corporate governance

Question 1

agency problem

Answer 1

conflict of interest when there is a principal-agent relationship
- one party is expected to act in another’s best interest

Question 2

example of agency problem

Answer 2

nash equilibrium

Question 3

parties involved in (western) agency problem

Answer 3

shareholders vs managers (board of directors)

Question 4

parties involved in (asian) agency problem

Answer 4

minority shareholders vs majority shareholders

Question 5

reason for “asian” agency problem

Answer 5

large companies are state-owned or family-owned

Question 6

principles-based governance

Answer 6

singpaore’s code of corporate governance

Question 7

rules-based governance

Answer 7

laws and regulations like Sarbanes-Oxley Act (SOX Act) in USA

Question 8

important provisions for corporate governance

Answer 8

provision 2.1: criteria for director’s independence
provision 2.4: board diversity

Question 9

examples of non-independence

Answer 9

1. substantial shareholder ( > 5% of total shareholding)
2. employed by co or related cos in the last 3 years
3. immediate family member employed by co or related co in the last 3 years
4. sit on the board for > 9 years

Question 10

criteria for board diversity (avoid groupthink)

Answer 10

skills, knowledge, experience and age, gender
- different job scopes, different industries (e.g. not all businessman, include those who are legally trained or in the tech field)
- avoid groupthink

Question 11

reality of corporate governance in sg

Answer 11

eligible directors have no time or they have time and are no eligible
- sg very small pool of eligible directors are small and thus few independent directors