Corporate Governance

Question 0

What is an agency relationship and what problems to avoid

Answer 0

Individual acting on behalf of another individual (the principal) - avoid agent working for own wellbeing

Avoid conflict between managers and shareholders and directors and shareholders

Question 1

What is corporate governance

Answer 1

System of principles, policies, procedures, and clearly defined roles and responsibilities and accountabilities used by stakeholders to overcome conflicts of interest in the corporate form

Question 2

List examples of management interests conflicting with shareholder

Answer 2

Expand firm for mgt benefit(vs sh value)
Excessive perks/comp
Investing in low return high risk ventures
Not taking enough risk

Question 3

What are corp gov best practices for board

Answer 3

75% independent board members 
Separate CEO and chairman 
Knowledgeable/experienced board
Annual elections 
Annual evaluation 
Annual meeting w/out management 
Finance committee independent 
Independent nominating directors 
Sr mgt comp tied to performance
Independent counsel
Related party transactions approved

Question 4

Strong corporate governance increases…

Answer 4

Profitability

Shareholder returns