FINAL PREP Flashcards
Corporate Governance
the controls put in place to ensure that a corporation acts in an ethical, legal, and transparent manner in the best interests of shareholders
Principal Agent Problem
the conflict of interests between the principal (shareholders) and the agents (executives)
Corporate Governance, Controlling and Monitoring Mechanisms (solutions - Internal and External)
Internal: -Board of Directors -Incentive based executive compensation -Shareholder activism External -The market for executive employment -Mergers and Acquisitions -Government oversite and regulation
Strengths of Corporations (4)
- Limited Liability
- Greater Access to Capital Markets
- Liquidity in Corporate Ownership
- Independent entity that goes on forever
Weaknesses of Corporations
- Cost structure in running a large corp.
- Shareholders may be dbl. taxed
Role of Board of Directors (6)
- acting as the shareholder’s agent
- hiring and evaluating management
- approving major operating proposals
- approving major financial decisions
- offering expert advice to management
- ensuring that the firm’s activities and financial condition are accurately reported to its stakeholders
Theory of Shareholders
- SH own the corporation
- SH elect a board of directors
- BOD selects corporate officers
Practice of Shareholders
- SH own the corporation
- CEO select the BOD
- SH rubber stamp the BOD proposed by mgmt.
Corporate Gov. and Stakeholder Theory
-SHT - interconnected of shakholders, should create value for all, not just the shareholders
Corp. Gov. -
-A financial measure ignores the interests of other stakeholders, such as employees, the natural environment, the community, or society
-the German model where employee representation on corporate boards is mandated
-Triple bottom line reporting is an example of the fair consideration of stakeholders
Key Features of Accounting
o Professionalism
1. The public interest is their priority
2. Regulation and law are the appropriate constraints u However, the law is only the minimum standard
o Independence
1. Those who stand to gain by the accountant’s declarations should not influence or prejudice the result
2. Independence is necessary for accountants to act ethically and with integrity
Regulative Rules vs. Constitutive Rules
o Regulative Rules (external to the practice)
-Increased regulation can exacerbate the problem by shifting the real difficulty onto regulation
-The real difficulty is improving and developing one’s ability to make judgments and wise ethical decisions
-Emphasis on regulation directs the practitioner away from the real problems; it makes it seem as if problems are easy to resolve and fix
o Constitutive Rules (Define the practice)
-rules about the practice itself rather than rules regulating its practitioners
-They determine what the practice amounts to and so promote the practice
Ethical issues faced by accounting professionals (9)
- Client proposals for tax evasion
- Client proposals to manipulate financial statements
- Conflicts of interest
- Presenting financial information so as not to deceive users
- Failure to maintain technical competence
- Coping with instructions from superiors to behave unethically
- Integrity in admitting one’s mistakes
- Using insider information for personal gain
- Maintaining confidentiality
The harm resulting from conflict of interest
- They can damage the notion of fiduciary duty in a professional relationship
- Trust in a particular profession can be damaged by its practitioners
- They can engender a wider distrust in society
The six principles of professional codes of ethics
- The public interest
- Integrity
- Objectivity
- Independence
- Diligence
- Confidentiality
Animal Rights
- Anthropocentrism is the view that only humans have positive moral weight
- Humans have intrinsic value – humans have value independently
- Extrinsic value – non-human animals are only valuable relative to the value assigned to them by humans
Speciesism
-a prejudice or attitude of bias in favor of the interests of members of one’s own species and against those of members of other species
The Precautionary Principle
- The precautionary principle is a broad, philosophical approach to innovations with potential for causing harm when extensive scientific knowledge on the matter is lacking. It emphasizes caution, pausing and review before leaping into new innovations that may prove disastrous.
- taking preventive action in the face of uncertainty.
- shifting the burden of proof to the proponents of an activity.
- exploring a wide range of alternatives to possibly harmful actions.
- increasing public participation in decision making
The CERES Principles (10)
- Protection of the biosphere
- Sustainable use of natural resources
- Reduction and disposal of waste
- Energy conservation
- Risk reduction
- Safe products and services
- Environmental restoration
- Informing the public
- Management commitment
- Audits and reports
The Tragedy of the Commons
o The tragedy occurs when a resource is scarce, rivalrous in consumption, and non-excludable
o Individuals are not concerned with the sustainability of the fish stocks, and therefore, will engage in unsustainable fishing
There isn’t an endless supply of fish and there is a lot of competition among fishers
Over-consumption and ultimately depletion of the common resource, to everybody’s detriment
Humanist arguments
o Without a clean environment, human health will be harmed
o without a natural world with a diversity of species, human life will be diminished
o Without a stock of renewable resources for future generations, the lives of future generations will be of a poorer quality than our own
o If everyone has a right to a livable environment, then others have an obligation to allow the free enjoyment of this right
This right trumps the right to property because we cannot live or flourish without a clean environment
Naturalistic argument
o Nature has intrinsic value
Humans have no dominion over nature
o Environmental ethicists want respect for the natural world, and so a naturalistic ethic
-The idea that “Good environmental ethics is good business” is irrelevant
-The environment must be respected for the right reason, that is, as having intrinsic worth
- Ecocentrism: The objects of primary moral concern are ecosystems
- Deep ecology: Emphasizes self-realization through identification with nature, green consumerism, voluntary simplicity, bioregionalism or “living in place,” and the protection and restoration of wild spaces
-Not limited to the self,
-I can see myself in someone else, when they are suffering, then they can suffer.
Positive rights and Negative rights
o Negative rights- “liberties” they are basic human and civil rights stating that no one can interfere with our right to obtain something through trade or bartering. Freedom of speech etc.
o Positive rights- “entitlements” they are things that someone must provide to us, whether we’ve earned them or not, they are granted to us
Right to Housing, public education, national security, health care, social security, and certain standards of living are all positive rights. The government is required to provide you with these, even if you’re unable to provide them for yourself.
Ethical Problems in international dealings
- large scale bribery
- cultural differences
- involvement in political affairs
- pricing practices
- illegal or immoral activities in a host country
- questionable commissions
- gifts or favours
- tax evasion
- inappropriate use of products
- traditional small-scale bribery
De George’s Guidelines (6)
- Do no intentionally direct harm
- Benefit the host country and contribute to its development
- Respect the human rights of its workers
- Respect the values, culture, and laws of the host country
- Pay their taxes
- Assist in the building of just background institutions
