Chapter 1 Summarized

Question 1

What is the purpose of CG?

Answer 1

The purpose of CG is to avoid unsupervised management to damage shareholders and stakeholders in the pursue of self-interest (principle-agent problem)

Question 2

What are the stakeholder definitions?

Answer 2

• Narrow: Have a legitimate stake in the company.
• Alternative: Contributed to something at risk with the firm.
• Wide: All actors who (may) influence/have been influenced by the firm.

Question 3

What is the shareholder’s perspective?

Answer 3

The firm should maximize shareholder’s value; corporate governance should increase the value of equity by aligning incentives between management and shareholders.

Question 4

What is the stakeholder’s perspective?

Answer 4

Much vaguer: support policies that produce stable and safe employment, provide acceptable living standards to workers, mitigate risk for debt holders and improve the environment. The organization has societal obligations beyond MSV (maximizing shareholder’s value).

Question 5

How do stakeholders influence the firm?

Answer 5

• Equity stakeholder: Power through voting.
• Economic stakeholder: Power through market (banks, customers, suppliers).
• Environment stakeholder: Power through politics (organized groups such as ecologists).

Question 6

What are the systematic types of conflicts between shareholders?

Answer 6

• Interclass conflict: investors and management vs. labor
• Intraclass conflict: top management vs. middle management.
• Border conflict: management and labor vs. investors.
• Agency conflict: shareholders vs. management.

Question 7

What was the “shareholder/managerial hegemony”?

Answer 7

The shareholder/managerial hegemony currently dominates Anglo-Saxon Corporate Governance, and can be tied up to the resolution of a long-term conflict between productive interests and finance.