Sample Paper Knowledge Flashcards
What is corporate governance convergence?
The theory that disparate systems across the globe may gradually evolve to adopt similar practices and standards due to globalization and cross-border investment flows.
What are the two lenses through which corporate governance convergence can be theorized?
- De jure (legal) convergence
- De facto (practical) convergence
What is a one-tier board system?
A board structure featuring a single board of directors comprising both executive and non-executive directors, predominant in the UK and US.
What is a two-tier board system?
A board structure that separates the management board from the supervisory board, common in Germany and the Netherlands.
What is the primary characteristic of the U.S. corporate governance model?
A strong emphasis on shareholder value, rigorous disclosure requirements, and CEO-centric leadership models.
What legislation emphasized transparency and accountability in U.S. corporate governance after financial scandals?
The Sarbanes-Oxley Act.
What is Germany’s Codetermination law?
A law that includes employee representation on supervisory boards, reflecting the two-tier board system.
How has Japan’s corporate governance evolved?
Japan has moved towards greater transparency and the inclusion of independent directors, influenced by global standards.
What is the significance of adopting IFRS in corporate governance?
It standardizes financial reporting across borders, enhancing transparency and comparability.
What role do institutional investors play in corporate governance?
They advocate for governance practices that align with global best practices, prioritizing shareholder interests.
What are some cultural and institutional resistances to corporate governance convergence?
Local governance traditions and differing economic and political contexts.
What is agency theory?
A theory positing a conflict of interest between shareholders (owners) and executives (agents) in corporate governance.
How does stewardship theory differ from agency theory?
Stewardship theory assumes executives are committed to the organization’s success and do not inherently pursue self-interest.
What is stakeholder theory in the context of executive remuneration?
A theory that extends the responsibility of executives to a broader group of interests, promoting sustainable business practices.
What is the principle of transparency in executive compensation?
Executive compensation packages should be clearly and transparently reported in company disclosures.
What does accountability in executive pay structures entail?
Including mechanisms like clawback provisions and benchmarks that align pay with performance.
What is the significance of proportionality and fairness in executive remuneration?
Compensation should be proportional to the responsibilities and performance of executives, avoiding unjust enrichment.
What does the concept of shareholder value refer to?
The value delivered to shareholders due to management’s ability to grow earnings, dividends, and share price.
What are agency costs?
Costs incurred to prevent agents from acting in their own interests over those of the principals.
What are some alignment mechanisms suggested by agency theory?
- Performance-based compensation
- Detailed reporting requirements
- Rigorous oversight by the board of directors
What is the relationship between shareholder value and corporate decisions?
Shareholder value influences major corporate decisions including mergers, acquisitions, and financial strategies.
What is stewardship theory?
An approach suggesting that managers are stewards whose motives align with the objectives of the organization.
What challenges might alternative theories face in replacing agency theory?
- Entrenchment in legislation and practice
- Market focus on shareholder value
- Institutional inertia
What is resource dependence theory?
A theory focusing on the board’s role in providing essential resources to the organization, including expertise and networking.
What does institutional theory emphasize in corporate governance?
The influence of cultural, social, and legal norms on organizational behavior.
What is a potential downside of broader stakeholder engagement?
It complicates decision-making processes and may slow down strategic decisions.
Why is measurement and accountability a challenge in broader stakeholder engagement?
Benefits of stakeholder engagement are often difficult to quantify and attribute.
What is the integral role of the board in corporate governance?
The board oversees corporate strategy, management, and ensures accountability to shareholders.
What is the primary role of the board of directors?
To serve as the bridge between shareholders, stakeholders, and management.
List the main functions of the board of directors.
- Strategic Oversight
- Governance and Compliance
- Resource Allocation
- Executive Management Oversight
What is a unitary board?
A board structure consisting of both executive and non-executive directors, combining management and oversight functions.
What is a two-tier board?
A system that separates the management board from the supervisory board, with distinct responsibilities for each.
What is the function of the audit committee?
To monitor the integrity of financial statements, oversee internal controls, and review the effectiveness of the internal audit function.
True or False: The compensation committee is generally composed entirely of independent directors.
True
Fill in the blank: The _______ committee handles the nomination of new directors and oversees corporate governance issues.
[Nominations and Governance]
What triggers reforms to board committees?
- Corporate Scandals and Failures
- Regulatory Changes
What significant reform was mandated by the Sarbanes-Oxley Act?
Stricter responsibilities for Audit Committees in U.S. publicly traded companies.
What is one major implication of enhancing the compensation committee?
Aligning executive compensation more closely with long-term company performance.
What can lead to ineffective governance reforms?
Reactive reforms that focus on compliance rather than genuine improvement.
What is the importance of board committees in corporate governance?
They handle complex subjects requiring detailed review or specialist knowledge.
List some examples of companies and their board committees.
- JPMorgan Chase - Audit Committee
- Apple Inc. - Compensation Committee
- Google (Alphabet Inc.) - Nominating and Governance Committee
Fill in the blank: The board’s role remains fundamentally centered on _______ and compliance.
[oversight]
What is a hybrid board?
A model that blends elements of both unitary and two-tier systems.
What was a response to the Volkswagen emissions scandal?
Reform of its Nominating and Governance Committee to improve oversight.
True or False: The effectiveness of board committees does not impact a company’s success.
False
What is the relationship between reforms and corporate governance failures?
Reforms often arise in response to governance failures to enhance accountability and transparency.
