Wk 2 Stakeholders & Corporate Objectives

Question 1

What are the 3 types of Business Organisations?

Answer 1

• Proprietorship
• Partnership
• Limited Companies

Question 2

Features of Proprietorship?

Answer 2

• Owned individually
• All risks/ liabilities lie with individual
• Easy to manage details of transactions

Question 3

Features of Partnership?

Answer 3

• Owned by more than one individual/ entity
• All risks/ liabilities lie with owning individuals/ entities
• Added complication of sharing profits

Question 4

Features of Limited Companies?

Answer 4

• Separate ‘legal entity’ owned by shareholders
• Managers run company on behalf of shareholders
• Drawbacks: Complexity
• Benefits: Ability to raise capital, not dependent upon owners for success

Question 5

Differences between Private and Public Limited Companies?

Answer 5

• Private limited usually much smaller than Public
• Financial reporting more important/ regulated for Public Limited
• Public limited regulated by govt and listed on stock exchange

Question 5

What are Executive Directors?

Answer 5

Directors from the management team involved with day-to-day management of the company

Question 6

What are Non-Executive Directors?

Answer 6

Directors appointed from the outside, not involved with the day-to-day management of the company

Question 7

What is the Chairman of the Board?

Answer 7

Heads the Board of Directors, can be a non-exec director

Question 8

What is the CEO?

Answer 8

• Heads management team of the company
• Can be Chairman of the Board also

Question 9

What are the typical roles within a Board Structure?

Answer 9

• Exec Directors
• Non-exec Directors
• Chairman of Board
• CEO

Question 10

Examples of Committees which might exist within the Board?

Answer 10

• Audit Committee
• Remuneration Committee
• Nomination Committee

Question 11

How can there be a prevention of the Dominant CEO?

Answer 11

• Clear division between head of the board and the executive of running the company’s business
• Board should monitor or stand up to the CEO and senior management to protect interests of shareholders

Question 12

What is Agency Theory?

Answer 12

Separation of ownership and control

Question 13

What are the two main costs involved with monitoring the behaviour of agents?

Answer 13

• Monitoring Costs: Financial, corporate governance etc.
• Bonding Costs: Profit bonuses, share options, dividends policy

Question 14

What is Stakeholder Theory?

Answer 14

That the Company should act in the stakeholder’s interests (as well as shareholder’s but with fairness to stakeholders)

Question 15

How can the Agency Problem be overcome?

Answer 15

• Corporate governance regulations e.g. Companies Act, FCA
• Provision of stock options to managers (incentive)
• Shareholder pressure/ dismissal
• Sale of shares to create takeover threat
• Force firms to improve info flow