Corporate Governance Flashcards
what are the two types of business entity structures
public
private
example of state owned entity
bord na mona
two types of private entities
publicly traded
private compnay
two types of public companies
wholly state owned
partially publicly traded
what percentage of shares must the state own to be defined as a public entiity
> 10%
where are state owned entities an important feature
emerging countries
as less rules and regulations in place
what are the two basic corporate governance models
- shareholder wealth maximisation model
- .corporate wealth maximisation model
which corporate gov system is more common is ango american countries eg australia, usa, britain, ireland
shareholder wealth maximisation
what are the typical features of the shareholder wealth maxmisation model
maximise profits and return them to those who invest
losts of shareholders (dispersed)
investors do not intervene in day to day operations
who represents shareholders
board of directors
what is the most important corporate governance issue in shareholder wealth maximisation
agency problem
making sure managers are working in shareholders interest
what are some key features of the corporate wealth maximisation model
maxmimise not only shareholders wealth but also stakeholders
ownership and control often linked
where is the corporate wealth maximisation model more popular
mainland europe
what are the operational goals of a publicly listed firms
want stock price to go up
minimise risk to shareholder
shortermism
what are the operational goals of a private companu
long term value maximisation
sustainable income
what is impatient capitalism
short term action taken by management which are destructive over the long term
what are some core attributes of an effective corporate governance system
- shareholders and stakeholders rights
- clearly defined manager responsibility
- accountabilities for these responsabilities
- fairness and equitable treatment between managers, directors and shareholders
- transparency and accuracy
what role do equity markets play
analysts evaluate the performance of the firm
what role do debt markets play
rating agencies review the ability of the firm to service debt
what role do auditors and legal advisors play
provide an external opinion as to legality, fairness and standards
what does corporate governance aim to do in terms of ceo
CEO work is very pivotal
prevent one individual from causing so much distruption
if there is little analyst coverage about a firm, how does this effect share price
decrease in investments
4 types of corporate government regimes
market based (equity)
familt based
bank based
government affiliated
what two relationships are the key focus of corp gov
managers and shareholders
directors and shareholders
ways in which managers and shareholders may conflict
- managers use funds to increase their salaries/bonus, no consideration for shareholders interest
- managers may make risky decisions that benefit themselves and their short term performance rather than long term value of the company
ways in which sharholders and directors may conflict
- when board have close relationships with the managers and so are biased
- if board are paid too much they may favour management
what is the boards responsibility
approving mergers and aquisiotns
approving auditors
disciplining/replacing poorly performing managers
what are some major requirements under the Sarbanes-Oxley Act
- boards must be majority independent
- series of rigorous tests on financial information to detect fraud
- CEOs must vouch for validity of financial statements
effects of the sarbanes oxley act
increased workload and cost
what is the name of the UK coporate governance code
Cadbury report
why do most large orgs comply to cadbury
considered best practice
not legal to must must explain why if not complying
what are the 5 best practices in uk corp gov code
- leadership - CEO and chairman of board of directors should not be the same
- effectiveness - board should be large and diverse
- accountability - reporting
4, renuneration - mix of equity and non
- relations with shareholers
why should boards be diverse
spectrum of people means a better debate and a better decision
not pale, male and stale
what is a busy board
a board where many of the directors are on multiple boards so cannot commit as much time and effortq
why should renumeration be a mix of equity and non equity
long term incentives eg stock options and performance related elements boost performance
how should board communicate with shareholders
general meetings
who gets swapped out in annual elections
all board members
two basis of electing board members
annual and staggered
why is there staggered basis
re election can be disruptive
need some level of continuity of knowledge and experience
what is the problem with not electing new members each year
board directors may build relationships with management and serve their interests
