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SMMCGX [CS-4]Stakeholders and Governance, G6 (Christina, Eric, David,…
SMMC
GX
[CS-4]Stakeholders and Governance
Mechanisms of Corporate Governance
Agency Problems
What are the "institutions of capitalism" that lessen the problem of the separation of ownership and control?
Takeovers (Market for corporate control)
Recruitment of executives from outside the firm
Monitoring by Board of Directors
in charge of evaluating CEO and top management team
Compensation weighted toward stock options
Problem: incentive to manipulate the market to get stock price higher
Monitoring by institutional investors
monitor very closely and need feedback
Debt (Minimize free cash flow)
For example, RJR Nabisco had corporate jets and expenditures for its top management
which means you are on the verge of bankruptcy
no free cashflow to play with
low profit margin - high volume
For example, High-tech company - need free cash flow - invest in R & D, if you have large debt, you are not well positioned
Separate Chairperson and CEO
Chairperson of BOD being monitor the CEO
CEO is the chairperson of BOD, CEO chairperson can be influential on BOD
For example, High-tech market - rapid decision and having separate chairperson - CEO is going to slow you down
Strategy: Contextual - depends on problem at hands
Internal Control of Multidivisional (Why managers care about profitability)
For example, if you have five divisions of a company, competing with each other, being evaluated on courses
managers are going to care about those profitabilty metrics with their own decisions
Conclusion
Eight Major Mechanisms of why managers will care about financial performance of division or company
Functions of BOD - selecting, evaluating and compensating CEO, overseeing CEO successiion plans, providing guidance on executives and conducting risk assessments
Make sure Firm-s audited financial statements are done correctly.
Corporate Governance Around the World
"Free market Economies" - China (State-directed capitalism - less freedom), US (Free market capitalism (more freedom)
Germany & France - Stakeholder Capitalism - "labor"
China- Stated-owned enterprise - involved in Strategic plans
Corporate Social Responsibility
The Pyramid of CSR
Archie B. Carroll, 1991
Economic Responsibility
Be profitable
Required
Legal Responsibility
Obey the law
Required
Ethical Responsibility
Be ethical
Expected
Philanthropic Responsibility
Be a good Corporate Citizen
Desired/ Expected
Businesses need to assume social roles , even voluntarily to be a good corporate citizen
Doing the right thing, being fair in all situations and also avoiding harm
Comply with various
federal, state, and local regulations
Provide goods and services that at least meet minimal legal requirements
Profit maximization
Maintain a strong competitive position
Milton Friedman circa 1962
The only social responsibility of business is to increase profits
So long as it stays within the rules of the game
Issues of corporate governance
corporate governance
the relationships among the stakeholders
determine and control the strategic direction and performance of the organization
the rules of the game within the corporation itself.
agency costs
Sum of incentive cost, monitoring cost, enforcement costs and individual financial losses incurred by principals
the agent is the manager and the principal is the shareholders
value creation framework
Expand customer base and bring in non - consumers
Expand internal firm value chains by including more non - traditional partners such as NGOs
Focus on creating new regional clusters
Mechanisms to direct and control the firm
ensure the pursuit of the strategic goals of the company
Address the principal agent problem
Example of corporate governance fails
Madoff investment scandal
Running an elaborate scam
Ponzi scheme
(pyramid scheme)
using cash from new investors to pay back money to older ones
Never have enough money to cover and the debt keeps getting worse
Agency problem
Asymmetric information
E.g: who buy and sell stock
Insider information at some point will be defined as illegal activity
All the information and doesn't give any of it out, no one's monitoring
Public firms and role in society
Company include different stakeholders
External stakeholders
Suppliers
Governments
Customers
Internal stakeholders
Managers
Shareholders
Employees
Goal of managers
To maximize return for shareholders
Public traded corporation
Transferability of investor interests
Owner of stock can buy and sell stock
Legal personality
The board of directors is responsible for all of the stakeholders in the corporation
Limited liability
Separation of ownership and control
OPM
The hierarchical nature of publicity traded company
State Charter
Shareholders
Board of directors
Management
Employees
Stakeholder impact analysis
What are our stakeholders interests and claim
What opportunities and threats do our stakeholders present
Who are our stakeholders?
What economic,legal,ethical responsibilities to our stakeholders
What should we do to effectively address the stakeholder concerns
Recent development
two central challenges
over- emphasis on shareholder and their interests
over-emphasis on measurable short-term financial metrics
1.broaden their mission
paying attention to some of the long-run impacts through sustainability goals
carbon neutral
climate crisis
the balanced scorecard
provide a more holistic performance and health assessment of the company.
ecosystem strategies
business ecosystem
introduced by James Moore
supported by a foundation interacting organizations and individuals
think of as stakeholders, are especially important for the long-run success of companies
highly successful technology enabled businesses that have taken the form of platforms.
example
protection from shareholders
old approach
poison pill provisions 股東權益計畫
make it difficult and costly for shareholders to replace the company's management.
stay private
private equity私募股權
unicorns
startup companies with valuations that exceed a billion dollars
two classes of shares
the voting rights are closely held by a core group
includes the founders of the company
serve as the guardians of the long-term interests of the company
act in good faith to protect these long-term interests
G6
Christina
Eric
David
Vivane
Loy
