Corpgov & ethics copy notes.doc

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Western University
Management and Organizational Studies
Management and Organizational Studies 1023A/B
Maria Ferraro

Corporate governance Designed to ensure the public companies sustainability- key to keeping investors confidence goals of SHvaluecreationand stakeholdervalue high protection • Reliable and transparent financial information definition: Description of how a company is contributes to efficiency managed, monitored and held accountable often described from SH’s view of what a requires fourkeycorporategatekeepers: company should and should not do •an independent and competent board, •an independent and competent auditor, Can be defined in perspectives •objective and competent legal counsel, regulatory - system of laws, rules and factors •objective and competent financial advisors. that control company CorpGov participants - suppliers of funds ensure getting a return relationship - relationship between company and funders, focusing on stakeholders CorpGov is a field in economics, howtomotivatemmgt of corps by incentive mechanism contracts org design legislation Investor confidence is the key driver for: - Facilitating efficient allocation of a scarce resource of capital Trend - Enabling public companies to raise capital for reducing agency costs -> creating LT SH value -> establishing/expanding their businesses increasing value for all STHs - Providing a safe, lucrative marketplace for 3 aspects of corp governance investment SH aspect - value creation US STH aspect - value protection Integrated aspect - combination Europe century due to:ence eroded at the turn of the 21st corporateaccountability ensure interest of mmgt • High-profile financial scandals aligns with SH & effectiveness in creating and • Economic downturn protecting value • September 11 terrorist attacks principle-agent/SH model of CorpGov -> • Ineffectiveness of market mechanisms primary objective is to: • Investors demand protection through regulation max SH wealth and transparency. therefore: alignment is priority 3. ethical indicators - antipollution, Principle agent problem exist because: 1. preservation of natural resources separation of ownership and control 2. agency costs STH affect and also affectedbycompanies’ decisions. Not just SH looking at financial reports. Agency costs arises when there is information asymmetry Integrated Aspect Primary responsibility - fiduciary duty to SHs residualcontractrights- making decision based on Secondary responsibility - non-fiduciary duty to rights not specified in contract STHs causes info asymmetry SH have the right to monitor and direct company, 2 types of mmgt failure that is a threat to interest STH dont have that. alignment 1. failure of mmt competence resulting from CorpGov ultimate goal: create a balance of power unintentional mistakes or negligences sharing among SH, STH & mmgt 2. failure of managerial integrity value by opportunistic behaviors CorpGov in SH aspect Regardless if which aspect selected, structured designed to reduce agency costs should be based on premise: Internal CorpGov 1. Primary purpose of creating value for SH, 1. BOD protecting value for STH 2. Internal controls 2. BOD has directauthority to govern business External CorpGov affairs & is ultimatelyaccountable 1. external audit a. strategic performance 2. monitoring & regulatory functions b. achievement of goals c. prevention of surprises STH aspect 3. BOD delegates to mmgt concentrates on value maximization for all STH 4. Chairperson of BOD accountable to board not 1. contractual participants CEO SHs, creditors, suppliers, customers, 5. CEO accountable to board employees 6. CorpGov should be value added 2. social constituents 7. Should promote and facilitate SH democracy local community, society and global 8. Proper communications with SH partners, governments, environ 9. Well governed companies will be rewarded 10. Directors and officers’ accountability should companies must be sociallyresponsibleunderSTH be achieved through rewards and punishment view. 11. Exec comp should be linked to performance. approved by BOD and SH. performance measured by 12. BOD should have strategies to deal with crisis 1. key financial indicators - earnings, mkt share, stock price 2. social indicators - employment, customer CorpGov Structure satisfaction, fair trade 1. Mechanism investor activists, state and federal statues, court 2. Functions decisions, SH proposals 3. Principles policy interventions, including legislation and Principles
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