Question

A multinational corporation (MNC) is a corporate organization that owns or controls production of goods or services in at least one country other than its home country. A company or group should be considered a multinational corporation if it derives 25% or more of its revenue from out-of-home-country operations. However, a firm that owns and controls 51% of a foreign subsidiary also controls production of goods or services in at least one country other than its home country and therefore would also meet the criterion, even if that foreign affiliate generates only a few percent of its revenue. A multinational corporation can also be referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation, or a stateless corporation. Analyze on how modern multinational corporations deal with agency problems.

Answer 1

To deal with agency problems, multinational corporations employ strategies such as clear governance structures, performance-based incentives, strict internal controls, and corporate social responsibility policies.

Step-by-step explanation:

Modern multinational corporations (MNCs) face unique agency problems due to their vast and diversified operations across different countries and cultures. To manage these challenges, MNCs implement various strategies, such as establishing a clear governance structure that defines roles and responsibilities across the corporation. They also use performance-based incentives to align the interests of managers with those of the shareholders. Additionally, MNCs often employ rigorous internal controls and adopt corporate social responsibility policies to maintain their reputation and ensure compliance with the laws and norms of the jurisdictions in which they operate.

Given their significant influence and wealth, MNCs can sometimes exert pressure on local governments to create favorable conditions for their operations, which further complicates the agency problem. However, the increasing importance of transparency and corporate governance requires MNCs to carefully balance this influence with responsible management practices.