Company: owners (stockholders) & management (self-interested

executives)
Agency problem: self-interested executives take actions benefit
for themselves at shareholders/stockholders’ cost
Agency cost: costs resulting from agency problem
Moral salience: varying degrees of moral salience, depending on
personality, religious convictions, etc.
Corporate Governance: A control mechanism aimed at the
behavior of corporate managers that harm shareholders and
other stakeholders for their own interests.
Shareholder perspective: the primary obligation of organization is
to maximize shareholder value
Stakeholder perspective: organization has a societal obligation
beyond increasing shareholder value
Activist investors: institutional investors, hedge funds and
pension funds become more active to influence management and
board through public campaigns and annual proxy voting process
Private equity firms: low level of independence-board members
have relationships to the company and have interest in
operations. Offer high compensation to senior executives
Proxy advisory firm: increased attention on voting process.

Common Law: a system of jurisprudence based on judicial

precedents rather than statutory laws; originated in the unwritten
laws of England and was later applied in the United States
case law
Civil Law: the legal code of ancient Rome; the body of laws
established by a state or nation for its own regulation
Say-on-pay: shareholders vote on executive compensation
Disclosure: companies disclose executive compensation
Comply or explain: stating reasons for noncompliance is
acceptable
Preference shares: In terms of the order of repayment in the
bankruptcy liquidation of the company’s assets, it ranks after the
debts and has priority over ordinary shares, and secondly, it has
priority over ordinary shares in the order of dividend distribution,
and is usually paid at the pre-arranged dividend rate.
Plurality voting system: directors receive the most votes win,
regardless of majority of votes
Dual-class shares: different shares with different voting rights
(more insider control, public influence weakened)
Majority voting: directors required to receive a majority of votes
to be elected
Cumulative voting: allows shareholder to concentrate votes on a
single board candidate
Corporate Strategy: how a company expects to create long-term
value for shareholders and stakeholders.
Explain Risks to the Business Model
Operational risk – how exposed the company is to disruptions in
its operations
Financial risk – how much the company relies on external
financing
Reputational risk – how much the company protects the value of
its intangible assets, including corporate reputation
Compliance risk – how much the company complies with laws &
regulations that otherwise would damage the firm