2/23/24,h12:15hAM CorporatehGovernancehTesthBank
Chapterh 1
Reviewh Questions
1. Whathishthehprimaryhgoalhofhcorporatehgovernance?
Tohcreatehahbalancehofhpower-
sharinghamonghshareholders,hdirectors,handh managementhtohenhancehsharehold
erhvaluehandhprotecththehinterestshofhotherh stakeholders.
2. Whathishthehprimaryhmissionhofhahpublichcompany?
Toh createh sustainableh andh enduringh shareholderh value.
3. Whathishthehrolehofhahcorporatehgovernancehgatekeeper?
Tohalignh management’shinterestshwithhthosehofhlong-
termhshareholdershandhtoh protecthinvestorshfromh misleadingh financialh informati
onhpublishedhinhpublich filings.
4. Corporatehgovernancehreformshandhbesthpracticeshrequirehthehestablishmenth
ofh whathfourhkeyhgatekeepershtohdealhwithhthehperceivedhagencyhproblemshof
asymmetrichinformationhbetweenhmanagementhandhinvestorshandhtohimprovehthe
h qualityhofhpublichfinancialhinformation?
(1)hIndependenthandhcompetenthboardhofhdirectors;h(2)hindependenthandhcompete
nth externalhauditor;h(3)hobjectivehandhcompetenthlegalhcounsel;handh(4)hobjective
handh competenthfinancialhadvisorshandhinvestmenthbankers.
5. Howhdoeshanheffectivehcorporatehgovernancehstructurehimprovehinvest
orh confidence?
Ithensureshcorporatehaccountability,henhanceshthehreliabilityhandhqualityhofhpubl
ich financialh information,handhenhanceshthehintegrityhandhefficiencyhofhthehcapit
alh market.
6. Whathishthehprimaryhintenthofhcorporatehgovernancehreforms?
Tohimprove:
Theh reliability,h integrity,h transparency,h andh qualityh ofh financialh reports.
Theh effectivenessh ofh internalh controlsh overh financialh reportingh andh relatedh risk
managementh assessment.
Theh credibilityh ofh theh externalh audith function.
Theh independenceh andh objectivityh ofh otherh gatekeepersh suchh ash legalh counsel
andh financialh analysts.
Shareholderh monitoringh andh democracy.
7. Whathbenefitsh arehobtainedhbyhthehproperhimplementationh ofhSOX?
Improvedh corporateh governance.
Enhancedhquality,hreliability,handhtransparencyhofhfinancialh information.h Im
provedhaudithobjectivityhandheffectivenesshinhlendinghcredibilityhtoh publish
edhfinancialhstatements.
8. Howhcanhthehboardhofhdirectorshinfluencehthehcorporatehculture?
Seth anh appropriateh “toneh ath theh top,”h promotingh personalh integrityh and
professionalh accountability.
Rewardh high-qualityh andh ethicalh performance.
Disciplineh poorh performanceh andh unethicalh behavior.
Maintainhthehcompany’shhighhreputationhandhstaturehinhthehindustryhandhthe
h businesshcommunity.
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9. Whathishthehintentionhofhorganizationalhcodeshofhbusinesshethicshandhconduct
?h Codeshofhbusinesshethicshandhconductharehintendedhtohgovernhbehavior,hbut
htheyh cannothsubstitutehforh moralhprinciples,hculture,handhcharacter.
10. Corporatehgovernancehdependsh onhwhaththreehpracticeshtohbeheffective?
Complianceh withh stateh andh federalh statutes.
Complianceh withh listingh standards.
Implementationhofhbesthpracticeshsuggestedhbyhinvestorhactivistshandh profes
sionalhorganizations.
11. Whyhishthereh nohuniversalhdefinitionh ofhcorporatehgovernance?
Thehscopehcovershahvastharrayhofhdistinctheconomichphenomenahandhithishoften
h describedhfromhahshareholder’shview.
