Podcast
Questions and Answers
What is the primary focus of corporate governance?
What is the primary focus of corporate governance?
Which committee is primarily responsible for overseeing and monitoring financial policies?
Which committee is primarily responsible for overseeing and monitoring financial policies?
What is a significant disadvantage of merging the roles of Chairman and CEO?
What is a significant disadvantage of merging the roles of Chairman and CEO?
Which group holds ultimate control in a corporation as per the shareholder-primacy model?
Which group holds ultimate control in a corporation as per the shareholder-primacy model?
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What is one of the signals of potential board problems?
What is one of the signals of potential board problems?
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What is the primary role of the Compensation Committee?
What is the primary role of the Compensation Committee?
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Which of the following is not a responsibility of the Board of Directors?
Which of the following is not a responsibility of the Board of Directors?
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What is an essential element of corporate governance that provides guidelines for ethical behavior?
What is an essential element of corporate governance that provides guidelines for ethical behavior?
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Study Notes
Corporate Governance
- Definition: A mechanism directing and controlling business corporations
- Focus: Roles, rights, and accountability of stakeholder groups (owners, boards of directors, managers, employees, other stakeholders)
- Vision: Ensure businesses conduct ethical operations
Elements of Corporate Governance
- Board of Directors: Governs and oversees management
- Code of Ethics/Conduct: Guidelines for ethical behavior
- Top Management Team: Individuals managing daily operations (vision and mission of the organization)
Major Groups and Committees
- Shareholders: Own stock, ultimate control
- Board of Directors: Govern and oversee management, comprised of inside and outside directors
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Committees:
- Compensation Committee: Sets CEO and senior executive compensation
- Audit Committee: Monitors financial policies and procedures
- Corporate Governance/Ethical Committee: Ensures compliance with ethical codes and regulations
- Top Managers (C-Suite): Hired by the Board to manage the business
- Employees: Perform operational work
Corporation's Hierarchy of Authority
- Operating Committees: Staffed by board members and independent directors
- Audit Committees: Responsible for financial oversight
- Compensation Committees: Determine executive pay
- Corporate Governance Committees: Ensure ethical compliance
- The Board and the CEO: Responsibilities include hiring, monitoring, and dismissing the CEO (if necessary)
Trends
- Increased firings of underperforming CEOs
- Movement toward separating CEO and Board functions
- Merging the Chairman and CEO Roles
Merging the Chairman and CEO Roles: Advantages and Disadvantages
- Advantages: Minimizes potential conflicts, provides leadership from an organizationally familiar individual
- Disadvantages: Eliminates checks and balances, may lead to a focus on short-term goals, compromises board independence and stockholder power
Signals of Board Problems
- Company has to restate earnings
- Poor employee morale
- Poor customer satisfaction
- Management misses strategic performance goals
- Company is targeted by employee lawsuits
- Stock price declines
- Quarterly financial results miss analysts' expectations
Improving Corporate Governance
- Properly Constituted Boards: Ensure diverse and competent board members
- Separation of Chairperson and CEO Functions: Maintain checks and balances
- Audit Committees: Ensure financial integrity
- Vigilant Shareholders: Active participation in governance
- Financial Reporting and Auditing Systems: Provide full and timely disclosure
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Description
Explore the key concepts of corporate governance, including the roles and responsibilities of stakeholders such as shareholders, the board of directors, and management teams. This quiz covers essential elements like the code of ethics, major committees, and accountability mechanisms to ensure ethical business operations.
