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    Ethical dilemmas in agencies are examined

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    Search the Internet for resources for a current business article that discusses an agency problem or ethical dilemma in business today. Please cite the source for the article in your posting. Answer the following questions:

    What were the circumstances of the event?
    What could the company have done differently to prevent the problem from occurring?
    How typical do you think these problems are in corporate business?

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    Solution Preview

    First we should agree on exactly what is agency and what is an ethical dilemma:

    Agency is the legal relationship between a principal and his agent in which the principal engages the agent to perform certain acts on the principal's behalf. Under the law of agency, agents must be loyal to their employers.

    In business, ethics is coming to know what is right and wrong in the workplace and doing what is right. Ethical guidelines are crucial to businesses especially during times of fundamental change.

    The article:

    John Thain's swift departure as head of Bank of America's (BofA) Merrill Lynch unit after a 15-minute dustup with his boss, CEO Ken Lewis, is a consequence of friction that occurs when conflicting business maxims come into contact. And the fact that Thain must really love to ski.

    In business and government organizations, taking care of your own is basic protocol. Following every merger ? even a distressed one, and Merrill was clearly the weaker entity ? bosses on both sides start building the trench lines to protect as many of their people as possible. Are sacrifices made? Sure, that's expected, but you don't give up your guys easily. (See the worst business deals of 2008.)

    Thain played by that rule even though he was relatively new to Merrill, having arrived 14 months ago from the New York Stock Exchange. But he infuriated Lewis by paying out a couple of billion bucks in bonuses before the deal had closed and before disclosing to Lewis that Merrill was going to produce $15 billion in losses for the quarter. Hey, he was just taking care of his people. What's the problem?

    The problem was that in doing so, Thain broke another cardinal rule: Don't surprise the boss ? especially on the negative side. Lewis was reportedly apoplectic about the size of Merrill's losses in the fourth quarter. But here's a question: What were BofA's risk managers doing? ...

    Solution Summary

    The solution cites an article about John Thain of Merrill Lynch after the sale to Bank of America. Agency and ethical issues are prominent in the article and analyzed in the solution.