HRM 446 Corporate Governance Quiz

Corporate Governance Overview

• Corporate governance focuses on ensuring the efficient pursuit of an organization's goals and missions, rooted in its fundamental statutes and charter.
• Terminology includes various perspectives, such as normative, productivity-oriented, behavioral, and goal-oriented.

Definitions and Perspectives

• Shleifer and Vishny's definition of corporate governance emphasizes investor assurance in receiving returns on investments, categorized as a normative perspective.

Agency Problem

• The agency problem, a significant challenge in corporate governance, stems from the separation of power between shareholders and the board of directors, leading to potential conflicts of interest.

Investor Types

• A bondholder is specifically defined as an investor providing capital to a firm in exchange for a fixed interest rate, differentiating them from shareholders and stockholders.

Symptoms of Poor Governance

• Observable signs of ineffective corporate governance include:
  • Domination by a single individual.
  • An excessive focus on short-term goals.
  • Lack of independent scrutiny.
• Contact with shareholders is not considered a symptom of poor governance.

Historical Context

• The origins of corporate governance theory trace back to Adam Smith's work, notably the Theory of the Invisible Hand, promoting free-market principles.
• The South Sea Bubble scandal serves as an early example of governance failure, occurring in the 18th century.

Contemporary Developments

• The Watergate scandal marked a pivotal point in corporate governance history, leading to reforms.
• The Treadway Report underscored the importance of establishing a proper control environment alongside the necessity for independent audit committees and objective assessments.