MGMT 3013 Ch. 12

Situation where the CEO of a publicly traded company is also the chairperson of the board of directors

CEO/chairperson duality

What are the three things to focus on within the share value creation framework?

Expand the customer base to bring in nonconsumers Expand traditional internal firm value chains to include more nontraditional partners Focus on creating new regional clusters

A situation that occurs when information asymmetry increases the likelihood of selecting inferior alternatives

adverse selection

A theory that views the firm as a nexus of legal contracts

agency theory

The centerpiece of corporate governance, composed of inside and outside directors who are elected by the shareholders

board of directors

An agreed upon code of conduct in business, based on societal norms

business ethics

A system of mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally

corporate governance

Board members who are generally part of the company's senior management team; appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance

inside directors

A single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company in order to take it private

leveraged buyout (LBO)

A situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs incur to the other party

moral hazard

Board members who are not employees of the firm, but who are frequently senior executives from other firms or full-time professionals

outside directors

Defensive provisions to deter hostile takeovers by making the target firm less attractive

poison pill

A model proposing that managers have a dual focus on shareholder value creation and value creation for society

shared value creation framework

Shareholders - the providers of the necessary risk capital and the legal owners of public companies - have the most legitimate claim on profits

shareholder capitalism

An incentive mechanism to align the interests of shareholders and managers, by giving the recipient the right (but not the obligation( to buy a company's stock at a predetermined price sometime in the future

stock options