Chapter 4 Corporate Governance
Legitimacy - answer A condition that prevails when there is a congruence between an
organization's activities and society's expectations
Legitimation - answer a dynamic process by which a business seeks to perpetuate its
acceptance
Micro level of legitimacy - answer Adapt operational methods to perceived societal
expectations
Attempt to change societal expectations or norms to conform to firm's practices
See to enhance its legitimacy by identifying itself with other organizations that have a
powerful legitimate base in society.
State Charter - answer document that tells what you are doing with your business. What
its purpose is. Issued by the state government.
shareholders - answerowners of the corporation. they should have ultimate control over
the corporation.
board of directors - answergovern and oversee the management of the business.
management - answerthe group of individuals hired by the board to run the company
and manage it on a daily basis.
employees - answerhired by the company perform the actual operational work.
Agency problems - answerdeveloped when the interests of the shareholders were not
aligned with the interests of the manager, and the manager simply a hired agent with
the responsibility of representing the owners' best interests began to pursue self-interest
instead of the owners' best interests.
Outside directors - answerindependent from the firm
inside directors - answerhave some tie to the firm.
Issues with compensation - answerthe extent to which CEO pay is tied to firm
performance and the overall size of the CEO pay.
Backdating - answerallows the recipient to purchase stock at yesterday's price, resulting
in immediate wealth increase.
Legitimacy - answer A condition that prevails when there is a congruence between an
organization's activities and society's expectations
Legitimation - answer a dynamic process by which a business seeks to perpetuate its
acceptance
Micro level of legitimacy - answer Adapt operational methods to perceived societal
expectations
Attempt to change societal expectations or norms to conform to firm's practices
See to enhance its legitimacy by identifying itself with other organizations that have a
powerful legitimate base in society.
State Charter - answer document that tells what you are doing with your business. What
its purpose is. Issued by the state government.
shareholders - answerowners of the corporation. they should have ultimate control over
the corporation.
board of directors - answergovern and oversee the management of the business.
management - answerthe group of individuals hired by the board to run the company
and manage it on a daily basis.
employees - answerhired by the company perform the actual operational work.
Agency problems - answerdeveloped when the interests of the shareholders were not
aligned with the interests of the manager, and the manager simply a hired agent with
the responsibility of representing the owners' best interests began to pursue self-interest
instead of the owners' best interests.
Outside directors - answerindependent from the firm
inside directors - answerhave some tie to the firm.
Issues with compensation - answerthe extent to which CEO pay is tied to firm
performance and the overall size of the CEO pay.
Backdating - answerallows the recipient to purchase stock at yesterday's price, resulting
in immediate wealth increase.