12. HowhhavehSOXhprovisions,hSEC-
relatedhrules,handhlistinghstandardshinfluencedh thehcorporatehgovernancehstructu
re?
Auditors,h analysts,h andh legalh counselh whoh wereh noth traditionallyh considered
componentshofhcorporatehgovernanceharehnowhbroughthintohthehrealmhofh in
ternalhgovernancehashgatekeepers.
Theh legalh statush andh fiduciaryh dutyh ofh companyh directorsh andh officersh have
beenh moreh clearlyh definedh andh significantlyh enhanced.
Certainh aspectsh ofh stateh corporateh lawh wereh preemptedh andh federalized.
13. WhathbusinesshentitiesharehcurrentlyhaffectedhbyhSOX?
SOXhapplieshequallyhtohandhishintendedhtohbenefithallhpubliclyhtradedhcompanie
s,h althoughh manyhprovisionsharehalsohrelevanthtohprivatehandhnot-for-
profith organizations.
14. Whathishthehdifferencehbetweenhahshareholderhandhahstakeholder?
Shareholdersharehindividualshorhgroupshwhoharehtraditionallyhthehprimaryhusersho
fh thehcompany’shfinancialhreports,hwhichhreflecththehcompany’shfinancialhconditi
onh andhthehresultshofhoperations.hTheyhalsohhavehgreaterhrightshofhinvolvementh
withh decisionshandh monitoringhofhahcompany.hStakeholdersharehindividualshorhg
roups,h includinghshareholders,hcreditors,hcustomers,hemployees,hsuppliers,hcomp
etitors,h governmentalhentities,henvironmentalhagencies,handhsocialhactivists,hwho
haffecththeh company’shstrategichdecisions,hoperations,handhperformance.
15. Whatharehthehprimaryhdifferenceshbetweenhfinancialhreportinghandhcorpora
teh accountabilityhreporting?
FinancialhReporting
CorporatehAccountabilityhReporting
h Legalhrequirement. Nothahlegalhrequirement.
Preparedh basedh onh ah seth ofh generall Nohsinglehsethofhstandardshwhichhar
y eh widelyhagreedhupon.
acceptedhaccountinghprincipleshan
dh standards.
Audith ish required. Noh mandatoryh assuranceh report.
Guidelineshspecifyhthehtypehan Nohguidelineshspecifyhthehtypehan
dh levelhofhassurance. dh levelhofhassurance.
Preparedh primarilyh forh shareholders. Providedh toh ah broadh rangeh of
stakeholdershwithhdifferenthandh o
ftenhcompetingh interests.
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16. Whathishthehrelationshiphbetweenhcorporationshandhstakeholders,handhwhathish
theh corporations’hrolehinhthathrelationship?
Therehishahcontractualhrelationshiphbetweenhcorporationshandhtheirhstakeholders
.h Thehcorporations’hrolehishtohcreatehandhprotecththehvaluehofhthathcontract.
17. Whathishthehprimaryhdifferencehbetweenhthehfirsthandhsecondhtierhofh
theh stakeholderhhierarchy?
Thehfirsthtierhishthehshareholdershandhownershofhthehcorporation.hTheyharehabsen
thinh thehdailyhoperations.hThehsecondhtierhconsistshofhthosehinvolvedhinhthehoper
ationsh ofhthehcorporations.
19.hTohwhomhareh corporationshaccountable?
Corporationsharehaccountablehtohallhinternalhandhexternalhstakeholdershinhah cor
poration.hThishcanhleadhhoweverhtohagencyhproblems.
19. Explainhthehrelationshiphbetweenhcorporationshandhthehcapitalhmarketshinht
heh UnitedhStates.
Thehcapitalh marketshprovidehfundshtohcorporationshandhthush monitorhtheirh corp
oratehgovernancehtohalignhthehinterestshofhmanagementhwithhthehinterestshofh in
vestors.hOnhthehotherhhand,hcorporationshprovidehrelevanthfinancialh information
h tohthehcapitalh markets,hwhichhfacilitateshthehefficiencyhandhliquidityhofhthehca
pitalh markets.
