Corporate Governance

Question 1

What is corporate Governance?

Answer 1

Corporate governance refers to the system of rules, practices, and processes by which a
company is directed and controlled.
It encompasses a wide range of issues aimed at
ensuring transparency, accountability, fairness, and responsible decision-making within an
organization.

Question 2

What key issues fall under the umbrella of corporate Governance?

Answer 2

1. Executive compensation (performance, shareholder´s interest)
2. Board of directors (indepent directors with impartial oversight)
   3.Shareholder rights: (voting, decision making, access to information)
3. Financial reporting and auditing
4. Ethical conduct and compliance
5. Risk management
6. Stakeholder Engagement
7. ESG (Enivornmental, Social, Governance)
8. Transparency and disclosure
9. legal and regulatory compliance

It provides the framework for
effective decision-making and responsible corporate behavior.

Question 3

Name some key functions of the board of directors:)

Answer 3

1. Governance oversight
2. strategic direction
3. Executive oversight
4. performance monetoring, succession planning …

Question 4

Supervisory Board =

Answer 4

Oversight Board

Question 5

Management board =

Answer 5

Executive Board

Question 6

what is an agency conflict?

Answer 6

managers’ objectives differ sharply from shareholders’ goals

Question 7

shareholder´s and company´s alignment?

Answer 7

1. power to oust (and replace) board-level executives
2. should be able to sell the company’s stock freely without breaching insider trading rules
3. inform the shareholders

Question 8

What can happen if investors are unhappy?

Answer 8

• sell their shares
• a corporate predator may well make a hostile bid (i.e., an offer rejected by managers)
• may be accepted by enough shareholders
• proxy fight

Question 9

What´s the difference between German and US governance structures?

Answer 9

US:
- liquid stockmarket
- information in the published accounts
- one tier board (board of directors)

Germany:
- relatively free float of shares
- private companies = no shares
- lack of liquidity induces institutional shareholders to monitor closely
- supervisory board with large shareholders
- two tier board (supervisory and management board)

Question 10

Name shortcomings in US corporate governance.

Answer 10

1. Institutional investors remain prone simply to sell their shares rather than spending the time and money needed to improve corporate performance.
2. effects of hostile takeover bids are disruptive = last resort

Question 11

What is a poison pill?

Answer 11

• installed by companies
• designed to create obstacles to unsolicited bids from corporate preditors/activist shareholders
• allows a company’s management to issue
  stock rights to all of its existing shareholders (rights issue), diluting the predator’s holding.
• activated when a shareholder acquires a stake
  above a certain threshold.

Question 12

Why are extraordinary meetings called?

Answer 12

reasons that typically involve urgent or important matters requiring immediate attention by the board of directors, shareholders, or members of an organization.
- Urgent Business Decisions:
- Financial Matters (approving sales packages etc.)
- crisis management (cybersecurity breach)

defined in the organization’s bylaws or governing documents.