
AM906002 Corporate Governance Case Study 2 Sample
Assignment Details
Overview
This is the second of two assessments for this course. For this assessment, you will select an issue relating to corporate governance. Use relevant literature to support your critical evaluation of governance models and practices in your selected company and social and legal environment in which the chosen issue unfolds. Suggest changes to governance practices or strategic approaches relevant to the issue.
Conditions of Assessment
This is an individual assessment that you will complete in your learner-managed time, however, your teacher will provide opportunities during class time for clarification, guidance, collaborative working opportunities, and group discussion. All work must be completely your own and all literature used must be referenced appropriately using APA 6th edition. In order to pass this course you must achieve a cumulative grade of at least 50%, across assessment one and two.
Learning Outcome(s) Assessed
1. Critically evaluate corporate governance practices in the context of societal expectations and legal responsibilities.
2. Critically assess governance models and their impact on strategic outcomes.
3. Critically evaluate global governance models.
Instructions
To prepare for this assessment you will review current media for 2024 for coverage of issues relating to corporate governance (locally or globally) and select an issue from that coverage that interests you and gives you the scope to complete this assessment. Your teacher will need to approve your selection.
Discuss the issue with a focus on the following:
• Evaluate the company’s governance model and how it impacted the issue development.
• Evaluate the legal compliance requirements and ESG practices relevant to the issue under discussion.
• Critically evaluate the strategic implications of the issue for the company, shareholders and other relevant stakeholders.
• Suggest strategic approaches, alternative governance models or practices to address the issue.
Solution
1. Introduction:
Amazon, founded in 1994 by Jeff Bezos, was a simple online bookstore company that over the course of the years turned into giant e-commerce, cloud service and technology corporation. The company was started in Seattle in 1994 and started operation the following year as an online bookseller and the company went public in July 1997 with added service namely, The Amazon Web Services [AWS] which to date has control over nearly a significant percentage of the internet. When people say "Amazon Web Services controls a large fraction of the internet", they're referring to the fact that AWS operates the underlying infrastructure for a huge portion of the world's cloud computing capabilities for a variety of companies, websites, and apps. AWS includes infrastructure servers, storage and networking permits the hosting of business-critical sites, applications, and data with cloud rather than physical hardware.
By 2021 the company had over 1.6 million people and it has generated $469 billion in revenues. Its business strategy is ‘to be the earth’s most customer centric company, to offer a wide range of products at a low cost and delivered faster like prime ‘Alexa, the voice control of Amazon has been significant in artificial intelligence and smart home. Today the company is the largest online retail shop and at the same time adjusting to the new technologies and ways of delivering goods (Amazon, 2024).
Last year in 2023 the FTC, together with 17 States, filed a lawsuit against Amazon for using its competitive edge to dominate other competitors into not discounting their products and using Amazon’s expensive services. As a result, they claim that it leads to increase of prices, degradation of quality and innovation hindering millions of consumers and businesses across the country (Federal Trade Commission, 2023). In this report, the authors have reviewed the case filed by the FTC against Amazon on anti-competitive practices, including anti-discounting and high fees levied on the sellers. The report digs deep into the greater ramifications of these moves on the shareholders of the company, the financial performance of the company, and its commitment to environmental sustainability.
2. Detailed discussion of the issue:
The Federal Trade Commission (FTC) together with the support of 17 state attorneys’ generals sued Amazon for using monopolist methods which harm both the consumers and other market players. As per the FTC’s case, Amazon uses several anticompetitive measures to monopolies the online retail and marketplace service sectors.
Particularly, the anti-discounting practices make sellers refrain from providing lower prices on other platforms and as alleged, Amazon is involved in these practices. Thus, by hiding these sellers at the bottom of the search results Amazon maintains higher prices all over the internet and prevents sellers from engaging in competition. Also, Amazon has been accused of locking sellers into its mandatory ‘Prime’ program to sell by requiring sellers who wish to sell through the platform to use Amazon’s expensive fulfillment services. This mode of operation increases the expenses on selling for these companies which in return reduces their competitiveness with other players in markets other than the specific ones compelled to use this system, hence reducing competition in all markets(Federal Trade Commission, 2023).
