Example Paper 1

Abstract

This paper= will serve as an addendum to the Transformational Leadership Profile and will se= rve as a guide for financial planning and decision making throughout the author= ’s career. This paper will cover strategic changes within the organization, in= an attempt to improve financial performance of the company. These changes refl= ect the leadership style of the author. The difficulty arises as the company currently employing the author is in the process of spinning off from the parent company and some financial decisions are impossible at the present t= ime to assess.

This paper= will consist of topics including global corporations and the possible impact each financial decision has on the overall profitability of the corporation considered. The company is being spun off and will become its own entity shortly. This has yet to occur, and no financial data is included in the development of the paper. Financial theories remain predictors of the future and the possibilities of success based on different leadership or management decisions that are made.

Financial decisions are based in sound financial theory and the leadership plans will remain steadfast in the direction of full disclosure regarding accurate accounting for both investors and company executives. The different levels = of the modern multi-national corporation (MNC) require cooperation between all levels of management in order to complete the organization. Gone are the da= ys in which one man could control all aspects of a large company. Wren stated, “Manage= rs of the future will be more inclined toward teamwork and will want an atmospher= e in which they can be creative and cooperative” (p. 432).
Introduction [SLB1]

This paper used as an addendum to the current Transformational Leadership Plan w= ill serve as a guidepost for financial decisions made while relating back to the original leadership plan. Much as leadership styles are unique to each individual situation, financial theories and decision-making relate to spec= ific situations and occurrences within the workplace. This paper does not attemp= t to determine which would be optimal for financial gain yet depicts styles that would serve the leadership plan to its best capacity. This paper will cover strategic changes within the organization, in an attempt to improve financi= al performance of the company. These changes reflect the leadership style of t= he author. The difficulty arises in the company currently employing the author= is in the process of spinning off from the parent company and some financial decisions are impossible at the present time to assess.

Financial Implications

Wren (1994= ) [POD2] stated, “When transport was crude and slow, markets for products were largely localized, so there was little or no need to enlarge the volume of goods manufactured” (p. 84). This statement translated now to financial sty= les indicates when business was crude and slow the need for new and innovative financial styles was largely localized and little or no need to improve upon those financial styles, accounting procedures, or methods of financing. In = the global economy of today, where the world is essentially the marketplace, th= ere is a need for ever-changing and evolving financial decision-making. Kipp (2= 001) stated, “Some futurists argue that there = will be more change in the next 25 years than in the last 100” (p. 37). As= we look at financial theories and the impact of global economies of scale, the changes are noticeable immediately. Transportation is no longer a detriment= to moving products throughout the country and around the world. Goods and serv= ices are able to move around the world in a matter of days instead of weeks, and communications can remain almost instantaneous using the Internet.

Changes as mentioned above affect not only the way business leaders conduct business b= ut the method by which companies can now use financial tools to build greater organizations. Kipp pointed out “Regardless of a leader's preferred style, a continuously innovative company must be visibly led in the notion = that creativity is a core value” (p. 37). Financial managers remain at the forefront of innovation as without finance there can be no innovation. As a global company with many resources at its disposal, the company must remain steadfast in maximizing the wealth for the stockholders through diversifica= tion of workloads and maximizing the efforts to grow the business through use of= the International Fisher Effect (IFE). Madura (2003) defined this theory as, “. . . nominal risk-free interest rates contain a real rate or return= and anticipated inflation” (p. 247). Use of such an effect can allow for positive cash flow from one country to another without putting capital at r= isk. This is the first strategy for implementation that should occur in order to establish a positive cash flow for the new company.

The modern financial analyst requires the understanding the financial requirements of a MNC. The current company has branches in Ma= laysia, China, Japan, Fra= nce, Scotland, and the US. This requires an understanding of Direct Foreign Investment (DFI). To under= stand DFI, the finance officer remains vigilant of cost-related motives related to conducting business in foreign countries. Madura stated a full understandin= g of DFI would require and [SLB3] understanding of the following; fully benefit from economies of scale; use = of foreign factors of production; use foreign raw materials; use foreign technology; and react to the exchange rate movements (p. 393). Using all the benefits of DFI, the MNC can gain a competitive advantage over the competit= ion that may not have access to such tools.

Cusatis, M= iles, and Woolridge (n.d.) noted companies tend to spin off entities to provide f= or better fit and focus. The authors then noted,

That is, by separating unrelated businesses, spinoffs promise to eliminate operating and managerial inefficiencies steaming [SLB4] from the lack of strategic fit or synergy between the subsidiary and the parent. They can also improve the subsidiary’s access to capital, allowing it to appeal directly to the market instead of the parent’s senior management. Finally, spinoffs lead to greater decentralization of decision-making, as well as improvements in managerial accountability and incentives. (p. 594)

The company plans to take f= ull advantage of these decisions in raising its own capital through an Initial = Public Offering (IPO). The IPO, expected to raise between $10-$15Million dollars, provides needed operating cash for necessary changes in corporate structure= and needed capital. Custatis, Miles, and Woolridge noted, “As a n= ewly independent and separately trading businesses, spinoffs experience significantly faster growth n sales, operating income before depreciation, return on sales, total assets, and capital expenditures that other comparab= le firms over the same time” (p. 599).

