Corporate Governance

Résumé du document

Une présentation powerpoint en anglais sur le concept de Corporate Governance et des problématiques tournant autour de sujet avec de solides références académiques, utiles pour approfondir ces connaissances.





1. Definition & Origin of the concept

2. Managerial Discretion & Subsequent Potential Abuses ? Causes &Typology

3. Managerial Incentive & Drawbacks

4. ?Shareholding? vs. ?Stakeholding?

5. Corporate Social Responsibility

6. ?Stakeholding? drawbacks

7. Conclusion

8. Bibliography

Extraits

[...] Corporate Governance - The roots of the concept Fundamental book for the corporate finance & corporate governance 1932: “Modern Corporation and Private Property” from Gardiner C. Meals & Adolf A. Berle Quote: property owner who invests in a modern corporation so far surrenders his wealth to those in control of the corporation that he has exchanged the position of independent owner for one in which he may become merely recipient of the wages of capital . [...]

[...] “Stakeholding” From a purely economic standpoint, according to the principle that prices reflect the scarcity of resources, management should strive to maximize shareholder value Founding principle for “Shareholding” Corporate Finance, Managerial Incentives designed to maximize shareholder wealth On the other hand, this effort is not without externalities for the society and the company should thus internalize them Founding principle for Corporate Social Responsibility A widespread opinion is that “stakeholding” & corporate social responsibility are only some additional marketing arguments Corporate Social Responsibility Corporate Social Responsibility involves: Duties toward employees Not laying off workers when the company performs well Protection of minorities Training possibilities Warranty of safe work place & facilities Duties toward communities Reduce environmental negative externalities Refrain to close plants in distressed economic areas Duties toward creditors Not maximizing shareholder value at the expense of creditors value Ethical considerations Environmental protection Refrain to employ subcontractors in developing countries with questionable employment policy Tax evasion “Stakeholding” drawbacks Really difficult to implement Always more shareholders surrender their voting rights in favor to additional liquidity & to passive management preferences Granting control rights to non-investors may discourage financing Not enough “pledgeable” as pay back Conflicting objectives between investors & natural stakeholders potentially dangerous & inefficient for the decision making process Difficulty to hold managerial accountability What can't be measured can't be measured Especially true when it comes to appraise responsible missions & results Conclusion The corporate governance concept is inseparable of two major & highly controversial field of research in economics: Agency theory The “Shareholding” vs. “Stakeholding” (insolvable) issue The shareholder-value approach is integral part of the classical economics thinking while the stakeholder society has a lot of room to further research & economics However, the corporate governance concept should also be considered as an effective tool of leadership & not essentially through the vantage point “shareholding” vs. [...]

[...] “stakeholding” Bibliography Books: Tirolle, Jean.“The Theory of Corporate Finance”, Princeton University Press WI 9 400 174 2 Websites: O'Donovan, Gabrielle. [...]

[...] [Such owners] have surrendered the right that the corporation should be operated in their sole interest . Conclusion: The separation of ownership & control generates managerial discretion, which can be easily abused Corporate governance concept addressed as principal-agent problem Managerial Discretion & Subsequent Potential Abuses - Causes At all levels in an organisation, “There are asymmetries of information between those governing and those governed”1 Open door to moral hazard Moral Hazard: Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions. [...]

[...] thievery) Managerial Discretion & Subsequent Potential Abuses Solution The scope of misbehavior can be even more larger described However, it is possible to partly unravel these issues by aligning managerial incentives with the company's interest Incentives systems are mostly designed in profit to the shareholders value Types of incentives: Explicit Implicit Others not considered as incentives by economists: Intrinsic motivation, Corporate culture, Morale, Feelings of self-esteem, Interest in the job, Managerial Incentive Overview Explicit incentives Compensation package Salary Bonus Stock options Fringe benefits (More rarely) Perks Implicit incentives Manager's concern about his future in the company Promotion within the firm Appointment in other boards of directors Capital market monitoring By institutional investors, venture capitalists, wealthy investors with strict managerial control systems Product-market competition Managerial Incentive Partly a Solution Trend to grant to top executives always higher compensation packages According to the article new Era in Governance” (McKinsey Quarterly, 2004), in 2000, the annual income of the average CEO of a large US-firm was 531 times the average wage of workers in the company (42 times in 1982) How can this gap be explained? Is the performance of CEOs nowadays in comparison to earlier performance that forceful to be worthy this gap? [...]