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Corporate Governance
refers to the controls put in place that ensure a corporation acts in a n ethical, legal and transparent manner in the best interest of all of its stakeholders TERM 2
sole proprietorship
DEFINITION 2 single person is the owner, quite often the founderq TERM 3
partnership
DEFINITION 3 shared ownership among two or more individuals TERM 4
corporation
DEFINITION 4 form of multiparty ownership by may shareholders TERM 5
Corporation Advatages
DEFINITION 5 offers its owners limited liability allows greater access to capital markets facilitates liquidity in corporate ownership it is an independent entity with an ongoing lifespan
Corporations Disadvantages (challenges)
greater cost structure shareholders may face double taxation taxed on profits TERM 7
Principle agent problem
DEFINITION 7 the situation where the principal is making decision for the agentsit is a conflict of interest between the two parties TERM 8
Managers have the temptation to engage in
one or more of the following practices
DEFINITION 8 shrinking -not working hard nepotism- hiring friends exhibiting favouritism in compensation building empires taking no risks or chances in order to avoid being fired taking excessive risk to earn large bonuses TERM 9
what are 2 solutions to the principal/agent
problem?
DEFINITION 9 controlling and monitoring TERM 10
Control solutions
DEFINITION 10 incentives internal- executive compensation pay for performance external- market driven spectre of corporate merger or acquisition
Internal
Controls
shareholder activism TERM 17
Shareholder Activism
DEFINITION 17 can put pressure on mgmt- sometimes have higher power than mgmt TERM 18
External
Controls
DEFINITION 18 Market for executive employment Market for Capital control Government oversight and regulation TERM 19
Market for executive employment
DEFINITION 19 naturally motivates corporate executives to act in the best interests of the shareholders in order to maintain or increase their desirability in the external job market TERM 20
Market for capital control
DEFINITION 20 purchase of a firm that is underperforming relative to industry rivals in order to improve strategic competitiveness
Government Oversight and Regulation
most obvious form of external controlCanada Revenue Agency and the provincial securities commissions dictate corporate reporting requirements for the purpose of taxation and public disclosure
