Ch. 11 - Corporate Governance and Ethics

board of directors

group of individuals who monitor the executive team of the corporation and insure that those executives are acting in the best interests of the shareholders

agents

individuals or groups hired to administer the property or resources of principals -the managers of a corporation are considered to be agents of the shareholders

other constituency laws

laws that allow the Board of Directors to freely consider the needs of stakeholders other than shareholders when making critical strategic decisions for the firm

nexus of contracts

a model of the corporation that sees each input a contractor with the firm -the firm is the sum total of its contracts with different stakeholders

culture

a pattern of behavioral assumptions that are considered appropriate and correct for organizational members

bonuses

additional compensation paid to executives, managers, and employees when they meet certain performance objectives

proxy fight

an attempt by dissatisfied investors or stakeholders to gain seats on the Board of Directors, or to influence corporate policy

tender offer

an offer by those hoping to control the corporation to purchase shares of dissatisfied investors

stakeholder

any person or group that can affect or is affected by the activities of the corporation

outside directors

members of the BOD not employed by the corporation in any other role

pay for performance

variable, or contingent compensation that focuses managers on key variables, designed to align their interests with the management team

Know the typical governance mechanisms. Describe the advantages and pitfalls.

-cultural and managerial continuity -creating clear management structures -using business and managerial control instruments -long-term corporate financing

What are internal and external Directors? What are the advantages/disadvantages of each?

-internal - bring their skills and working knowledge of the firm's operations and strategies to the board -outside - people not employed by the corporation in any other role, should bring deep knowledge and a fresh perspective, both of which insure that the firm's strategy will serve the financial interests of the shareholders----independence

agency problem

a consequence of the separation of ownership (shareholders/principals) and control (managers/agents) in the corporation -agency problems occur when the goals or principals differ from those of agents -the shareholders of a corporation -shareholders vs managers

principals

owners of a resource or piece of property -in the corporation, shareholders are considered principles

stock-based compensation

payment to organizational members in the form of shares in the corporation

fiduciary duty

the legal obligation of an agent, a fiduciary, to act in the best interests of the principal, or owner -fiduciary duties include the duty of loyalty, to work for the optimal good of the owner, and the duty of care, to not take undue risk that would jeopardize the principal

corporate governance

the processes and structures that provide the ultimate decision making authority for the firm

stock option

the right to buy a certain number of the corporation's shares at a specified future date for a specified price

corporation

a legal structure for organizing where the organization is a distinct and separate entity from its owners, also known as shareholders

partnerships

a legal structure for organizing where the owners of a business share ownership -the partnership is not separate from its owners

ethical values

values that define for an individual, group, or society things that are morally right or wrong

Define corporate governance and its major elements.

Corporate Governance: The processes and structures that provide the ultimate decision making authority for the firm. -cultural and managerial continuity -creating clear management structures -using business and managerial control instruments -long-term corporate financing ---------------- -WHERE WILL WE STEER THE CORPORATION? -WHO WILL PILOT THE CORPORATION? -WHAT VALUES WILL GUIDE THE JOURNEY?

7S Mckinsey Framework

HARD ELEMENTS -*strategy*---the plan devised to maintain and build competitive advantage over the competition -*structure*---the way the organization is structured and who reports to whom -*systems*---the daily activities and procedures that staff members engage in to get the job done --------------------------------------------------------- SOFT ELEMENTS -*shared values*---called "superordinate goals" when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic -*skills*---the actual skills and competencies of the employees working for the company -*style*---the style of leadership adopted -*staff*---the employees and their general capabilities

What are the primary responsibilities of a board of directors?

The BOD is a group of individuals who monitor the executive team of the corporation and insure that those executive are in the best interests of the shareholders.

Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

The BOD is a group of individuals who monitor the executive team of the corporation and insure that those executive are in the best interests of the shareholders. The laws of the US do not make the BOD take the interests of the stakeholders in mind, but the laws of Europe do by requiring that stakeholder groups are represented on the BOD.

mission statement

a formal declaration of a company's core values, business objectives, and ethical aspirations

stock grant

a gift, or grant, of stock given to organizational members, primarily executives

individual proprietorship

a legal structure for organizaing where the same person own and runs the business

inside directors

executives or managers working inside the company who also hold seats on the board of directors

stakeholder model

the belief that a corporation should be run for the benefit of its entire stakeholder set, with no group enjoying primacy in decision making

shareholder primacy

the belief that a corporation should be run, primarily or exclusively, for the benefit of its shareholders

property rights

the rights of owners to 1. claim the residual earnings of the corporation, or the profits after all other stakeholders have been paid, and/or 2) monitor the management team to make sure that the team works in their best interests