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afm 182 > unit 4 | corporate governance & organizational structures > Flashcards

unit 4 | corporate governance & organizational structures Flashcards

1
Q

Corporate Governance

A

The system of rules, practices, & processes by which a company is directed & controlled

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2
Q

Another phrase to describe corporate governance

A

Tone from the top

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3
Q

Board of Directors

A

A group of highly qualified & experienced individuals that serve as advisors & provide oversight for public companies

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4
Q

How is BOD formed?

A

Selected by shareholders (vote)

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5
Q

Examples of BOD

A

Retired CEO, CFO, senior management team, senior executive

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6
Q

What does a BOD do for a company?

A

Objective: oversight & responsibility to ensure the senior management team is acting in the best interest of the shareholders
- Improves a company’s governance structure

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7
Q

Chair of the Board (COB)

A

An individual that holds the most power & authority on the BOD
- Voted by BOD
- Sometimes also CEO > conflict of interest

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8
Q

Senior Management

A

A group of executives that lead a company’s day-to-day operations & set corporate strategy

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9
Q

Senior Management’s mission

A

Makes decisions that will maximize the share value of a company

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10
Q

What does SM do

A
  • Introduces recommendations to the board → board members vote to accept/reject
  • Attracting investors → provides transparent reports, delivers good results & avoids surprising investors
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11
Q

Board Committees

A

A smaller group of directors that are in charge of sub-components of the overall board responsibilities
- Optional for private, required for public

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12
Q

Audit Committee

A

Oversees financial reporting & disclosure (major committee)

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13
Q

Compensation Committee

A

Oversee & determine how much the company should pay senior management

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14
Q

How does BOD come to be and why?

A

Board members are selected by shareholders to represent them in a company’s decision-making process

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15
Q

Annual General Meeting (AGM)

A

shareholder vote for board members

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16
Q

Who does BOD hire?

A

The right CEO to lead the company

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17
Q

Who does CEO hire?

A

CEO hires a senior management team to lead the company

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18
Q

What does CEO & SM do for the BOD?

A

CEO & SM team provide periodic (quarterly) updates to BOD

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19
Q

Management’s Discussion & Analysis (MD&A)

A

A discussion document that accompanies quarterly & yearly FS to explain a company’s performance in greater detail

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20
Q

Who is MD&A made for?

A

Provided to investors by SM team

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21
Q

Annual Information Form (AIF)

A

Disclosure document that discusses relevant background information regarding the company’s operations & its future plans

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22
Q

Difference b/w Private & Public: Compliance w/ Securities Regulations

A

Private: Not required → not listed in stock exchanges

Public: Must comply with regulations

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23
Q

Difference b/w Private & Public: Annual Greeting Shareholder’s Meeting (AGM)

A

Private: Not required

Public: Required

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24
Q

Difference b/w Private & Public: Management’s Discussion & Analysis (MD&A) & Annual Information Form (AIF)

A

Private: Not required → some prepare for external stakeholders (bondholders, banks)

