Ch 4 - Corp. Governance & Organizational Structures Flashcards
What is corporate governance?
Is a system of rules, practices, and processes by which a company is directed and controlled
How is a BOD elected? What’s the meeting called? What are its roles?
Elected (voted) by external shareholders and protects their interests through an Annual General Meeting (AGM)
They can hire/fire a CEO. Furthermore, they have a responsibility to ensure the senior management team makes decisions that will maximize value of shares purchased by a company’s investors.
What is a board committee? Are they required for a public company?
Is a smaller group of directors that are in charge of sub-components of the overall board responsibilities.
Public companies must have some board committees. Other committees can be formed as needed as companies mature
What is a compensation committee?
a group of directors that determine how much the company should pay senior management.
What is required/mandatory to have in a public company?
- Annual General Shareholder’s Meeting (AGM)
- Management’s Discussion and Analysis (MD&A) and Annual Information Form (AIF)
- Board of Directors
- Majority Independent Board Members
- Chair of the board
- Audit Committee
What are characteristics of an independent director? What is required of an audit committee in a public company?
- An independent director, who is a member of the BOD that (majority of directors must be independent):
1. Do not have a material relationship w/ the company
2. Is not part of the company’s executive team
3. Is not involved with day-to-day operations of the company - Every public company must have an audit committee minimum 3 members who are independent (with no [material] relationship to company) and financially literate
What is reccomended (not required) for a pubic company?
- Compensation Committee
- Investor relations (IR) team
Who is CEO responsible for hiring? What must they provide external shareohlders and the BOD?
- The CEO is responsible for hiring a senior management team.
- They must provide external shareholders w/ transparent reporting
- They must provide the BOD with periodic updates and strategic direction
What’s a Management’s discussion and analysis (MD&A)
a REQUIRED for public compay discussion doc that accompanies quarterly and yearly financial statements, which explains company performance in great detail.
What’s an Annual Information Form (AIF)
a REQUIRED for public compay disclosure doc that discusses relevant background info regarding company operations and future plans.
Who are securities regulators?
a group that are responsible for designing policies and regulations that public companies must comply with to protect investors that purchase securities in a capital market.
What is a functional structure? What company does it work well for? Draw it.
- Where a company organizes itself by department. There is an experienced leader for each function.
- Works for a company with a relatively simple, predictable, and stable business.
Example: https://imgur.com/a/uguwHPe
Functional structure: Advantages and disadvantages
ADVANTAGES:
- Builds a team w/ subject-matter experts
- Facilitates communication with each functional area
- Reduces function duplicates
- Enables each leader to be accountable
DISADVANTAGES:
- More limited perspective
- Focus on routine tasks instead of long-term strategy
What is a Product/Service structure? What company does it work well for? Draw it.
- Where company organizes itself by the various products or services it offers. There is a leader for each product/service group OR group of related products/services.
- Works well with a company with many distinct products/services that are subject to change and evolve.
Example: https://imgur.com/1JbXRmR
Product/Service structure: Advantages and disadvantages
ADVANTAGES:
- Full autonomy and accountability for product/service lines.
- Can react faster to changes in product/service.
- Creates product/service experts within the company.
- Can improve product development cycles.
DISADVANTAGES:
- Potential competition between products/services
- May challenge coordination between different products/services
- Could cause duplication and increase in costs (each dep. needs a marketing team)
What is a Customer structure? What company does it work well for? Draw it.
- Where a company organizes itself by different customer segments. There is a leader for each customer segment.
- Might work well for companies that have significantly different customer profiles which have distinct customer needs; also if demand tends to change rapidly.
Example: https://imgur.com/HL0yjwo
Customer structure: Advantages and disadvantages
ADVANTAGES:
- Executives have autonomy to make decisions and clear accountability.
- Easier to implement a customers-first approach.
- Allows for business to react faster to customer changes & demands.
DISADVANTAGES:
- Competition between customer segments.
- Challenge coordination
- Could cause duplication and increase in cost (ex. each segment needs marketing team)
What is a Geographical structure? What company does it work well for? Draw it.
- Company organizes itself by geographical location. A leader for each segment. Each segment acts as a separate standalone business with autonomy to make decisions.
- Works well in companies that operate in various locations with significant differences in customers, products/services, regulations, suppliers, etc.
Example: https://imgur.com/unbioao
Geographical structure: Advantages and disadvantages
ADVANTAGES:
- Gives local management teams autonomy for the local market.
- Clear accountability and encourages geographic work.
- Creates a specialized team that understands the overall market environment.
- Increased ability to react to changes within the market.
DISADVANTAGES:
- Causes duplication in costs
- Implementing best practices and consistency in reporting (for example) can become very challenging
- Might not want to share knowledge with other segments
- Lack of focus and control over products and customers
What is a Matrix structure? What company does it work well for? Draw it.
- Where a company combines two structures to organize itself. Can be very cost efficient but adds complexity.
- Structure might work well for a large company where interdependence between cross-functional teams is essential for innovation and success.
Example: https://imgur.com/undefined
Matrix structure: Advantages and disadvantages
ADVANTAGES:
- Improves collaboration and flexibility, creates culture of knowledge-sharing and innovation
- Can learn new skills
- Efficient way to use human resources and save costs.
DISADVANTAGES:
- Can create complexity to reporting relationships. As well as more complex to monitor and control
- Additional time to coordinate activities.
- Can create accountability issues if roles + responsibilities are not clearly defined.
What is the order of creating a segmented contribution margin income statement at a COMPANY LEVEL?
Total revenue
LESS Total Variable Expenses
= Contribution Margin
LESS Total Traceable Fixed Expenses
= Total Segment op. income
LESS Common fixed expenses (not traceable to segments)
= EBIT or Operating Income
LESS
Interest, taxes, other income
= Net Income/Loss
What is the order of creating a segmented contribution margin income statement for a segment?
Segment revenue
LESS
Segment variable expenses
= Segment Contribution Margin
LESS Segment Traceable Fixed Expenses
= Segment EBIT or operating income