In the marketplace services sector, the lawsuit shows that Amazon has been taking high fees from the sellers, in some cases up to half of the sellers’ sales. Such fees consist of a fixed monthly cost per item sold and compulsory advertising expenses thus causing lots of financial pressure on the sellers while making the prices higher for buyers. The complaint also alleges that the retail giant manipulates its search algorithm in a way that directs customers to buy its products rather than that of other merchants even where superior products exist. This practice lowers the quality of the results provided in a search and negatively affects the shopping experience of customers. The FTC therefore wants a permanent injunction against Amazon and to end its monopolistic conduct to ensure competitiveness in the market for university assignment help In banning such practices, the FTC says that it seeks to improve the competitive landscape in the online retail space therewith creating greater opportunities for consumers and business alike and encouraging the adoption of fair and innovative pricing (Federal Trade Commission, 2023).
2.1 Effect on Shareholders:
In the short term, the FTC lawsuit may cause Amazon shareholders to experience fluctuating stock prices for the company. Legal implications, legal risks, and a declined stock price could ensue due to fears of fines and penalties, regulatory attention, and damaged reputation. Its investors also respond to such legal actions by selling shares in response to the possibility of fines or settlements as well as change of operations that could reduce the revenue and profit margins for Amazon. Moreover, both legal expenses and the risks associated with the outcome of the lawsuit may affect Amazon’s future financial results in the next quarters. Thus, near term earnings could be affected and this could dampen stockholder returns as investors may be reacting to the current unfavorable outlook instead of the long-term prospects of the firm (Amazon Annual-Report, 2023).
Longer-term, the impact is dependent on the result of the case and whether the company reacts favorably to potential changes in the regulations. If Amazon must change something that affects its business model, like reducing fees for sellers or less dominating the marketplace, the margins might turn into negative ones. This would probably decrease the company competitive edge and the anticipated future revenues. While the effects of this trend are debatable, the company has the means to adapt and shift into other segments, including cloud computing (AWS) and artificial intelligence. Shareholders may experience long-term growth pattern stability if Amazon adapts to this new change in the environment. Also, a larger threat could increase rivalry among firms in the online retail market, which could have positive effects for consumers and the economy at large.
In fact, a look at Amazon's recent earnings shows continued top-line growth across key segments, including AWS, e-commerce, and advertising. For example, in 2023, AWS revenues reached over $80 billion, providing considerable buoyancy to the company's overall financial position, even in the face of increased legal pressures. The e-commerce business, highly scrutinized and subject to regulatory pressure, has increased at a slower pace due to competitive forces and increased operating expenses. With AWS being the strong driver of profitability, any long-term impacts on Amazon's marketplace operations from these legal challenges will dampen the growth in overall revenue. So, these earnings trends will be important for shareholders to track going forward as the company works its way through the FTC lawsuit (Amazon Annual-Report, 2023).
2.2 Financial and Operational Sustainability:
FTC recently sued Amazon for monopolistic practices and this could grossly affect its financial and sustainability plans. The class action which is directed against Amazon and its marketplace and seller fees can result in new legislation making its operations more expensive resulting in lower profits. Components that concern specific sources of sales revenue such as its marketplace and fulfillment services are targeted. In case these activities are restricted by legal decisions, the company’s revenues may be reduced, or Amazon will have to incur more expenses to meet new legal requirements (Amazon Annual-Report, 2023.).
These financial losses may likely make Amazon supplement its financial requirements from other operational areas such as the sustainability ambitions expounded above.
Furthermore, such a financial loss may position Amazon to divert funds from other functional areas, such as sustainability, towards financing litigation-related expenses to remain financially stable.
However, any litigation related to defense, potential fines, or restructuring could shift financial and management attention away from environmental initiatives, thus delaying or scaling down some of the projects on sustainability, including renewable energy transitions or net-zero carbon emissions by 2040. (Sustainability Report ,2023).