Discussionh Questions
1. Inhyourhownhwords,hbrieflyhexplainhthehconceptshofhvaluehcreationhandhva
lueh protection.
Thehvaluehcreationh goalhofhcorporatehgovernancehfocuseshonhshareholderhvalue
h creationhandhenhancemenththroughhthehdevelopmenthofhlong-
termhstrategieshtoh ensurehsustainablehandhenduringhoperationalhperformance.hT
hehvaluehprotectionh goalhofhcorporatehgovernancehconcentrateshonhthehaccount
abilityhofhthehwayhah companyh ish managedhandhmonitoredhtohprotecththehinteres
tshofhshareholdershandh otherhstakeholders.hThesehtwohconceptshshouldhbehconsi
deredhwithinheveryh company.
2. HashSarbanes-
Oxleyhthushfarhhadhahpositive,hnegative,horhneutralheffecthonhpublich companie
s?hDefendhyourhanswer.
ThehSarbanes-
Oxleyh Acthhashhadhanhoverallhpositiveheffecthonhpublichcompanies.h Withinhtheh
areashofhfinancialhreportinghandhcorporatehaccountability,hSOXhhash encouragedh
managementhtoheffectivelyh formulatehandhimplementhahstronghsystemh ofhinterna
lhcontrolhandh financialhreportinghsuchhthatherrorshandhfraudharehmateriallyh preve
nted,h detected,h andh corrected.h SOXh hash increasedh theh costh ofh complianceh wi
thh federalhregulations,hparticularlyhwithhSectionh404,hbuththesehcostshareh outwei
ghedhbyhthehbenefitshofhrobusth financialhreporting,hincreasedhscrutinyhofh manag
ement’shdealingshwithinhthehorganization,handhincreasedhinvestorh confidence.h
Additionally,h measuresharehbeinghtakenhtohdecreasehthehcostshofhSOX,h suchhash
proposedhAuditinghStandardhNo.h5hbyhthehPCAOB.
3. DiscusshthehfollowinghquotehfromhLorihA.hRichards,hthehSEC’shDirectorh ofhthe
OfficehofhCompliancehInspectionshandh Examinations:
“It’shnothenoughhtohhavehpolicies.hIt’shnothenoughhtohhavehprocedu
res.h It’shnothenoughhtohhavehgoodhintentions.hAllhofhthesehcanhhelp
.hButhto
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behsuccessful,hcompliancehmusthbehanhembeddedhparthofhyourhfirm
’sh culture.”
Inhadditionhtohpolicieshandhprocedureshdesignedhtohpromoteheffectivehcorporateh
governance,horganizationsh musthcreatehandhreinforcehahconsistent,hpositiveh corp
oratehculturehwhichhcomplementshsuchh measures.hMembershofhtheh organization,
hstartinghwithhthehexecutives,hmusthleadhbyhexamplehinhtheirheffortshtoh encourag
ehothershtohcomplyhwithhapplicablehpolicieshandhprocedures.hThehnormsh andhval
ueshembracedhbyhthehorganizationhashitshcorporatehculturehshouldhbeh consistenth
withhitshpolicieshandhprocedures;hotherwisehbehaviorhinconsistenthwithh thosehpol
icieshandhprocedureshwillhresult.hCompliancehjusthforhthehsakehofh compliancehan
dhthehdevelopmenthofhah“checkhbox”h mentalityhishnothenough.
Corporationshshouldhcreatehanhethicalhculturehthathencourageshallhcorporateh gov
ernancehparticipantshincludinghdirectors,hofficers,hauditors,hfinancialhadvisors,h e
mployees,handhothershtohdohthehrighththinghandhunderstandhthaththishishvitalhtohth
eh company’shsustainableh financialhperformance.