[SLB5] With this thought in mind, a transformational leader, wishing to maximize both c= ash flow and future earnings for stockholders, would seek to issue convertible bonds. Mayers (n.d.) stated,

The popular explanation (for issuing such bonds) is that convertibles provide the best = of both worlds: they provide issuers with “cheap debt” in the sense that they carry lower rates than straight debt; and, if the firm performs w= ell and the bonds convert into equity, they allow issuers to sell stock “= at a premium” over the current share price. (p. 334)

With this method, the compa= ny faces a win-win situation. Money is raised for specific goals and can be tracked = to allow the investors the opportunity for higher returns along with providing= the company with a future source of income. As growth occurs within the company, investors are able to convert bonds into stocks giving the company a new so= urce of income to produce new products.

Mayers stated, “Convertible bonds are likely to prove a cost-effective finan= cing approach for companies with major growth-options because of the ability they offer management to match capital inflows with expected investment outlays = (p. 335). Through this method, the company will have continuing funds to invest= in future projects as they occur while providing the investors substantial ret= urns for their risk.

As a high-= tech company, there is a need for investment in the future. Those products of the future will rapidly replace the products of today. Mayers showed, “In= the “new economy,” a rapidly growing proportion of corporate value appears to derive not from the profits generated by companies’ current activities, but from their real investment options that may prove worth pursuing, but may not” (p. 346). Many products under development today will not see the marketplace due to expenses involved in the undertaking or from technological advances that occur during development. These projects m= ust nevertheless be undertaken to develop the tools and abilities to undertake the new challenges that will yield profitable products.

Leaders of tomorrow, both = of people and finance, will deal with cultural and global issues never before thought possible. The world will become the marketplace and provide financi= al resources to the leaders able to control and adapt to an ever-changing worl= d. Wren stated:

Management is one of the most dynamic of all disciplines; as technology, institutions, and people change ideas of management evolve to c= ope with humanities oldest problem-the allocation of and utilization of scarce resources to meet the manifold desires of society. (p. 442).

Finance managers of the fut= ure will feel an ever-increasing burden to dole out the scarce resources to develop products or increase the wealth of the company. To this end, the finance manager will look to the global economy to find solutions to the problems. =

Palepu, Healy, and Bernard (2004) in describing the Korean Stock Exchange bring for= th the challenge that faces all financial managers of the future. The authors stated, “Although new accounting regulations were aimed at improving = the quality of information available to investors to monitor corporate managers, there was much skepticism about the rules that had been mandated “(p. 176). This statement holds true across the board when dealing with financial data. With the current Enron and WorldCom debacles the accounting practices= of U.S. firms becomes questionable as well.

Kipp state= d,

Truly innovative companies see the business case as an ongoing question rather than an 11^th hour justification. They are also quick to adjust roles, reporting relationships= and incentives so that rolling momentum does not crush initiatives. The "scaffolding" that holds all these factors in place is a coherent business strategy, an enabling culture and the instrumental support systems, metrics and tools - that equip a broad range of minds to play "what if?" with their operating environment. (p. 37)

This transla= tes to financial managers being honest and upfront with all decisions made not only today but also those of the future. Change occurs through the entire proces= s to allow for accurate and up-to-date accounting of what money is coming into t= he company coffers and how this money is allocated back to the investors or for improvement within the company. Accurate reporting of profits as well as losses, R&D, expenditures, and benefits becomes paramount in the development of a successful relationship between the company and the invest= ors.

The transformational leader of today will emphasize the importance of high goals and expectations and the will to see them completed, on time, on budget, and the determination to make it happen. What has become the standard today wil= l no longer be at the forefront tomorrow. Kipp wrote,

We have had considerable success in identifying targets of opportunity for improvement using an easy-to-adminis= ter self-assessment. The exercise begins with a clear-eyed, fact-based review of the organizations current innovation results. What does the record show on = such things as new product launches, process improvements, customer generation protocols, talent retention programs, or novel business concepts? (p.37)

To this end,= the financial manager of today must invest in Research and Development (R&D= ). Without R&D, the company will fall by the wayside and be forgotten. Even the best buggy whip manufacturer in the world has seen profits and sales dr= op to nothing with the advent of the automobile. Lev (n.d.) pointed out, “Research and development is the major driver of technological change-hence the central role of R&D in economic growth and welfare improvement” (p. 52). Capital for R&D remains on the front of eve= ry discussion. The company will not survive without new and innovative product= s to take the fancy of the consumer. Lev pointed out,

R&D expenditures contribute significantly to the productivity (value added) and output of firms, and the estimated rates of return on R&D investment are quite high-as much as 20-30% annually-although varying widely across industries and over time. In= deed the estimated returns to R&D are more than double the returns to tangib= le capital, reflecting the higher productivity as well as riskiness of R&D capital relative to physical assets.