The lawsuit is a danger to Amazon in both short-term and long-term perspectives as legal and regulators’ actions may cause a redistribution of funds either toward or from sustainability initiatives Nevertheless, the legal defense, possible penalties, or operational restructuring could slow or even hinder the environmental projects implementation. The lawsuit is a danger to Amazon in both short-term and long-term perspectives as legal and regulators’ actions may cause a redistribution of funds either toward or from sustainability initiatives (Sustainability Report, 2023). The lawsuit creates both a short-term and long-term risk to Amazon, financially and operationally. Legal and regulatory actions could force the company to divert funds away from key areas, including ambitious sustainability goals such as reaching net-zero carbon emissions by 2040 and transitioning to 100% renewable energy. This can, in turn, divert some resources to bring in such changes, which may impede the process of these initiatives or hinder supply chains that improve carbon footprint reductions or slow down sustainable technology development. Additionally, operational restructuring can shift the priorities away from such long-term environmental commitments to more immediate concerns regarding legality and, finances, hence reducing the ability of the company to effectively achieve its target regarding sustainability.
2.3 Governance Mechanisms and Response to the Lawsuit:
This situation calls for multi-dimensional answering: Amazon's 'monopoly' and the lawsuit filed by the F.T.C. through regulatory scrutiny, legal reforms, and internally by structural changes to overcome the anti-competitive terms and truly enable market competition.
From the analysis of digital market power as put forth by, it is evident that vertical market domination is hard to regulate due to its impact on stifling competition and innovation like in the case of Amazon (Lyu, 2023).
2.3.1 Board of directors:
Amazon Leadership team consists of skilled executives and board of directors who can manage the many operations of the organization across the globe. The company was founded by Jeff Bezos who also served as the CEO until 2021; he now serves as the Executive Chair with strategic oversight of the company, its operations and policies Andy Jassy, the current President and CEO, played a crucial role in the growth of Amazon Web Services and spearheads Amazons Day to day operations. Besides Bezos, other senior managers like Matthew Garman, AWS CEO and Douglas Herrington, the CEO of the worldwide Amazon stores are involved in driving growth in the main business segments of Amazon. The leadership team also has support of a board of directors like Indra Nooyi, former CEO of PepsiCo, Wendell Weeks, CEO of Corning Inc etc. They bring together different businesses, leading members have been involved with and enable Amazon to adapt and innovate within industries like technology, retail, and manufacturing in the business of e-commerce, cloud computing, and AI. This will enable the company to hold its leading position within the global market while managing impending threats and opportunities effectively. (Amazon.com, 2024).
Additionally, it is influenced through its structure, in particular, the strength of independent directors who help enforce compliance standards and regulatory requirements. (Ardillah, 2022). This also impacts the level of involvement and performance because those directors who possess a high level of role responsibility are likely to perform beyond their normal duties and expectations. Finally, it depends on its capacity to perform not only monitoring and advisory, but also to guarantee that the company strategies match shareholders’ benefits and, ethical principles are being used in the organizational management (Jiang, 2022).
2.3.2 Policies:
a. Pricing Policies:
Pricing strategies are core to Amazon’s competitiveness and have recently come under the lens because of antitrust accusations. The supply chain also points toward the fact that the company uses pricing strategies like dynamic pricing to sustain its market domination. These strategies enable Amazon to set its prices dynamically depending on the prevailing market forces, competing prices, and consumers’ buying behaviors, which may entice customers to pay more for products and make sellers part with more money in the form of fees (Aparicio et al., 2021). However, sometimes this can be negative, for example, when Amazon sellers penalize selling below their prices on other platforms, these actions hurt competition and diminish price discounts. This practice not only undermines market competitiveness, but it also increases prices for consumers since sellers are forced to conform to Amazon’s pricing policy to gain access to its selling platform (Yu, 2023).
