Midterm Flashcards
What is the primary change in corporate governance over the last century?
Nothing concrete, but more attention is paid to their roles and responsibilities. This is because of increasing complexity of business, high profile corporate failures (Enron), and increased institutional investors
Who elects directors?
Shareholders
Who appoints C-Suite officers?
Board of directors
What is fiduciary duty and what are some of its features?
Fiduciary duty is to “act honestly and in good faith to uphold the interests of the corporation”. This is the standard to which the law upholds cases, and includes the duty of care, duty of loyalty (avoid/disclose conflicts of interest), and the duty of candor (lengthy disclosure)
Who can be a director (in Alberta)?
Any individual over 18, who is sound of mind and not bankrupt. They must be knowledgeable in their area of expertise, and diligent in attending to the corporation’s affairs (ie. attending meetings).
What is the business judgement rule used by courts?
This is how the courts review business decisions. The decision making process is more important than the decision itself - “given the information available at the time, was this decision made in the best interests of the corporation?”
What is “permitted reliance”?
An idea under of duty of care, that acknowledges that directors rely on third parties for certain information. For example, directors who make decisions based upon financial statements that lead to an ill outcome, would be protected because their is the assumption that these reports they are relying on represent accurate information.
What is the primary goal of a board of directors? what is their purpose?
To overcome the principal-agent problem
Is “dumb but honest” a reasonable excuse for poor decision making?
No - this is a failure to fulfill obligations. Directors are responsible for having the knowledge and skillset required for their position
What are the six degrees of involvement?
Phantom, Rubber Stamp, Minimal Review, Nominal Participation, Active Participation, Catalyst
What is the “Phantom” level of involvement?
Completely passive - never knows what to do and has no level of involvement
What is the “Rubber Stamp” level of involvement?
Somewhat passive - basically permits the officers to make all the decision, and votes as per their recommendation
What is the “Minimal Review” level of participation?
Somewhat passive - formally reviews issues if the officers bring it to their attention
What is the “Nominal Participation” level of involvement?
Somewhat active - involved to a limited degree in the performance or review of certain key decisions or programs of management
What is the “Active Participation” level of involvement?
Somewhat active - approves, questions, and makes final decisions on mission, strategy, policies, objectives. Has active board committees. Performs fiscal and managerial audits
What is the “Catalyst” level of involvement?
Fully active - takes a leading role in establishing and modifying the mission, objectives, strategy, and policies of the organization. They have a very active strategy committee
What do boards do?
Monitor management, hire/evaluate/compensate the CEO, approve major operating proposals and financial decisions, ensure the accuracy of stakeholder reports, and offer expert advise on strategy and operations
What does the chairman of the board do?
The leader of the board - responsible for the agenda and plan of board meetings, ensures corporate governance, provides communication between the board and investors/key stakeholders, helps to select and evaluate directors
