4 - Corporate Governance: Foundation Issues

Question 1

For major organisational groups

Answer 1

Shareholders – own stock which provides control over corporation.
Board of Directors – to govern and oversee the management of the business
Management – I hired by board of directors to run company
Employees

Question 2

Separation of ownership from control

Answer 2

Shareholders have become more distant from manages. Because ownership is dispersed into thousands of of shares Meant to know one person owned enough to have control. This meant control was left to manages.

Pre corporate period : owners - ownership, managers - control.
Corporate period - shareholders - ownership —> BOD —> Management - control

Question 3

Problems with corporate governance

Answer 3

• need for independence, inside directors have ties to firm, outside directors are independent from firm
• issues surrounding compensation: unfair CEO pay/ retirement packages
• Poison pills: (discourage/prevent hostile take over), golden parachute (provision in employment contract in which a corporation agrees to make payments to key officers in event of corporation control change)
• insider trading (practice of buying/selling a security by someone who has access to unavailable info to public)