While incurr= ing this risk the loss of income from not producing new products for consumption spells doom in the high tech business environment. With changes occurring almost daily, what is successful today fails to meet the standards necessar= y to function in the world tomorrow. The products of the future become smaller, faster, more accurate, and more user friendly with each passing day allowing the costs of R&D to be recovered and the profits of the company assured. The financial officer that fails to invest in the future will fail to have a future. Lev pointed out, “Although R&D is the major productive fa= ctor and the principal asset of high-tech and science-based companies, public information and firms’ R&D activities and their benefits is wholly inadequate for investment research and analysis” (p. 64). This secrecy remains a stalwart of financially sound companies allowing them to maintain= a competitive advantage over the competition.

&= nbsp; In detailing personnel in a financial setting, the use of Resourceful, Evaluat= ive, Maximizing Model (REMM) would be further developed to ensure personnel cont= inue to operate at peak efficiency. Jensen and Meckling when discussing REMM sta= ted, “The proposition means individuals are always willing to substitute-t= hat is, they are always willing to give up a sufficiently small amount of any g= ood for a sufficiently large amount of other goods” (p. 7). A finance off= icer can value all payroll incentives against this assessment. Incentives based = on performance can allow the company to forestall payments for a time and yet reward employees substantially for increases in production. Lev further sta= ted, “They respond creatively to the opportunities the environment present= s to them, and they work to loosen the constraints that prevent them from doing = what they wish to do” (p. 19). The worker of today fits the REMM model wel= l, willing to give up small amounts of anything to receive bigger payouts in t= he future.

Collins (2= 001) discussed the rise of Stan Gault to CEO of Rubberfmaid. While the company prospered under his leadership and gained status as one of the most remarka= ble companies, the company collapsed once he left. Did it matter to anyone the impact he had on the company? Would the company have been better off without his intervention? The financial leader of the future faces much the same dilemma. Is it better to make small gains over time that are lasting and improve the company dramatically over time or to make major changes quickly= and ones that are not sustainable? Finance officers today face ever-increasing scrutiny in determining the proper approach to accounting procedures. These officers continue to face challenges in divulging accurate information while not displaying information of a proprietary nature.

The empowe= rment of others makes a leader successful. Bass stated, “Transformational leadership that results in mutual stimulation and elevation that converts followers into leaders and may convert leaders in to [SLB6] moral agents” (p. 23). The financial leader must remain vigilant to select people that are capable of continuing the work he has begun. The financial leader remains steadfast in his search to maintain the stimulation that will allow followers to move forward as leaders and suggest future changes that = can increase the profitability of the company.

Conclusion

 &=
nbsp;          Financia=
l leaders are in a position to provide the lifeblood of the company. No mat=
ter how innovative or brilliant a leader is without financial backing to ca=
rry out his bidding there will be no initiative. The different levels of th=
e modern Multi National Corporation require cooperation between all levels =
of management in order to complete the organization. Gone are the days in w=
hich one man could control all aspects of a large company. Wren stated, “Managers of the=
 future will be more inclined toward teamwork and will want an atmosphere i=
n which they can be creative and cooperative” (p. 432). The essence o=
f the modern corporation requires leadership to direct and control the proc=
esses and finance to control the costs and allow for proper accounting and =
distribution of the profits. The finance department holds responsibility fo=
r garnering new funds for additional projects that will remain the cornerst=
one of industry.

References<= /p>

Bass, B.M. (1990). Handbook of leadership: Theory, research, & managerial applications (3^rd Ed.). <= st1:place w:st=3D"on">New York: The Fr= ee Press.

Chew, D. H., (Ed.). (2001). The new corporate finance: = Where theory meets practice. Ne= w York: Irwin.

Collins, J. (200= 1) Level 5 Leadership. Harvard Business Review, 79 (1), 66

Madura, J. (2003). International financial management= (7^th ed.). Mason, OH: South-Western.

Kipp, M. (2001). Mapping the business innovation process. Strategy & Leadership, 29(4),&= nbsp; 37.

Palepu, K. G., Healy, P. M., & Bernard, V. L. (2003). Business analysis and valuation (3^rded.). Mason, = OH: South-Western.

Wren, D., (1994) The Evolution of Managem= ent Thought (4^th ed.), <= /i>Norman, OK: John Wiley and Sons. 1994