Minicase Analysis of Google Inc.

MiniCase Analysis of Google Inc.

c. Agency conflicts that may arise when Google still controls the company are as follows –

1. The cost of the perquisites are partially borne by outside stockholders while the value is appreciated by Google management and leaders might use corporate resources on activities that benefit themselves.

2. Google’s self-interests may not be aligned with those of outside stockholders and hence the corporate value will not be maximized as the agents are operating without Principal’s approval.

3. Google management might avoid taking risks or making value-added decisions that may be of interest to outside shareholders.

4. Google management might not release all the information that investors are looking for and may also be reluctant in returning the extra cash to the investors.

d. Agency conflicts that may arise when Google raises funds from outside lenders are as follows –

1. Asset switching where Google may choose to switch funds and invest in other riskier projects.

2.  If Google plans and decides to raise additional funds from another lender, the claims made to the previous lender may get diluted and thus increasing the financial leverage.

Lenders may follow the below to mitigate agency costs –

1. Demand high interest rates to protect themselves incase Google invests in activities with high risk.

2. Place detailed and restrictive covenants specifying the actions Google can take and cannot take.

3. Provide loans to Google with having equivalent value of assets as collateral.

f. Corporate Governance: The framework of rules and practices by which a management ensures, accountability, fairness and transparency in the company’s relationship with its stakeholders. The framework consists of explicit contracts and procedures to supervise and control the system as a whole.

Google has a non-executive chairman and its Board owns the majority of stocks and shares. Google’s system of governance is based on a unique model – Triumvirate. Corporate governance provisions that are internal to Google and are under its control are –

1. Business execution: Google delineates basic management policies and sets specific management goals. The company resources are deployed as necessary to achieve management targets.

2. Risk management: In addition to managing risk on an individual project basis, Google management assesses the risk for the company as a whole without the involvement of outsiders (shareholders).