Chapter Ten Corporate Governance Intro to scadals (STOP at 2:00!!!) http://www.youtube.com/watch?v=KQtq77RQRf0&feature=related

Boards of Directors Corporate governance: The processes, policies, and laws that govern an organization to establish accountability and reduce conflicts of interest associated with principle-agent problems Board of directors: Monitoring Advice Resource Provision Three Roles: Advice, Resource Provision, Monitor (Summarizes Figure 10.1, but at a higher level) What does a board do? (STOP at 4:00) http://www.youtube.com/watch?v=_d8mSo-vG58

Boards of Directors Agency problem: Exists when the interest of the individuals that act as agents to manage the company, that may not align with the interest of the firm’s stockholders Board insiders (outsiders): Members of the board of directors that are generally employed inside (outside) of the organization CEO duality: Occurs when the chief executive officer is also the chairman of the board of directors Related and unrelated outsiders. WHAT DO YOU THINK MIGHT BE SOME KEY PROBLEMS WITHS BOARDS AS A MECHANISM OF CORPORATE GOVERNANCE? Board Diversity: http://www.youtube.com/watch?v=fHqv6IWVfvo (stop at 2:00)

Investors Institutional investors put large sums of money into a broad portfolio of holdings Banks Retirement funds Mutual funds Pension funds But monitoring can be too strict: https://www.youtube.com/watch?v=6dbuExLLE1Q 10-4

Executive Compensation One of the most visible roles of boards of directors is the setting of CEO pay In most publicly traded firms, CEO compensation generally includes: Guaranteed salary Cash bonus Stock options 10-5

Are CEOs Paid Too Much? Are CEOs paid too much?: https://www.youtube.com/watch?v=yxWb8bxBNA0 CEO-to-worker pay is about 330-1 in 2016.

Market for Corporate Governance 10-7

Rational Decision-Making The process of rational decision-making: Problem identification Establishment and weighing of decision criteria Generation and evaluation of alternatives Selection of the best alternative Decision implementation Decision evaluation While this model provides valuable insights by providing an ideal approach by which to make decisions, there are several problems with this model when applied to many complex decisions Many strategic decisions are not presented in obvious ways Rational decision-making assumes that options are clear and that a single best solution exists Rational decision-making assumes no time or cost constraints Rational decision-making assumes accurate information is available 10-8

Decision Biases 10-9

Decision Biases 10-10