Excessive executive compensation in the financial services industry ranks high among examples of failed corporate governance. Corporate government at the government-sponsored mortgage giants Fannie Mae and Freddie Mac were particularly weak. The politically appointed board at both enterprises failed to understand the risks of sub-prime loan strategies being employed, did not adequately monitor the decisions of the CEO, did not exercise effective oversight of the accounting principles being employed (which led to inflated earnings), and approved executive compensation systems that allowed management to manipulate earnings to receive lucrative performance bonuses. The audit and compensation committees at Fannie Mae were particularly ineffective in protecting shareholder interest., with the audit committee allowing the company’s financial officers to audit report prepared under their direction and used to determine performance bonuses. Fannie Mae’s audit committee also was aware of management’s use of questionable accounting practices that reduced losses and recorded one-time gains to achieve financial targets linked to bonuses. In addition, the audit committee failed to investigate formal charges of accounting improprieties filed by a manager in the Office of the Controller.

Fannie Mae’s compensation committee was equally ineffective. The committee allowed the company’s CEO, Franklin Raines to select the consultant employed to design the mortgage firm’s executive compensation plan and agreed to a tiered bonus plan that would permit Raines and other senior managers to receive maximum bonus without great difficulty. The compensation plan allowed Raines to earn performance-based bonuses of $52 million and a total compensation of $90 million between 1999 and 2004. Raines was forced to resign in November 2004 when the Office of Federal Housing Enterprise Oversight found that Fannie Mae’s executives had fraudulently inflated earnings to receive bonuses linked to financial performance. Securities and Exchange Commission investigators also found evidence of improper accounting at Fannie Mae and required the company to restate its earnings between 2002 to 2004 by $6.3 billion.

Poor governance at Freddie Mac allowed its CEO and senior management to manipulate its financial data to receive performance-based compensation as well. Freddie Mac’s CEO Richard Syron received 2007 compensation of $19.8 million while the mortgage company’s share price declined from a high of $70 in 2005 to $25 at year end 2007. During Syron’s tenure as CEO, the company became embroiled in a multibillion-dollar accounting scandal, and Syron’s personally disregarded internal reports dating to 2004 that cautioned of an impending financial crisis at the company. Forewarnings within Freddie Mac and by Federal Regulators and outside industry observers proved to be correct, with loan underwriting policies at Freddie Mac and Fannie Mae leading to combined losses at the two firms in 2008 of more than $100 billion. The price of Freddie Mac’s shares had fallen to below $1 by the time of Syron’s resignation in September 2008.

Both organisations were placed into a conservatorship under the direction of the U.S. Government in September 2008 and were provided bailout funds of more than $160 billion by early 2011. The U.S. Federal Housing Finance Agency estimated that the bailout of Fannie Mae and Freddie Mac would potentially reach $200 billion to $300 billion by 2013.

Sources: Chris Isidore, “Fannie, Freddie Bailout: $153 Billion…and counting,” CNNMoney, February 11, 2011;” Adding up the government’s Total Bailout Tab, “ New York Times Online, February 4, 2009; Eric Dash, “Fannie Mae to restate results by $6.3 Billion because of Accounting,” New York Times Online, www.nytimes.com, December 7, 2006; Annys Shin, “Fannie Mae sets executive salaries,” Washington Post, February 9,2006,p.D4; and Scott DeCarlo, Eric Weiss, Mark Jickling, and James R.Cristie, Fannie Mae and Freddie Mac: Scandal in U.S. Housing (Nova Publishers,2006), pp. 266-286.

QUESTION 1

A) Fannie Mae and Freddie Mac are two examples of poor execution of corporate governance in mortgage financial institutions. Identify and discuss the corporate governance issues in this case study.

Recent legislation requires CEOs of public corporations to sign an affidavit, a sworn statement, stating that all accountings put forth by the company are accurate and not misleading; not to the best of their knowledge, but that they are accurate and not misleading. Obviously, the CEO of most public corporations can't personally perform all aspects of these accountings. Instead, they must rely on the accuracy of employees assigned to perform such tasks at various levels. The legislation makes the CEO PERSONALLY liable, even criminally liable, for inaccurate accountings. Considering this, is it fair or equitable to find a CEO liable if a subordinate has committed fraud or a mistake in the preparation of the accounting?

