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What is "corporate governance? What are its three key elements, and how can it be improved? Crown w aane We are the by is Who tempathe polythe example of the wall when the edhe them to the old the more per te the of the them the bed Bicalho exposed that Sun canal y, and when the are dhe oly Erd by marco AG Let's now is the com-corpore and comment- that are critical to the proces LO 1-2 THE ROLE OF CORPORATE GOVERNANCE AND STAKEHOLDER MANAGEMENT Most be enterprises that the few dare people are oranized as con pais As you call fross your finance cases, the purpose of corporation is to ce the return to the owner shareholders) Thus, we mayas: Whois mally responsible for this pop Robert Monics and Neil Minow provide a se ful det of the relationship among urious participants in determine the direction and performance of corporation. The primary participants are (1) the shoulders (2) the management led by the chief executive officer), and the board of director. This relationship is thered in Exhibit 1.4 corporate pe EXHIBIT 1.4 The eye of Corpore Governance Management che Shareholders Board of Director led by the MISSGC ANALYSS The board of directors (BOD) are the best pets of the shareholders charged with casting that there and motives of management and with those of the owne shareholders in many cases, the BOD is dit in full Its purpose. For example, Intel Corporate antrofe sor chip practices sound sonce. It BOD is that it members are independentismes of the activement and do me have close pecesties to top so that they can provide peper sight it has explicit guidelines on the selection of director como i li provides detailed procedures formalios ofreciend there's top officers. Such guidelines to care that meat is acting in the best interests of shareholders Recently, there has been mach critics well as cynici by both the mesa press about the poor job that and the BD of corporate doing. We only have to look at the scandals at firsch as Arthur Andersen, Best Buy Olympus Em Volkand Wells Fargo Suchmaschinen the publice's trust in corporation. For cumple con to the 2014 CNBC Marsteller Corporation Perception indicate albany of 25.000 doly 53 percent of the public in developed markets hastable view of corporation Forte percent felt corporations have much in one the power than half of the US. public and strong and influential corporation and these ing innovation and growth and only percent of the public in the lined States says CORDO tate CEOs are among the most respected in society Perhaps part of the responsibility- om-bes with bounds of directors who are not delivering on their core mission providing strong and strategic support for management's efforts to create long term values recent study ty McKinsey & Cool 34 percent of 772 directors agreed that the board on which they had fully comprended their firm's strategies. And only 22 percent claimed the bands were completely we of how their firms created value. Finally, a mere 16 percent claimed their bounds had a strong understanding of the dynamics of their firms industrie One area in which public anger is most pronounced is the centre competion of the top executives of well-known firms. It is now clear that much of the bonus pay awarded to executives on Wall Street in the past was richly undeserved. Case in point 2011 was poor year for financial stocks 35 of the 50 largest financial company stock fell that year. The sector lost 17 percent compared to flat performance for the Standard & Poor's 500. How ever even as the sector struggled, the average pay of finance company CEOsmose 20.4 percent For example, JPMorgan CEO Jamie Dimon was the highest paid baker with $23.1 million in compensation, an Il percent increase from the previous year. The firm's shareholders didn't do as well-the stock fell 20 percent." Of course, executive pay is not restricted to financial institutions. A study released in 2016 entitled "The 100 Most Overpaid CEOs addressed what it viewed as the fundamental disconnect between CEO pay and performance. It found that CEO pay grew 997 percent over the most recent 36-year period rate that outpaced the growth in the cost of living, the productivity of the economy, and the stock market. The lead author, Rosanna Weaver, argues that the latter point disproves the claim that the growth in CEO pay reflects the performance of the company. the value of its stock, or the ability of the CEO to do any thing but disproportionately raise the amount of his pay." Clearly, there is a strong need for improved corporate governance, and we will address this topic in Chapter 9." We focus on three important mechanisms to ensure effective cor- porate governance an effective and engaged board of directors, shareholder activism, and proper managerial rewards and incentives. In addition to these internal controls, a key role is played by various external control mechanisms. These include the coditors, banks, ana lysts, an active financial press, and the threat of hostile takeovers CHAPTER 1STRATEGIC MANAGEMENT 11 Alternative Perspectives of Stakeholder Management Generationem returns for the shareholders in the primary of publicly held cortion. As noted by former Chrysler ve chairman Robert L. "We are here to were the same create anhidered the only persones the company is the person who puido y for it Despite the primacy of greeting shareholder managers who focus otely on the Interests of the owner of the business will be made por decisions that leads to ed to For example, decis sachlafs to increase pro enorines de son of the women to and in pero supplies to lower prices can the firm in the long run Sach action would to get so as alted employees. Increased metal sight and fine and suppliers Charly in this, there are other then, e) who motel accoon the stream processer can be defined as an individual or group inside or outside the company that has and can incarication's performance Echtholder mal claimse the company provides a tomar holder the nature of their case the company Zero Sem? There are two oppings of the left The first one can be teme Here the wholders pete for the nation's the ofendidoop is the of other individual or group for comple, les was which do pero supplies wat higher prices for the inputs and more e delivery times ich dep cous comes want fast deliveries and high quality which die wp costs. the community at age was chart contributions which taken from company and so on. 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