GOVN 400 Lecture 7: Unit 7

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silverwhale409

27 May 2018

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Unit 7

o agency theory

The agency theory is a supposition that explains the relationship between principals and

agents in business. Agency theory is concerned with resolving problems that can exist

in agency relationships due to unaligned goals or different aversion levels to risk.

o boards of directors

A board of directors (B of D) is a group of individuals that are elected as, or elected to act

as, representatives of the stockholders to establish corporate management related policies

and to make decisions on major company issues.

o communities of practice

A community of practice is a group of people who share a concern or a passion for

something they do, and learn how to do it better as they interact regularly.

This definition reflects the fundamentally social nature of human learning. It is very broad

o corporate governance

Corporate governance is the system of rules, practices and processes by which a

company is directed and controlled. Corporate governance essentially involves balancing

the interests of a company's many stakeholders, such as shareholders, management,

customers, suppliers, financiers, government and the community.

o chair of the board

The chairman (also chairperson, chairwoman or chair) is the highest officer of an

organized group such as a board, a committee, or a deliberative assembly. The person

holding the office is typically elected or appointed by the members of the group.

o policies and procedures

o policy framework

A policy framework is a logical structure that is established to

organize policy documentation into groupings and categories that make it easier for

employees to find and understand the contents of various policy documents.

o terms of reference

Terms of reference (TOR) define the purpose and structures of a project, committee,

meeting, negotiation, or any similar collection of people who have agreed to work together

to accomplish a shared goal. ... They are very important for project proposals.

1. Critique the differences between the agency approach to governance and a

values-driven approach. Include the rationale supporting your analysis.

2. What role does a board play in this new paradigm beyond the belief that it is

merely an extension of management.

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Document Summary

The agency theory is a supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving problems that can exist in agency relationships due to unaligned goals or different aversion levels to risk: boards of directors. A community of practice is a group of people who share a concern or a passion for something they do, and learn how to do it better as they interact regularly. This definition reflects the fundamentally social nature of human learning. Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of a company"s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community: chair of the board. The chairman (also chairperson, chairwoman or chair) is the highest officer of an organized group such as a board, a committee, or a deliberative assembly.

Related Questions

Over the past few years, the number of start-up companies attracted to either doing business themselves in the cloud, or specifically creating applications for others to use in the cloud, has grown significantly. A few but very promising enterprises have launched applications in âcontainerâ technology, which enables companies, programmers, or other enterprises to both launch and run applications solely in the cloud. There is still a lot of room in this emerging marketplace, and you are diving in. The product youâve developed has a unique angle to tap into the local-grown/local-made/local-paid movement thatâs also growing larger every day. Your initial market is your own small city, which operates independently but which is linked economically and via public safety provision to another small city sitting directly across a river separating the two. Once youâve been able to launch your company in your city, you plan to approach the âsister cityâ leaders, then the county, state, and eventually go national. Itâs too soon now, but your future plans entail an IPO offering to accomplish all this. Eventually, you hope to be able to re-imagine your product to go global. You have big plans, are close to being tapped out financially and you now need to plan for additional investors. Address the following considerations as they apply to your product launch. 1.Describe an agency relationship and how it may/will take shape for your small company. As the sole employee and investor in your startup, what agency conflicts might arise? 2.Six months have transpired, and youâve been able to add two employees. In this new arrangement, what agency disputes might now develop that need to be addressed, and how might you address them? What resources do you need to use or consider? 3.Another three months have passed. You are now ready to expand to your sister city and you need more capital. You decide the wisest path is to sell some stock to outside investors, but you will maintain control over your company by holding onto the majority of the stock. In this new scenario, what type of agency conflict might occur? How can you address this in advance? 4.The IPO was a success, and you have a robust number of shareholders. With board support, you determine it is time to hire a financial manager to help your firm achieve current goals and set new ones appropriate to the firmâs growth strategy. What professional strengths and skills will an individual seeking this position need to possess? 5.Another consideration you feel you need to address at this point, now that your firmâs stock is publicly traded, is how to sustain the high ethical standards youâve fostered thus far as you move into the firmâs future. What strategies can your management team implement to conduct your business with both personal and professional integrity? What steps can you take to ensure that ethical considerations for financial and other management decisions are embedded into the firmâs culture? 6.Congratulations - you are now at Year One, and everything is moving along faster than you anticipated. While this is great, you are at the point where you need to raise additional capital from outside lenders. With this decision, what type of agency costs might the company incur? How might a lender mitigate any agency costs? 7.Year Two rolls around. Your company has been able to expand beyond your local communities and into to localities and governments in half the counties of the state. The stakes are getting bigger and you welcome the idea of high-level input to ensure the company keeps growing and expanding. You cash out the majority of your stock and turn the company over to an elected board of directors. Neither you nor any other stockholders own a controlling interest (which is also the situation at most public companies). List six potential managerial behaviors the new board might take that could harm your companyâs value, and what steps overall can put into place to avoid or mitigate these. 8.You are also aware from your prior career and from your research, that corporate governance can affect shareholder value. This greatly concerns you, as you still have lofty plans for your companyâs growth and eventual global trajectory. Questions youâve identified that need to be addressed at this stage include: a) What is corporate governance?; b) What five corporate governance provisions are internal to a firm and are under its control?; c) What characteristics of the board of directors usually lead to effective corporate governance?; d) What characteristics of the board of directors signal ineffective or problematic governance practices?; e) How can regulatory agencies and legal systems affect corporate governance? If there are differences in local versus national levels, expand upon these. 9.Lastly, one of your new board members is very concerned with âblockholders.â What is block ownership? How does it affect corporate governance? Explain the pros and cons.

GOVN 400 Lecture 7: Unit 7

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