Corporate Governance

Essay Questions (100 Points)

• Do you feel the extent of shareholders’ participation in the election of directors is limited to the rubber-stamp process of affirmation?

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Explain the given statement. Actually, shareholders have limited power during the election process even though they are empowered by the statues to elect directors to oversee management. Even if the majority of shareholders oppose a corporate sponsored nominee, the person will still be elected as director.

CEOs and the board had controlled the power to the nomination and election process until very recently. The independent directors in the nominating committee has provided some structure to the nomination and election process even though those directors still serve at the will of the CEOs and other executive directors.

• Elaborate on the following statement:

“In modern corporations, particularly in the era of technological advances, labor resources are becoming an important part of corporate governance as capital resources. Employee participation is essential to corporate governance; it influences employee cooperation in the implementation of company decisions as well as the effectiveness of managerial control and authority. Employees of a firm have made firm-specific investments such as retirement funds and pension funds. Those investment are tied to the company’s stock, thus their incentives to participate in corporate governance are greater. Given more outside opportunities, employees with valuable human capital can easily leave the firm.

One possible way is allowing employees to participate in corporate decision-making and to share in the corporate surplus through flexible wages, shared ownership and other mechanisms. As such, corporate government system should give adequate attention to employees if the firms are to survive in an increasingly competitive environment.

• Discuss shareholders’ participation in monitoring their companies’ affairs, decisions, and corporate governance.

Shareholders should be held accountable for monitoring the operations and management of the business with which they hold an investment. While keeping track of day-to-day processes can prove difficult, shareholders ranging from large institutional investors to small retail investors have an obligation to monitor the governance and performance as a result from management decisions. Shareholders should also try to understand the culture in order to have a better understanding of management’s governance and the risk controls that exist within.

If shareholders grow displeased with the governance and management of the company, they can voice their displeasure by selling their shares.

• Describe how shareholder proposals can influence corporate governance.

Shareholder proposals can impact corporate governance if a structure is established where board members are required to consider each proposal. Usually, board members want to maintain maximum flexibility and typically avoid these kind of constraints.

However, the use of proxy voting has changed this a little bit. 5. Explain the advantages of employee participation in corporate governance. Employee participation in corporate governance is important as it provides an extra layer of checks and balances within the governance of a company which can lead to exposing misconduct or illegal actions. Also, allocating ownership of stock to employees, the interests of the employee and shareholder become aligned for the greater good and growth of the company.

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