A short introduction to agency theory - Part 2, Costs of Agency

A short introduction to agency theory - Part 2,
Costs of Agency

Click here for part Part 1

This gives rise to the “costs of agency”, which are costs incurred where the principles have incentives to do things that are not in the interests of the principles.  For example, managers (like any employees) may steal thing from work, of they may use company resources in a selfish and extravagant way.  Have you ever seen the offices of the big bank’s CEOs?  Do they really need to fly in their own private helicopter or Lear Jet? Or perhapsthe trip in a regular jumbo get the job done just as efficiently.  These lavish items are called “perquisites”.  A perquisites is any service or thing regarded as a special right or privilege enjoyed as a result of one's position.  It’s the whole point of climbing to the top of the corporate ladder.

A short introduction to agency theory - Part 1

A short introduction to Agency Theory

Where ever you look in society, you can see people doing things for other people.  Rather than asking as a blind unthinking robot merely processing instructions, the doing person often has some degree freedom as to how they go about the task. 

Let’s call person doing things, “the agent” and the person who benefits “the principle”.  In the standard corporate setting, you have shareholders who pool together cash and delegate the authority to manage those funds as they best see fit.  We actually see this in all walks of life.

Perhaps the most fundamental example is that of mother and child.  The child is unable to do things for itself, and so the mother must act to feed, clothe and protect the child in a way that is selfless to the mother and importantly, always in the child’s best interest.  In this sense, the CHILD is the principle and the MOTHER is the agent of the child. 

The free internet underlines the need of academic discipline, and not the obsolescence.

Wikipedia has effectively  killed off the Encyclopedia Britianica, and the futurists are now frequently breathing murmurs how BIG University is next. 


Free is the new intellectual elite.  It's broader in scope, faster updated, and more importantly, Wikipedia is found to be just as accurate as the Encyclopedia Britianica.  *Maybe*

Wikipedia is about as good a source of accurate information as Britannica, the venerable standard-bearer of facts about the world around us, according to a study published this week in the journal Nature.

Read more: 

So if the world's oldest and most respected concise repositories of knowledge can knocked off by a community of socialists, why can't them same happen to the well established knowledge factories (universities). The lesson is that the internet is a wild place that can consume long established superpowers.  This is sometimes true.  

iPad 2 may start shipping by end of February 2011

If you were seriously interested in getting an iPad, try resist the temptation to buy one before Christmas.  The iPad two is just around the corner, and you can expect a vast improvement on the old one.

It might even be sooner then you expected.

Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400,000-600,000 units, according to sources from Taiwan-based component makers. However, Foxconn declined to comment on its products or clients.

iPad 2 may start shipping by end of February 2011
http://www.digitimes.com/news/a20101206PD224.html

UPDATE:

There are already talks about further scope. Think: "iPad 3 and beyond".
  But we are now half way through Feb so I'm not hopeful about the "ANY DAY NOW" waiting game. 

http://tetracarbon.blogspot.com/2011/02/ipad-three-already-comparisons-on.html

CrunchBase Information

iPad

Apple

Information provided by CrunchBase

10 Reasons why I hate powerpoint

Chalk and talk is an art. It's a dying art. You should have something to say and Powerpoint makes it easy to show people things while you say them. The problem is we have gotten so wrapped up in the children's game of show and tell that have actually forgotten to tell anyone the important part.  The only thing that matters is our final MESSAGE. 


I don't use PowerPoint in class anymore.  I actually have slides, but I don't use them. Why? Because Powerpoint is BORING. I teach the yuck/wow generation, but the same applies to all humans irrespective.  


So here goes:


1. Overuse of effects
Powerpoint Rangers. *God. Eye. Stab. Now.*  You know the people that try to use a different effect on every bloody slide. Gross. Just find the subtle ones. Fade and wipe is almost all I ever use. And I actually use quite a lot of effects. But these people use things that fly in, circle around and then settle.  Maybe THEN they can start to narrate. It just draws away from your message. The canned applause sound effects at the end of a presentation? Give me a break.  Microsoft should have included a vomit sound effect, maybe a snoring sound effect, or better yet "are there any questions? *crickets chirping*".  That would be FAR more accurate. 

iPad “Pad” Joke Finally Taken Too Far [Video]

The standard joke was: "what if the iPad2 gets larger? Does that make it a maxiPad?"

