Corporate Governance Overview

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What is a corporation?

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A corporation is a distinct legal entity, separate from its owner or owners, with shareholders who own stakes determined by the number of stocks or shares they hold.

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What is limited liability in the context of corporations?

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Limited liability means shareholders are not personally responsible for the company's debts; their financial risk is limited to their investment.

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What is the role of the Board of Directors (BOD) in a corporation?

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The BOD is responsible for overseeing the corporation's management, electing directors, and ensuring the company operates according to its business plan.

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What are the two main models of corporate governance?

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The shareholder model, which prioritizes maximizing shareholder value, and the stakeholder model, which considers the interests of a wider range of stakeholders.

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What are the key responsibilities of Senior Management?

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Senior Management is responsible for reporting to the BOD, implementing strategic plans, managing risks, and ensuring accurate reporting.

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What is the Duty of Care for BOD members?

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The Duty of Care requires directors to manage corporate assets with the same diligence as their personal assets, ensuring decisions are well-informed.

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What is the Duty of Loyalty for BOD members?

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The Duty of Loyalty mandates that directors act in the best interest of the corporation, prioritizing it over personal interests.

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What are the rights of shareholders?

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Shareholders have the right to receive information, vote in elections, submit proposals, take action against wrongdoings, and attend shareholders' meetings.

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What is Stakeholder Theory?

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Stakeholder Theory posits that a company's purpose extends beyond serving shareholders to include the interests of all stakeholders, balancing profit with societal values.

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What does Transaction Cost Theory address?

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Transaction Cost Theory examines the governance issues and costs that arise as a firm grows, necessitating structures to monitor behavior and safeguard assets.