Lecture 2

Question 1

What are the key governance mechanisms?

Answer 1

Regulation (Company Law, Corporate Governance Codes)

Ownership Structure (Large shareholders, Takeovers)

Boards of Directors (Composition, Independence)

Incentive Systems (Executive Pay, Shareholder Activism)

Stakeholder Pressure (Creditors, Auditors, Analysts, Public Opinion)

Question 2

How do corporate law and corporate governance codes differ?

Answer 2

Corporate Law: Legally binding rules that companies must follow (e.g., shareholder rights, board structure).

Corporate Governance Codes: Best practices that companies should follow on a comply-or-explain basis.

Question 3

What is the difference between rule-based and principles-based corporate governance?

Answer 3

Rule-Based: Strict, legally enforceable rules (e.g., Sarbanes-Oxley Act in the U.S.).

Principles-Based: Flexible guidelines that encourage compliance through best practices (e.g., UK Corporate Governance Code).

Question 4

What is the “Comply or Explain” principle in corporate governance?

Answer 4

Companies must comply with governance codes or explain why they are not complying.

Question 5

What are the OECD’s key principles of corporate governance?

Answer 5

Effective governance framework

Shareholder rights and equitable treatment

Institutional investors and stock markets

The role of stakeholders

Transparency and disclosure

Board responsibilities

Question 6

How does corporate governance differ between the UK and USA?

Answer 6

UK: Principles-based, self-regulation, “Comply or Explain” (UK Corporate Governance Code).

USA: Rule-based, strict legal requirements (e.g., Sarbanes-Oxley Act, Dodd-Frank Act).

Question 7

What are common criticisms of corporate governance codes?

Answer 7

Complexity – Too many rules make compliance difficult.

Vague Interpretation – Companies interpret rules differently.

Insensitive to Context – Global codes may not fit local business environments.

Question 8

What are key features of Sweden’s corporate governance model?

Answer 8

Strong shareholder control (1-2 dominant owners).

Board independence (at least two independent directors).

Comply or Explain principle in the Swedish Corporate Governance Code.

Mandatory Annual General Meeting (AGM) within 6 months of the fiscal year-end.