BSZ_IM_Ch18_4e - Managerial Economics and Organizational...

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Managerial Economics and Organizational Architecture Instructor’s Manual Part 1: Chapter Overview and Solutions Chapter 18: Page 1 CHAPTER 18 C ORPORATE G OVERNANCE This chapter provides a general overview of corporate governance within the organizational architecture framework. The objectives of the chapter are for the reader to obtain a general understanding of the key issues in corporate governance and insights into how to design more effective governance systems. The chapter also offers insights into the causes and implications of contemporary governance scandals and the effects of the Sarbanes-Oxley Act of 2002. The first section of the chapter describes the basic attributes and governance concerns of publicly traded corporations. The second section provides an overview of the U.S. corporate governance system (top-level organizational architecture) – focusing specific attention on the decision authority and incentives of shareholders, the board of directors, top management and outside monitors (such as the independent auditors). The remaining sections examine governance from an international perspective, the role of market forces in the governance process, the Sarbanes-Oxley Act of 2002, and corporate governance from an historical perspective. The appendix presents an economic analysis of the more fundamental choice of organizing as a corporation versus other legal alternatives. C HAPTER O UTLINE I NTRODUCTION P UBLICLY T RADED C ORPORATIONS Corporate Form of Organization Stock Exchanges Stock Ownership Patterns Governance Objectives S EPARATION OF O WNERSHIP AND C ONTROL Incentive Issues Survival of Corporations Benefits of Publicly Traded Corporations T OP -L EVEL A RCHITECTURE IN U.S. C ORPORATIONS Sources of Decision Rights Shareholders Board of Directors Top Management External Monitors I NTERNATIONAL C ORPORATE G OVERNANCE M ARKET F ORCES S ARBANES -O XLEY A CT OF 2002 C ORPORATE G OVERNANCE : A N H ISTORICAL P ERSPECTIVE
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Managerial Economics and Organizational Architecture Instructor’s Manual Part 1: Chapter Overview and Solutions Chapter 18: Page 2 S UMMARY A PPENDIX : C HOOSING AMONG THE L EGAL F ORMS OF O RGANIZATIONS T EACHING THE C HAPTER The third edition of the book had a full chapter on choosing the legal form of organization. This chapter on corporate governance replaces the old chapter. The appendix to the chapter is self contained and can be used by instructors who want to examine the broader choice of choosing the legal form of organization (covered in the old chapter). Instructors who want to focus more specifically on corporate governance need not assign the appendix to the chapter. Corporate governance is a complex and broad topic. We spend an entire course on the topic at the Simon School. In our governance class, we have students read this chapter at the start of the class to provide a general overview of governance issues. We subsequently cover Enron (as a case), board of directors, auditors, Arthur Andersen (the
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BSZ_IM_Ch18_4e - Managerial Economics and Organizational...

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