Dell Incorporation Company Performance and Governance

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Introduction

Dell Incorporation produces and sells computers and computer-associated equipment. This paper provides suggestions on how Dell can minimise its ethical problems and improve its agency relationships.

Under what conditions is it ethically defensible to outsource production to low cost producers?

Labour contracting is not a restricted word that is only understood by few United States multinationals because the technique also significantly concerns other employers; put differently, it is the association between United States companies and overseas suppliers in terms of company resolutions and control. Dell, a leading computer company, may attempt to take advantage of all the suitable features of globalisation, such as minimising the level of labour costs and staffing to obtain intellectual resources (Geis, 2007).

Moreover, Dell may want to acquire precious expertise from knowledgeable overseas employees and thus use less intellectual and physical efforts. In other words, Dell may attempt to achieve more for less. Therefore, Dell management may justify themselves for exploiting external expertise for the advantage of their company in a number of ways. In the report on its ethical responsibility, Dell may argue that it applies the electronics industry code of conduct to ascertain high working and ethical standards in all its operations.

Additionally, Dell may defend outsourcing its production to low cost producers from zones with lower labour costs, such as India, by claiming full compliance of the country’s ethical requirements. The managers may contend that they use contracting from these zones owing to lack of adequate casual workers from the United States and the United Kingdom (Ip, 2008).

Dell may also defend concentrating its production in regions with low labour costs by alleging that sourcing from a wide pool of countries enables the company to work with diverse people all over the globe and create an alliance with them. Another defence should be that every Dell supplier is obligated, by Dell contract terms, to function in total observance with the guidelines and regulations of the nations where it works and is mandated to implement and enthusiastically follow the EICC code of conduct.

Dell should mandate its suppliers to present the recorded confirmation of their assurance to put into operation its ethical supplier standards through a self-complacency tool. Moreover, Dell management may also justify themselves that they do not depend on self-audits of their offshore contractors as a proof of ethical compliance, but they also visit these offshore factories to assess the truthfulness of their ethical reports (Ross, 2007).

Most multinational companies in the UAE, however, are unwilling to train new members of Emirati staffs, particularly due to the comparatively small figure of educated Emirati; they thus simply shift employers. Citibank management, for instance, alleged that they would willingly hire Emirati if they had competitive proficiencies, work practices and the corresponding income expectations.

Michael Dell, Dell’s CEO, defended multinationals by claiming that an Emirati can cost a corporation 50 percent more than an expatriate (Carmel & Tjia, 2005). Additionally, many multinationals have to incur the costs of cultural adjustments as they endeavour to attract country nationals, such as Emirati. Abert Momdjian, the CEO of Calyon International bank, pointed that the bank may be forced to downsize to five-day working in a week from the normal six days and change to an 8 a.m. to 4 p.m. workday instead of calling for morning and evening hours.

Governance mechanisms review

Governance mechanisms refer to protective mechanisms that stockholders employ to keep in check and monitor the conduct of agents from going beyond the scope of their mandate. These mechanisms assist to ascertain that managers act in a way that is coherent with the best concerns of the stockholders. The governance instruments also help to adjust the interests of organisation executives with those of the shareowners.

This section considers the governing mechanisms employed by Dell Company stockholders to regulate the conduct and interests of its managers in the company’s business. Dell Incorporation should employ a board of directors at the heart of the company’s corporate governance structure. Dell’s board members should be directly elected by the company shareholders and under the company’s articles of association, they should thus represent the owners’ interests in the organisation (Ross, 2007).

The board should have the mandate to review all the corporate decisions made by Dell managers and ascertain that they are in conformance with the shareholders’ best interests. The company’s board should have the legislative right to employ, sack and compensate company staff, the company chief executive officer not being an exception. Additionally, Dell incorporation board should be responsible for ascertaining that audited financial statements of the company reveal accurate presentation of its financial position.

Therefore, the company’s board should exist to trim the information imbalance between shareholders and the executives as well as to check and regulate executive actions for shareholders. The shareholders should also employ independent auditors to act as their watchdogs in reviewing the credibility of the business’ financial statements.

