Class 2 (ch. 4)

Question 1

Describe the meaning of corporate governance

Answer 1

Corporate governance refers to how a company is controlled and the direction they choose to take such as going public, private, etc
-How a company is controlled does NOT mean owned

Question 2

What is the difference between a pension investment vs. regular investments

Answer 2

Pension funds benefit from tax exemptions

Question 3

Who makes the decisions of a company on a day to day level

Answer 3

Management: CEO, CFO, CIO, etc
The board of directors are the ones that put these people in these positions

Question 4

How are the board of directors established for a private company?

Answer 4

Depending on who owns the firm, they will then pick the board of directors who are chosen based off of their skills they can offer to the firm

Question 5

How are the board of directors established for a publicly owned company?

Answer 5

The government appoints the chairman

Question 6

How are the board of directors established for a publicly traded company?

Answer 6

Shareholders vote on who will be on the board of directors

Question 7

What is the main issue/disconnect between the board of directors and the managers?

Answer 7

The board might want to maximize long term shareholder growth however since sometimes management is paid in options, this could lead to management creating short term of increases in stock price where they can then exercise these options, creating their own personal wealth at the expense of the shareholders

Question 8

In order to minimize downside risk when going international, what must be done by the company who choses to go international

Answer 8

Grouping with a local (new destination) company who knows the market, laws, regulations and so on

Question 9

Name some requirements that need to be done before going international

Answer 9

-strong management is needed
-training
-certifications
-etc

Question 10

Name 2 ways of getting additional cash without giving up equity

Answer 10

1) Bonds
2) Debt

Question 11

Why would a company raise capital in Europe even if they are not a European company

Answer 11

If the firm does business in Europe, they will need to pay their labour, supplies, property and more in Euros. To do this they would need access to the european market to issue bonds to pay their bills

Question 12

If much of a companies business is done in a region of the world where there exists a volatile risk, what should be done by that company

Answer 12

Borrow locally (ex: borrow in Asia) instead of converting the currency (ex: CAD) to Asian dollars

Question 13

What is the role of the board of directors? (8)

Answer 13

1) strategic direction
2) oversight
3) governance
4) financial oversight
5) hiring and evaluating management
6) risk management
7) stakeholder engagement
8) succession planning

Question 14

What is strategic direction in role of board of directors

Answer 14

Setting long term vision of the company and ensuring the alignment with its mission

Question 15

What is oversight in role of board of directors

Answer 15

Ensure management is operating effectively and in the best interest of stakeholders

Question 16

What is risk management in role of board of directors

Answer 16

Identify and manage the risks that could affect the performance and reputation of the company

Question 17

What is stakeholder engagement in role of board of directors

Answer 17

Represent the shareholders and ensure their voices are heard

Question 18

What is succession planning in role of board of directors

Answer 18

prepare future leadership needs, ensuring continuity in management

Question 19

What are some challenges in terms of corporate governance for a multinational firm? (10)

Answer 19

1) cultural differences
2) regulatory compliance
3) economic variability
4) risk management
5) talent management
6) sustainability and ethical standards
7) communication and coordination
8) strategic alignment
9) technology integration
10) stakeholder management