Topic 2 - Corporate Governance Flashcards
What is corporate governance?
Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled.
Example sentence: The board of directors plays a crucial role in corporate governance.
What is the main goal of corporate governance?
To ensure that a company acts in the best interests of its shareholders and stakeholders.
Additional information: Corporate governance aims to balance the interests of various stakeholders.
What is the role of the board of directors in corporate governance?
The board of directors oversees management and ensures the company is operating in the shareholders’ best interests.
Example sentence: The board of directors is responsible for approving major strategic decisions.
What is the primary responsibility of shareholders in corporate governance?
Shareholders provide capital and have the right to vote on significant matters, such as electing board members.
Example sentence: Shareholders can exercise their voting rights at annual general meetings.
What is an independent director?
An independent director is a board member who does not have a material relationship with the company and can provide unbiased oversight.
Example sentence: Independent directors are essential for ensuring transparency and accountability.
What is the agency problem in corporate governance?
The agency problem arises when managers act in their own interests rather than in the interests of shareholders.
Example sentence: Addressing the agency problem requires aligning the incentives of managers with those of shareholders.
What is executive compensation?
Executive compensation includes salary, bonuses, stock options, and other incentives given to top executives to align their interests with those of shareholders.
Example sentence: Executive compensation packages are designed to attract and retain top talent.
What are fiduciary duties in corporate governance?
Fiduciary duties include the obligation of directors and officers to act in good faith, with care, and in the best interests of the company and its shareholders.
Example sentence: Breach of fiduciary duties can result in legal consequences for directors and officers.
What is the purpose of a shareholder meeting?
A shareholder meeting allows shareholders to vote on key issues such as board elections, mergers, and executive compensation.
Example sentence: Shareholder meetings are an opportunity for investors to engage with company management.
What is a proxy vote?
A proxy vote is a vote cast by one person on behalf of a shareholder who is unable to attend the shareholder meeting.
Example sentence: Proxy votes are commonly used in large publicly traded companies.
What are the key elements of good corporate governance?
Accountability, transparency, fairness, and responsibility.
Example sentence: Good corporate governance practices enhance trust and confidence among stakeholders.
What is corporate social responsibility (CSR) in governance?
CSR refers to a company’s efforts to operate in a socially responsible manner, balancing profit with societal and environmental concerns.
Example sentence: CSR initiatives can contribute to long-term sustainable growth.
What is the role of audit committees in corporate governance?
Audit committees oversee financial reporting, ensure the integrity of financial statements, and liaise with external auditors.
Example sentence: Audit committees play a critical role in ensuring financial transparency and accuracy.
What is the role of a risk management committee?
The risk management committee identifies, monitors, and mitigates risks that could affect the company’s performance or reputation.
Example sentence: Effective risk management is essential for safeguarding shareholder value.
What is the role of a nomination committee?
The nomination committee is responsible for identifying and recommending candidates for the board of directors.
Example sentence: Nomination committees help ensure that the board comprises qualified individuals.
What is the role of a compensation committee?
The compensation committee oversees executive pay and ensures that compensation aligns with company performance and shareholder interests.
Example sentence: Compensation committees play a key role in linking pay to performance.
What is dual-class share structure?
A dual-class share structure gives different voting rights to different classes of shares, often allowing founders or insiders to retain control.
Example sentence: Dual-class share structures can raise concerns about unequal voting power.
What is a poison pill strategy?
A poison pill is a defensive strategy used by a company to thwart hostile takeovers by making the company less attractive to the acquirer.
Example sentence: Poison pills are designed to protect shareholder interests.
What is shareholder activism?
Shareholder activism occurs when shareholders attempt to influence company management and decision-making, often to improve financial performance.
Example sentence: Shareholder activism can lead to changes in corporate strategy and governance.
What is a hostile takeover?
A hostile takeover is an acquisition attempt by an external party that is opposed by the company’s management and board of directors.
Example sentence: Hostile takeovers can result in significant changes in company ownership and control.
What is a stewardship code?
A stewardship code is a set of principles guiding institutional investors on how to engage with and hold companies accountable for good governance.
Example sentence: Stewardship codes promote responsible investment practices.