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[CS-4] Stakeholders and Governance, G6 (張廷瑋Daniel, 陳悅心Cindy, 王穎萱 Rora,…
[CS-4] Stakeholders and Governance
Agency cost & agency problems
Agency mechanisms
Lessen the problem of the separation of shareholder ownership and the risk bearing principals
Provide $, but do not have the control of the corporation
Providing the managerial decisions
:question:Why do managers care about the profitability of their company or division within the company?
1.If they don't keep the stock price at a certain level
poor management
People start selling off the stock💸
They may be taken over.
2.If their division have very good performance
Show up in the number
there is a market for managers
:warning:May be manipulating the numbers
3.The board of directors
Evaluating the CEO and top management team of the company
4.Compensation be heavily weighted towards stock options
Incentive to manipulate the market to get the stock price higher📈
6.Debt
Manager in a company that has a large level of debt
High volume but low profit margin business
🔍Focus on being efficient & not being wasteful
If the company is going to need a lot of free cash flow for big investment or use in R&D
Minimizing agency costs is not the primary problem :warning:
Key points : New technologies
5.Monitoring by institutional investor
have a large amount of investments
7.General
Chairman
CEO chairperson can be very influential on the board of directors to the point
if you're a company like in a grocery business
focus on minimizing agency costs and to have a separation of CEO and chairperson
if you're in a high tech market where you need rapid decisions
having a separate chairperson
CEO is going to slow you down and you're not going to be there for the new technology and you're going to be solving the agency cost problem
CEO
8.Strategy changes
Why managers care about profitability？
They're all competing with each other and they all want to whatever numbers and metrics the corporate staff is using, they all are being evaluated on those numbers of course
The functions of the board of directors
selecting
evaluating and compensating the CEO
overseeing CEO succession plans
providing guidance on executives and their compensation
reviewing
monitoring and approving the strategic initiatives
conducting a risk assessment and mitigating those risks
Free market economies
It's more a matter of degree than in kind
China
one end of the market economy spectrum you can have state directed capitalism
US
a lot of control and on the other hand, relatively speaking a free market capitalism
Germany
focus on like stakeholder capitalism, on labor representation on the board of directors
Recent Developments
hostile takeover
which make it difficult and costly for shareholders to replace the company's management.
whereby the company would issue a large number of shares in the market if any shareholder acquired more than 10 percent stake in the company
poison pill
In 2012 Netflix has adopted a "poison pill" strategy to ward off a potential hostile takeover bid by activist investor Carl Icahn
Business Ecosystem
1993 James Moore from Harvard business review
:forbidden:simply as members of an industry
:check: supposed to be a provider or complementor in this business ecosystem
unicorn company
In order to control WeWork
Soft Bank had to pay over a billion dollars to buy their founder CEO Adam Neumann's
without knowing WeWork value may made a huge loss on their investment.
Private Placement more than Public offering
preference share
in the typical group in the company
to protect their long term intersects
In order to protect the company's value
Shareholder
over-emphasis on shareholders and their interests
emphasis on measurable short-term financial metrics that are primarily financial
:warning:ADJUST
:red_flag:GOAL:
corporate social responsibility and sustainability
Corporate Social Responsibility
the pyramid of Corporate Socail Responsibility
ethical
responsibilities
doing what is right
legal responsibilities
just staying within the legal boundaries
the second level
economic responsibilities
making profits
the first level
Corporate Governance
Agency Cost
The one paying to have something done and the agent is the one who does it
If both sides don't reach the other one expectation
how to reduce agency costs
Monitoring cost
Enforcement cost
Incentive cost
asymmetric information problems
Adverse selection problem
someone misrepresents their abilities to the employer
Moral hazard problem
Someone is an architect but slacking or shirking or not putting in very much effort
Bad corporate governance
Bernie Madoff was trusted by principals who gave him money
Because no one was monitoring him
Selling insider information is illegal
Bloom
a very famous categorization scheme of knowledge
taxonomy of knowledge
application
understand the material
fundamental level
take knowledge and put a synthesis and put it back together
ethical responsibilities
analysis
a very high level of education
start habitually thinking
doing this right :red_cross:
doing the right thing :check:
the organization itself
doing the right thing for others beyond the corporation
a corporate citizen
not only to the corporation itself
but to the world beyond the boundaries of that corporation
Milton Friedman
a famous economist
Nobel Prize-winning economist
the only social responsibility of the business
increase profits so long as it stays within the rules of the game
a value creation framework
General Electric
recognizes explicitly a desire for a convergence
win-wins for both the shareholders and other stakeholders
the firm does well
better financial bottom lines
have some attention to CSR
Public Firms and Their Role in Society
The public firm
External stakeholders
Customers
Government
Community
Suppliers
Hierarchy of authority
Board of directors
Management
Employees
Internal stakehoders
Bondholders
Board managers
Shareholders
Employees
An age of shareholder primacy :silhouettes:
The goal of managers is to maximize returns for shareholders
Public corporations take money from equity investors
Characteristics
Transferability of investor interest
Legal personality
Limited liability for investors
Separation of ownership and control
Financial crises
Real estate bubble burst
Accounting scandals
Managerial actions affect economy
Stakeholder management is needed
Stakeholder impact analysis
Opportunities and threats:warning:
Keep the organization together
Trying to balance
Economic, legal, ethical, and philanthropic responsibilities :recycle:
The corporate social responsibility pyramid :warning:
Interests and claims :red_flag:
Shareholders v.s. Employees
Decision dilemma
Address the concerns
Corporate performance
Corporate governance
Business ethics
Social responsibility
Who :silhouettes:
employees
the customers
the suppliers
the community
G6
張廷瑋Daniel
陳悅心Cindy
王穎萱 Rora
王嵐Lucy
徐貫杰Jayson
蘇霈琪 Peggy
McDonald
State charter
Shareholders
