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ADMS 1000 Chapter 8.docx

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Administrative Studies
ADMS 1000
Eytan Lasry

The Societal Context and Corporate Governance 1 Chapter 8 (day 3)  The Corporate Form o An “artificial being” that can engage in all forms of business activities (Canada Corporation Act) o A business organization that is recognized by the law as having a separate legal existence can be sued, hold property and incur debt o Less than 20% of businesses are corporations but they account for 90% of all business revenues (in the US) o Advantages (relative to sole proprietorships and partnerships):  Access to capital  Infinite life  Limited liability  Transferability and liquidity of ownership o Disadvantages  Double taxation  Costs and disclosure  Principal/Agent Problem – GOVERNANCE!  Corporate Governance o The system by which business corporations are directed and controlled o The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs o it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.  Components Of Corporate Governance o CORPORATE CHARTER  Provides right of & terms for existence o SHAREHOLDERS (Principals)  Owners have ultimate control and are residual claimants to any value created by the firm. They elect the Board of directors. Degree of control relates to number of shares held and corresponding voting rights. o BOARD OF DIRECTORS (BoD)  Elected by shareholders to oversee organizational management. Issues arise when the board is ineffective due to lack of independence because of insiders, conflicts of interest, CEO = Chairman… o MANAGEMENT (Agents)  People hired by the board to run the company and report to the BoD. Establishes organizational policy usually with Board of Directors o EMPLOYEES  Hired by managers/company to perform operational (i.e. non-managerial) work Corporation (Charter) Shareholders (Principals)
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