MGBU 4441 Lecture Notes - Lecture 16: Activist Shareholder, Executive Compensation, Cash Flow
17 Apr 2017
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Document Summary
Corporate governance: set of mechanisms used to manage business & manage relationships. Separation of ownership & managerial control allow shareholders to purchase stock which entitles them to residual returns, increases available owners/investors which increases available capital, & allows for hiring of professional managers. Shareholder value reflected in stock price: small firms" owners who are also managers. Relationships between owners (principals) & decision-making specialists (agents) hired to manage principals" operations & maximize value for principals. Principals establish governance & control mechanisms to prevent agents from acting opportunistically. Different risk preferences/viewpoints (executives often want to take less risk than shareholders, depending on circumstances while some shareholders might like more risk to be taken) Executive compensation structure (often through stock options) Social activism (to align interest of wide range of stakeholders) Related outsider usually ceo of supplier/customer/firm that is partnered. Establishment & consistent use of formal processes to evaluate board"s performance. Require directors to own significant stakes in company.