4. WhatharehthehbenefitshofhanhMBLhapproach?
MBLhreportinghforceshorganizationshtohconsiderhtheheffectshofh manyhaspectshof
h theirhoperationshinhadditionhtohfinancialhreporting,hsuchhashenvironmental,hsoc
ial,h ethical,handhgovernancehperformance.hSincehtheheffectshofhorganizationshin
htheseh areashcanhbehsignificant,h manyhstakeholdershbenefith fromhthehfacththath
MBLh reportingh makeshorganizationshaccountablehforhtheheffectshofhtheirhoperat
ionshinh manyhdifferenthareas.
5. Whoharehfirst-tier,hsecond-tier,handhthird-
tierhstakeholders,handhwhyharehtheyh significanthtohthehorganization?
Thehfirsthtierhofhstakeholderhhierarchyhconsistshofhinvestorshorhshareholdershwho
h ownhthehcompany.hShareholdersharehthehprimaryhstakeholders—
withouththemhtheh companyhwouldhnothexist.hManyharguehthaththehprimaryhpurp
osehandhresponsibilityh ofhthehcompanyhishtoh maximizehshareholderhwealthhbyhcr
eatinghsustainablehandh enduringhshareholderhvalue.hThus,hthehcompany’shcorpor
atehgovernancehstructureh shouldhreducehthehagencyhcostshraisedhfromhthehsepara
tionhofhownershiphandh controlhbyhaligninghthehinterestshofh managementhwithhth
osehofhthehshareholders.
Lendershandhcreditorsharehconsideredhashthehsecond-
tierhstakeholdershinhtheh company.hDebtholdershmayhhavehsignificanthpowerhinh
situationshinhwhichhtheh organizationhishfundedhlargelyhbyhdebt.hThehthirdhtierh
ofhstakeholdershconsistshofh employees,hsuppliers,hgovernments,hcustomers,hand
hsociety.hThishtierhshouldhbeh importanthtohthehorganization,hashthehcollectiveha
ctionshofhsuchhahlargehbasehofh stakeholdershcouldhsignificantlyhaffecththehorga
nization.
6. Whathishthehsignificancehofhqualityhfinancialhstatementshandhoth
erh financialhreportinghinformation?
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Chapterh 1
Reviewh Questions
1. Whathishthehprimaryhgoalhofhcorporatehgovernance?
Tohcreatehahbalancehofhpower-
sharinghamonghshareholders,hdirectors,handh managementhtohenhancehsharehold
erhvaluehandhprotecththehinterestshofhotherh stakeholders.
2. Whathishthehprimaryhmissionhofhahpublichcompany?
Toh createh sustainableh andh enduringh shareholderh value.
3. Whathishthehrolehofhahcorporatehgovernancehgatekeeper?
Tohalignh management’shinterestshwithhthosehofhlong-
termhshareholdershandhtoh protecthinvestorshfromh misleadingh financialh informati
onhpublishedhinhpublich filings.
4. Corporatehgovernancehreformshandhbesthpracticeshrequirehthehestablishmenth
ofh whathfourhkeyhgatekeepershtohdealhwithhthehperceivedhagencyhproblemshof
asymmetrichinformationhbetweenhmanagementhandhinvestorshandhtohimprovehthe
h qualityhofhpublichfinancialhinformation?
(1)hIndependenthandhcompetenthboardhofhdirectors;h(2)hindependenthandhcompete
nth externalhauditor;h(3)hobjectivehandhcompetenthlegalhcounsel;handh(4)hobjective
handh competenthfinancialhadvisorshandhinvestmenthbankers.
5. Howhdoeshanheffectivehcorporatehgovernancehstructurehimprovehinvest
orh confidence?
Ithensureshcorporatehaccountability,henhanceshthehreliabilityhandhqualityhofhpubl
ich financialh information,handhenhanceshthehintegrityhandhefficiencyhofhthehcapit
alh market.
6. Whathishthehprimaryhintenthofhcorporatehgovernancehreforms?
Tohimprove:
Theh reliability,h integrity,h transparency,h andh qualityh ofh financialh reports.
Theh effectivenessh ofh internalh controlsh overh financialh reportingh andh relatedh risk
managementh assessment.
