Reference no: EM131610357
Both Biondo and Cramer are large public corporations with subsidiaries throughout the world. Biondo uses a centralized approach and makes most of the decisions for its subsidiaries. Cramer uses a decentralized approach and its subsidiaries make many of their own decisions. Please answer E
a. Would the agency problem be more pronounced for Biondo or Cramer? Explain. The agency problem will be more pronounced for Cramer because Cramer uses decentralized approach and in this situation most of the decisions can be taken by its subsidiaries. In the case of decentralized approach agency problems are created when parent and subsidiaries corporations have opposition opinions and as a result condition of conflict arises that ultimately leads to agency problems.
b. Would agency costs likely be higher for Biondo or Cramer? Why? Of course agency costs would be higher for Cramer because this corporation has decentralized approach and in this approach its subsidiaries have own working organisation and structure that ultimately leads to higher agency costs.
c. Discuss a major advantage and a major disadvantage to a centralized approach such as Biondo uses. Major advantages of centralized approach is less agency costs, quick decisions, full privacy and no conflict with its subsidiaries.But it have some major disadvantages also such as negligence of some innovative ideas of subsidiaries, these ideas can give some good benefits apart from this employees of subsidiaries also discouraged due to no chance for decision making etc
d. Discuss a major advantage and a major disadvantage to a decentralized approach such as Cramer uses. In case of decentralized approach Parent Corporation can get better ideas in decision making and also can know local environmental knowledge. Thus it is major advantages of this approach. But it have some major disadvantages also such as delay in decision making because management of both units such as parent and subsidiaries will try to implement own decisions.
e. Which is better, a centralized or decentralized approach? Explain.