Los 22.c Flashcards
(2 cards)
What are the benefits of good corporate governance?
Alignment of Interests: Aligns management’s incentives with shareholders’ interests, leading to improved decision-making and financial performance.
Operational Efficiency: Ensures effective oversight, which can boost operational performance and efficiency.
Legal and Regulatory Compliance: Reduces the risk of legal issues by ensuring compliance with laws and regulations, safeguarding the company’s reputation.
Risk Management: Helps avoid conflicts of interest and related-party transactions that could harm stakeholders.
Credit and Debt Management: Protects creditors’ rights and reduces the risk of default or bankruptcy, which lowers the cost of debt financing.
What are the costs of bad corporate governance?How can weak governance result in management pursuing self-interests?
If management isn’t properly monitored, they might make decisions that benefit them personally, such as taking on unnecessary risks or pursuing costly projects.
Example:
A CEO with large stock options might take on riskier investments to increase stock prices, potentially hurting the company in the long run.
