BUSINESS GOVERNANCE & ETHICS

Prof. Carmen Sancho De las Alas-Pumariño

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What is business governance?
• Internal and external influence on internal management of a
business
• Primary stakeholders: directors and officers
• Internal Documents: Articles and Bylaws & Codes
• State Laws: Business Entity Law
• Federal Law: Compliance and Disclosure
Business governance
Who are the members of a corporation?

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Who are the members of a corporation?
• Shareholders- owners of the corporation
• Directors- high level management and decision making for the
corporation
• Officers (and their subordinates)- run the daily opeations of the
corporation
• Numerous other corporate stakeholders, such as vendors,
customers, other businesses, … that are not members of the
corporation
What is a closely-held corporation?

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What is a closely-held corporation?
• Owned and controlled by a small group of owners or shareholders
• Shareholders often elect themselves to serve as directors and
appoint themselves as others.
• Commonly a family –owned business
What is a closely-held corporation?

• Majority shareholders may have here fiduciary duties to exercise

04
What is a Private Company vs a Public
Company?
• A private company is a business whose ownership interest is not
openly sold to the public at large .
• Ownership is held and acquired via personal transactions with the
corporation or othr owners of the corporation.
• A public company, on the
?
other hand, s a business whose
ownership is openly treated in the market
• Ownership interest will be traede on a public stock exchange or in ‘over-
the counter’ transaction. .
What is the role and purpose of the corporation?

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What is the role and purpose of the
corporation?
• Governmental charter to allow individuals to carry on business
collectively as one.
• Allowed indiduals to have a beneficial interest without being
actively involved in business operations.
?
• That is, the corporate entity form allowed for the division of
ownership interest in a business activity.
• If allowed for the utilization of ouside capital fro investors (rather
than just capital from lender) to grow business operations
• Economic tool with numerous benefits: synergy, Taxation, …
• .
Role & Purpose of a Corporation
What is the Agency theory of corporate governance?

06
What is the Agency theory of corporate
governance?
• Agency theory posits that corporations act as agents of its
shareholders
• Directors are agents of corporate shareholders
• Entrust their resources? to the management of the directors and
officers of the corporation
• Agency principles (duties) apply to relationship
What is the Stakeholder theory of corporate governance?

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What is the Stakeholder theory of corporate
governance?
• The stakeholder theory of corporate governance focuses on the
effect of corporation on all identifiable stakeholders of the
corporation
• It looks further than the traditional members of the corporation
(Officers, directors and? Stakeholders)
• External Stakeholders are the shareholders, debt holders,
suppliers, customers and the community at large.
• Corporate stakeholders theory posits that the corporate activity
should take into consideration the interests of each stakeholder in
its governance process.
• External stakeholders such as creditors, auditors, suppliers,
government, agencies and the community a large also exert
influence.
Transparency requirements- The Annual Report

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Transparency requirements
*Company´s should ensure transparency and maintain a high level of Integrity
• Being objective and ethical becomes a must.
• Building simple and transparent processes driven by business needs of all
stakeholders
• The Annual Report thus becomes
?
an essential document by which companies
deliver a document providing information to all parties that best describes
their operations and financial conditions.
• Examples: [Link]
com/en/documentos/informe-financiero-anual/2021/ifa-2021-consolidated-
[Link]
[Link]
deloitte/Impact_Report_20_21_web.pdf
Shareholder vs. Stakeholder in corporate governance

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Shareholders vs. Stakeholders
• A Shareholder is any party ( individual, company or institution) that has
shares in a oublicly owned company.
• A Stakeholder is a broader category that refers to all parties with an interest
in a company´s success. Including clients, investors, shareholders and stock
markets
?

•
Shareholders vs. Stakeholders
Ø Varied interests
Ø Stock price valuation vs. Broader Success
Ø Short-term interest vs. Long-Term Interest
Ø KEY ASPECTS
ü Shareholders of a company are always stakeholders, but stakeholders are not necessarily shareholders.
ü Employees, company executives, and board? members are internal stakeholders because they have a direct relationship with the
company. Suppliers, distributors, or community members are types of external stakeholders.
ü Shareholders primarily focus on a company’s profitability and share price. Stakeholders generally care about a company’s overall
health.
ü Shareholders’ interest in a company can cease the minute they no longer own shares. Stakeholders, on the other hand, typically
have a more long-term interest in a company because their ties are more complex and not broken as easily.

Further information , check this article: [Link]