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Mechanisms of corporate governance - Coggle Diagram
Mechanisms of corporate governance
agency problems
definition
does the corporation operate in the interest of the stockholder
reason
the separation of ownership and control
solution
compensation heavily weighted toward stock options
Associate company performance with managers’ profits, making managers more attentive to company operations, but may cause managers to care too much about the company’s stock price and artificially increase stock prices
monitoring by institutional investors
Investors who own a large amount of the company’s stock will be very concerned about the company’s operations and produce a monitoring effect
debt
if have no free cashflow to play with so that going to make company focus on being efficient and not being wasteful
monitoring by boards of directors
The board of directors is responsible for evaluating the CEO and the top management team, which will increase the efficiency of the team
separate chairperson and ceo
recruitment of executives from outside the firm
Managers’ performance will affect their performance in the market for managers
internal control of multidivisional
Divide the company into a multi-department mode of operation, so that there is a sense of competition between departments and improve work efficiency
takeovers
if company don't keep the stock price at a certain level,there's the threat that they may be taken over
centerpiece of corporate governance-inside and outside directors
general strategic oversight and guidance
Select and evaluate the CEO
providing guidance on executives and their compensation
Supervision and audit strategic initiatives
conducting a risk assessment
Confirm the company's financial statements
Confirm whether the company's specifications are legal