Chapter 1 : Introduction

Question 1

The objectives of corporate gorvernance are:

Answer 1

• creation of sustainable value
• stakeholders’ interest
• monitor, control & support management team

Question 2

Agency Theory

Answer 2

Separation between who owns the company and who manages it

Question 3

Agency dilemma

Answer 3

how to ensure that the agents acts solely in the interest of the principal.

Question 4

What are the responses to the Agency dilemma ?

Answer 4

Transparency, reporting, accountability, audit, independent directors, and the other requirements of the company law and securities legislation, regulators and stock exchange rules

corporate gorvernance rules

Question 5

Types of agency problems:

Answer 5

Type—1: Principal–Agent Problem: The problem of agency between owners and
managers in the organizations due to the separation of ownership from control.
Type—2: Principal–Principal Problem: The conflict of interest between the major and
minor owners.
Type–3: Principal–Creditor Problem: The conflict between the owners and creditors
arise due to the projects undertaken and the financing decision taken by the
shareholders.

Question 6

Management vs Governance

Answer 6

Management = operates through hierarchies
• it’s known who reports to whom
• authority and responsibility are delegated downwards
• CEO has managerial responsibility

Governance = is not part of the management structure
• has not a hierarchy
• each director has similar powers and duties
• no executive boss of a board
• collegiality