The subject pricing policies have adequate consequences because they act as deterrents to new entrants and stagnate the growth of current rivals. Although one of the biggest strengths of Amazon is its ability to utilize data analytics, the company can increase its profits through pricing models that also harm the quality of services and products offered to the consumers (Liu et al., 2021). This monopolistic behavior that was evident in the recent FTC lawsuit points toward the need for more regulatory checks to prevent unfair competition in the online marketplace (Li, 2024).
b. Search and Advertising Policies:
This policy entails important elements of Amazon’s business model, which is the search and advertising strategy that also affects the consumer choices and sellers’ presence on the market. The company uses complex ranking mechanisms to display items for sale, sometimes recommending products that are marketed or even made by the company itself (Andrade et al., 2023). This practice can result in the general shopping experience being marred because consumers seek search information that could be less relevant and more oriented towards paid search results as opposed to organic ones.
The policies regarding advertisements on Amazon demand serious investment in paid advertising for every seller who wants to appear before customers on the platform. That kind of policy gives prominence to paid listings over organic results. This leads to a cycle where the sellers are forced to contribute a large amount of money to Amazon which exceeds even 50% of their revenues making the end consumer pay more charges (Abbaspour et al., 2020). Not only do such practices stymie competition, but they also strengthen Amazon’s dominance; visibility for lessors is possible only with a cash investment in advertising.
These policies apply to the existing antitrust claims against Amazon as an indication of how it uses its dominant position to its advantage. According to Hei (2023), the policy at Amazon about side-lining competitors in search results while forcing sellers to pay expensive advertising fees create artificial barriers against competitors while increasing operation costs among sellers. This in turn increases the cost of living whereby such sellers are compelled to pass these costs to buyers in order to keep the economy running smoothly-a factor that distorts fair competition.
2.4.3 Committees:
There are several Amazon committees in its structure every of which is designed to increase operational efficiency and corporate governance. The Audit Committee of Amazon is an independent committee charged with the responsibility of supervising the financial reports of the company and the auditors’ performance besides supervising the function of the internal auditor. Consisting of at least three independent directors, one of whom has an accounting or financial background, this Committee convenes quarterly to review financial statements, evaluate auditors and oversee compliance with the law. It aims to achieve clear and free from risks and the reporting will be made to the Board of Directors (Amazon.com, 2024).
The Leadership Development and Compensation Committee of Amazon plays a very important role in respect of matters dealing with talent development, executive remuneration, and equity-based compensation. It would review the effectiveness of the leadership development efforts in place to assure Amazon of a good succession plan that would help the organization minimize risks related to leadership transitions. To be individually tailored to Amazon's general human capital management strategies for the purpose of ensuring that policies and practices are fair and tied to performance, remuneration policies, ensured by a committee composition of at least two independent directors, introduce extra layers of expertise into decision-making on executive compensation and development strategies, as it makes an attempt to enhance the company's competitive advantage in talent retention by its authority to engage external advisors.
The Nominating and Corporate Governance Committee also strategizes on Amazon's board of directors concerning structure and functioning: assessing board performance and compensation, finding and proposing candidates for receiving the positions of directors, and verification that the governance practices are aligned with the environmental, social, and governance policies of Amazon. This committee is important in ensuring good governance and ethical leadership within Amazon, considering that the company has expanded to almost all parts of the world. The committee ensures that Amazon's stand on transparency and accountability is reflected in its leadership through compliance mechanisms with various regulatory standards for ethical corporate practices.
3. Compliance:
The current case of the Federal Trade Commission (FTC) suing Amazon for antitrust violations raises many legal concerns regarding monopolies and antitrust policies in the online marketplaces. The FTC that also has 17 states’ attorneys general, complain that, rather than using its domination to satisfy consumer demand and benefit competitors, Amazon has engaged in a range of anticompetitive practices that sustained its dominance. This case falls under the U. S antitrust laws, more specifically the Sherman Act that outlaws’ monopolization and attempts to monopolize any part of commerce (Goldwater, 2024). The complaint from the FTC underlines that Amazon's practices are not accidental consequences of its size but result from its deliberative acts aimed at eradicating competition by manipulating the outcomes for its benefit through strategic, almost ruthless tactics of maintaining market dominance and suppressing rivals..(Prado, 2022).
