Corporate Governance Flashcards
corporate governance
The relationship among the board of directors, top management, and shareholders – determining the direction and performance of the corporation
Role of board
Monitor
Evaluate and influence
Initiate and determine
Members
Inside directors
outside directors
Inside directors
management directors”
Officers or execs employed by the firm
outside directors
“non-management directors”
Execs of other firms not employed by the board’s corporation
Agency Problem
Objectives of owners & agents in conflict
Difficult for owners to verify agent performance
Stewardship Theory
Executives more motivated to act in best interest of the corporation than their own self-interests. Theory that over time, senior executives tend to view corporation as extension of selves.
Long Term – Short Term Orientation
Conflict
“In my opinion, many American companies are running out of stock. They’re trading away their future health for short-term results”
Risk Sharing Problem
Conflict
Owners & agents risk assessment in conflict
When Outsiders can be considered Insiders
Affiliated Directors
Retired Directors
Family Directors
Codetermination
The inclusion of a corporation’s employees on its board of directors
Corporate Governance
Review & shaping of strategy Pressure for corporate performance Demand for executive stock ownership Outside directors increasing Impact of Sarbanes-Oxley