This is not exactly orginal, but have a look at this joke about the iPad “Pad”, where the joke may be  taken too far.

CrunchBase Information

iPad

Apple

Information provided by CrunchBase

Business Idea and intellectual "property" - but can you own a meme?

You know sometimes XKCD just gets it so right. One of the really annoying  things is having a "Business Idea" that doesn't actually go the way you wanted.  But the reality is, that if you really were good enough to make that business work you would have done it already. This is not a reality that we want to hear very often. To illustrate, there is an accurate but confusing line in the the new movie The Social Network where "If you guys were the inventors of Facebook, you'd've invented Facebook."


More importantly the real answer to this problem is given in the movie a bit latter.  Larry Summers, The VC of Harvard states that they should "just go and find another idea." But let's face it, even the Harvard Business Review magazine this month admits that's much harder to do. Worst of all, most people and most businesses are lazy.


There is something attractive to this concept that you can just come up with a some magical idea, do no work and then sue people who "steal" it from you. I fear that this concept no more solid a ground on which to base a economic society than the Vikings plundering wealth.  Why? Because the Vikings would have justified a society of plunder on the basis of might it right.  This capitalist world is based on the assumption that legal might and first to the patent office is right. Not effort is right, and not success.


Again, I am a potential author who wants to walk the middle way.  I love Linux, the Creative Commons, and Wikipedia.  I also want to get rich here too. But it seems I have to pick one.


On a side note, I see that Microsoft is also find it self at the wrong end of the endless web of who sues who.

Battlefield Extraction-Assist Robot to ferry wounded to safety

I wonder why they needed to make him look like Bear? Why not make it look like a CareBear?

Battlefield Extraction-Assist Robot to ferry wounded to safety

The U.S. Army is currently testing a robot designed to locate, lift and carry wounded soldiers out of harm’s way without risking additional lives. With feedback from its onboard sensors and cameras, the Battlefield Extraction-Assist Robot (BEAR) can be remotely controlled through the use of a special M-4 rifle grip controller or by hand gestures using an AnthroTronix iGlove motion glove. This equipment would allow a soldier to direct BEAR to a wounded soldier and transport them to safety where they can be assessed by a combat medic.

Patent Office Agrees To Facebook’s “Face” Trademark

Nice one Zuck. I understand the protection of IP, however there are some limits on what is reasonable.  Like how the name "the Facebook" is actually stolen from the halls of residence's facebooks. Funny enough you didn't actually trademark the name "book", which would have been better in attacking Lamebook.


"The U.S. Patent And Trademark Office has sent Facebook a Notice of Allowance, which means it will grant the 'Face' trademark to the popular social networking site. Facebook now has three months to pay an issue fee before they officially own the word. From the article: 'For all intents and purposes today’s status update bodes well for Facebook’s hold over “Face” usages in “Telecommunication services, namely, providing online chat rooms and electronic bulletin boards for transmission of messages among computer users in the field of general interest and concerning social and entertainment subject matter, none primarily featuring or relating to motoring or to cars.”'"
http://yro.slashdot.org/story/10/11/24/2040247/Facebook-To-Own-the-Word-Face

CrunchBase Information

Facebook

Lamebook

Information provided by CrunchBase

Jury orders Seagate to pay $1.9M to former employee - Computerworld

We have a lot of wrongful dismissal cases in Australia, but I have never heard of wrongful employment.


Jury orders Seagate to pay $1.9M to former employee - Computerworld

"The jury in a Minnesota-based wrongful employment case delivered a verdict ordering disk-drive manufacturer Seagate to pay $1.9 million to a former employee who uprooted his family and career at Texas Instruments in Dallas to move to Minnesota for a job that did not exist. The man was supposed to be developing solid state drive technology for Seagate but was laid off months later. 'The reason that was given is that he was hired to be a yield engineer but the project never came to fruition,' the former employee's attorney said. 'They didn't care what effect it had on his career.'"

