ACCA P1講義 - 委托代理

Fiduciary Duty(12/14Q1CheapKit, 06/13Q3 Dubland,12/07Q4 Football Club)

Fiduciary duty is a duty of careand trust which one person or entity owes to another. It can be a legal or ethical obligation.( Fiduciary duty的兩個組成部分，legal and ethical)

In law it is aduty imposed upon certain persons because of the position of trust andconfidence in which they stand in relation to another. The duty is more onerousthan generally arises under a contractual or tort relationship. It requires full disclosure of information held bythe fiduciary, a strict duty to account for any profits received as a result ofthe relationship, and a duty to avoidconflicts of interest.

Under Englishlaw company directors owe a fiduciary duty to the company to exercise theirpowers bona fide in what they honestly consider to be the interests of the company. This duty is owed to the company and not generally to individual shareholders.In exercising the powers given to them by the constitution the directors have afiduciary duty not only to act bona fide but also only to use their powers for a proper purpose. The powers are restricted to the purposes forwhich they were given.

For example, for a solicitor to act in the best interests of a client, ora nurse to act in the best interests of a patient.（主要有l(wèi)egal duty and moral duty）

Difficulties canarise if there is no clear legal fiduciary duty but there is arguably an ethical duty. What the ethicalduty is may depend on an individual’s view of ethical responsibilities.

Fiduciaryrelationship with stakeholders

There may alsobe problems if a legalfiduciary duty to one group of stakeholders conflicts with what appears to be an ethical fiduciary duty to another group, as in this situation.

Evan and Freemanhave argued that managementbears a fiduciary relationship to stakeholders and to the corporation as an abstract entity. It must actin the interests of the stakeholders as their agent, and it must act in the interests of the corporation to ensure the survival of the firm, safeguarding the long-term stakes of each group.

ACCA考試要點：definition, legal and ethical duty related to scenario, duty extend (otherstakeholder) and why extend.

思考題:( 06/13Q3 Dubland)(amended)

Because of ageneral lack of business confidence in Dubland, its major banks had severely restrictednew lending. This lack of lending extended to small and large businesses, andalso to individuals in society. Press statements from the banks often referredto the need to mitigate financial risks and the need to maintain capitaladequacy. Over time, the lower lending produced some negative consequences inthe wider Dubland economy.

The Dublandfinance minister remarked that, 'As finance minister, I believe that banks havea vital role in supporting the economic strength of this country. They holdcash deposits and make short and long-term loans, which are vital to otherbusinesses. Taking risks is a normal part of all business operations and ourbanks need to accept this risk when it comes to lending.'

Ron Ng, thechief executive of BigBank, Dubland's largest bank, said that despite thefinance minister's call for higher lending, his only duty was to BigBank's shareholdersand it was this duty that guided BigBank's reduced lending.

Required:Describe 'fiduciary duty' in the context of thecase and critically evaluate the issues raised by Ron Ng's belief.

Answers:

Definition,legal and ethical elements, conflict of interest(不僅指principal和agent之間，而且包括agent和otherstakeholder之間)

In favor: Legalduty, Ethical duty

Against: contextof wider economy, LT

Agency Problem (06/15Q2 R&A,12/13Q2 Sarbanes-Oxley, 06/12Q1 Hayho ,06/10Q1Hesket Nuclear,06/09Q1 Global-Bank, 06/08 Q3 Rosh)

Agency is defined in relation to aprincipal. A principal appoints an agent toact on his or her behalf. In the case of corporate governance, theprincipal is a shareholder in a joint stock company and the agents (that havean agency relationship with principals) are the directors. The directors remain accountable to the principals for thestewardship of their investment in the company.（Agency存在于很多關系中，在CG中的Agency只是一種，其它如保姆、審計師等）

對Agent的要求：

(1)Performance

The agent whoagrees to act as agent for reward has a contractual obligation to perform his agreed task.

(2)Obedience

The agent mustact strictly in accordancewith his principal's instructions provided these are lawful and reasonable.

(3)Skill

(4)Personal Performance

The agent ispresumably selected because of his personal qualities and owes a duty to perform his task himself and not to delegate it to another.

(5)No conflict of Interest

(6)Confidence（保密）

(7)Any benefit（歸principal,除非Principal agrees）

Agency relationshipis a contract underwhich one or more persons (theprincipals) engage another person (the agent) to perform some service on their behalf that involvesdelegating some decision-making authorityto the agent.

舉例：public和privatecompany的Agencyrelationship 有什么區(qū)別?

Agency andcharity, Agency and public sector organizations.