Measures designed by Amazon under allegation have included anti-competitive practices such as anti-discounting which punishes sellers for offering lower prices anywhere else thus increasing prices everywhere on the internet. As such this strategy is one of the many ways, in which top-tier digital platforms use compulsory execution of predetermine rules that stifle more competition and choice amongst sellers. Such conduct has not only short-term ramifications on prices; also, reduces the quality of the services and products that consumers have access to as Amazon favors its own sales over competitors. The FTC’s actions indicate increasing awareness of the need to develop appropriate regulation standards in the Internet context in which conventional antitrust measures seem insufficient (Prado, 2022).
In addition, the lawsuit largely uses protection of competition in digital markets which are addressed in the literature regarding antitrust enforcement in the Big Techs (Lindman et al., 2023). The FTC’s request for a permanent injunction against Amazon intends to bring competition back to where it has been distorted by the company’s actions, for greater health in the market for consumers and companies emphasizes the challenges posed by rapid advancements in the digital marketplace. (Prado, 2022). This case is one of those most important moments during the never-ending debate on competition regulation and what it means in terms of fair competition, especially within the digital economy.
4. Strategic implications and consequences:
The case that, most recently, was launched by the Federal Trade Commission (FTC) against Amazon. represents a milestone in the further course of the debate about monopolistic tendencies in digital platforms’ economies. The FTC, together with 17 state attorneys general argue that Amazon adaptable several anticompetitive tactics that not only preserve the dominant market power but also raise the price, reduce the quality of service, and limit technological advancement in the online market (Calzada et al., 2022).
As for the actual practices with which Amazon has been accused, namely anti-discounting, and other measures that require sellers to engage in its fulfillment services or risk otherwise face exclusion, such practices appear to be systematic (Calzada et al., 2022). It also denies rivals relevant means of effectively competing and results in high prices for consumers and high cost of operations for sellers. The economic theory argues that monopolistic firms can obtain what is called “monopoly rents” meaning the supernormal profits that a firm is able to make because it has monopoly power over the market. This dynamic can be especially problematic in digital markets where the barriers for entry are close to nil due to network effects and economies of scale which work to only solidify the leading positions of firms as is seen with Amazon (Prado, 2022).
In addition, this lawsuit has effects that are broader than the existing market circumstances. The FTC’s action shows that there is increasing awareness concerning the necessity to have adequate frameworks to regulate digital monopolies. This is an area that has been explored extensively in recent literature, especially in the enforcement of antitrust laws in digital markets in a bid to enhance innovation as well as promoting fairness in competition (Prado, 2022). The implications of this lawsuit are future inevitability results of this lawsuit may set the standard for how similar cases will be conducted in the future and may not only impact Amazon’s business model’s approaches but will also affect the regulatory environment that governs digital platforms.
Thus, the FTC’s lawsuit against Amazon can be pointed to as one of the important steps towards combating monopolization in the digital economy. This action by the FTC is an attempt to create awareness and fight amazon for its anticompetitive behavior that hypes the consumer and hinders innovation. This case may lead to future directions as regards antitrust enforcement, especially for those markets that are already dominated by several concentrated technology companies for the common good of all the stakeholders. The action by the FTC serves to highlight and challenge Amazon's anti-competitive conduct, which has raised consumer costs and stifled innovation. However, the consequences of this case do not end with the legal challenges but also pertain to Amazon's financial performance and strategic positioning. For example, in 2023, Amazon reported revenues of more than $469 billion, mainly from its marketplace and fulfillment services. The tremendous financial pressure due to the event of regulatory changes, which resulted from the case, will limit the usage of these revenue-generating segments. This might make Amazon concede ground in the profit margin race and strategically shift to other business arms, such as cloud computing-AWS and Artificial Intelligence-to keep its head above water amid increased regulatory challenge and pressure.