CrunchBase Information

Seagate

Information provided by CrunchBase

Scientist Prof Frank Fenner dies aged 95

Scientist Fenner dies aged 95 - ABC News

"One of Australia's most renowned scientists, Frank Fenner, has died aged 95.

Professor Fenner is best known for his work in eradicating smallpox and the control of Australia's rabbit plague.

He and fellow researchers famously injected themselves with the myxomatosis virus to show it would not harm humans while devastating rabbit populations."

---

This guy is one of my heroes.  I lived at Fenner Hall for 5 years, and I find this humble ultra-achiever nothing short of inspirational.  The Emeritus Professor is dead, long live is work and his memory. 

Textbooks should be included in tuition fees

What to do about students who refuse to buy their assigned text books?

There are a large number of students that photocopy text books wholesale. Is this any better/worse then downloading a DVD? Probably not. I am writing a text book of my own now, so I my position may might be biased. 

Yet I find the position somewhat conflicted.  While for many years I have been a fan of the GNU GPL (freesoftware) movement, and copyleft ideals. I have written about the creative commons before also. 

I am a big supporter of applying as much of these ideas to education.  Wikipedia is of course the biggest example of open sourced knowable. MIT open courseware is another great example. The University of Michigan has yet another like portal of their own. Closer to home, USQ is also jumping on the bandwagon . Maybe legally free is the way to go. 

Sometimes, you have to find away around the attitude
rather than try to fight it head on.

Even still, I don't feel so good when I see students with 500 pages of photocopied text book in class.  But then at the same time I think "at least they turned up and at least they've got something in their fingers."  Most students are too lazy to even turn up to class. 

Moreover, I am sick of trying to  teach students without text books. They damage their own learning, and failing them is not sufficient incentive to change behavior. As it is, we (educators) are pressured not to fail too many. So even if the entire bell cure is poor, that does not mean we can afford to fail everyone that is "not yet competent". Only the most poor portion will fail. It is quite common to see educators try to jocky everyone else across that magical pass line. 
So I propose this, FORCE new text books on everyone and include it in the cost of tuition. To make it more appealing, we should ensure that as this is a mandatory requirement it is likewise included in your HELP loan, meaning that your education isn't draining up front to those that can not afford it. Indeed, this is more inline with the spirit of the HECS system anyway. 

Potential problems:
* This may/will create an oversupply of used text books. An immediate counter argument is that students really ought to be keeping a professional library if they are serious about their education and their profession anyway. 

* What if a student fails and must repeat? - Then you ought not have to repurchase, this can be found from internal records however. 

* Other pros/cons listed below by your comments. Email me at phillipjustinwong@gmail.com

CrunchBase Information

Massachusetts Institute of Technology

Information provided by CrunchBase

Typing exams is better than handwriting?

Why can't students type their exams
under normal exam conditions?

I am thinking that we should allow our students to type their theory examinations. At work we have the facilities to lock the machines down so they can't communicate, block the net, limit USB access or do anything other than type in Word. 

It might be an optional thing. Students that WANT to type, can. Those that WANT to write, can. That way there is no penalty from switching from one system to another. A friend has raised the issue that the examiner (ie myself) may have a bias towards marking the typed essays.I personally don't feel that way because already as it is, some students have clear hand writing and others do not. Unless I really can not read what is written, I don't penalize messy hand writing. And there certainly isn't any bonus to writing crap responses in beautiful and clear script. 


My only concern would be, what would be the educational impact of this??

Satan uses USB

A preacher has instructed his followers NOT to use USB because the USB symbol looks like the devil's trident. (I don't remember that being in Bible either). Maybe he's worried that USB stands for "Unholy Satantic & Bad". That would be cool, but it's actually "Universal Serial Bus"

Mind you, Bluetooth is sweet because apparently Jesus has blue eyes (yeah right). I don't remember Luke ch24  v2 saying "and Jesus smiled upon them with an a sapphire gaze for his teeth were a blue as his mercy".  Never mind, we'll over look that one.  


So when you go to pick up that USB thumb drive, you better ask yourself WWLD? (or What Would Lucifer Do?)

