Today's blog is about financial ethics. Two consecutive weeks in lectures and seminar I've been learning about it. I think it is mostly about common sense and what we have experienced about it in real life workplace. I used to work in a company back in my hometown, as a part-time accountant assistant. Although it was just a temporary job, it was something I have learned a lot about being ethical. Being ethical means to eliminate self-interest, having good moral, being professional, follow the law and the list goes on.
There are not many news about financial ethics but here is one about Volkswagen. According to Financial Times (2015), professor of business ethics complained that Volkswagen cheats their emission tests. It is a procedure where cars have to be tested to know whether they meet the standard or not. The companies used clever software to detect when certain diesel models were subject to emission tests and to send the engines into a special low-emission mode. It seems like the engine management software could detect road wheel rotation speeds, steering inputs and use of accelerator to make this determination. This is why VW were under pressure of not having the new model vehicle. VW came clean eventually and admitted that 11 million vehicles were affected worldwide.
Of course, fines applied, reaching US$18 billion (based on half-million affected vehicles). Criminal investigations began as well. It also caused VW's share price to decrease. This situation has led to fines, compensations, lost in sales, and it also costs their reputation.
According to the professor, many VW engineers and executives must have known something was going on. I think it was totally unethical to have done something like this. When businesses go bad, people would always push the blame on the society. For example, saying "everybody is doing it too!" or "if we don't do it, someone else will" or " no one is getting hurt!"
I think VW was trying to cut costs because the car industry has high cost of capital, as stated by the presentation of Fiat Chrysler's CEO, Sergio Marchionne named "Confession of the capital junkie". In the presentation, Sergio Marchionne demonstrated that the car industry's cost of capital was too high. Furthermore, the returns of mainstream OEM (such as VW) were lower than their WACC. Therefore, I assume that this is the reason behind the skipping of emission test, which helps with reducing the overall cost.
This also makes me wonder.. Does that mean that the whole world doesn't have to be ethical anymore? VW has showed that unethical business can lose you respect, reputation and a huge sum of money. Hope it serves as a lesson to VW and other companies out there that business ethics are important and that every businesses in the world, no matter small or big, should be ethical. Without ethics, a company can never be successful. Do what is right, not what is easy.
Source:
Financial Times, 2015 http://www.ft.com/cms/s/2/32689e6c-6c3e-11e5-8171-ba1968cf791a.html?ftcamp=engage/capi/widget/client/openft/b2b#axzz45pGnf2lI
http://www.bbc.co.uk/news/business-34324772
Fiat Chrysler "Confession of capital junkie" http://www.fcagroup.com/en-US/investor_relations/events_presentations/quarterly_results_presentations/SM_Fire_investor_presentation.pdf
Friday 22 April 2016
Thursday 14 April 2016
Blog #7: Mercedes Goes to Motown (Documentary)
This week's blog post is going to be about the M&A of Daimler-Benz and Chrysler.
In November 1998, Daimler-Benz merger with Chrysler were probably the most famous of all international mergers then ended in failure. Daimler-Benz is one of Europe's largest automobile company. On the other hand, Chrysler was based on the US. At first, I thought the merger was a great idea. But no, there were so many problems. In the documentary, it shows obvious cultural differences as the main part of their problem. There were also different problem regarding their management- the different management thinking (closely relates to cultural differences) and other factors.
The merger deal was $56 billion for Chrysler to join the German Daimler Benz. Both Chrysler and Daimler saw the need to come together at first, but has now find it really difficult to remain competitive in this century as there are more and more competitors.
The companies also had different cultures. Daimler was quite a hierarchical company with a clear chain of command and respect for authority. Daimler Benz effectively operated as a holding company for a series of autonomous subsidiaries. Each subsidiary had their own management and structure. Though only one subsidiaries was profitable- Mercedes. While Chrysler was a more team-oriented one and also risk takers.
The manager chose its headquarter to be at Stuttgart rather than New York. Why would they do that? The share price fell after that. This had not been foreseen in negotiations. With further negotiations, their headquarters were not allowed in US and Germany. It was already a problem but there were more. They aren't making any profit- poor performance. Other than that, poor press were released with Detroit newspapers running anti German editorials. There were seemed to be poor handling case which were overlooked.
In year 2000, the company began to produce losses especially on Chrysler. They even had to reduce operations and also cut their number of employees. The merger wasn't even beneficial. Daimler Benz held the position of power from the start and made key strategic decisions with their own self-interest in mind. Then what "equal merger" meant to them? They also had no plans to power share with their American counterparts. Chrysler's workers even saw the deal as a takeover rather than a merger. I think there was an issue of trust because the employees on both sides felt reluctant to work with each other. I guess this is also the reason why they fell apart.
In my opinion, the cultural factor cannot be ignored on a global level, especially not within merger and acquisitions. Other than that, the merger of two companies cannot succeed without proper management. If they had good management, I guess things would turn out differently due to the synergies they could achieve from the M&A (such as revenue enhancement, higher bargaining power, lower costs and higher productivity).
In November 1998, Daimler-Benz merger with Chrysler were probably the most famous of all international mergers then ended in failure. Daimler-Benz is one of Europe's largest automobile company. On the other hand, Chrysler was based on the US. At first, I thought the merger was a great idea. But no, there were so many problems. In the documentary, it shows obvious cultural differences as the main part of their problem. There were also different problem regarding their management- the different management thinking (closely relates to cultural differences) and other factors.
The merger deal was $56 billion for Chrysler to join the German Daimler Benz. Both Chrysler and Daimler saw the need to come together at first, but has now find it really difficult to remain competitive in this century as there are more and more competitors.
The companies also had different cultures. Daimler was quite a hierarchical company with a clear chain of command and respect for authority. Daimler Benz effectively operated as a holding company for a series of autonomous subsidiaries. Each subsidiary had their own management and structure. Though only one subsidiaries was profitable- Mercedes. While Chrysler was a more team-oriented one and also risk takers.
The manager chose its headquarter to be at Stuttgart rather than New York. Why would they do that? The share price fell after that. This had not been foreseen in negotiations. With further negotiations, their headquarters were not allowed in US and Germany. It was already a problem but there were more. They aren't making any profit- poor performance. Other than that, poor press were released with Detroit newspapers running anti German editorials. There were seemed to be poor handling case which were overlooked.
In year 2000, the company began to produce losses especially on Chrysler. They even had to reduce operations and also cut their number of employees. The merger wasn't even beneficial. Daimler Benz held the position of power from the start and made key strategic decisions with their own self-interest in mind. Then what "equal merger" meant to them? They also had no plans to power share with their American counterparts. Chrysler's workers even saw the deal as a takeover rather than a merger. I think there was an issue of trust because the employees on both sides felt reluctant to work with each other. I guess this is also the reason why they fell apart.
In my opinion, the cultural factor cannot be ignored on a global level, especially not within merger and acquisitions. Other than that, the merger of two companies cannot succeed without proper management. If they had good management, I guess things would turn out differently due to the synergies they could achieve from the M&A (such as revenue enhancement, higher bargaining power, lower costs and higher productivity).
Subscribe to:
Posts (Atom)