Term
| Primary Objective of Corporate Governance? |
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Definition
| To manage the relationships among shareholders and to determine and control the strategic direction and performance of organizations. |
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Term
| Best of means corporate governance family vs large corporations |
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Definition
Family: it is best if the ceo is in the family since the obejective is to increase family wealth.
Problem with large firms;: without owner (shareholder) specialization in risk bearing specialization, a firm may be limited in its owner's ability to simaltaneously manage it and make effectie decisions relative to risk. |
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Term
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Definition
| Exists when one or more persons hire another person as decision-making specialists to perform a service. |
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Term
| Greatest threat to the firm's stakeholders? |
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Definition
| Managerial Opportunism: seeking of self-intrest with guile. |
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Term
| Primary Causes of Agency Problems |
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Definition
The principal and the agent have different interests and goals.
Shareholders lack direct control of large publicly traded corporations
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Term
| Four Primary Governance Mechanisms |
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Definition
| Government Laws & Agencies, Boards of Directors, Large-block shareholders and institutional stockholders, the market for corporate control |
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Term
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Definition
| The sum of incentive costs, monitoring costs, enforcement costs and individual financial losses incurred by the principals because governance mechanisms cannot guarantee total compliance by the agent. |
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Term
| SOX & Dodd-Frank 2010 effect on Agency Costs |
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Definition
SOX: new accounting oversight board, CEO/CFO endorse finanical statement
Dodd Frank: financial regulatory reform. consumer protection, systemic risk oversight.
ADDING REGULATION AND CONTROL FROM A LEGAL STANDPOINT. |
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Term
| Institutional investors influencing corporate governance. |
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Definition
| SUS SEC approved a role allowing large shareholders (owning 1-5% of a company's stock) to nominate up to 25% of a company's board of directors. |
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Term
| Board of directors- first line of defense |
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Definition
Exist to redeuce the information asymmetry between stockholders and managers and to monitor and control management actions on behalf of stockholders, ensuring that managers pursue strategies that are in the best interest of the stockholder.
Ability to hire, fire and compensate corporate employees- responsible for making sure the companys financial statements present a true pictur eof its financial situation. |
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Term
| Board of directors. then and now |
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Definition
| Historically, board of directors were made up primarily of managers (non-varying opinions) now they are required companies to maintain boards of directors that are composed of a moajority of outside independent directors. |
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Term
| Long term incentive compensation plans? |
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Definition
| Using long term incentives faciliates the firm's efforts (through the board of directors pay related decisions) to avoid potential agency problems by linking managerial compenstaion to the wealth of common shareholders. TOP ELVEL MANAGERS WILL ACT IN SHAREHOLDERS BEST INTERESTS. |
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Term
| Market for Corporate Control |
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Definition
| External governance mechanism that is active when a firms internal governance mechanisms fail. Composed of those who buy ownership positions in or purchase all of potentially undervalused corporations for the purpose of forming new divisions in eastablished companies or merging into two previously separate firms. |
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Term
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Definition
A fund that can pursue many different investment strategies such as taking long and short positions, using arbitrage, and buying and selling undervalued securities for the purpose of maximizing investors' returns.
HOLD MANAGER ACCOUNTABLE
ID UNDERVALUSED COMPANIES, LOCATING POTENTIAL ACQUIRERS FOR THEM AND REMOVING OPPORISIOTN TO A TAKEOVER. |
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Term
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Definition
| allows shareholders to convert "share holders right" into a large number of common shares if an individual or company acquires more than a set amount of the target firms stock |
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Term
| Board of directors serve as an effective deterrent to unethical behaviors by top level managers? |
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Definition
Most effective boards set boundaries for their firms' business ethics and values.
Code of ethics.
Top level managers must understand that the baord, acting as an internal governance mechanism, wil hold them fully accountable for developing and supporting. |
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Term
| Root of unethical behavior: |
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Definition
| Employees divorce business ethics from personal ethical standards. Don't realize the ethical implications of decisions because focused on business calculus. |
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