Creative Commons

Copyright is overly restrictive.  Copyleft and kopime is unsustainable.  The creative commons is the more sensible path to take.

Facebook's Gmail and Hotmail killer, probably hosted at FB.com

Faceboook is trying hard to innovate, and will soon come out with a new email application to rival Gmail and Hotmail. 

Is this the next Gmail killer?


The big fear is that Google is getting old, and is bleeding talent to facebook. I personally believe that Google has an enduring compeditive advantage, but facebook depends on users still thinking that it is cool.  (opinion) It seems to me facebook is very quickly loosing that and is at risk of going the way of myspace. 

CrunchBase Information

Facebook

Information provided by CrunchBase

Workers are "donating" their time to bosses.

Warning, rant ahead: This is crap!  The marginal product of labour is what it is because people are working the hours they are.  (Yes, I realize the circular logic there).  If you just took all that OT off people and gave everyone else a job the net number of worked hours would actually go up, A LOT. Maybe three times in fact. (wild assertion maybe, but not unreasonable). This is because the people who are doing overtime are by their very nature, more productive than those who are unemployed.  


Suppose that it takes me "just another hour or two" to knock over that job the boss wants done, but if you had to get another person in and then your start to encounter co-ordination problems. You already employ the most efficient in society and those left over are the ones who are least able. You give my one hour task to someone less able, and suddenly it becomes 3 hours of their time, and probably a messed up job. Not to mention the wage costs sky rocket as each additional person employed constitutes fixed on-costs. 


Anyway, lets review the original article: 
  

"The executive director of the Australia Institute, Richard Dennis, argues cutting back on overtime could create about 400,000 extra jobs in Australia and improve the health of workers.

"If you could convert all of the unpaid overtime into new jobs you could create more than 1 million new jobs," he said.

"But we've estimated that if the number of hours reduced were apportioned in the same way that occurred when France reduced their hours you could create 390,000 new jobs."

Dr Dennis says people working 50 hours or more each week would happily slash 13-and-a-half hours from their workload."

The basic flaw in the argument is that if you take an hour of labour off me, and give it to someone else: 1) my wage will stay the same, and 2) it will take that person one hour to complete the task. 


That said, I agree with the general sentiment.  Australia *is* a nation of work-a-holics, despite the fact that we see ourselves as being slack an lazy.  Australia is also sees itself as a fair an equitable country, but I'm sure that anyone who isn't the "white Aussie" does not always agree.  Our self perception is often far from truth. 

Ultimately  you get paid what you are worth. If you personally punch out 30% less product, trust me, the boss will cut your pay packet by 40%. 

It helps when daddy's a tax lawyer

There's this nice feel good story on the front page of the Australian today.  It  reports about a young lass who managed to take on the evil tax man and win at the high court.  She is now able to claim deductions for all of her study because the social security payment she received was linked to her going to school. 


This is sounds like a good outcome for students, but is inequitable as it does not apply across all students. We actually need to allow ALL students (including our internationals) to capitalise and then "depreciate" their education over their working lives - I proposed a 5 year write off period.


Basically you need to show that there is a "nexus" or a sufficient connection between money in and money out.  So if you need to spend money to make money, you get the deduction for the money out.  This means that since our friendly young student teacher was getting Youth Allowance (a means tested Australian Government social security payment to students who are citizens), she HAD to go to school to get it, and therefore HAD to buy book, bus tickets etc...  This is 

you need to show that there is a "nexus" or a sufficient connection between money in and money out.

This is where the law falls down.  I am 100% behind the High Court's decision, but I fear that it's a correct legal outcome but not the equitable outcome.  The student that does not receive youth allowance gets nothing.  Likewise the international student (who makes up our second biggest export) gets not a damn thing.  How is this fair? Actually, I believe that this ruling means that she should have been able to claim her HECS (tuition) fees also.  


