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Renationalization of Railtrack Case Solution

Solution Id Length Case Author Case Publisher
1191 730 Words (3 Pages) Alexander Dyck, Irina Christ Harvard Business School : 702032
This solution includes: A Word File A Word File

Protecting the stakeholder's interest is a very important factor whenever such privatization decisions are taken by the government. In this case, the problem occurs because of a clash in stakeholder's interests. The aim of financial analysts and shareholders is to maximize their wealth while the aim of the general public is to get best services at the least possible costs. In such a situation, when a compromise cannot be reached, financial as well as structural, then dissatisfaction of both the parties arises. This leads to the downfall of the company as it happened in the case of Railtrack. Clashing stakeholder interests finally led to the collapse of Railtrack in 2000-2001.

Following questions are answered in this case study solution:

  1. What are the critical issues?

  2. What advice should have been given to the board?

  3. What are the various stakeholders?

  4. What is the appropriate stakeholder interest?

  5. How best should the agenda be presented to the board considering their style?

Case Study Questions Answers

1. What are the critical issues?

The case study suggests that the decision of privatization had a very bad impact on the overall structure and function of the British railways from 1990s to early 2000s. The critical issues in privatization stem out from the underlying causes that led to this decision, for example, the concern for maximum shareholder wealth at the cost of infrastructure had very deep effects on the system. Since Railtrack was always a freeholder of passengers therefore; the public was concerned about the level of services provided by the railways. The dropping standards and infrastructure, as well as the increasing profit for the shareholders, reduced public trust in the Railtrack operations. Expensive fares, poor quality of operations, increasing accidents, and several other critical issues emerged from improper decision making of the government and shareholders.

2. What advice should have been given to the board?

The board must have been advised to focus on the long term perspectives rather than the short term goals. The case study of Railtrack indicates that a monetary incentive was the only reason shareholders engaged in this decision. They wanted to earn maximum wealth within a short period at the cost of providing poor quality services to the people. The board must have been advised about the long term consequences this decision might bring to their organization and they should have also though about the reputation and trust that would emerge as a result of this profit oriented privatization scheme.
Apart from this, the board should have thought critically about the amount of loans that were being borrowed from the banks or other governmental bodies because it could impact the overall financial status and work of the Railtrack.

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