Board of Directors (cont’d)
uninvolved with day–to-day
operations, but who have a
relationship with the firm.
–Outsiders: individuals who are
independent of the firm’s day–to-day
operations and other relationships.
Classification on Board of Directors’ Members
Board of Directors (cont’d)
–Not vigilant enough in hiring and
monitoring CEO behavior
–Lack of agreement about the
number of and most appropriate
role of outside directors
Board of Directors (cont’d)
accounting control systems
–More formal processes to evaluate
the board’s performance
– Adopting a “lead director” role
–Changes in compensation of
directors.
Executive Compensation
•Forms of compensation
–Salaries, bonuses, long-term
performance incentives, stock
awards, stock options
Ownership
Concentration
Board of Directors
Executive Compensation (cont’d)
•Limits on the effectiveness of
executive compensation
Ownership
Concentration
Market for Corporate Control
•Individuals and firms buy or
take over undervalued firms
Ownership
Concentration
Market for Corporate Control (cont’d)
•Managerial defense tactics increase
the costs of mounting a takeover
Ownership
Concentration
Hostile Takeover Defense Strategies
•Germany
–Owner and manager are often the
same in private firms
International Corporate Governance
International Corporate Governance (cont’d)
Responsible for the functions of
direction and management
Responsible for appointing
members to the Vorstand
Responsible for appointing
members to the Aufsichtsrat
Vorstand
Aufsichtsrat
Union members
Shareholders
Germany: Two-tiered Board
International Corporate Governance (cont’d)
•Japan
International Corporate Governance (cont’d)
• Japan (cont’d)
International Corporate Governance (cont’d)
•China
–Corporate governance practices
International Corporate Governance (cont’d)
•Global Corporate Governance
Governance Mechanisms
and Ethical Behavior
It is important to serve the interests of
the firm’s multiple stakeholder groups!
most important stakeholder group.
•The focus of governance mechanisms is
on the control of managerial decisions to
assure shareholder interests.
•Interests of shareholders is served by the
Board of Directors.
Governance Mechanisms
and Ethical Behavior
©2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10–35
Product Market
Stakeholders
It is important to serve the interests of
the firm’s multiple stakeholder groups!
suppliers and host communities) and
organizational stakeholders may withdraw
their support of the firm if their needs are
not met, at least minimally.
Capital Market
Governance Mechanisms
and Ethical Behavior
©2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10–36
It is important to serve the interests of
the firm’s multiple stakeholder groups!
Capital Market