Summary Lecture Flashcards
What three different, yet connected objects does Corporate Governance refer to?
- Actual corporate decision-making processes.
- Principles, aims, values and ideologies supporting and constraining corporate practices.
- Critical analysis of both.
How is “Corporate Governance” defined?
- Larcker & Taryan:
“the collection of control mechanisms that an organization adopts to prevent or dissuade potentially self-interested managers from engaging in activities detrimental to the welfare of shareholders and stakeholders.”
How do boards relate to CG?
- Much of what concerns corporate governance go through the boards.
- The board can be seen as a prism where various interests and constraints meet.
- Boards act as an arena where corporate governance-outcomes are decided.
What are “stakeholders”?
Definition: all actors who may influence/have been influenced by the firm.
Corollary: shareholders are a stakeholder’s subset.
How are “conflicts” categorized?
- INTERCLASS conflict: investors and management (elite) vs. labor.
- INTRACLASS conflict: i.e.: top management (deciders) vs. middle management (executors)
- BORDER conflict: management and labor (insiders) vs. investors.
- AGENCY conflict: shareholders (principal vs. management (agent).
What are the joint-stock company’s two traditions?
- The chartered company (incorporated by the state).
2. The partnership (founded by contracts between partners).
What is Otto von Gierke’s “the realist”/”organic” theory?
The company is “a real person” - a living organism. In groups and associations there is a trade-off between individualism and collectivism. The living organism cannot itself be owned: there is a differentiation between corporate property and shareholder property.
What is “shared value”?
Definition:
Policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.
(Value is defined as benefits relative to costs.)
What are the main points of the value-creating board?
- The team effort of the board.
- The human side of CG.
What are the main points of the team production theory?
- The board is a value-adding and impartial (the firm is a person of itself, not an extension of the shareholders) mediator between a firm’s value-adding stakeholders.
- The board facilitates strategy analysis and additional competence.
Who selects board members?
- The board itself selects board members.
- The board represents the coalition of interests that actually controls the corporation (not always important).
How does the board and management view “strategy”?
- Management is ultimately responsible for the identification and implementation of strategy.
- The role of the board is to evaluate, approve and monitor the development over time.
- Not necessarily a passive role: the board can provide valuable input and request significant changes.
What is the board’s approach to “strategy”?
- Check assumptions and feasibility of proposed target numbers.
- Assess viability of strategic decisions.
- Create numerical indicators of progression over time
- Partake in an iterative process through a causal business model.
What are 3 reasons for inaccurate financial reporting?
- Don’t want investors to know things are bad (management/board).
- Don’t want to tell management that progress is halting (employees).
- Don’t want to lose the bonus (management).
What is the solution to “battle” inaccurate financial reporting?
The audit committee, which are selected by the board to:
- Oversee financial reporting and disclosure
- Monitor the choice of accounting principles
- Oversee internal audit function
- Hire and monitor the work of the external auditor
- Oversee internal regulatory compliance
- Monitor risk