Theh credibilityh ofh theh externalh audith function.
Theh independenceh andh objectivityh ofh otherh gatekeepersh suchh ash legalh counsel
andh financialh analysts.
Shareholderh monitoringh andh democracy.
7. Whathbenefitsh arehobtainedhbyhthehproperhimplementationh ofhSOX?
Improvedh corporateh governance.
Enhancedhquality,hreliability,handhtransparencyhofhfinancialh information.h Im
provedhaudithobjectivityhandheffectivenesshinhlendinghcredibilityhtoh publish
edhfinancialhstatements.
8. Howhcanhthehboardhofhdirectorshinfluencehthehcorporatehculture?
Seth anh appropriateh “toneh ath theh top,”h promotingh personalh integrityh and
professionalh accountability.
Rewardh high-qualityh andh ethicalh performance.
Disciplineh poorh performanceh andh unethicalh behavior.
Maintainhthehcompany’shhighhreputationhandhstaturehinhthehindustryhandhthe
h businesshcommunity.
1
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9. Whathishthehintentionhofhorganizationalhcodeshofhbusinesshethicshandhconduct
?h Codeshofhbusinesshethicshandhconductharehintendedhtohgovernhbehavior,hbut
htheyh cannothsubstitutehforh moralhprinciples,hculture,handhcharacter.
10. Corporatehgovernancehdependsh onhwhaththreehpracticeshtohbeheffective?
Complianceh withh stateh andh federalh statutes.
Complianceh withh listingh standards.
Implementationhofhbesthpracticeshsuggestedhbyhinvestorhactivistshandh profes
sionalhorganizations.
11. Whyhishthereh nohuniversalhdefinitionh ofhcorporatehgovernance?
Thehscopehcovershahvastharrayhofhdistinctheconomichphenomenahandhithishoften
h describedhfromhahshareholder’shview.
12. HowhhavehSOXhprovisions,hSEC-
relatedhrules,handhlistinghstandardshinfluencedh thehcorporatehgovernancehstructu
re?
Auditors,h analysts,h andh legalh counselh whoh wereh noth traditionallyh considered
componentshofhcorporatehgovernanceharehnowhbroughthintohthehrealmhofh in
ternalhgovernancehashgatekeepers.
Theh legalh statush andh fiduciaryh dutyh ofh companyh directorsh andh officersh have
beenh moreh clearlyh definedh andh significantlyh enhanced.
Certainh aspectsh ofh stateh corporateh lawh wereh preemptedh andh federalized.
13. WhathbusinesshentitiesharehcurrentlyhaffectedhbyhSOX?
SOXhapplieshequallyhtohandhishintendedhtohbenefithallhpubliclyhtradedhcompanie
s,h althoughh manyhprovisionsharehalsohrelevanthtohprivatehandhnot-for-
profith organizations.
14. Whathishthehdifferencehbetweenhahshareholderhandhahstakeholder?
Shareholdersharehindividualshorhgroupshwhoharehtraditionallyhthehprimaryhusersho
fh thehcompany’shfinancialhreports,hwhichhreflecththehcompany’shfinancialhconditi
onh andhthehresultshofhoperations.hTheyhalsohhavehgreaterhrightshofhinvolvementh
withh decisionshandh monitoringhofhahcompany.hStakeholdersharehindividualshorhg
roups,h includinghshareholders,hcreditors,hcustomers,hemployees,hsuppliers,hcomp
etitors,h governmentalhentities,henvironmentalhagencies,handhsocialhactivists,hwho
haffecththeh company’shstrategichdecisions,hoperations,handhperformance.
15. Whatharehthehprimaryhdifferenceshbetweenhfinancialhreportinghandhcorpora
teh accountabilityhreporting?
FinancialhReporting
CorporatehAccountabilityhReporting
h Legalhrequirement. Nothahlegalhrequirement.
Preparedh basedh onh ah seth ofh generall Nohsinglehsethofhstandardshwhichhar
y eh widelyhagreedhupon.
acceptedhaccountinghprincipleshan
dh standards.