Something has to change  
That something is likely to be the parliament.  For sure The Australian Government will use their legislative right just to cover over the hole in the same way they did in the La Rosa case.  [ for the legal nerds, that would be FC of T v LA ROSA 2003 ATC 4510]  La Rosa was a drug dealer who, like Al Capone was done by the tax office. (I realize it was the IRS rather than the ATO, but let's move on).  The Commissioner of Taxation La Rosa alleged that La Rosa had not filed a tax return or reported his income from his business operations -  you know the sort of business where you push drugs.  But La Rosa claimed he was robbed of all of his profits and therefore claimed a deduction for the theft.  


Of course, the government wasn't about to give the bad guys a head start in tax, so the wrote  s26-54 ITAA97 to prevent and deduction or CGT cost base to the extent that they relate to illegal activities.  So all of the income is assessable, but none of the expenses would be allowed as deductions.  Harsh, but kind of fair.  


The point is that the Gillard government would be quick to cover up this new "loophole" and just write a specific denial for ALL education expenses at universities.  Problem is, that we should be creating tax incentives to go to school. 


Make it fair and give it to everyone
Supposed I am a tradesmen and I sink $50'000 into a van for my business, I get a a deduction on the van by way of depreciation.  But if I drop the same $50'000 and 3 years of my life into an accounting degree (and work crappy hospitality jobs to pay the way) then I get not a damn thing because there is no current nexus between my crappy hospitality income and the accounting degree.  So the tradesmen has a direct incentive to invest in physical capital, but human capital 


Now I teach accounting at the university level, and I dare anyone to study accounting for "private use, enjoyment and fun".  The ONLY reason you study accounting is to get a job and make money.  There should be no difference between a dollar invested in tangible capital, and a dollar spent on human capital.  Why do we slog the workers so hare and give business (the owners of capital) all the tax breaks?  Indeed there is a wealth of research to suggest that investment in education yields some of the highest returns.  


Rather then focusing on the raw surpluses as the only measure of the government's economic success, Shouldn't we attempt to make the tax system fairer and increase it's efficiency?  BP recently turned around a profit (as it sold off assets to pay out pending damagers) but it also trashed the gulf of Mexico.  If we just look at this quarter's "bottom line" we could deem BP's oil spill a great success as we realized profits. But that's insane.  


Likewise, a system that penalizes the MOST productive workers but grants businesses deductions is also insane.  


So how about I claim some depreciation on HECS bill Ms Gillard? 


<more updates to follow>

Why Products Suck (And How To Make Them Suck Less)

This was actually a pretty funny read.


"Now, you might think that making a product that isn’t terrible should be so obvious to every company on the planet as to almost be nonsensical. Indeed, who would ever advocate building a product that sucks? But the fact is: many products do suck. How can something so obviously important and universally recognized by so infrequently accomplished?"

Definition of an Asset: Value in Use, goodwill and the missing part of the definition.

Paragraph 49 of the AASB's Framework has the definition of an asset there, and the exchangeability/severability requirement isn't there. 

Basically the exchangeability means that if you can't cut (sever) the "asset" off from the rest of firm and sell it, then the firm can't really use it to it's full potential.  If the firm can't use the "asset", then it's not really an asset of firm, but rather an asset of the shareholders. Specifically, we are talking about goodwill.

I personally believe that the exchangeability isn't a bad criteria because if the firm can't sell it, then it is questionable if the firm can really use it. In this sense, the goodwill is really an asset of the SHAREHOLDERS and not of the Firm itself.  This is a really proprietary view concept, because the entity doesn't really have "control" over the economic benefit of goodwill.  To me, one part of "control" is the right to sell it off.

The counter argument is that goodwill DOES have "value in use", and firms CAN control or influence how it's used. For example, when Coca Cola makes Coke Zero, they carry across all the like branding to the new business venture so the customer goodwill (customers positive feelings towards the brand) is also carried across to the success of the new venture. Surely the Virgin group would not be so heavy into painting everything red, but for the benefit of transferring and "using" the "retained customer goodwill".

Again: I'm not convinced it's an asset because the measurement of "goodwill" is reliable, but doesn't really measurer what it's supposed to measure.  Ultimately, goodwill is accounting talk for "I don't know what the hell that is, but it's a something debit".  In other words, the measurement of goodwill is not direct, nor is it derived, it's just by fiat.  If goodwill was truly "customer loyalty, brand names, business synergies, etc" then goodwill by definition would be equal to the difference between the share market and accounting values.

