Philosophy 2074F/G Chapter Notes - Chapter 8: Mci Inc., Accounting Scandals, Stakeholder Theory
7 Feb 2015
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Document Summary
Corporate governance: the controls put in place to ensure that a corporation acts in an ethical, legal, and transparent manner in the best interests of shareholders. It can also be defined as a relationship among stakeholders that is used to determine and control the strategic direction and performance of an organization. Corporate governance addresses the problems that arise in the separation of ownership and control, which is a defining feature of a corporation. The separation of control and ownership gives rise to the principal-agent problem: represents the conflict of interest between the principal and the agent. Principal: a person or entity first in rank of importance or level of ownership (shareholders) Agent: a person or entity that represents the interests of another party (managers or executives) Managerial temptations: i. ii. iii. iv. v. vi. vii. viii. Self dealing and/or engaging in non-arm"s length transactions. Taking no risks or chances in order to avoid being fired.
