Impact on the corporate government
(1) Including social objectives in the mission statement oforganization is a sign that the board believes that they have significantimpact on corporate strategy.
(2) Ethical codes are part of corporate guidance to promote goodcorporate behavior among their employees.
(3) Company should report on ethical and social conduct in theirOperation and Financial Review and also may prepare social accounts showing impactof stakeholders.
(4) Impact of stakeholders on corporate governance may includerepresentatives from key stakeholder groups on the board.
Institutional investor
(1) Institutional investors are now the biggest investors in many stockmarkets. They manage funds invested by individuals. Institutional investors canwield great power over the companies in which they invest.
(2) The major institutional investors include pension funds, lifeinsurance companies, unit trusts and venture capitals companies.
Role & influence
(1) The significant role of institutional investors is to promote goodcorporate governance.
(2) Due to the size of their shareholdings, institutional investors canexert significant influence on corporate policy.
(3) Institutional investors should make a dialogue with companies baseon the mutual understanding of objectives.
(4) Institutional investors can use many means to intervene and exerttheir influences on companies, such as voting, calling on extraordinary generalmeeting.
(5) The key issue is to increase dominance of investors and contributepositively to corporate governance through concentrating power in a few hands.
Principal-agent relationship
(1) Under the form of joint-stock, companies are limited by shares. Theseparation of ownership from management makes agency is a significant issue incorporate governance, especially for large companies.
(2) The problem of principals (owners) not being able to run thecompany themselves and therefore having to rely on agents (directors) to do sofor them can cause issues if there is a breach of trust by directors who maypursue their own interests rather than he shareholders’。
Agency cost
(1) For principals, it is difficult and expensive to verify what theagent is doing and to introduce mechanism to control the activities of agent.
(2) Agency costs are incurred when principals attempt to monitor theactivities of agents as well as establishing control system.
(3) Agency costs may be measured in monetary terms.
Agency accountability
(1) Agency accountability means that the agent is answerable under thecontract to his principal and must account for the resources of his principaland the money he has gained working on his principal’s behalf.
(2) Accountability relates to the need to act in shareholders’interests, the need to provide good information, the need to operate within adefined legal structure.
(3) Corporate governance systems are designed to enforce thisaccountability for principal.
Resolving the agency problem
(1) Alignment of interests is accordance between the objectives ofagents acting with an organization and the objectives of the organization as awhole.
(2) Alignment of interests may be achieved by giving managers profit-relatedpay or incentives that are related to profits or share price.
Transaction costs theory & Stakeholder theory
Transaction costs theory
(1) The way the company is organized and governed determines itscontrol over transactions.
(2) Outside transaction occur costs such as searching and bargainingcosts. Keeping transaction internally may reduce the uncertainties aboutdealing with outside.
(3) In terms of transaction costs, company consider to whetherinternalize their transaction or deal with outside.
(4) Manager behave rationally and opportunistically to organize theirtransaction to pursue their own interests.
(5) Asset specificity, certainty and frequency are three variablesconsidered by company to determine the degree of monitoring and control.
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