5. Recommendation:
The recent case that has just been litigated is that which was by the Federal Trade Commission (FTC) against Amazon. also raises substantial doubts about its monopolization actions which it is accused of undermining competitors and harming both buyers and sellers. FTC’s complaint also explains how anticompetitive Amazon engaged in things like price gouging against the sellers who use other platforms, strong arming sellers into using Amazon’s fulfillment services, and ranking search results to blatantly provide preferences to its own products than those of its competitors (Lyu, 2023). To deal with these points and reduce the effect of monopolistic practices which are being allegedly performed by Amazon, the company could employ several significant tactics.
First, it may improve the organization’s openness in pricing and search functionalities. If Amazon brings out what its algorithms favor in products and how they structure fees for the sellers, it may create healthy competition. Transparency would help the sellers to understand the operations of the marketplace better while it would assist the consumer and enable them to make sound decisions when purchasing a product. This approach is in conformity to previous studies claiming that transparency is likely to result in improved market performance since the gap between clients and sellers is closed (Birch et al., 2021). Secondly, transparency could also assist in avoiding the population’s concerns about Amazon’s dominance in the market and, thus, minimize the public’s regard to its level of regulation and supervision.
The suggestion for Amazon to adopt reasonable subscription fees for sellers, while aiming to reduce costs for both sellers and consumers, ironically mirrors the very actions for which they were sued. The company was previously accused of imposing high fees that stifled competition, leading to increased costs across the platform. Therefore, such a recommendation may not address the core issues of anti-competitive practices effectively
Now, fees are said to account for a large percentage of revenues among many sellers, thus not only undermining their success, but also costing consumers more (Lyu, 2023). Amending the fee structure to fairly compete with other selling platforms, Amazon could expand the number of marketplace participants in its platform, which might appeal to several ranges of product varieties, ultimately causing erosion of exclusive costs. This strategy would not only help the sellers but also would be in a similar spirit with the objectives of the fair competition that the FTC was created to protect (Rikap, 2022). This could involve offering special offers on large quantities of products or free membership to newcomers to the market thus increasing the competition.
Third, Amazon could support programs that increase competition instead of decreasing it. This could be done with small stores or with the establishment of a site for individual registration which is different from the main site. If such measures were to be taken Amazon could prove that it’s ready to level the field rather than engage in its never-ending battle with competitors through unfair competition and competition stifling tactics. They might be useful in responding to the FTC’s concerns over Amazon’s Behavior and might also go a long way in helping rebuild the trust between consumers and sellers (Lyu, 2023; Rikap, 2022). However, such encouragement of competition can instigate bettering of service quality and introduction of new services that help the consumers in the long run.
Therefore, the FTC’s case against Amazon underscores important concerns that relate to anticompetitive conduct that dampens competition to the prejudice of consumers. Some of these issues may be resolved by applying measures that make the visibility of supply chain members higher, modify fees, and encourage competitiveness; in turn, Amazon would contribute to creating a proper and competitive market environment. These approaches are again in consonance with the regulatory requirements as well as help in building more consumer confidence and satisfaction in society in the long run.
6. Conclusion:
The FTC’s Antitrust lawsuit against Amazon, filed together with 17 state attorneys general argue that Amazon monopolizes markets to the detriment of consumers and would be competitors. Claimants state that Amazon resorts to anti-competitive conduct including anti-discounting and high seller fees that lowers prices and restrict competition. These practices do impact on short-term stock returns, and could, in the future, impact shareholder value should the regulations change the firm’s operations as was the case with Amazon. Also, the lawsuit poses a risk to Amazon’s financial and programmatic viability since the funds could be reallocated away from sustainability efforts. The case aims at highlighting the importance of the regulation of the digital markets and it may also give hints at the antitrust enforcement. To mitigate these problems Amazon may need to improve the level of transparency, adapt its fees and promote proper competition. Such measures can be in line with the objectives of regulators and recreate the confidence of consumers and sellers, for healthier market conditions are likely to emerge.
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