Corporate Governance

Question 1

what are the two types of business entity structures

Answer 1

public
private

Question 2

example of state owned entity

Answer 2

bord na mona

Question 3

two types of private entities

Answer 3

publicly traded
private compnay

Question 4

two types of public companies

Answer 4

wholly state owned
partially publicly traded

Question 5

what percentage of shares must the state own to be defined as a public entiity

Answer 5

> 10%

Question 6

where are state owned entities an important feature

Answer 6

emerging countries

as less rules and regulations in place

Question 7

what are the two basic corporate governance models

Answer 7

1. shareholder wealth maximisation model
2. .corporate wealth maximisation model

Question 8

which corporate gov system is more common is ango american countries eg australia, usa, britain, ireland

Answer 8

shareholder wealth maximisation

Question 9

what are the typical features of the shareholder wealth maxmisation model

Answer 9

maximise profits and return them to those who invest

losts of shareholders (dispersed)

investors do not intervene in day to day operations

Question 10

who represents shareholders

Answer 10

board of directors

Question 11

what is the most important corporate governance issue in shareholder wealth maximisation

Answer 11

agency problem

making sure managers are working in shareholders interest

Question 12

what are some key features of the corporate wealth maximisation model

Answer 12

maxmimise not only shareholders wealth but also stakeholders

ownership and control often linked

Question 13

where is the corporate wealth maximisation model more popular

Answer 13

mainland europe

Question 14

what are the operational goals of a publicly listed firms

Answer 14

want stock price to go up

minimise risk to shareholder

shortermism

Question 15

what are the operational goals of a private companu

Answer 15

long term value maximisation

sustainable income

Question 16

what is impatient capitalism

Answer 16

short term action taken by management which are destructive over the long term

Question 17

what are some core attributes of an effective corporate governance system

Answer 17

• shareholders and stakeholders rights
• clearly defined manager responsibility
• accountabilities for these responsabilities
• fairness and equitable treatment between managers, directors and shareholders
• transparency and accuracy

Question 18

what role do equity markets play

Answer 18

analysts evaluate the performance of the firm

Question 19

what role do debt markets play

Answer 19

rating agencies review the ability of the firm to service debt

Question 20

what role do auditors and legal advisors play

Answer 20

provide an external opinion as to legality, fairness and standards

Question 21

what does corporate governance aim to do in terms of ceo

Answer 21

CEO work is very pivotal

prevent one individual from causing so much distruption

Question 22

if there is little analyst coverage about a firm, how does this effect share price

Answer 22

decrease in investments

Question 23

4 types of corporate government regimes

Answer 23

market based (equity)
familt based
bank based
government affiliated

Question 24

what two relationships are the key focus of corp gov

Answer 24

managers and shareholders

directors and shareholders

Question 25

ways in which managers and shareholders may conflict

Answer 25

- 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

Question 26

ways in which sharholders and directors may conflict

Answer 26

- when board have close relationships with the managers and so are biased - if board are paid too much they may favour management

Question 27

what is the boards responsibility

Answer 27

approving mergers and aquisiotns approving auditors disciplining/replacing poorly performing managers

Question 28

what are some major requirements under the Sarbanes-Oxley Act

Answer 28

- boards must be majority independent - series of rigorous tests on financial information to detect fraud - CEOs must vouch for validity of financial statements

Question 29

effects of the sarbanes oxley act

Answer 29

increased workload and cost

Question 30

what is the name of the UK coporate governance code

Answer 30

Cadbury report

Question 31

why do most large orgs comply to cadbury

Answer 31

considered best practice not legal to must must explain why if not complying

Question 32

what are the 5 best practices in uk corp gov code

Answer 32

1. leadership - CEO and chairman of board of directors should not be the same 2. effectiveness - board should be large and diverse 3. accountability - reporting 4, renuneration - mix of equity and non 5. relations with shareholers

Question 33

why should boards be diverse

Answer 33

spectrum of people means a better debate and a better decision not pale, male and stale

Question 34

what is a busy board

Answer 34

a board where many of the directors are on multiple boards so cannot commit as much time and effortq

Question 35

why should renumeration be a mix of equity and non equity

Answer 35

long term incentives eg stock options and performance related elements boost performance

Question 36

how should board communicate with shareholders

Answer 36

general meetings

Question 37

who gets swapped out in annual elections

Answer 37

all board members

Question 38

two basis of electing board members

Answer 38

annual and staggered

Question 39

why is there staggered basis

Answer 39

re election can be disruptive need some level of continuity of knowledge and experience

Question 40

what is the problem with not electing new members each year

Answer 40

board directors may build relationships with management and serve their interests