Reference no: EM133039824

You are engaging in a consulting project with a firm that operates in a city that relies heavily on relationships for business contracts. Many stakeholders e.g. employees, regulators, banks, suppliers and customers are "related" to your client firm. However, the client firm also has arm's length stakeholders. You are asked to analyze their corporate governance practice and provide some help to them, especially in protecting arm's length stakeholders. Please take a look at the following discussion questions.

Questions:

1. How were the relationships developed between the firm and its related stakeholders? (Hint: think about the relationships that were developed before vs. after the start of the contracts)

2. Can you think of any possible types of the social ties that the firm can use for developing relational contracts? (Hint: family relationship is the strongest form of social ties, but there are more).

3. Who might be the arm's length stakeholders for the client firm?

4. Describe the differences in how the client firm handles contingencies for relational contracts vs. arm's length contracts?

5. Can you think of situations in which firms' contractual relationships with the related stakeholders can hurt the interests of the arm's length stakeholders? (Hint: one possibility is associated with their difference in horizon for the business relationships).

6. How should the arm's length stakeholders be protected through internal and external governance mechanisms?

7. Should the firm sacrifice the arm's length stakeholders for the protection of the related stakeholders?