Good Example Of Banking Scams And Globalization Essay
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The most recent accounting scandal that can be used as a case study here is of Dynegy Inc. Dynegy has not been involved in one or two scams, but its history is filled with several frauds and attempted frauds. It changed its name from NGC to Dynegy in 1998. In 2001, it tried to buy Enron which was in the business of buying and selling of energy products just like Dynegy. However, the company was unable to takeover Enron. Enron collapsed after a series of frauds and fraudulent activities by the executives of the company. Since it was involved with Enron, the company’s stock plummeted after the fall of Enron and it nearly went bankrupt. The company was restructured and was able to survive the scare thanks to the hard work of its CEO Bruce Williamson and Nick Caruso. After the years of success, the company again experienced a situation of bankruptcy and received several takeover bids. However, the shareholders of the company refused to sell their stocks at the bid price and asked for a higher bid offer. As a result, the takeover did not happen and bankruptcy was on the cards for the company. The CEO Bruce Williamson and Chief Financial Officer resigned from their post. After that the largest company in the group Dynegy Holding filed for Chapter 11 Bankruptcy.
The company had restructure itself in a way as to make sure that the blame and burden of the bankruptcy did not fall on its board of directors. The company had divided its business into GasCo (Gas Companies) CoalCo (Companies), and a company for all other businesses Dynegy Inc. It later created a company called Dynegy Holdings in a way that it had very little debt. Later, GasCo and CoalCo were sold to Dynegy Holdings which put the company under $1.25 Billion debt. This left Dynegy Inc to burden and foots all the debt while the board of directors of Dynegy Holding remained pretty comfortable in the case of a credit or default event. The company could not recover and kept posting huge losses. The company’s structuring and condition allowed the unsecured creditors to lose their money at the expense of the secured creditors and the management of the company. Later, a bankruptcy commission found out all these actions to be unlawful and deliberate manipulation of the Dynegy Holdings by its Board of Directors in order to save themselves while leaving the other stakeholders exposed to the risk of financial losses and in a bad financial condition.
The major beneficiaries of the situation were the Board of Directors of Dynegy Holding. The narrative or the rationale given by them was that they were doing everything in the larger interest of the public and shareholders. The rationale is completely wrong. All they were doing was making sure that they get the best earning assets of the company, and giving the worst performing assets to the creditors. This was to make sure that they enjoy the high earning potential of the best assets of the company. (Calia, 2015)
There are several advantages and disadvantages of globalization. Globalization can be referred to an event where the countries around the world are coming together towards a common culture. The world is becoming boundary less, and trade and flow of information among the countries is increasing. This situation has caused lots of advantages and disadvantages for countries around the world. It is not true that globalization is all positive or all negative. There are lots of pros and cons of globalization. The biggest advantage of globalization is increase in trade and business opportunities. This has improved the earning potential and opportunities of doing business and trade for investors, and businessmen around the world. The companies these days are not confined to geographical boundaries of a country. They can now market and sell their products to countries that are far away and located in different continents. This has been made possible through more open communication and flow of information in the globalized world. Globalization is taking the world towards common or homogenous culture. Many things which were common in some countries have now been passed to other countries with the flow of information and spread of media and television channels. All of this has helped making the world a better and more open place. Another positive of globalization s that more and more people of the underdeveloped world and countries have become aware of their rights. They can now force their governments and other agencies to give them the same level of freedom and rights that the citizens of other countries are enjoying. As a result of this the standard of living of people is increasing throughout the world. Similarly, people are moving towards the same habits, lifestyles and behavioral changes. For example, people throughout the world eat McDonalds, wear Gucci, carry Iphones, and spend bulk of their time on Facebook and Twitter. This has created a similar culture and lifestyle for people living in countries that are located in different continents. Globalization has also given rise to standardization. For example credit cards in all the countries of the world have same dimensions and can be used throughout the world. (Sun, 2015). Globalization also affects the productivity and efficiency of a country. Many new ways of production are learned and innovation takes place as a result of innovation and development brought to the countries by the trend of globalized world and economies that are open to exogenous influence.
The cons and negative impacts of globalization are also a lot. For example, it has eradicated the cultural values of a society. Previously, the Asians were different from Americans and had different values and belief system. Globalization has taken away the culture values and has eradicated the beauty of diversification or differences in culture. Globalization has also a lot of negative impact for businesses around the world. It leads to exploitation of resources in poor countries and impacts underdeveloped countries badly if the technologically advanced nations dump their products in poor countries. It leads to a great damage to infant industries and local industry. It also results in the loss of jobs, and employment opportunities for the people and citizen of underdeveloped economies. For example, when Chinese goods enter into the markets of Asian countries, the local industry lose their business share leading them to bankruptcy or permanent closure.
Government and NGOs reduce the negative impacts of Globalization by making sure that the flow of information, trade and other opportunities are only limited. The limit should be such that makes sure that only the positives are enjoyed by the global world and negative impacts of globalization are countered by making policies that promote the local business and trade, and keeps the globalization to a level that benefits the society and does not alter the culture of the country altogether.