The agency problem in joint stock companies derives from theprincipals (owners) not being able to run the business themselves and thereforehaving to rely on agents (directors) to do so for them. This separation of ownership from managementcan cause issues if thereis a breach of trust by directors by intentional action, omission, neglect orincompetence. This breach may arise because the directors are pursuing their own interests rather than the shareholders' or because theyhave differentattitudes to risk-taking tothe shareholders.

(記住conflict的兩大原因，學會看上面的圖說話)

Agency—>Agency relationship—>Agency problem(記憶線索圖)

Example: Suggestsome ways in which shareholders can monitor and control the board of directors.

Monitor:(1)NED(2)Request information of committees (3)Employ consultants (4)Attend AGM

Control:(1)Performance related pay  (2)Bonus(3)Share options

思考題：(06/10 Q1 Hesket Nuclear)

Explain what anagency relationship is and examine the board of HPC’s current agencyrelationship and objectives. Briefly explain how these would differ if HPC wasa company with private shareholders.

Alignment of interests(Resolving Agency Problem)

Alignment of interests is accordancebetween the objectives of agents acting within an organisation and theobjectives of the organisation as a whole. Alignment of interests is sometimesreferred to as goal congruence.

How to realize:

(1) Profit-related/economic value-added pay

Pay or bonusesrelated to the size of profits or economic value-added.

(2) Rewarding managers with shares

This might bedone when a private company 'goes public' and managers are invited to subscribefor shares in the company at an attractive offer price. In a management buy-outor buy-in (the latter involving purchase of the business by new managers, theformer by existing managers), managers become joint owner-managers.

(3) Executive share option plans (ESOPs)

In a shareoption scheme, selected employees are given a number of share options, each ofwhich gives the holder the right after a certain date to subscribe for sharesin the company at a fixed price. Such measures might merely encouragemanagement to adopt 'creative accounting' methods which will distort the reported performance ofthe company in the service of the managers' own ends.

(4)Analternative approach is to attempt to monitor managers' behaviour, for example by establishing 'management audit' procedures, to introduce additional reporting requirements, or to seek assurances from managers that shareholders' interests will beforemost in their priorities. The most significant problem with monitoring islikely to be the agencycosts involved, as they mayimply significant shareholderengagement with thecompany.

Conflict of Interest(06/12Q3 Jojo)

Definition:(what)

A conflict of interest is when a person's freedom to act is limited by the need to protect acontrary interest.This contrary interest undermineswhat should be objective decision-making.

Agency Cost

To alleviate theagency problem, shareholders have to take steps to exercise control, such asattending AGMs or ultimately becoming directors themselves. However agencytheory assumes that it will be expensive and difficult to:

· Verify what the agent is doing, partly becausethe agent has available more information about his activities than theprincipal does.

· Introduce mechanisms to control the activitiesof the agent.

The principalstherefore incur agency costs, which are the costs of the monitoring that is required because of the separation of ownership and management.

Common agencycosts include:

· Costs of studying company data and results

· Purchase of expert analysis

· External auditors' fees

· Costs of devising and enforcing directors'contracts

· Time spent attending company meetings

· Costs of direct intervention in the company'saffairs

· Transaction costs of shareholding

Transaction Costs Theory

Transactionscost theory broadly states that the way the company is organised or governed determines its control over transactions. Companies will try to keep as manytransactions as possible in-house in order to reduce uncertainties about dealing with suppliers, and aboutpurchase prices and quality. To do this, companies will seek vertical integration (that is they will purchase suppliers orproducers later in the production process).

Transaction costtheory also states that managers are also opportunistic ie organise their transactions to pursue theirown convenience. They will also be influenced by the amounts that they personally will gain, the probability of bad behaviour being discovered and the extent to which their actions are tolerated or even encouraged in corporate culture.

A further aspectof the theory is that managers will behave rationally up to a point, but thiswill be limited by theunderstanding of alternatives that they have.

The implicationsof transaction cost theory are that management may well play safe, and concentrate on easily understood markets andindividual transactions they can easily control. This may mean that the companyruns efficiently and, in its way, effectively. However a focus on low-riskactivities may discourage potential investors who are looking for a largereturn. Alternatively shareholders dissatisfied with low profits may seekgreater involvement in governance.

Internallysenior managers will need to assess the impact of opportunistic issues, sincethis should determine the degree ofmonitoring that is needed over the activities of operational managers.

Thus despitedifferences of emphasis, transaction cost theory and agency theory are largelyattempting to tackle the same problem, namely to ensure that managers pursueeffectively shareholders' best interests.

Example: 大額交易分批完成,網(wǎng)上購物，魯濱遜經(jīng)濟，運送歐洲犯人船長的例子。

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