= Goodwill

= totalFrimMarketValue - netAssets@BookValues

= mktSharePrice * numberOfSharesIssued - totalAssets + lotalLiabilities

Please note that this is JUST MY OWN PERSONAL interpretation. It wasn't part of any examination question that I have set or will set. The important thing is this central idea that if you can't cut it off and sell it for cash, then that is cash that you really don't have. 

Financial accounting: In communicating reality, we construct reality

Obama's debate about financial regulation in the US at the time (about 7 months ago now) was about lending and operating regulation.  It was not about accounting standards.  At least not directly. Financial Accounting is merely reporting what the business has actually done.  But the way you report things will have an impact on people’s decisions. 

So, take for example the use of security cameras in a bar or at a train station.  The cameras are not policemen or security guards, they don’t physically STOP an assault occurring, they just record the assault occurring.  But that said, most people are aware of the cameras and are concerned about future impacts (like going to court and eventually jail).  So by actually observing, recording and reporting the act, this will impact upon people’s behaviour.

So if we decide we are going to mark all our assets at fair value and wash the changes through the profit and loss report, this will change the agent’s (manager’s) decisions as to what sort of risks they take, which project they invest in, and what sort of legal vehicles they house the investments in.  By reporting the “reality” we are changing the reality.  People become accountable to what is reported.  But you have to remember that the accounting standards play a huge role in the construction of that “reality” we are reporting. 

For example, when we moved from old Aussi GAAP to IASB standards, Australian companies were no longer able to recognize internally generated goodwill, mastheads, customer lists, and other non-purchased brand names.  This means that companies like Fairfax (The Age newspaper) had to write off their brand name out of assets.  Nothing changed in the operating reality, but the company’s balance sheet shrunk massively over night.  Because it LOOKED like a smaller company, many investors lost faith in the company, and sold up their shares, shrinking the company even further (by way of draining REAL capital).  

Citation: Ruth D. Hines Financial accounting: In communicating reality, we construct reality; Accounting, Organizations and Society, 1988, vol. 13, issue 3, pages 251-261

Allow graduates to amortize their human capital investments: business v worker parity

These guys got a zero deduction on their
education. That is manifestly unfair. 

The cost of education for work should be no different to a business that purchases depreciating plant. 
I propose that university graduates should be allowed to depreciate or amortize the cost base of their education over some given statutory life - provided that they work in a field that is "sufficiently connected"

Sufficient connection would be defined as the same criteria in the regular s.8-1 ITAA97 general deduction provisions. As in, you would get a deduction if you are working in the field that you are studying. This simply seek to solve the timing miss-match but yet provide an equitable outcome.

It's not fair that wage earners in knowledge jobs are making the economy's biggest investment in depreciating productive assets (in the form of human capital) and get non of the tax breaks available to capital earners (ie: shareholders). 
How about a 50% invesment allowance on my HECS bill Ms Gillard!.

Sinfest: The Webcomic To End all Webcomics

Sinfest is a great daily comic I read.  God, guys trying hard to impress girls, east meets west. All that good stuff.

It's actually amazing that Tatsuya Ishida manages to pumpout out news paper quality comics on a daily basis.  And thank God he has not resulted in the bland sort of rubbish that Garfield and Peanuts had descended into because of their mainstream politically correct and not funny approach to writing "the funnies" (cartoons).

A list of accounting movies

I'm compiling a list of your favorite accounting or business movies. If you have a winner in mind, can you quickly drop me an email?

Phillipjustinwong@gmail.com

UPDATE:

I have started: 

CLICK HERE to go to the list

School from 9 to 5.

I propose that school, particularly high school, should run from 9 to 5. No additional academic work to be pushed into the work load - just sport, art, cadets, vocatioal placement, or other after school activities. Who's with/against me?


This was originally a John Howard idea, but it got stomped on the head pretty quickly.  That's a shame because the idea has a lot of merit.  So how about some debate.  Why would this idea work? Why does it suck?