Introduction to CG

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Introduction to CG by Mind Map: Introduction to CG

1. Shareholder vs stakeholder model

1.1. Diff: primacy of interests of shareholders vs stakeholders & obligations of BOD to take into acc broader stakeholder grp

1.2. Focus: sustainability, environmental, social and governance (ESG)

1.3. 1. Shareholders vs Management (Type 1 agency problem): principal-agency problem 2. Controlling SS vs Minority SS (Type 2): problems with concentrated ownership 3. LT SS vs ST SS: LT prefers co to remain independent but ST prefer cash out in takeover 4. SS vs Creditors: SS willing to take higher risks for higher returns but creditors prefer no risk given fixed returns 5. SS vs other stakeholders: employee layoffs hurt employees but benefit SS

2. Internal CG mechanisms

2.1. BOD, SS, Auditors, IC & risk mgmt system, FR & disclosure, executive compensation system

3. What is CG? Definitions

3.1. Dealing with the allocation of powers of the co amongst SS, BOD, MGMT + other SS(like employers)

3.2. Risk gov& mgmgt is an important aspect

3.3. Right people at the top of the organisation setting the one

3.4. Enhancing LT SS value/ success of org

4. External CG mechanisms

4.1. legal & regulatory framework, pdt & factor mkt competition, managerial labour market, corp control marker, self-regulatory organisation, proxy advisory firms, CG rating firms, SS watchdog groups/CG activist, media, other intermediaries(analysts)

5. Ownership structures around the world

5.1. Insider vs Outsider (Anglo-Americal Model)

5.2. Insider ownership: concentrated ownership --> family/gov ownership Outsider: dispersed

5.3. Can be Hybrid too like family controlled and professionally managed or no substantial SS & professionally managed ( SGX)

5.4. Pyramid Ownership: Li Ka Shing a business group that consists of a set of enterprises or other entities and displays a top-down chain of control.

5.5. Dispersed ownership: Common in australia & japan

5.6. US: low managerial ownership, high individual and institutional ownership, activist investors increasing

5.7. UK: low managerial, lower individual and higher institutional than US --> Stewardship code

6. Problems with ownership structures

6.1. Diffused: where are the SS

6.2. family/founder ownership: dominance of controlling SS

6.3. high governance ownership: dominance of controlling SS

7. Board structures around the world

7.1. consists of NED (Independent or not), ED ( part of mgmt)

7.2. Board's role: oversight/ monitoring w secondary role of advising/ guiding mgmt

7.3. Dual Board ( Separate supervisory Board and management board): membership of the two boards are totally diff common in Asia BAD: take longer time for decision-making = higher likelihood for conflct