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UNISEMINAR
UN
ISEMIN
AR
UN
I S EM I NA
R
Corporate Governance
Maastricht 2nd Edition Academic Year 12/13
Corporate Governance
Table of Contents
Corporate Governance
uniseminar.nl
Introduction I – X Section 1: Introduction to Corporate Governance 001 – 028 Section 2: Boards of Directors and Complex Corporate Structures 029 – 093 Section 3: Corporate Governance Codes and Models 094 – 149 Section 4: Agency Theory, Incentive Systems and Financial Performance 150 – 179 Section 5: Board Practices and the Market for Corporate Control 180 – 228 Section 6: Governance and Risk 229 – 248 Section 7: Shareholder Activism 249 – 277 Section 8: EGS and Shareholder Value 278 – 298 Section 9: Pay for Performance 299 – 333 Section 10: The Perfect Board and the Future of Corporate Governance 334 – 361 Notes, Feedback, Contact
Table of Contents
Corporate Governance
Literature
X / X
Corporate Governance
uniseminar.nl
TThhiiss LLeeaarrnniinngg CCaarrdd SSeett ccoovveerrss tthhee ffoolllloowwiinngg lliitteerraattuurree:: Tricker, B. (2012), Corporate Governance, Chapter 1, 2, 3, 4, 5, 6, 7, 8, 10, 12, 13, 17, 18 Tirole, J. (2006), Theory of Corporate Finance, Chapter 1 Berk and DeMarzo, Corporate Finance, Chapter 28.5 and 29.6 + all relevant articles Please note that we recommend you to read the literature (especially the quantitative articles) in addition to learning with these cards, as it is not possible to cover all theoretical details of this course with a learning card set. The combination of both (reading + practice with cards) will be the key to your good grade.
Literature
Corporate Governance
3 / 361
Chapter 1: Corporate Governance: A subject whose time has come
Explain the difference between corporate governance and management.
-‐ Concept -‐
Corporate Governance
uniseminar.nl
MMaannaaggeemmeenntt is responsible for running the enterprise from strategic planning to day-‐to-‐day activities.
GGoovveerrnniinngg bbooddiieess are responsible for ensuring that the business is run in a proper way and that it is running in the right direction.
Chapter 1: Corporate Governance: A subject whose time has come
Corporate Governance
10 / 361
Chapter 2: Governance and Management
Which three key actors are generally adressed by codes of corporate governance?
-‐ 3 Points -‐
Corporate Governance
uniseminar.nl
Chapter 2: Governance and Management
KKeeyy aaccttoorrss iinn ccoorrppoorraattee ggoovveerrnnaannccee
Management Board of Directors Shareholders
Corporate Governance
11 / 361
When ful�illing its duties the board of directors is involved in all of the following activities eexxcceepptt:
a. Formulating corporate strategy b. Providing accountability to shareholders and other
external parties c. Ensuring that corporate decisions are executed d. Monitoring and supervising
-‐ Multiple Choice -‐
Chapter 2: Governance and Management
Corporate Governance
uniseminar.nl
Chapter 2: Governance and Management
cc.. EEnnssuurriinngg tthhaatt ccoorrppoorraattee ddeecciissiioonnss aarree eexxeeccuutteedd This is not one of the duties of the board of directors. Instead this duty is more likely to lie with the middle management of a company.
Corporate Governance
12 / 361
Chapter 2: Governance and Management
A private limited company may not offer shares to the public. This type of organization faces
less stringent requirements when registering as a company.
-‐ True/False -‐
Corporate Governance
uniseminar.nl
Chapter 2: Governance and Management
TTrruuee.. Tricker (2012), p. 38
Corporate Governance
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Chapter 2: Governance and Management
What is a two-‐tier board structure and how does it relate to the process of co-‐
determination?
-‐ Concept -‐
Corporate Governance
uniseminar.nl
A ttwwoo-‐-‐ttiieerr bbooaarrdd ssttrruuccttuurree requires companies to have both a upper, supervisory board and a lower, management board or committee. The supervisory board consists exclusively of non-‐executive directors whereas the management board only includes executives.
Chapter 2: Governance and Management
à The process of co-‐determination requires that one half of the supervisory board represents employee interests and the other half shareholder interests.
à While members of the management board attend supervisory board meetings they have no voting rights. The supervisory board has the ability to appoint and remove members from the executive board.
Corporate Governance
Name the main arguments in favor and against appointing a retiring CEO as a chairman!
-‐ Concept -‐
46 / 361
Chapter 4: The Governance Partnership
Corporate Governance
uniseminar.nl
Chapter 4: The Governance Partnership
PPrroo CCoonnttrraa
Retiring CEO as Chair-‐man
A retiring top executive could bring: years of experience knowledge, and connections to the board as its chairman.
Dif�iculties between the chairman and the new CEO could arise. It likely that a person who has been a successful CEO tends to interfere in the day-‐to-‐day running of the business.
Corporate Governance
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Chapter 7: Functions of the Board
Name all of Porter‘s �ive forces!
-‐ 5 points -‐
Corporate Governance
uniseminar.nl
Chapter 7: Functions of the Board
Rivalry within Industry
Threat of New Entrants
Bargaining Power of Customers
Threat of Substitutes
Bargaining Power of Suppliers
PPoorrtteerr‘‘ss 55 FFoorrcceess
Corporate Governance
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Chapter 10: The Governance of Listed Companies
Name four bene�its for dual listing.
