Question

Select a company of your choice, Aflac, and write a six to eight (6-8) page paper in which you:

1.Evaluate a company’s recent (with in the last year) actions dealing with risk and uncertainty.

2.Offer advice for improving risk management.

3.Examine an adverse selection problem your company is facing and recommend how it should minimize its negative impact on transactions.

4.Determine the ways your company is dealing with the moral hazard problem and suggest best practices used in the industry to deal with it.

5.Identify a principal-agent problem in your company and evaluate the tools it uses to align incentives and improve profitability.

6.Examine the organizational structure of your company and suggests ways it can be changed to improve the overall profitability.

7.Use at least five (5) quality academic resources in this assignment. Note: One of your references regarding your should have been published within the last 6 months. Note: Wikipedia does not qualify as an academic resource.

Answer 1

Similar like Southwest airlines we can take example of Volkswagen Emissions Scandal which happened to hit hard and rock company profitability and threaten survival.

Case History - It began in September 2015, when the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group. The agency had found that Volkswagen had intentionally programmed turbocharged direct injection (TDI) diesel engines to activate their emissions controls only during laboratory emissions testing which caused the vehicles NOx output to meet US standards during regulatory testing, but emit up to 40 times more NOx in real-world driving.Volkswagen deployed this programming software in about eleven million cars worldwide, including 500,000 in the United States, in model years 2009 through 2015.

Regulators in multiple countries began to investigate Volkswagen, and its stock price fell in value by a third in the days immediately after the news. Volkswagen Group CEO Martin Winterkorn resigned.Volkswagen announced plans in April, 2016 to spend €16.2 billion (US$18.32 billion at April 2016 exchange rates on rectifying the emissions issues, and planned to refit the affected vehicles as part of a recall campaign.

In January 2017, Volkswagen pleaded guilty to criminal charges and signed an agreed Statement of Facts, which drew on the results of an investigation VW had itself commissioned from US lawyers Jones Day. The statement set out how engineers had developed the defeat devices, because diesel models could not pass US emissions tests without them, and deliberately sought to conceal their use. In April 2017, a US federal judge ordered Volkswagen "to pay a $2.8 billion criminal fine for rigging diesel-powered vehicles to cheat on government emissions tests". The "unprecedented" plea deal formalized the punishment which VW had agreed to. Winterkorn was charged in the United States with fraud and conspiracy on 3 May 2018.

Following Strategy can be used for Volkswagen for Risk and uncertainty i.e Flexible Strategy -

This implies that expected profits for a firm increases as conditions become more variable—by adjusting and making the most of favorable conditions, profits increase in good times, and in bad times the flexible firm will cut back and thereby limit the harm. Such flexibility can for instance , can come via marketing-related strategies (such as re-branding or to re-establish credibility of company).

In keeping with standard assumptions in economics, all good things come at a cost.

In the auotmobile industry for instance : Re- branding

If Volkswagen chooses to rebrand, it should try to develop a company that is more green and has better corporate social responsibility practices. Studies show that “greenwashing,” when a company tries to portray itself as more environmentally minded than it actually is, has become increasingly prevalent in recent years.

The reputation of a company has become an increasingly bigger factor when it comes to consumer decisions. The new company should try to work with organizations such as the Federal Trade Commission to focus on sustainability work and collaborate with suppliers, universities, and other scientific institutions to embed its corporate social responsibility practices in every sector of the new company. The new company should focus on reducing energy consumption, reducing carbon.

The new company should also design ex post evaluations to test the efficiency of new programs. An updated website illustrating all of their practices and an annual report would greatly improve the company’s image.

Clear financial statements are necessary to show the public where the money comes from and goes within the company. It would be helpful to use social marketing as part of an overall strategy to increase transparency within the company.

2) Expansion by sell off of one of its loss making units - Today, oil demand continues to rise and air pollution becomes an increasingly pressing problem. Volkswagen should sell one of its companies to focus on creating cleaner hybrid and electric vehicles. They should work with policymakers to encourage the expansion of the electric vehicle industry and consumer acceptance. Maybe the money from selling a company can go towards offering lower prices on their new electric vehicles since one of the biggest barriers of expansion is that electric vehicles are still much more expensive than gasoline fueled vehicles. Governments around the world continue to raise fuel prices to push consumers towards higher mileage vehicles and hopefully electric vehicles. If Volkswagen can capitalize on this market, then it has a hope of regaining its leading position in the global auto industry.

Recommendation - Volkswagen should dedicate all efforts and resources into re-establishing credibility with the company. Volkswagen may choose to re-brand, although this option is fairly unlikely. Finally, the costliest option would be to sell one of its brands .This is the most expensive option and probably a method of last resort, however it would also restore the most faith in the Volkswagen brand.