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Chapter_12_Corporate_Governance - BUS306002 Chapter12...

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BUS 306-002  Ethics in Decision Making Chapter 12:  Corporate Governance George Z. Peng
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2 Chapter Outline Defining Corporate Governance Rights of Shareholders  The Responsibilities of the Board Board Membership Board Structure Disclosure and Transparency Evaluating Board and Director Performance Corporate Governance and Performance Criticism of Corporate Governance Reform Rebalancing Power in the Corporation Corporate Governance and Stakeholders, Ethical Conduct, and  CSR
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AACSB Recommendation Ensure students are familiar with programs that  support ethical conduct, such as U.S. Federal  Sentencing Guidelines and Sarbanes-Oxley, the  Cadbury Code in the United Kingdom, the King  Report from South Africa, and similar regulations  and recommendations from other parts of the  world .”   3
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4 12.1 Defining Corporate Governance CG refers to the processes, structures, and relationships  through which the shareholders, as represented by a board  of directors, oversee the activities of the business  enterprise. There are other broader definitions which consider  stakeholders. (See table 12.1) CG reduces the agency problems caused by separation of  ownership and control ( Strong Managers, Weak Owners ) CG deals with the  rights  and  responsibilities  of a  corporation’s management, its board, shareholders and  stakeholders.
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Issues Relating to  Corporate Governance 5
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Why CG Matters? Good corporate governance is important when corporations  are seeking capital (from [global] equity markets). CG  affect firm strategy , leadership succession, risk  taking/aversion, and you name it… 6
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Major CG theories Agency theory Stakeholder Theory Stewardship Theory Resource dependence theory and institutional theory…. 7
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The Agency Model 8
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The Stewardship Model 9
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The Stakeholder Model 10
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11 12.2 The Rights of Shareholders Secure ownership  registration Capability to transfer  ownership Access to relevant  corporate information Participation and voting at  shareholder meetings Election and removal of  board members Share in profits of the  corporation Knowledge of  extraordinary transactions  or decisions Disclosure of dual-class  shares Capability to exercise  ownership rights Ability to consult other  shareholders Source: OECD, 2004
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12 12.3 The Responsibilities of Board Board of Directors : group of individuals  elected by shareholders to govern or oversee  the corporation’s affairs.
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