The role of independent auditors should be to ascertain that the executives do not misrepresent the company’s financial information and that financial reports exhibit detailed and accurate data on how the management, the agents of shareholders, are running the business entrusted to them (Ip, 2008).

This system may, however, at times fail to work as envisaged in many companies. Notwithstanding that many companies register correct information in the financial reports, and even if most independent auditors review the reports professionally, there is significant evidence that the minority of companies have perverted the system assisted by the audits.

Additionally, stakeholders should possess some residual power of selling their stake in the company as one of the governance mechanisms against their agents, the management. When shareholders sell a great number of their stocks, the price of the company stocks will drop. When the share’s price of Dell declines significantly, the value of the company may be lower on the capital market than the actual value of its stocks.

This takeover constraint may restrict the scope of Dell managers to follow policies and make decisions that put their own stakes over those of shareholders (Geis, 2007). In case Dell management disregards shareholders’ interests and the company is acquired by one of the other leading information technology companies, such as HP Company, senior executive leaders typically lose their independence and, possibly, their positions.

How prevalent is the agency problem or threat of an agency problem in the UAE corporate environment?

While Dell Company’s agency dealings regularly work well in the corporate world, setbacks may arise when the management and shareholders have diverse objectives and when management takes actions that do not suit the interests of the shareholders, especially in the United Arab world.

Management can perform this since there is information unevenness between Dell stockholders and its management; management almost always have more information on the assets they are controlling than the shareholders do (Carmel & Tjia, 2005). The magnitude of Dell’s agency problems in the United Arab Emirates escalated in 2008 when a chain of scandals swept through the company, most of which can be ascribed to self-interest seeking senior management and inability of corporate governance systems to keep the management in check.

Dell Company’s subordinates manipulated data and distorted the factual performance of some units to inflate their pays, an issue that was hidden from the company’s shareholders. When such incidences are exposed to the public, they may damage the reputation of the company.

When shareholders are faced with agency problems, their duty should, however, be to shape the conduct of the management to perform in line with the objectives set by the stockholders, minimise information imbalance between them and the management and launch mechanisms to get rid of members who violate stockholders’ goals and mislead them (Carmel & Tjia, 2005).

In the UAE, Dell Company is experiencing the problem of persistent clientelism and frail judicial structures. Repeatedly, badly classified property rights tend to sabotage Dell’s efficient contract enforcement significantly. In the UAE, company ownership concentration is a universal phenomenon and company ownership spreading as in the United Kingdom and United States is an exception, not a decree.

Additionally, to expand the control over the company further than its current ownership, Dell can only boost its concentration further, through methods like dual class shares, pyramidal ownership arrangement and cross-ownership (Carmel & Tjia, 2005). Consequently, the major potential agency conflict in the UAE tends to occur between domineering Dell stockholders and minority domestic shareholders.

The other form of agency threat is the expropriation problem where the top managers and the stockholders frequently tend to deny minority owners and, at times, other shareholders, prevent the fair allocation of profit from company resources and divert it to their personal accounts.

Conclusion

It is apparent that over the past decade, Dell has recently set a great yardstick for other technology companies, in terms of ethical responsibility and good agency relationships. If the company can take into consideration the issues discussed in this paper, the results can not only boost the company’s ethical standing, but also its financial position to make it the best company of the twenty first century.

References

Carmel, E., & Tjia, P. (2005). Offshoring information technology: sourcing and outsourcing to a global workforce. Cambridge: Cambridge University Press.

Geis, G. (2007). Business outsourcing and the agency cost problem. Notre Dame Law Review, 1(1), 82-87.

Ip, P. K. (2008). Corporate social responsibility and crony capitalism in Taiwan. Journal of Business Ethics, 79(2), 167-177.

Ross, A. (2007). Fast boat to China: high-tech outsourcing and the consequences of free trade: lessons from Shanghai. New York: Random House Digital, Inc.

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