Corporate Governance
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- Corporate governance is an interrelationship between the various stakeholders of an organization. It determines the organization’s direction and helps in managing its performance. Through effective corporate governance practices, an organization can derive competitive advantage avenues over its rivals.
- Agency relationships occur when one party delegates decision-making responsibility to another party. Agency relations are manifested in shareholder-manager relations, whereby the former entrusts the managers with operating the company. They also occur in insurance relationships, whereby the insured contracts the insurance company.
- Shareholders refer to an organization’s owners who gain this position through stock purchase. They possess voting rights to the company, which is dependent on their percentage of ownership.
- Managerial opportunism refers to instances of conflict of interest whereby the managers act to fulfil their personal desire. As a result, their decisions are taken to the detriment of shareholders who entrust them with running the company.
- Agency costs constitute the summation of incentive, monitoring, and enforcement expenses. They also include individual losses that are uncured by the principle since corporate governance does not guarantee complete compliance by the agent.
- The federal government executed the Sarbanes-Oxley Act (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2002. These legislations were aimed at enhancing customer protection and required greater scrutiny of the corporate governance mechanisms
- Ownership concentration refers to the large block of shares owned by shareholders. It also indicates the total ownership of the firm by the prominent shareholders.
- Large block shareholders refer to investors who own at least 5% of the organization’s common stock. Notably, this group of shareholders is active and demands the implementation of governance mechanisms to ensure the management pursues the shareholders’ best interests.
- Institutional owners refer to financial institutions such as pension funds and mutual funds that control a considerable block of the shareholders’ position. The institutional owners feature a high potential for effective corporate governance mechanisms due to their influence.
- The board of directors refers to appointed individuals that are tasked with overseeing the shareholders’ interests. Notably, the board acts in the best interest of the shareholders and helps the organization attain its objectives.
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Question 
Week 12 – Literature Review Assignment
This week the readings/videos focused on the topic of Corporate Governance.
Corporate Governance
For this assignment I would like for you to reflect on the literature and identify 10 key points that you took away from the assignments.
For each of the key points you are to identify the point and provide 2-3 sentences explaining the point. Please number each of the 10 points.