Audith ish required. Noh mandatoryh assuranceh report.
Guidelineshspecifyhthehtypehan Nohguidelineshspecifyhthehtypehan
dh levelhofhassurance. dh levelhofhassurance.
Preparedh primarilyh forh shareholders. Providedh toh ah broadh rangeh of
stakeholdershwithhdifferenthandh o
ftenhcompetingh interests.
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16. Whathishthehrelationshiphbetweenhcorporationshandhstakeholders,handhwhathish
theh corporations’hrolehinhthathrelationship?
Therehishahcontractualhrelationshiphbetweenhcorporationshandhtheirhstakeholders
.h Thehcorporations’hrolehishtohcreatehandhprotecththehvaluehofhthathcontract.
17. Whathishthehprimaryhdifferencehbetweenhthehfirsthandhsecondhtierhofh
theh stakeholderhhierarchy?
Thehfirsthtierhishthehshareholdershandhownershofhthehcorporation.hTheyharehabsen
thinh thehdailyhoperations.hThehsecondhtierhconsistshofhthosehinvolvedhinhthehoper
ationsh ofhthehcorporations.
19.hTohwhomhareh corporationshaccountable?
Corporationsharehaccountablehtohallhinternalhandhexternalhstakeholdershinhah cor
poration.hThishcanhleadhhoweverhtohagencyhproblems.
19. Explainhthehrelationshiphbetweenhcorporationshandhthehcapitalhmarketshinht
heh UnitedhStates.
Thehcapitalh marketshprovidehfundshtohcorporationshandhthush monitorhtheirh corp
oratehgovernancehtohalignhthehinterestshofhmanagementhwithhthehinterestshofh in
vestors.hOnhthehotherhhand,hcorporationshprovidehrelevanthfinancialh information
h tohthehcapitalh markets,hwhichhfacilitateshthehefficiencyhandhliquidityhofhthehca
pitalh markets.
Discussionh Questions
1. Inhyourhownhwords,hbrieflyhexplainhthehconceptshofhvaluehcreationhandhva
lueh protection.
Thehvaluehcreationh goalhofhcorporatehgovernancehfocuseshonhshareholderhvalue
h creationhandhenhancemenththroughhthehdevelopmenthofhlong-
termhstrategieshtoh ensurehsustainablehandhenduringhoperationalhperformance.hT
hehvaluehprotectionh goalhofhcorporatehgovernancehconcentrateshonhthehaccount
abilityhofhthehwayhah companyh ish managedhandhmonitoredhtohprotecththehinteres
tshofhshareholdershandh otherhstakeholders.hThesehtwohconceptshshouldhbehconsi
deredhwithinheveryh company.
2. HashSarbanes-
Oxleyhthushfarhhadhahpositive,hnegative,horhneutralheffecthonhpublich companie
s?hDefendhyourhanswer.
ThehSarbanes-
Oxleyh Acthhashhadhanhoverallhpositiveheffecthonhpublichcompanies.h Withinhtheh
areashofhfinancialhreportinghandhcorporatehaccountability,hSOXhhash encouragedh
managementhtoheffectivelyh formulatehandhimplementhahstronghsystemh ofhinterna
lhcontrolhandh financialhreportinghsuchhthatherrorshandhfraudharehmateriallyh preve
nted,h detected,h andh corrected.h SOXh hash increasedh theh costh ofh complianceh wi
thh federalhregulations,hparticularlyhwithhSectionh404,hbuththesehcostshareh outwei
ghedhbyhthehbenefitshofhrobusth financialhreporting,hincreasedhscrutinyhofh manag
ement’shdealingshwithinhthehorganization,handhincreasedhinvestorh confidence.h
Additionally,h measuresharehbeinghtakenhtohdecreasehthehcostshofhSOX,h suchhash
proposedhAuditinghStandardhNo.h5hbyhthehPCAOB.
