the New Zealand market before 2008 were not in a position to protect their investment (Parker, 2008). Many relied on financial advisers to handle the investments and never even cared to follow up on their activities to audit their practices. This gap between the actual investors and their fiduciary agents provided deviant directors such as those of Hanover Finance with the leeway to manipulate company resources to their benefit. Such actions were not moral since many of these investors were pensioners and middle-class, investment-oriented civil servants. A good example was a civil servant who lost $ 150,000 to Bridgecorp (McCrone, 2007).

After the collapse of many finance companies in 2008 due to various reasons, the New Zealand government realized the need to involve itself more in regulating financial activity, in the country. In line with the same observation, the CEO of the defunct Hanover Finance company suggested that the government introduce more measures to enhance regulation of the sensitive industry. In line with this, the New Zealand government passed the Financial Advisors Act and the Financial Advisors Act into law. These actions would prove to be integral in the enhancing the recovery process after 2008.

The benefits of more government regulation of financial companies are obvious. This boosts investor confidence since fiduciary agents and financial advisors activities are more closely monitored. Canniford (2005) reiterates on the need for companies to procure the services of risk managers who assist to mitigate the level of risk investor funding is exposed to during normal operations (p 214). Finally, the government formed a Crown Asset Management – an organization tasked with holding assets the assets of failed financial companies.

Conclusion

Business ethics dictate that business leaders show compassion towards their investors and protect their interests. Hanover Finance management showed this feeling when they pledged cash and property to investors affected by the company’s collapse. In addition, negotiating for Allied Farmers purchase of its assets meant their debt to investors would be transformed to shares. Coordination with the FMA was done with smoothly so that an end to the whole matter could be resolved as soon as possible.

On the other hand, the owner of Hanover Finance exposed investors’ funds to risk without caring about emergencies such as the 2008 economic crash. In addition, after the actual collapse, they passed on their debt obligation to Allied Farmers thus extracting themselves from a position necessitating their paying investors more than $ 500 million. This mix of ruthlessness and apparent concern for investor welfare led to many losses on the investor’s side, but that is common in business.

References

Bennett, A. (2008), “Matter of trust – what went wrong?”, available at: http://www.nzherlad.co.nz/news/print.cfm?objectid=10514928 [Accessed 12/05/2010].

Bollard, A. (2004), “The Financial Stability Report”, Reserve Bank of New Zealand: Financial Stability Report, October, pp. 1-22.

Bryant, N. (2004), “A matter of trust”, The National Business Review, 12 November.

Canniford, R. (2005), “Moving shadows: suggestions for enthnography in globalised cultures”m Qualitative Market Research, 8, 2, 204-218.

Edmundson, J. (2008), “Why finance companies fall over”, available at: http://workersparty.org.nz/2008/10/14/why-finance-companies-fall-over[Accessed 9/06/2010].

Jensen, M. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, 3, 4, 305-360.