Ch 5 Flashcards
What is governance
System of structures rights, and obligations for directing and controlling corporations
What does the the distribution of rights and responsibilities do
Specifies how the board of directors, managers, and shareholders share power in a firm
What is the mechanism for monitoring
Governance aims to align stakeholder interests a create value
What makes up the internal governance mechanism
Board of directors, concentrated ownership,and performance based-pay
What does the board of directors do?
Monitors and advises managers in a company
What do blockholders do in a concentrated ownership?
Ensure efficient management of the firm
What does performance- based pay do for managers and owners
Aligns their interests
What makes up the external governance mechanism
Product Market competition, managerial labor market, and threat of takeover
What exactly does the product market competition do to firms and products
Outcompetes underperforming firms and products
What exactly does the managerial labor market do for the managing staff
Replaces underperforming managers with more competent ones
What is the threat of takeover
Makes underperforming firms easy takeover targets
What are the main motivational points of family owners
①financian goals ② indiversitied wealth ③ supervise managers
What is the reality of the functionality of traditional governance mechanisms in terms of family firms
The board of directors, concentrated ownership, and performance based-pay have limited effectiveness
What are the main specific governance problems in family firms
①altruism-induced ② owner nadir ③ majority-minority owner ④ family blockholder governance problems
What is the problem with altruism
Induced governance
Family owners favor family members over hinfamily members- leading to adverse selection and shirking
In family firms, what is the problem with
Owner holdup governance
Family owners steer the firms Ina particularistic way exposing non family employees to risks
What exactly is the governance problem: majority - minority
Disagreements between majority and minority owner about goons , and information access
What occurs when there are family blackhader governance problems
Family owners disagree about strategy and influence within the organization
What do governance constellations mean in terms of family firms?
The different ownership and management structures
When ownership and management is shared among family members
Owner-manager
When ownership and management is shared among siblings
Sibling partnership
When the ownership of business is shaved among cousins
Cousin consortium
What dynamic is it when extended family controls portfolio of business activities
Family enterprise
How are the performance implications of governance constellations measured? (Relationship) hint: certain shape
U-shaped relationship between family governance constellation and financial performance
What does corporate governance instill
Efficient cooperation of board members, managers, and shareholders
What must one look for when choosing the correct people for their board of directors?
Skills, communication, managerial skillset, knowledge, and motivation
What are the roles and involvement of the board of directors?
① appoint, monitor, and dismiss top management ② invoke general assembly ③ set dividend policy ④ review business strategy
What exactly is the board’s involvement in the strategy formation process
① before broad direction ② offers advice ③ monitors strategic plans actual execution
What exactly does ownership governance legally define (ownership aspects)
① voting rights ②stalemates ③ transfer of shares ④ dissolution of agreements
What does family governance secure in matters related to the firm
Efficient operation of the family
The family values and Goals defines
Core values, overarching goal, family membership sand valves about being in business
Family involvement in management determines family members’
Positions, qualifications, career paths, and termination
What does family involvement in ownership specify or need specification in
Ownership strategy, in-laws and non-family managers as owners, trust ownership, and ownership requirements
What does family involvement in new entrepreneurial activity do?
Supports next-generational family member’s entrepreneur endeavors
What does family involvement in philanthropy support?
Family members in need and education or just other philanthropic activities
What does wealth governance do in family firms
Organizes and monitors the management of family wealth
When a family has no coordination of interests amongst family members in regards of managing wealth - they become known as the
Uncoordinated family
In an embedded family office, who manages wealth within the family firm
Fiduciary (trusted individual)
In a single family office, who manages family wealth?
Distinct organizational entity
What happens when a family trust or foundation is made
Wealth is allocated (in a trust/foundation) for the benefit of family members
What governance document emotionally binds family members to joint governance of business, ownership, family and wealth
Family charter
Family assembly is comprised of or comprises
Family members
Family council is what
Governs family affairs
What does integrated governance in family firms align and integrate?
Governance in the areas of family, ownership, corporate and wealth
