Discuss the overarching concept of Corporate Governance with appropriate examples. Evaluate corporate governance in the context of powers of shareholders, boards of directors, and managers. Using insert as per below, refer to case study where possible
Discuss the overarching concept of Corporate Governance with appropriate examples. Evaluate corporate governance in the context of powers of shareholders, boards of directors, and managers. Using insert as per below, refer to case study where possible
Management, Loose-Leaf Version
13th Edition
ISBN:9781305969308
Author:Richard L. Daft
Publisher:Richard L. Daft
Chapter4: Managing In A Global Environment
Section: Chapter Questions
Problem 3CFCA
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Case study attached and question below - info below question is supporting information from guide textbook
QUESTION
Discuss the overarching concept of Corporate Governance with appropriate examples. Evaluate corporate governance in the context of powers of shareholders, boards of directors, and managers. Using insert as per below, refer to case study where possible
Supporting textbook info below:
- Corporate governance is defined as the legal checks and balances that define the rights and limit the powers of shareholders, boards of directors, and managers.
- The authority to govern is granted by a corporate charter, a document issued by a government that brings a corporation into being and defines its scope of authority. In the United States, charters are issued by states.
- The charter specifies the rights and responsibilities of stockholders, directors, and officers. Charters also include detailed provisions about such matters as annual meetings, methods of choosing directors, declaring dividends, amending the articles of incorporation, and so on.
- The structure and responsibilities of boards of directors are discussed.
- The average board in 2004 had 11 members, including at least 8 outside directors.
- Boards are divided into committees. More than 90 percent had audit, compensation, nominating, and corporate governance committees.
- U.S. boards of directors are organised and function differently from boards in other countries. European boards are compared with U.S. boards.
- Duties of directors in the U.S. are discussed. Among these duties are approving strategies, preparing corporate governance guidelines, evaluating CEO candidates, and overseeing corporate ethics.
- Institutional investors are active in trying to improve corporate governance in companies whose stock they own
- Executive compensation is discussed.
- Total compensation of executives is difficult to calculate because of problems in calculating the value of stock options, or rights to purchase a specified number of shares in a company’s stock for a specified price at a future date. In 2003, the largest proportion of executive pay was in stock options.
- Board compensation committees set the pay and benefits of top executives. Critics charge that members of many compensation committees are cronies of the CEO or have a conflict of interest because of business connections with the corporation.
- A basic complaint is that there is often no correlation between executive pay and company performance. Reformers recommend that compensation be tied to long-range performance.
- CEO’s defend their compensation.
- Stock options have become larger parts of CEO compensation and with the stock market boom of the 1990s-2001, their exercise led to high dollar compensation.
- CEOs claim that their option-based compensation is justified by the gains of stockholders during their tenure in office.
- Directors point out that if CEOs are not paid the same as those in comparable companies the CEOs will leave.
- There are many recommendations for improving the system of setting compensation levels.
- Make compensation committees independent of the CEO.
- Compensation committees should be composed completely of outside directors.
- Compensation, especially stock options, should be related to the long-term interests of the company. Criteria for determining pay should be made public.
- To whom are directors accountable?
- Legally, directors are responsible to shareholders. But there are many different kinds of shareholders and directors have no clear guide about which ones should be given priority.
- Many states have blurred the legal obligation of directors to stockholders by authorising concern about the interests of stakeholders other than stockholders
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