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2025 R22 Module 22.1

The document discusses corporate governance, focusing on principal-agent relationships where shareholders (principals) hire directors and managers (agents) to run a company, highlighting potential conflicts of interest. It covers stakeholder management, including relationships with shareholders, creditors, employees, and other parties, as well as the roles of boards of directors and associated committees. Additionally, it outlines the risks of poor governance and the benefits of effective stakeholder management, such as operational efficiency and reduced legal risks.

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3 views4 pages

2025 R22 Module 22.1

The document discusses corporate governance, focusing on principal-agent relationships where shareholders (principals) hire directors and managers (agents) to run a company, highlighting potential conflicts of interest. It covers stakeholder management, including relationships with shareholders, creditors, employees, and other parties, as well as the roles of boards of directors and associated committees. Additionally, it outlines the risks of poor governance and the benefits of effective stakeholder management, such as operational efficiency and reduced legal risks.

Uploaded by

ahmedmohamed889889
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Corporate Issuers

Corporate Governance

Corporate Governance

Principal-Agent Relationships
 An agent is hired to act in the interests of a principal.
 Shareholders (principals) employ directors and senior managers
(agents) to run a company.
 Conflicts may arise between the agents’ interests and
principals’ interests.
 Example: Directors and managers may prefer a lower risk level than
shareholders (who can better diversify).

© Kaplan, Inc. 1

1
Corporate Governance

Stakeholder Management
Relationship with shareholders
 Annual general meeting
 Extraordinary general meetings—special resolutions
 Proxy voting
 Majority: one vote per share for each board seat

 Cumulative: votes = shares × seats; may cast all votes for one

board candidate
 Activist shareholders
 Proxy contest
 Hostile takeover
© Kaplan, Inc. 2

Corporate Governance

Stakeholder Management
Relationship with creditors
 Bond indentures and covenants

 Collateral

 Financial institution trustees to monitor compliance with covenants

 Creditor committees (may be required in a bankruptcy)

© Kaplan, Inc. 3

2
Corporate Governance

Boards of Directors
Committees
 Audit
 Nominating/governance
 Nominations
 Compensation (remuneration)
 Others (industry specific)

© Kaplan, Inc. 4

Corporate Governance

Stakeholder Management
Relationships with employees, customers, suppliers, and
government
 Labor laws, employment contracts, unions

 Employee stock ownership plans

 Social media

 Contracts with suppliers

 Regulations, governance codes

© Kaplan, Inc. 5

3
Corporate Governance

Risks
 There are risks of poor governance/stakeholder management:
 Exploitation of weaker groups of shareholders
 Accounting fraud
 Suboptimal risk taking
 Related-party transactions
 Legal and reputational risks
 Default/bankruptcy

© Kaplan, Inc. 6

Corporate Governance

Benefits
 There are benefits of effective governance/stakeholder
management:
 Operational efficiency, higher profits
 Alignment of interests
 Reduced legal risks

© Kaplan, Inc. 7

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