Chapter 4 Flashcards
What is Corporate governance
Its a set of
- rules
- practices
- Process
By which a company is directed + controlled
What should the corporate governance aim to do?
- encourage employees to comply with these rules
- Act ethically and with integrity
- Be mindful of the planet
- try to positively contribute to the community company in
What are the board of directors
these are group of individuals that
- Highly qualified
- Much experience
They serve as advisors and provide oversight for public companies
What is the COB
This is the chair of the board
- They hold most power and authority within the BOD
What is a big difference for private and public companies
Private - Not requried to have a bod but would try to have an advisory board in place
Public companies have have a formal bod which are independent
What is the responsiblity of BOD
To make sure the senior management team makes decisions that maximize the value of shares purchased by the company’s investors,
What is senior management
these are indivuals that lead companies day to day oeprations
What does senior management do when decisions need to be made?
They bring recommendations to the board and they vote to accept or reject decisions. As they make sure they make decisions that benefit shareholders
What is a board committee
They are a smaller group of directors in charge of ‘sub-components’ of the overall boards responsibilities
What are examples of board committees
- Compensation committee
- Audit committee
What is the audit committee
These individuals oversee financial reporting and disclosure
What is a compensation committee?
They oversee how much the company should pay ‘senior management’
What are the 3 key groups in the system for ‘corporate governance’?
- BOD
- External shareholders
- Senior Management
How is the BOD selected?
They are selected by shareholders to represent them in company decision making.
They are selected through an AGM (annual general meeting)
what is one key thing BOD for?
They hire or fire the CEO to lead and drive the company
Purpose of CEO
They hire senior management to help them lead the company
What is the senior management teams purpose?
They set the
- Corporate stragety
- They also are responsible for the company day to day operations
what are external stakeholders purpose?
They buy shares in a company that helps grow the company with the capital
What do they expect from the company (‘external shareholders’)
They expect accurate and transparent financial reporting quarterly or yearly to see company performance + operations
What else does a ‘senior management’ need to provide for external shareholders?
They must also provide financial statements and management’s discussion and analysis (MD&A) for investors to understand the company’s performance.
what is an ‘MD&A’?
It explains a companies performance in greater detail
what is an AIF
Its a document that discusses the companies operations and future plans
what are the differences in corporate governance between public and private companies
Compliance with Securities Regulations
Annual General Shareholder’s Meeting (AGM)
Management’s Discussion & Analysis (MD&A) & Annual Information Form (AIF)
Board of Directors (BOD)
Independent Board Members
Chair of the Board (COB)
Audit Committee
Compensation Committee
Investor Relations (IR) Team
what are the difference in compliance with securities regulations between public and private companies
private: NOT REQUIRED; not listed in stock exchanges
public: MUST comply with regulations
what are the difference in annual general shareholder’s meeting (AGM) between public and private companies
private: NOT REQUIRED
public: REQUIRED
Q
what are the difference in management’s discussion & analysis (MD&A) and Annual information form (AIF) between public and private companies
private: NOT REQUIRED, but sometimes done for external stakeholders
public: REQUIRED
what are the difference in BOD between public and private companies
private: NOT REQUIRED, but often have advisory board of formal BOD
public: REQUIRED
Q
what are the difference in independent board members between public and private companies
private: NOT REQUIRED, unless getting ready for an IPO
public: REQUIRED; majority must be independen
what are the difference in COB between public and private companies
private: NOT REQUIRED, but some have them
public: REQUIRED, recommended they are independent
what are the difference in audit committees between public and private companies
private: NOT REQUIRED, unless getting ready for an IPO
public: REQUIRED; at least 3 independent & are financially literate
what are the difference in compensation committees between public and private companies
private: NOT REQUIRED
public: RECOMMENDED, to ensure senior management is fairly compensated and retained
what are the difference in investor relations (IR) teams between public and private companies
private: NOT COMMON; they manage relationships with public investor groups
public: RECOMMENDED, to attract public investments
What are security regulators
These are individuals responsible for designing the policies that public companies comply wit to protect investors in capital markets that purchase securities
what does it entail for BOD to be independent?
(1) do not have a material relationship with the company
(2) is not part of the company’s executive team
(3) is not involved with the day-to-day operations of the company”.
Whata re the requirements for an audit committee?
- They are financially literate
- 3 must be independent and financially literate at a minium
- Do not have any maternal relationship with the comany
What are investor relations?
They are responsible for building strong relatonships with investor groups to attract more investors tp the company
What is an ‘organizational structure’?
It a system that outlines how certain activities are directed ti achieve goals of the company.
Such as rules, roles, resposbilities
What is a ‘functional structure’?
Its a strucures that organizes the company by its department
ex: Resoucr, finance, marketing
For a functional structure what is a given?
–> There is a leader in each function who are experienced in the specific function + has many years of experience
What companies work best for this functional structure?
small or medium-sized companies with a simple and relatively predictable type of business.
What are the advantages of having a ‘functional’ structure?
- Build a team that are experts in their respective field
- There is easy communication within each functional area
- There’s a reduction in function duplication
What are the disadvantages of having a ‘functional’ structure?
- Limited perspective with the risk of operating in functional silos
- Focus on routine tasks instead of the long-term strategy
What is a product/service structure?
The company organizes itself by various products or services it offers.
What companies work best for this product/service structure?
Works well with large companies with distinct product/or services
What are the advantages of having a ‘Product/Service’ structure?
- Creates experts for the specfic product or service segment
- Each executive has full automonomy to make decisions about product/service line
- Clear accountability exist by product or service lie
What are the disadvantages of having a ‘Product/Service’ structure?
- May create compeition between products or service
- Might be challenging to coordinate between different p/s t
- Could be duplication and increase I costs
What is a customer structure?
its a structure where a company organizes itself by customer segments
what king of company does the customer segment have to be In order for it to do well?
It must have distinct customer needs
Advantages of a customer segment
1.Exectucives are able to make decision for customer segment in full atunomoy.
- Clear accountability
- Able to specialize to customer needs and expectations
DisAdvantages of a customer segment
- Increase in comeptition for customer segments
- Challenges in coordination
- Cost duplications
What is a ‘geographical structure”?
Organizes itself on geographical location
what king of company does the geographic segment have to be In order for it to do well?
Works well with companies in various locations
Advantages of Geographic Structure?
- Clear accountability by geography
- Creates a team specialized in geographical markets
- They have a better ability to react to changes in specific geographic market
DisAdvantages of Geographic Structure?
- Geographic locations might not want to work with each other
- Causes duplication and increase in costs
- Lack of focus and control on products/customers
What is a matrix structure?
Combine two structures (product/service + customer)
whp might it work better for?
Large companies
Advanatges for Matrix
- Improve organizational collobaration + flexibility
- Opportunties to learn new skills
- efficient way to use its human resources + costs
Disadvantages
- More complex in reporting
- Additonal time to coordinate activities
- Can create accountability issues if roles and responsibilities are not identified
What is segmented financial reporting?
is when each segment prepares their own financial reports
What is CM
Difference between revnue and variable costs (how much we have left to cover fixed expenses)
What is traceble fixed expenses
- Costs thata are directy related to a specific segment
Costs would not incur if segment did not exist
Common fixed expenses
Costs that are incurred to supprt all segments and are not traceble to any specific segments.
How does a segment CM IS look?
revenue
les
variable expenses
=
CM
- tracebale fixed expenses
= operating income
At a company level CM IS
total revenue - total expenses = total cm - total traceble fixed expenses = total operaitng income minus common fixed expenses = EBIT - inrest adn tax = net income
