Week 2

Question 1

In basic what is corporate governance?

Answer 1

The system and process to how a company is run and controlled, a process which is essentially how they distribute power to shareholders

Question 2

When did corporate governance first come into play?

Answer 2

In the 1992 Cadbury report

Question 3

What is the small basic corporate governance ladder of power?

Answer 3

Shareholders, board of directors who oversee the managers and management who run daily operations

Question 4

Corporate governance balances the interests of company stakeholders, why is this NOT true?

Answer 4

Tricky Micky question, cricket mate it was a trick. Corporate governance wants to balance all of its stakeholders

Question 5

Just give me the two corporate governance theories without an explanation?

Answer 5

STOCG (Stewardship theory of corporate governance)

AT (Agency theory)

Question 6

What is STOCG?

Answer 6

Managers are stewards who look after assets, ensure that they are used effectively and are ready to be passed onto their successor.

Question 7

What is AT?

Answer 7

Agency theory argues that managers are agents of shareholders and should be contracted as such, the managers and shareholders interests should be in line with one another (They should be contracted by share beliefs with shareholders)

Question 8

In basic what is a stakeholder?

Answer 8

Someone who is neither a shareholder or creditor but can take claim on cash flow

Question 9

What is the problem with management goals particularly between managers and shareholders?

Answer 9

Managers want to increase their wealth and power whereas shareholders want managers to increase the value of the company

Question 10

What are the two types of agency theory?

Answer 10

Type 1 (Relationship between manager and shareholder) where manager wants self wealth and power whereas shareholder wants managers to max company value

Type 2 (Majority shareholders vs minority investors) where most of the shareholders make a decision which negatively impacts the minority group of shareholders

Question 11

What are agency costs?

Answer 11

The price is cost to solve problematic agency relationships

Question 12

What is type 1 agency cost with an example

Answer 12

Direct cost: Corporate expenditure is used for a manager to benefit from a private plane at cost of shareholders

Indirect cost: Corporate expenditure to monitor the managers use of the plane

Question 13

Whats an example of type 2 agency costs?

Answer 13

A majority shareholder can request a large dividend because he requires the cash which obviously doesnt help minority investors

Question 14

What are the main areas of international corporate governance? (4)

Answer 14

Investor protection, control mechanisms, corporate governance systems, financial systems

Question 15

What does civil law, common law and religious law deal with?

Answer 15

Civil law deals with damage to another party

Common law is derived from the judicial system and regulators

Religious law is the ethics and moral codes taught by religions

Question 16

What is the term which refers to shareholders being treated fairly and expand a little upon it?

Answer 16

ETOS (Equitable treatment of shareholders), it sees that shareholders should be treated fairly regardless if they are a minority, individual or a foreign investor.

Question 17

In basic, what is a board of directors?

Answer 17

A board of directors are responsible for pointing the company in the correct direction, they then monitor management and make sure that they are following that direction and seeing results/ achieving their objectives.

Question 18

What are the forms of businesses and what are there attributes?

Answer 18

Sole proprietary which is owned by one person, life of company depends on one person, as does if wanting finance raised comes from owners personal wealth.

Partnership can have unlimited partners, partner leaves by either leaving firm or in death, May have to use votes but generally ran by general manager

Limited corporates are ran by board of directors, they can have an unlimited life and profits are taxed at a corporate level