There are several initiatives that are being taken by NGOs throughout the world in order to make sure that the culture and local businesses are protected. Ministry of Culture is doing a lot in this regards with collaboration with the NGOs in order to promote the culture in India. In order to make sure that the culture does not get lost in the middle of the rise of globalization, a lot of initiatives have been taken by the ministry of Culture in India. US Aid is also doing a lot of programmes and promoting initiatives that boost local businesses and trade in underdeveloped countries so that they do not become a victim of dumping or other malpractices by the technologically advanced nations of the world which have strong business and economic conditions.
The political influence or the negative political policies and uncertainties are biggest hurdles for business condition recovery in underdeveloped countries like Somalia. Many investors are afraid to invest in these countries because of high level of unnecessary intervention by the government agencies and politicians. Bribery and extortion are also the common place vices in these countries. The poverty rate of Somalia is also a big problem and hurdle for businesses. In other words, the people in Somalia do not earn enough, and do not spend enough in order to sustain the business activities of the country. For example, out of 100 people, only 22.5 people carry a mobile phone subscription in Somalia. This percentage comes to only 22.5%. This is a very small percentage, and businesses need a larger middle class or spending population to thrive in any country. No business would invest in a country where the living standards are extremely low. It must also be noted that Somalia is stuck in vicious circle of poverty. For Somalia to do well they need flourishing businesses in the country, and for businesses to enter in the country they need a larger middle class or spending population. Somalia cannot have a larger middle class until new businesses enter the country, and they cannot have new business investment coming into the country unless they have a larger middle class. In other words, Somalia needs cyclical reforms to break the vicious circle of business investment, employment and poverty.
Another problem from Somalia is a negative or too much political influence on the economy of Somalia. Bribing, and illegal import and export of goods is common in the country. Hence, a business that does proper import, pays its taxes and import duties is unlikely to succeed in a country like Somalia. The politicians in the country are so strong that they can go out of the way to close down any business ( Nougayrède,2015).
For business that is entering to Somalia there should by lobbying done in order to make sure that it is not going to be teased by the local politicians. A company entering in Somalia should seek the government guarantees to make sure that they will be allowed to operate independently without any political interference. It should also convince the government that smuggling should not be allowed in the country in which the company is trading in. If there is a lot of smuggling in the country, the company will not be able to match the selling price of the smugglers and will have to make large losses. As a result, it should convince the government to have affective policies in place to counter smuggling and unnecessary interference of the politicians in the day to day running of the businesses in the country.
All of these measures, and support for the middle class in the country like Somalia is going to help the businesses succeed in the country like Somalia, and overtime it will make an environment that is conducive for business, and will reduce the unnecessary interference of politicians in the economic affairs of the country.
Synergy is very important for modern businesses these days. Synergy is defined by the professionals is something that is achieved through a merger or acquisition. In other words, it means that the joining together of two businesses help both the businesses in a way that helps them achieve better results, operate with more efficiency, and allow them to expand and increase or expand the business. In other words, synergy is achieved when the two businesses after merging or operating as one entity are able to give better performance in terms of profitability and efficiency than they were giving before. Another definition of synergy is when the sum of individual parts is smaller than the joint unit or organization. Mathematically, it can be defined as a situation when 2 +2 > 4.
An example of failed synergy is when two brands Elco and Shekem merged. Elco was was food electronics retailer, whereas Shakem was the retail chain. The two businesses were unable to generate synergies after the merger because both the businesses were in the different industry. Their synergy was only limited to selling and marketing of the food electronic products. They were completely different in terms of the business models, and the markets they were serving. As a result, the merger was unable to achieve synergies and could produce an effect where the sum of individual parts was greater than the each individual part itself. In other words, the merger failed to create the magic of adding 2 and 2 into 5. It is not in the numbers only, but it is also about generating positive performance by gelling together the two different and diverse organizations together in order to achieve the profitability and efficiency goals. (StreetInsider, 2015)
The synergy generated by the business was not there because there was not much of thinking done before the merger. One firm with excess funds bought the other firm without doing many analyses. As a result, the merger failed to create synergy and failed as a result. It was not discussed or formulated that how the merger will be used to create synergy. As a result, the companies could not work together well, and could not gel themselves together to create positive synergies. It is also an ideal case study for companies who indulge in unrelated mergers without thinking about the consequences of their actions, and as a result they find themselves in unacquainted and new territories. In the end, these companies lose out on both financial resources and efficiency.
Calia, M. (2015). Dynegy to buy assets from Duke, Energy Capital for $6.25 billion.
MarketWatch. Retrieved 14 February 2015, from http://www.marketwatch.com/story/dynegy-to-buy-assets-from-duke-energy-capital-for-625-billion-2014-08-22
Nougayrède, N. (2015). We Europeans must face up to our own security challenges | Retrieved 14 February 2015, from
StreetInsider.com,. (2015). Notable Mergers and Acquisitions 2/4: (ODP)/(SPLS)
(MXL)/(ENTR) (CLH)/(NES) (SJM). Retrieved 14 February 2015, from http://www.streetinsider.com/Special+Reports/Notable+Mergers+and+Acquisitions+24%3A+(ODP)(SPLS)+(MXL)(ENTR)+(CLH)(NES)+(SJM)/10227027.html
Sun, B. (2015). The downside of globalization and an interconnected world.
baltimoresun.com. Retrieved 14 February 2015, from http://www.baltimoresun.com/news/opinion/bal-the-downside-of-globalization-and-an-interconnected-world-20150212-story.html
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