Ch. 12 corporate governance
The public stock company enjoys four characteristics that make it attractive - answer1.
limited liability for investors
2. transferability of investor ownership
3. legal personality
4. separation of legal ownership and management control
shareholder capitalism - answershareholders have the most legitimate claim on profits
shared value creation framework - answera model proposing that managers have a dual
focus on shareholder value creation and value creation for society
michael porter recommends that managers focus on three things within the shared
value creation framework - answer1. expand the customer base to bring in
nonconsumers
2. expand traditional internal firm value chains to include more nontraditional partners
3. focus on creating new regional clusters
corporate governance - answera system of mechanisms to direct and control an
enterprise in order to ensure that it pursues its strategic goals successfully and legally
agency theory - answera theory that views the firm as a nexus of legal contracts
adverse selection - answera situation that occurs when information asymmetry
increases the likelihood of selecting inferior alternatives
moral hazard - answera situation in which information asymmetry increases the
incentive of one party to take undue risks or shrink other responsibilities because the
costs incur to the other party
board of directors - answerthe centerpiece of corporate governance, composed of
inside and outside directors who are elected by the shareholders
inside directors - answerboard members who are generally part of the company's senior
management team
-appointed by shareholders
-provide the board with necessary info pertaining to the company's internal workings
and performance
outside directors - answerboard members who are not employees of the firm, but who
are frequently senior execs from other firms
The public stock company enjoys four characteristics that make it attractive - answer1.
limited liability for investors
2. transferability of investor ownership
3. legal personality
4. separation of legal ownership and management control
shareholder capitalism - answershareholders have the most legitimate claim on profits
shared value creation framework - answera model proposing that managers have a dual
focus on shareholder value creation and value creation for society
michael porter recommends that managers focus on three things within the shared
value creation framework - answer1. expand the customer base to bring in
nonconsumers
2. expand traditional internal firm value chains to include more nontraditional partners
3. focus on creating new regional clusters
corporate governance - answera system of mechanisms to direct and control an
enterprise in order to ensure that it pursues its strategic goals successfully and legally
agency theory - answera theory that views the firm as a nexus of legal contracts
adverse selection - answera situation that occurs when information asymmetry
increases the likelihood of selecting inferior alternatives
moral hazard - answera situation in which information asymmetry increases the
incentive of one party to take undue risks or shrink other responsibilities because the
costs incur to the other party
board of directors - answerthe centerpiece of corporate governance, composed of
inside and outside directors who are elected by the shareholders
inside directors - answerboard members who are generally part of the company's senior
management team
-appointed by shareholders
-provide the board with necessary info pertaining to the company's internal workings
and performance
outside directors - answerboard members who are not employees of the firm, but who
are frequently senior execs from other firms