3. DiscusshthehfollowinghquotehfromhLorihA.hRichards,hthehSEC’shDirectorh ofhthe
OfficehofhCompliancehInspectionshandh Examinations:
“It’shnothenoughhtohhavehpolicies.hIt’shnothenoughhtohhavehprocedu
res.h It’shnothenoughhtohhavehgoodhintentions.hAllhofhthesehcanhhelp
.hButhto
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behsuccessful,hcompliancehmusthbehanhembeddedhparthofhyourhfirm
’sh culture.”
Inhadditionhtohpolicieshandhprocedureshdesignedhtohpromoteheffectivehcorporateh
governance,horganizationsh musthcreatehandhreinforcehahconsistent,hpositiveh corp
oratehculturehwhichhcomplementshsuchh measures.hMembershofhtheh organization,
hstartinghwithhthehexecutives,hmusthleadhbyhexamplehinhtheirheffortshtoh encourag
ehothershtohcomplyhwithhapplicablehpolicieshandhprocedures.hThehnormsh andhval
ueshembracedhbyhthehorganizationhashitshcorporatehculturehshouldhbeh consistenth
withhitshpolicieshandhprocedures;hotherwisehbehaviorhinconsistenthwithh thosehpol
icieshandhprocedureshwillhresult.hCompliancehjusthforhthehsakehofh compliancehan
dhthehdevelopmenthofhah“checkhbox”h mentalityhishnothenough.
Corporationshshouldhcreatehanhethicalhculturehthathencourageshallhcorporateh gov
ernancehparticipantshincludinghdirectors,hofficers,hauditors,hfinancialhadvisors,h e
mployees,handhothershtohdohthehrighththinghandhunderstandhthaththishishvitalhtohth
eh company’shsustainableh financialhperformance.
4. WhatharehthehbenefitshofhanhMBLhapproach?
MBLhreportinghforceshorganizationshtohconsiderhtheheffectshofh manyhaspectshof
h theirhoperationshinhadditionhtohfinancialhreporting,hsuchhashenvironmental,hsoc
ial,h ethical,handhgovernancehperformance.hSincehtheheffectshofhorganizationshin
htheseh areashcanhbehsignificant,h manyhstakeholdershbenefith fromhthehfacththath
MBLh reportingh makeshorganizationshaccountablehforhtheheffectshofhtheirhoperat
ionshinh manyhdifferenthareas.
5. Whoharehfirst-tier,hsecond-tier,handhthird-
tierhstakeholders,handhwhyharehtheyh significanthtohthehorganization?
Thehfirsthtierhofhstakeholderhhierarchyhconsistshofhinvestorshorhshareholdershwho
h ownhthehcompany.hShareholdersharehthehprimaryhstakeholders—
withouththemhtheh companyhwouldhnothexist.hManyharguehthaththehprimaryhpurp
osehandhresponsibilityh ofhthehcompanyhishtoh maximizehshareholderhwealthhbyhcr
eatinghsustainablehandh enduringhshareholderhvalue.hThus,hthehcompany’shcorpor
atehgovernancehstructureh shouldhreducehthehagencyhcostshraisedhfromhthehsepara
tionhofhownershiphandh controlhbyhaligninghthehinterestshofh managementhwithhth
osehofhthehshareholders.
Lendershandhcreditorsharehconsideredhashthehsecond-
tierhstakeholdershinhtheh company.hDebtholdershmayhhavehsignificanthpowerhinh
situationshinhwhichhtheh organizationhishfundedhlargelyhbyhdebt.hThehthirdhtierh
ofhstakeholdershconsistshofh employees,hsuppliers,hgovernments,hcustomers,hand
hsociety.hThishtierhshouldhbeh importanthtohthehorganization,hashthehcollectiveha
ctionshofhsuchhahlargehbasehofh stakeholdershcouldhsignificantlyhaffecththehorga
nization.
6. Whathishthehsignificancehofhqualityhfinancialhstatementshandhoth
erh financialhreportinghinformation?
4
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