Public: Required

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25
Difference b/w Private & Public: Board of Directors
Private: Not required → often have an advisory board/formal board of directors Public: Required
26
Difference b/w Private & Public: Independent Board Members
Private: Not required → unless is getting ready to IPO Public: Mandatory → majority of directors must be independent
27
Difference b/w Private & Public: Chair of the Board
Private: Not required → some do have a board with a chair Public: Required → only recommended for the COB to be an independent director
28
Difference b/w Private & Public: Audit Committee
Private: Not required → unless is getting ready to IPO Public: Required → at least 3 independent directors that are financially literate
29
Difference b/w Private & Public: Compensation Committee
Private: Not required → some do have a board with a chair Public: Recommended to ensure senior management is compensated fairly & is retained (disclosure)
30
Difference b/w Private & Public: Investor Relations (IR) Team
Private: Not common as IR teams manage relationships with public investor groups Public: Recommended to attract public investments (sell company shares to public)
31
Securities Regulators
A group of individuals responsible for designing policies & regulations that public companies must comply with to protect investors that purchase securities (shares or stocks) in capital markets
32
Canadian Securities Administrators (CSA)
Responsible for developing a harmonized approach to securities regulation across the country
33
Independent Director
A member of the BOD who: 1. Do not have a material relationship with the company 2. Is not part of the company’s executive team 3. Is not involved with the day-to-day operations of the company “Free of any obligations to the company”
34
Why is it important for a director to be independent?
Objective perspective that benefits the company & protect shareholder’s interests
35
Investor Relations (IR) Team
Responsible for building strong relationships with investor groups & providing them with transparent & accurate information to keep them well-informed on the company
36
Why is IR team important?
- Critical to attract additional investors - “Sell” company shares to investors to get capital for growth
37
Organizational Structure
A system that outlines how certain activities are directed to achieve the goals of an organization
38
Mission of an organizational structure
Should promote accountability, efficiency, & timely decision-making - Give rules, roles, responsibilities
39
Who establishes organizational structures?
Established by senior management team
40
Types of organizational structures
- Functional - Product/Service - Customer - Geographical - Matrix
41
Effective Organizational Structures:
1. Identify key business decisions for success 2. Place high-quality & experienced business leaders in key roles & provide them with appropriate decision-making autonomy 3. Communicate clear policies (ie. rules) that outline decision-making process 4. Provide decision-makers with timely & accurate data & information & other resources to make good decisions
42
Functional Structure
An organizational structure where a company organizes itself by department (HR, Finance, Marketing) - Leader for each function (subject-matter expert)
43
Functional Structure example companies
Starbucks, Amazon, Apple
44
When is a functional structure suitable for a company?
Work for small or medium-sized company with relatively simple, predictable, & stable business
45
Advantages of functional structure
- Builds a team of subject-matter experts in their respective field - Facilitates communication within each functional area - Reduces function duplication within the company - Enables each leader to be accountable & fully responsible for functional decisions
46
Disadvantages of functional structure
- More limited perspective with the risk of operating in functional ‘silos’ → working in isolation from each other - Focus on routine tasks instead of long-term strategy
47
Product/Service Structure
An organizational structure where a company organizes itself by the various products or services it offers - Leader for each product/service or group of related product/service
48
P/S Structure example companies
IKEA, Tech field companies
49
When is a P/S structure suitable for a company?
Work well for a large dynamic company with many distinct products/services that are subject to change & evolve
50
Advantages of P/S structure
- Each executive owns & has full autonomy to make decisions for their product/service lines - Clear accountability exists by product/service line - Increases ability for business to react to rapid changes to products or services - Creates products/service experts within the organization - Can improve product development cycles
51
Disadvantages of P/S structure
- May create competition between products/services - May challenge coordination between different products/services to implement best practices - Could cause duplication & increase costs as each product/service line may have their own departmental functions (each department needs a marketing team to sell their products/services)
52
Customer Structure
An organizational structure where a company organizes itself by different customer segments - Leader for each customer segment > Each leader is responsible & fully accountable for the success/failure of attracting new customers & retaining existing customers
53
Customer Structure example companies
Hospital, Specialist/health-care products, pharmaceutical companies
54
When is a customer structure suitable for a company?
Work well in companies with significantly different customer profiles which have distinct customer needs
55
Advantages of customer structure
- Executives own customer strategy & have autonomy to make decisions for different customer segments - Clear accountability by customer segment - Specializes in consumer needs & expectations, making it easier to implement a customers-first approach - Increases ability for business to react to rapid customer changes & demands
56
Disadvantages of customer structure
- May create competition between customer segments - May challenge coordination between different customer segments to implement best practices - Could cause duplication & increase costs as each customer segment may have their own departmental functions (each segment needs a pricing, marketing, & sales team)
57
Geographical Structure
An organizational structure where a company organizes itself by geographical location - Leader for each geographical segment & each segment acts as a separate standalone business with autonomy to make decisions for the geography they oversee
58
Geographical Structure example companies
MCD, auto companies
59
When is a geographical structure suitable for a company?
Work well in companies that operate in various geographical locations with significant differences in terms of customers, products/services, regulations, suppliers, etc
60
Advantages of geographical structure
- Gives local management teams autonomy to react to local market changes - Clear accountability by geography and encourages geographic growth - Creates a team specialized in geographical markets that understands customs, customers, local competitors, & overall market environment - Increases ability for business to react to changes within markets
61
Disadvantages of geographical structure
- Causes duplication and increase in costs as each geographical segment has their own management team and departmental functions - Implementing best practices and consistency in reporting, systems, definitions, processes, etc. can become very challenging - Geographical management teams might not want to share knowledge with other segments - Lack of focus and control over products and customers (not consistent
62
Matrix Structure
An organizational structure where a company combines 2 structures to organize itself - Example: Functional + P/S, customer, or geographical - Cost efficient, but complex
63
Matrix Structure example companies
Nike, philips electronics
64
What should company keep in mind when using a matrix structure?
Important to set clear roles & responsibilities for every team member to maintain accountability
65
When is a matrix structure suitable for a company?
Work well for large company where interdependence b/w cross-functional teams is essential for innovation & success
66
Advantages of matrix structure
- Improves organizational collaboration and flexibility to create a culture of knowledge-sharing and innovation - Opportunities to learn new skills & develop careers across the organization - Efficient way for an organization to use its human resources and save costs
67
Disadvantages of matrix structure
- Can create complexity relating to reporting relationships - Additional time may be required for coordinating activities - More complex to monitor and control - Can create accountability issues if roles & responsibilities are not clearly defined
68
Segment Financial Reporting
After an organizational structure is decided, each segment should prepare financial reports to understand the financial performance of each segment - Promotes accountability
69
Contribution Margin
The difference between revenue & variable costs
70
Traceable Fixed Expenses
Costs which directly relate to a specific segment - Example: Advertising costs for products of a specific segment
71
Common Fixed Expenses
Costs that are incurred by a company to support all segments but are not traceable to any specific segments - Example: Administrative salaries, rent, utilities, & insurance

afm 182 (11 decks)

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