haven’t started to memorize any bit of corporate goverance, don’t where to start. any suggestion?
Hey Kate: You should just skip through this Reading - here is an overview to help you out… I don’t think this wont be a huge portion of the test but every point helps. Regards, D_M (1) Know Moral Hazard List -Insufficient Effort -Self Dealing -Risky Investments -Entrenchment Strategies (2) Dysfunctional Corp Governance: (LIST OF ITEMS) (3) Managerial Incentives (Explicit: Salary, Bonus, Stock / Implicit: Fired, Inability to Raise Capital, Change in BoD, Loss of Control) Explicit and Implicit are more substitutes than compliments (4) Monitoring (Active (forward looking) vs Speculative (backward looking) (5) Impact of Product Market Competition (6) Board of Directors (Issues: Lack of independence / attention, incentives and AVOIDANCE of conflict (7) Know list of items to improve BOD (Cadbury Report summary) (8) Formal Control (51% stake) vs Real Control (10% stake but persuade other shareholders) (9) Patterns of Ownership - non-Anglo countries more dominated by large shareholders / crossholdings (Companies owning Companies) (10) Issues with Active Monitoring (Who monitors the monitor? / Institutional investors ST therefore no incentive to get involved / differences in Stakeholder objectives (11) Debt as an Incentive Mechanism: takes cash out of the firm to limit risky investments however causes more prob of bankruptcy / ties up future cash flows (esp during ‘SHOCKS’) (12) Shareholder society vs Stakeholder - - many stakeholders (suppliers, community, customers, etc) - stakeholder society should not be dismissed but should be contractually based (eg Covenants in Debt Instruments or Severance for Employees) ALSO, TooOld4This came up with this - its pretty good for list memorization. LOS 33.c Ford Motor Co. can improve Board oversight – they make CARS in MICH. Chairman is indep. Advisors ok Retirement age Self-evaluation Meetings w/o management Independent majority Compensation using equity Holdings of equity required
I thought I read that basic salary was not an incentive at all. Explicit and implicit incentives can be complements when the manager is in a weak position.
Basic Salary might be eliminated since most of the risk taking is based on the value of the options/stock (LT focus) and they bonus payout (ST focus), however, given the high levels of base pay, which are somewhat fixed over time, and they do get adjust in relation to performance so they could have an explicit impact. When the manager is in a weak position, the threat of losing his/her job, control etc are greater than the effects of explicit incentives. When a manager is confident (v4 p192 second paragraph) they are willing to trade off for more reward versus an increased turnover probability. Last line is interesting in that section - the sample showed that CEOs with the greatest explicit incentives faced less secure jobs.
damn another thing i need to review
Rudeboi - odds are - this level of detail wont be on it - and if there is anything related to Corp Gov - its going to be a few points - just go through the list above as you skim the chapter and i think you’ll be fine. 20-30 min review on this should be sufficient.
I doubt there will be a vignette on this, it will probably be mixed in with ethics or another vignette as 1 or 2 MC questions like it was on L1, dont remember for L2.
I would love to have an item set on this material.
Dear D_M Thanks very much for the valuable info. I’m gonna start this section tonight… >_