On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,140,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,140,000 pesos in three months at a strike price of $0.080. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows:

Maxwell must close its books and prepare its second-quarter financial statements on June 30.

1. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars.

2. a-2. What is the impact on net income over the two accounting periods?

3. b-1. Assuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars.

4. b-2. What is the impact on net income over the two accounting periods?

How would you describe Apple's global corporate, major SBU and key functional strategies during Steve Jobs second run as CEO from 1997 to his death in 2011? How would you compare that to Tim Cooks approach since taking over as CEO in 2011? Tim Cook is widely credited with developing and managing Apple's supply chain into one of the best in the world. Shortly after he took over as CEO in 2011, he raised the idea of viewing Apple as being a "mature technology company, rather than a high growth, innovative product development company. What do you think he meant by this, what significant financial and other actions did he take, and how successful do you think they have been?

There has been a lot of publicity about the benefit and detriment of activist CEOs in Australian (and

global) business. Write a report describing and explaining the statutory law of directors’ fiduciary

duties as it applies to CEO activism.

a) Define CEO and describe the role.

b) Briefly describe the conduct or behaviour that is referred to as CEO activism and provide one

“real world” example. (Make sure that you reference the source of your example).

c) Discuss the relevant Australian statutory law on directors’ fiduciary duties.

d) Analyse your example of CEO activism and provide an opinion (conclusion) on whether this

conduct meets or breaches the Australian statutory law on directors’ fiduciary duty to act in

the best interests of their company.

Please use ILAC form to write this.

Approach this case as if you are heading the compliance department of USA Corp., a small, but growing
U.S. manufacturing interest. To date, the company has not done any international trade and has limited
its purchases and sales to other U.S. entities. The CEO approaches you with her belief that the
corporation can significantly improve its profit if it begins to import a certain raw material (the type
should not be critical to your analysis; but, if it makes it easier for you to approach the problem, feel free
to identify a specific material and explain its importation) from Mexico. In the future, she would like to
consider selling finished product overseas, but currently is only interested in minimizing the cost of
production.
Answer each of the following questions for your boss, including such other information you think is
important and/or necessary for her to make informed decisions. Be sure to explain the conclusions you
reach and why one alternative is better than another. Your boss values knowing why a decision is
correct and looks to your knowledge and expertise to guide her.
1. Identify the key U.S. and international trade laws that apply to the importation of goods to
the United States from Mexico? Do these laws make it “easy” to do business?
2. What types of protective clauses should be included in the purchasing contracts?
3. What are the major risks associated with doing business with a new (unknown) international
supplier? What steps should be taken to ensure a safe transaction?
4. What impact (if any), does the President’s rhetoric about Mexico have on whether this is a
sound business decision?

Discuss in detail the role of CEO/Top Management in establishing a relationship between ‘Strategic Directions’ and ‘Vision’ of a company.

What are the benefits for a hospital to organize itself as a nonprofit? Do nonprofits make less money than for-profit hospitals? Do some quick research on the internet and see which major hospitals near you (or near a city you have lived in within the U.S.) are nonprofits. Can you find information on CEO compensation? Do they seem to make less than CEO's of for-profit hospitals? Does the hospital (or hospitals) you chose seem to be fulfilling its (or their) obligations to benefit the community? How do they do so?

Tamarisk Industries has the following patents on its December 31, 2019, balance sheet.

The following events occurred during the year ended December 31, 2020.

The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)

Compute the total carrying amount of Tamarisk’ patents on its December 31, 2019, balance sheet.

Compute the total carrying amount of Tamarisk' patents on its December 31, 2020, balance sheet.

Marin Industries has the following patents on its December 31, 2019, balance sheet.

The following events occurred during the year ended December 31, 2020.

The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)

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I have found the 2019 Carrying value to be 66082, SO I just need the following.

Compute the total carrying amount of Marin' patents on its December 31, 2020, balance sheet.