-‐ 4 Points -‐
Corporate Governance
uniseminar.nl
Chapter 10: The Governance of Listed Companies
Continuing existing successful businesses
Protecting brand names
Taxation bene�its
Sustaining national pride
Corporate Governance
120 / 361
Chapter 6: Models of Corporate Governance
Name at least seven out of the ten forces for convergence in corporate governance codes
around the world.
-‐ 7 Points -‐
Corporate Governance
uniseminar.nl
Chapter 6: Models of Corporate Governance
Securities regulations for listed companies
International accounting standards
Global concentration of audit practices
Globalization of companies
FFoorrcceess ooff CCoonnvveerrggeennccee
Raising capital on overseas stock exchanges
International institutional investors
Private equity funding
Cross-‐border mergers of stock markets
Similar codes of good practice around the world
Research publications, journals and conferences
Corporate Governance
122 / 361
Chapter 6: Models of Corporate Governance
Identify �ive forces for differentiation in corporate governance around the world.
-‐ 5 Points -‐
Corporate Governance
uniseminar.nl
Chapter 6: Models of Corporate Governance
Legal differences in company law
Differences in standards in the legal process
Stock market differences (e.g. market capitalization or liquidity)
Differences in ownership structures
Differences in culture, history and ethnic groupings
Corporate Governance
125 / 361
The state at the national or provincial level has maintained ownership control of most of
China’s listed companies. Draw the regulatory structure.
-‐ Figure-‐
Chapter 17: Corporate Governance Around the World
Corporate Governance
uniseminar.nl
State regulators
Listed Chinese company
Stock exchange listing rules
Independent outside auditors
Chapter 17: Corporate Governance Around the World
Tricker (2012), p. 444
Corporate Governance
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Chapter 17: Corporate Governance Around the World
What are the main differences between the German-‐style corporate governance structure
and the Chinese structure?
-‐ Concept -‐
Corporate Governance
uniseminar.nl
Chapter 17: Corporate Governance Around the World
GGeerrmmaann MMooddeell
Equal number of shareholder and employee representatives
Supervisory board between shareholders and management board
Board has power to hire and �ire directors
CChhiinneessee MMooddeell
Minimum proportion of employees on board is one third
Supervisory board has no responsibility on share-‐holders’ behalf for ROI
Board has nnoo power to hire or �ire directors
Corporate Governance
130 / 361
Chapter 17: Corporate Governance Around the World
During the 1990s, Russia attempted to transfer ownership to the people through three forms of voucher privatization. List these three forms.
-‐ 3 Points -‐
Corporate Governance
uniseminar.nl
Chapter 17: Corporate Governance Around the World
FFrreeee ddiissttrriibbuuttiioonn ooff vvoouucchheerrss to all Russian citizens, which could be exchanged for company shares or invested in voucher investment funds.
11
IInnvveessttmmeenntt tteennddeerrss, in which investors had to make substantial investments to redevelop companies. 22
LLooaann-‐-‐ffoorr-‐-‐sshhaarreess aauuccttiioonnss: the government provided �inance from the federal budget for the purchase of shares in public companies that were put up for auction.
33
Corporate Governance
131 / 361
Chapter 17: Corporate Governance Around the World
Brazilian company law and the Code of Best Practice of Corporate Governance have three unusual corporate governance features. Name
and explain these three features.
-‐ 3 Points -‐
Corporate Governance
uniseminar.nl
Chapter 17: Corporate Governance Around the World
FFaammiillyy ccoouunncciill
FFiissccaall ccoouunncciill
inspect the work of the board review the activities of the company to ensure compliance with legal and statutory duties
provide an opinion on the annual management report and on board proposals (e.g. investment projects)
discuss family issues and the alignment of its members' expectations with those of the other shareholders
preserve longer-‐term family values; formalize succession planning for family members in mgmt. and on the board
AAddvviissoorryy bbooaarrdd
preferably made up of independent members allows independent members to contribute to the organization and gradually improve its corporate governance
Corporate Governance
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Tirole (2006)
What is the difference between explicit and implicit incentives?
-‐ 2 Points -‐
Corporate Governance
uniseminar.nl
Tirole (2006)
Managers‘ concern about their future Advancement Praise
Bonuses Stock options Perks
Explicit incentives Implicit incentives
Corporate Governance
161 / 361
Tirole (2006)
What does a manager‘s compensation package usually consist of? Which parts are
incentivizing?
-‐ 3 Points -‐
Corporate Governance
uniseminar.nl
Tirole (2006)
((ii)) = incentivizing: induce the manager to internalize the owner‘s interest
Bonus Stock-‐based
incentives
Salary
((ii)) ((ii))
Corporate Governance
177 / 361
Core, Holthausen & Larcker (1999)
Explain what Core et al.‘s (1999) �indings imply for the relationship between �irms‘ governance
structures and their future performance.
-‐ Concept -‐
Corporate Governance
uniseminar.nl
Core, Holthausen & Larcker (1999)
PPoooorr ggoovveerrnnaannccee ssttrruuccttuurreess are associated with greater agency problems in �irms. The severeness of agency problems in turn is positively related to CEO compensation. Firms with greater agency problems have appeared to ppeerrffoorrmm wwoorrssee than those with less pronounced agency problems.
Governance structures
Future �irm perfor-‐mance
Agency problems
CEO compensa-‐tion