Carroll_IM_Ch04.doc - 2019 Business Ethics and CSR Corporate Governance Foundational Issues This lectures explore corporate governance and the ways in

Carroll_IM_Ch04.doc - 2019 Business Ethics and CSR...

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2019 Business Ethics and CSR Corporate Governance: Foundational Issues This lectures explore corporate governance and the ways in which it has evolved. It first examines the concept of legitimacy and the part that corporate governance plays in establishing the legitimacy of business. It then explores how good corporate governance can mitigate the problems created by the separation of ownership and control and examine some of the specific challenges facing board members today. Corporate governance may seem a bit removed from the experience of undergraduate management/business students, as most of the students will not have direct contact with board members of publicly-traded companies and their issues for quite some time. But the issues are highly relevant to them in many ways. Some undergraduates plan to start their own business upon graduation and need to understand the mechanics and obligations of corporate formation. Further, when starting their own business, many will operate as owner- managers. They need to understand their various roles in the corporate form, as well as their legal obligations to other investors should they serve as directors. Further, as citizens, they should be concerned with the legitimacy of corporations and understand the power that they hold. The 2008 financial crisis that originated in the USA illustrated how breakdowns in corporate governance can create legitimacy problems for business. As investors, they should realize the impact that boards and CEOs have on the firm and be aware of the relationship between the board and senior management. They will, in all likelihood, understand the theoretical relationship—the board oversees management activity and has authority over managers. The reality, that the power structure is inverse to the theory, may come as quite a surprise. Most students will not be familiar with the proxy process and the agency problems that exist with the corporate form. As workers, they should be aware of the issues surrounding executive compensation. Executives are often in the enviable position of setting their own compensation plans, with the board providing only rubber stamp approval in some cases (although compensation committees of publicly-traded companies now are required to explain and justify executive compensation). An attitude of self-enrichment at the top of the organization can have grave consequences for the rest of the employees. Furthermore, they need to understand how different compensation elements (including stock options) impact their personal financial situation. As the lecture points out, boards are making an effort to wrest control back from management. In addition to the steps pointed out in the lecture, there are many efforts to “create” better board members, through education and research. In the USA, for example, The National Associate of Corporate Directors works to improve corporate
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  • Fall '19
  • mai

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