Summary

Week 1 Corporate Governance (complete summary)

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Course
Corporate Governance (6013B0543Y)

Institution
Universiteit Van Amsterdam (UvA)

Book
Corporate Governance and Board Decisions

Een volledige samenvatting van alle stof en de hoorcolleges van week 1 van Corporate Governance. A complete summary of the literature and both lectures of week 1 of Corporate Governance. Specifically contains: - Lecture 1A - Lecture 1B - article Degrowth - Orsagh - article Insight of Corp...

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Summarized whole book? No
Which chapters are summarized? Hoofdstuk 1-4
Uploaded on May 24, 2024
Number of pages 19
Written in 2023/2024
Type Summary

corporate governance
dcgc
mechanisms
theories
agency theory
oecd
degrowth
stakeholder theory
shareholder theory
stewardship
social contract theory
legitimacy theory
cg
esg
resource dependency theory
p

Book Title:Corporate Governance and Board Decisions

Author(s):Steen Thomsen, Martin Conyon

Edition:2019
ISBN:9788771983050
Edition:Unknown

Institution
Universiteit van Amsterdam (UvA)
Education
Rechtsgeleerdheid
Course
Corporate Governance (6013B0543Y)

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Week 1 - What is CG?, CG theories,
mechanisms and international
governance
Readings
Degrowth - Orsagh
Degrowth is gaining attention as a potential solution to environmental and economic challenges. It
advocates for reducing production and consumption to enhance human well-being and ecological
health. The concept opposes the unsustainable model of perpetual economic growth on a planet with
finite resources. Reports like "The Economics of Biodiversity" and "The Limits to Growth" highlight how
humanity is overusing Earth's resources, leading to crises.
Degrowth proponents suggest reducing harmful industries like oil and gas and reimagining agriculture,
energy use, and transportation to minimize environmental damage. For example, cutting down beef
production could significantly benefit climate change mitigation and resource conservation.
Investors are increasingly considering degrowth, with institutions like Jefferies and Triodos Bank
discussing it in their reports. They are investing in companies aligned with degrowth principles,
focusing on efficient resource use and sustainable practices. This trend reflects a broader societal
shift, as seen in the Yale 2018 poll and IPCC reports, which emphasize environmental protection over
economic growth.

Degrowth is also discussed in academic and policy circles, with significant support among climate
policy researchers and scholars. Events like the EU Post-Growth Conference and the formation of the
International Degrowth Network indicate growing interest.

Despite its radical nature, degrowth is being considered by some investors as it addresses the
environmental crisis and resource constraints. This mirrors the early integration of ESG factors into
investments. Degrowth acknowledges the environmental damage caused by human activity and the
necessity to mitigate it. As environmental issues worsen, there will be increased pressure to adopt
degrowth strategies, making it crucial for investors to understand and anticipate these changes for
long-term sustainability.

Insight of Corporate Governance Theories - Wan Fauziah Wan Yusoff and Idris
Adamu Alhaji
[See notebook]

Summary

The essense of agency theory focuses on the conflicting interests between the principals and
agents

while stakeholder theory explores the dilemma regarding the interests of different groups of
stakeholders.

Resource dependency theory underscores the importance of board as a resource and envisages a
role beyond their traditional control responsibility considered from the agency theory perspective

legitimacy theory is based upon the notion that there is a social contract between the society and
an organisation

political theory brings the approach of developing voting support from shareholders, rather by
purchasing voting power.

Week 1 - What is CG?, CG theories, mechanisms and international governance 1

, Conclusion:
The outcome of a good corporate governance practice is an accountable board of directors who
ensures that the investors’ interests are not jeopardized. The accountability and transparency
component of corporate governance would help companies gain shareholders’ and investors’ trust.
These stakeholders need assurance that the company will be run both honestly and cleverly. This is
where corporate governance is critical. Corporate governance improves stakeholders’ confidence and
this would aid the sustainability of business in the long run. The present corporate governance theories
cannot fully explain the intricacy and heterogeneity of corporate business. Governance may differ from
country to country due to their various cultural values, political and social and historical circumstances.
In this sense, governance in developed countries and developing countries can vary due to the cultural
and economic contexts of individual countries. However, the literature has confirmed that even with
strict regulations, there have been breaches in corporate governance. Hence it is vital that a rounded
recognition be driven across the corporate world that would bring about a different perspective
towards corporate governance. The days of cane and halter are becoming a mere shadow and the
need to get to the root of a corporation is crucial. Therefore, it is significant to re-visit corporate
governance in the light of the conjunction of these theories and with a fresh angle, which has a
universal view and incorporating subjectivity from the perspective of social sciences.
T&C 1 - What is corporate governance?
Corporate governance = the control and direction of companies

Corporate governance is not concerned with business decisions (company management), but
rather with how those decision makers (managers) are held accountable.

Agency theory
Basic governance issue: how do owners control managers?

agency theory is based on the disparity between the interests of a principal and an agent, e.g. the
owners and the management.

→ this book is based on ‘enlightened agency theory’, which takes behavioural and contextual
modifications of the basic agency model into consideration

Extended agency:

suppliers of finance (bond-holders, banks): important role in CG of firms in need of external
finance, because they can sanction or veto investment projects, make demands on the
composition of the board, and write debt contracts that incldue conditions about what the firm
should (not) do.

employees: some jurisdictions allow employees to elect board members; labour unions; can also be
owners

suppliers: owners of firms

customers: influence in many ways (e.g. owning or retail cooperatives), competition

the state: e.g. China state is direct owner of companies; governments make the rules

social norms

intermediaries: auditors, analysts and stock exchanges provide information to stakeholders (incl.
shareholders)

Week 1 - What is CG?, CG theories, mechanisms and international governance 2

, Good corporate governance is essential to good economic performance.

T&C 2 - Theories of GC
Agency theory
Main elements:

1. separation between principal and agent

2. conflicts of interest: incentive problems

3. rationality: both are rational and therefore rationally furthering their own interest

4. asymmetric information: the agent is better informaed about his own abilities and activities.

5. uncertainty (risk): the existence of other factors → no one-to-one relationship between activities of
the agent and the outcome

6. risk aversion:

Situations that involve agency problems:

mergers & acquisitions: benefits for management, but acquiring companies don’t acquire added
value → no benefit for shareholders & perhaps even costly

overinvestment: e.g. overinvesting in finding new resources when it would have been cheaper to
buy from market

entrenchment: when management create barriers to firing them → stay on too long → decreased
innovation → not beneficial to shareholders

Enlightened agency theory
start with basic agency problem and then nuance the analysis with attention to the institutional contet,
the psychology of the individuals concerned, etc.

Types of agency problems

1. owner vs. management (AP1)

the separation of ownership and management: provides benefits (perhaps even more than if it
is not separated) - specialization of resources and it allows for more balanced decision-
making.

if ownership and management were not separated, this issue would not exist. Owner-managers
have a natural incentive to work hard and only employ the best people available.

2. majority vs minority investors (AP2)

conflicts of interests

3. shareholder vs. stakeholder (AP3)

when shareholders make self-interested decisions which influence the welfare of stakeholders
negatively.

Week 1 - What is CG?, CG theories, mechanisms and international governance 3

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