Corporate Governance Flashcards
What is Corporate Governance
Relationship Relationship between management and stakeholders
• Structure of rights and responsibilities among the stakeholders
What ownership by instiutionl onvestors
They tend to have diversified portfolios portfolios
• Invest in many companies but hold small stake in each company
• Short-term investment - buy and sell shares frequently
• They invest in many companies and usually don’t make decisions about the company (passive passive)
• However, some of them might push for certain decisions that benefit them
• Examples: pension funds, mutual funds, all kinds of investment funds
• Common in the US
What’s family ownership?
Long-term orientation
• Agency problem is less likely less likely to be an issue (top managers are usually family members)
• Very common in developing economies and EU countrie
what’s State ownership
Goals of state might be different different from goals of investors investors
• Government usually exercises direct control control (may use short-cuts in regulation)
• China, Russia, Brazil (mixed ownership - partial state ownership, partial stock market - private
investors)
What’s Ownership by other corporations
• Goal: maximizing profits across companies connected by ownership network
• Main goal is to get higher total profitability profitability (which might imply sacrificing sacrificing gains of other
companies in the short term)
• Main risks for independent shareholders: not agency problem, but tunnelling tunnelling of resources resources to
affiliated companies
• Common in Asian countries
How to resolve agency probloem?
Alignment of interests
Close monitoring through a bord of directores(independent)
and legal responsibility for negligence
How do board of directors differ in different countries
US and UK- diffused ownesership where takeovers are vey common, boards are powerful
EU, emerging companies- key decisions made by owners and formalized by boads- concentrated ownership
Germany- takeovers are blocked by employee representatives
What does corporate governance report have to include?
Overview of company’s main operations
• Risk factors that company faces (cybersecurity, climate change, new trends)
• Financial data
• Management’s discussion and analysis of results
• Financial statements
common aspects
