PAGE 1 PAGE Corporate Governance Concepts PAGE 1
Corporate Governance Concepts WorksheetUniversity of PhoenixCorporate Governance Concepts Worksheet
Application of Concept in the Scenario
Reference to Concept in Reading
Shift in corporate power from the CEO to other stakeholders -
Board impact on corporate governance
Hugh states in an email "I want to give it its due attention but do not plan on allowing the money men to dictate how I'll run this company. Please proceed with invitations for those listed as my choice for directors." Beltway Investments believes that Hugh will use "sound corporate governance exercised by you and your team" (University of Phoenix, 2008).
Hugh does not see the advantages of having proper corporate governance at McBride Financial Services Inc. (MFSI). Hugh also does not see the benefit of independent directors without any close relations to Hugh in his email statement stating, "Since Beltway will need to approve these selections, I'll need a 'flowery' biography for each selling them on approval" (University of Phoenix, 2008).
A fully functioning independent board of directors will not keep Hugh around for long with his current attitude and work ethic.
"An active and independent board of directors working for shareholders clearly benefits the corporation by reducing the "agency problem" that arises from the separation of ownership from control in the modern corporation. It does so by acting as agent for owners in controlling a management whose principal motive is not to maximize value but rather to enhance its own position. Any resulting change in management's behavior, no matter how limited, should increase returns to the owners as residual claimants" (Chew & Gillan, 2005, p. 180).
"To serve as effective monitors, directors must be independent of the management they monitor. Directors who are members of management, or are otherwise closely linked to management, have the same interest as management in perpetuating corporate performance measured in terms of growth for its own sake"(Chew & Gillan, 2005, p. 180).
The roles of management in corporate governance - Tracking stock
- Setting stretch goals
- Bonus plans
Hugh states in an email
I have thought over our discussion re: incentive compensation and have decided to hold off on stock options altogether…at this time I am not interested in diluting my shares, nor is Larry. We will also hold-off on options for the new directors…same reason. Let us discuss this later…for now, let us just go with fair salaries (University of Phoenix, 2008).
Hugh does not see the value of incentive plans such as tracking stock, setting stretch goals, and bonus plans. For the company to realize growth, proper incentive plans need to be in place.
" The tracking stock also provides for investors a pure play opportunity in a focused business with managers, through stock options, being rewarded for the value they add to the business they...