Corporate IssuersModule 3 of 7

Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits

Concepts

Formulas

Decisions

Quiz Questions

Key Concepts

5 concepts covered in this module.

Principal-Agent Conflict

Managers (agents) may not always act in shareholders' (principals') best interest. Monitoring and incentive alignment needed.

Controlling vs Minority Shareholders

Controlling shareholders may extract private benefits at minority shareholders' expense. Tunneling, related-party transactions.

Board of Directors

Elected by shareholders to oversee management. Key: independence, diversity, separation of CEO/Chair roles.

Governance Mechanisms

Internal: board, audits, compensation design, codes of conduct. External: regulations, market for corporate control, shareholder activism.

Shareholder Activism

Proxy fights, shareholder proposals, engagement with management. Hedge fund activism, ESG-focused activism.

Decision Frameworks

1 decision frameworks to guide your analysis.

Good vs Poor governance signals?

Good: independent board, separate CEO/Chair, transparent disclosure, aligned incentives
Red flags: dual-class shares, related-party transactions, weak audit committee

Mind Map

Visual overview of how concepts connect in this module.

Corporate Governance

Conflicts

Manager vs shareholder

Controlling vs minority

Shareholder vs creditor

Internal Mechanisms

Board of directors

Audit committee

Compensation design

Codes of conduct

External Mechanisms

Regulation/laws

Market for corporate control

Shareholder activism

Media/reputation

Board Quality

Independence

Diversity

CEO/Chair separation

Meeting frequency

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