CGReport - A Closer Look at Business Education _ JULY 2006...

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A Closer Look at Business Education ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ JULY 2006 : CORPORATE GOVERNANCE INTRODUCTION: Corporate governance (CG) is one of the most talked about topics in business, indeed in society, today. A Google search revealed 513 news citations during a single week in June 2006. Most academics, business professionals, and lay observers would agree that CG is defined as the general set of customs, regulations, habits, and laws that determine to what end a firm should be run. Much more fraught, however, is the question: “what defines good corporate governance?” It is clear that CG exists at a complex intersection of law, morality, and economic efficiency. Less clear, however, is the extent to which current MBA education reflects that complexity. CG is usually not a distinct academic discipline, but integrated into other courses. Considering that issues of executive compensation, financial scandals, and shareholder activism are all tied up with CG, its teaching is a topic worth investigation. This Closer Look takes a broad view of the topic, with the goal of addressing the following questions: What are the key issues in CG, as regards business’ social and environmental impacts and opportunities? How do leading thinkers perceive the issue? What is the current state of practice on MBA campuses? What teaching resources are available to business school faculty? A FACULTY POINT OF VIEW: Michael C. Jensen is an Emeritus Professor at Harvard Business School. In 1973 he founded the Journal of Financial Economics and in 1994 he co-founded the SSRN website . Dr. Jensen has published prolifically, received numerous awards, and is widely considered to be a leading scholar in the field of corporate governance and control. His papers have been downloaded from SSRN 245,196 times. On current problems in worldwide corporate governance: “There will always be a ‘problem’ in the sense that we will never get a perfect solution to governance in the sense that there will be no defects. The optimal governance system will be one that just balances the benefits of reducing malfeasance with the added costs of more stringent governance. So there will still be [two] types of costs being incurred: costs due to malfeasance and costs created by the governance and control systems themselves. I do believe we can create governance systems that perform much better in western capitalism than we currently have. And, let’s be careful to recognize that western capitalism governance systems have proven themselves to be far superior to any other system we know or have known. A brief look back at the failure of socialist and communist systems is sufficient to illustrate the point.” On whether a manager’s end goal should be to maximize shareholder value:
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CGReport - A Closer Look at Business Education _ JULY 2006...

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