The grocery chain expanded through the first half of the 20th century, and went public in The company also influenced culinary development in the country, popularizing products such as wine, sherry and kiwi fruit, contributing to the introduction of the refrigerator in Dutch households and introducing convenience items, such as ready meals and frozen pizzas, to Dutch consumers.
In this paper I will focus on the case study of Royal Ahold and the large accounting fraud that took place within the company. Sorry, but full essay samples are available only for registered users Choose a Membership Plan The shareholder approach focuses mainly on creating shareholder value by maximising profits, with a lot of pressure on short term financial performance.
Stakeholder theory on the other hand also takes into account the interests of parties other than the shareholder, e. All aspects of the company are dependent on which of these approaches it follows.
Transparency is a key element to successful corporate governance. Internal control functions provide central monitoring roles in corporate governance and I will show that weaknesses within these mechanisms, contributed significantly to the fraud scandal at Ahold.
By first of all introducing the agency theory, I will examine why such internal forms of control is necessary at all within a company. The reason why companies need such extensive monitoring of management could be argued to be rooted in agency theory.
Agency theory is rooted in the separation of ownership and control. The agent is believed to be purely self-interested and will act opportunistically.
The actions of the agents the managers need to be monitored in order to protect the interest of the principals the owners. Internal and external governance mechanisms are used in order to decrease managerial opportunism Solomon, The agency theory thus examines potential conflicts that may arise between management and shareholders.
The manipulation of the control mechanism, the auditing function, can be explored in order to get a better understanding of the disclosure and transparency weaknesses in Ahold. We shall see that the lack of transparency contributed to increasing and not decreasing the agency problem.
Disclosure of information is a critical function in reducing agency problems. Disclosure refers to different forms of information produced by companies. It also includes voluntary communications such as management forecasts, analyst presentations, press releases, corporate websites and many more Solomon, The voluntary information disclosed by Ahold was also affected by its fraudulent activity.
Market analysts could for example not analyse the company according to its real potential, seeing that the information disclosed was not living up to reality.
Financial reporting is one way of reducing information asymmetry, as it helps investors to make better informed decisions Solomon, I will now take a bit more detailed look at how Ahold was able to disclose the wrong information, leading to a serious lack in transparency in the firm.
US Foodservices USF received a large number of promotional allowances, if it purchased a large volume of merchandise. The problem was that managers systematically manipulated the books in order to compensate for any shortfall in their predicted earnings.
They managed these fraudulent activities in several ways. They coaxed suppliers to confirm their false promotional allowances, by threatening them through their powerful market dominance. They furthermore manipulated their accounting entries by for example incorporating discounts into the accounts before the actual sale was made or into the wrong time period.
This was also done despite shareholders agreements that provided joint control for Ahold and its joint ventures. Once again, this was done by Ahold in order to consolidate their revenues and earnings from their subsidiaries.
Both the accounting irregularities exhibited by Ahold, as well as the fraudulent activities in the alleged joint ventures, is examples of managements interests not being aligned with that of the shareholders. Managers acted in an opportunistic manner, when they saw a way to cover the shortfalls in their budgeted earnings.Royal Ahold Case Study.
Add Remove. Management analysis. Read this case and complete the following sections of the strategic audit. 1. Analysis of Strategic Factors and the subsequent royal charter trading doing well: Making the business case for corporate the recent Enron, MCI-Worldcom.
The issues I will address include Ahold’s transparency and disclosure weaknesses, its demanding culture focused on economic growth regardless of certain ethical principles, the weaknesses of corporate governance within Europe and the United States, as well as the influences a company’s global expansion has on corporate governance and its financial risks.
The Ahold Crisis 1 Royal Ahold is one of the largest international food retailers and food service companies in the world. At its peak in , Ahold’s reported sales and profits were respectively € billion and € billion.
The company operated 9, stores in 28 countries, with nearly half a . By , Royal Ahold had purchased retail grocery chains in Asia, Eastern Europe, Latin America, Portugal, Scandinavia, South America, and the United States. This aggressive expansion campaign made Royal Ahold the third largest grocery retailer worldwide by the turn of the century.
Read Ahold Delhaize's annual report and the past annual reports of Ahold and Delhaize.
As an analytical framework, I would like to use Robins’ () Technical, Political and Cultural problem analysis framework, in order to elevate understanding of the problems at Ahold by analysing it from these perspectives.