Module 31.1 Stakeholder Management Flashcards
What is shareholder theory?
primary focus of corporate governance is the interests of the firm’s shareholders, which are taken to be the maximization of the market value of the firm’s common equity.
What is stakeholder theory?
broader than shareholder theory, it considers conflict among the several groups that have an interest in the activities and performance of the firm.
What is the major delineation between Senior managers and non-senior managers
senior managers are compensated with equity in the firm to help maximize their incentive to increase financial success of the company
What is the principal-agent conflict?
arises because an agent is hired to act in the interest of the principal, but the agent’s interest may not coincide exactly with those of the principal.
for example, an insurance broker who profits off quantity of sales and not quality.
What is the conflict of interest between shareholder and managers / directors?
shareholders may accept more risk than managers and directors because their employment is not dependent on the performance of the firm
how does information asymmetry play into the conflict between shareholders and managers?
managers have better information so it’s hard for shareholders to monitor and evaluate whether managers are acting in best interests.
Can there be conflict between groups of shareholders?
yes, different shares could have different voting power and the majority could then act in the benefit of the majority and detriment of the minority.
What is stakeholder management?
management of a company’s relations with stakeholders and is based on having a good understanding of stakeholder interests.
What are the four types of infrastructures for stakeholder relationships?
1 Legal infrastructure - identifies laws relevant to the legal recource of stakeholders.
2) the contractual infrastructure - contracts between company and stakeholders
3) organizational infrastructure - internal governance and systems to address stakeholder management
4) governmental infrastructure - regulations to which companies are subject.
What are special resolutions compares to normal resolutions?
normal resolutions are voted by shareholders in person or by proxy
special resolutions may require vote for passage, typically two-thirds or three-fourths of the votes cast.
What is majority voting vs. cumulative voting?
majority - person with most votes wins
cumulative - can divide votes into each candidates. results in greater minority shareholder representation on the board compared to majority voting.
What is a one tier board structure vs. two tier.
There is a single board of directors that includes both internal and external directors.
two tier - there is a supervisory board that typically excludes internal directors.
What are 7 duties of board members?
1) selecting senior management
2) setting the strategic direction of the company
3) approving capital structure changes
4) reviewing company performance and implementing corrective steps
5) planning for continuity of management and succession
6) stablishing and overseeing internal controls
7) ensuring the quality of the firm’s financial reporting and internal audit
What are the 4 duties of the audit committee on the board?
1) Oversight of financial reporting
2) effectiveness of a companies internal controls
3) recommending an external auditor
4) proposing remedies based on their review
What are the four duties of the governance committee?
1) Oversight of the company’s corporate governance code
2) implementing code of ethics
3) monitoring changes in laws
4) ensuring that the company is in compliance with all laws
