1) Read Chapter 13 in the required textbook about the concept of "Corporate Governance and Accountability", which is related to the previous chapter on corporate social responsibility. Pay special attention to the difference between these two models:
**** Corporate Governance = power rests with owners or investors of a company
---> this goes along with the thinking about Property Rights
vs.
**** Stakeholder Theory = power should rest with all those concerned: employees, community, investors, customers, suppliers, etc
---> this goes along with the Social Institution Theory
2) Search for the Mission Statement of a company (any company that you wish) and analyze it by telling us if the Corporate Governance thinking applies or the Stakeholder Theory.
QUESTION 1: Give us the name of the company that you selected for this discussion and its missions statement. Why did you select that company?
QUESTION 2: What model applies to the mission statement of that company: Corporate Governance or the Stakeholder Theory? And why?
Slide 1 Chapter 13 Corporate Governance and Accountability © 2012 Pearson Education, Inc. All rights reserved. Corporate Governance • In the standard system of corporate governance – Ultimate decision-making power or control is held by the shareholders • They are also entitled to the profits of a corporation © 2012 Pearson Education, Inc. All rights reserved. The Property Rights and Social Institution Theories • In The Property Rights Theory Individual shareholders in a joint stock company – Exchange their personal assets for shares of stock – Jointly own the common enterprise – As owners are entitled to receive the full proceeds © 2012 Pearson Education, Inc. All rights reserved. The Property Rights and Social Institution Theories • Social institution theory emphasizes that – A corporation is not merely a private association • Created for the purpose of personal enrichment – It is also a public enterprise • That is intended to serve some larger social good © 2012 Pearson Education, Inc. All rights reserved. The Contractual Theory • The Contractual Theory or Nexus-of- Contracts Theory – Supports a stockholder-centered conception of the corporation – Most groups protect themselves by means of contracts © 2012 Pearson Education, Inc. All rights reserved. Stakeholder Theory • The central claim of the stakeholder approach is that corporations should be: – Operated for the benefit of all those who have a stake in the enterprise • This includes employees, customers, suppliers, and the local community © 2012 Pearson Education, Inc. All rights reserved. Codes of Ethics • Codes of Conduct or Statements of Business Standards/Practices – A statement of specific rules or standards for a variety of situations • Credo or Mission Statement – A statement of core values or the vision of an organization © 2012 Pearson Education, Inc. All rights reserved. Accounting and Auditing • Accounting – The recording and presentation of the financial transactions of an organization. • Auditing – An inspection of an organization’s accounting records to determine their • Accuracy, completeness, and reliability © 2012 Pearson Education, Inc. All rights reserved. Accounting and Auditing • When an auditors report is unqualified, it means that the organization’s – Financial records fairly represent its financial condition – Have been prepared according to generally accepted accounting principles © 2012 Pearson Education, Inc. All rights reserved. Accounting and Auditing • When an auditors report is qualified, it means that the organization’s – Audit was not complete in scope – Generally accepted accounting principles were not followed completely © 2012 Pearson Education, Inc. All rights reserved. The Sarbanes-Oxley Act • Title I – Created the Public Company Accounting Oversight Board • Has the power to review audits • Set additional auditing standards • Sanctions firms for conducting inadequate audits © 2012 Pearson Education, Inc. All rights reserved. The Sarbanes-Oxley Act • Title II, titled “Auditor Independence,” – Prohibits the provision of certain nonaudit services to an audit client – Requires the lead audit partner’s clients be rotated at least every 5 years – Imposes a one-year waiting period before accepting employment with an audit client © 2012 Pearson Education, Inc. All rights reserved. The Board of Directors • Corporate Directors – Select and monitor the chief executive officer of the corporation – Approve the company’s overall strategic plan – Ensure that adequate control systems are in place © 2012 Pearson Education, Inc. All rights reserved. Criminal Prosecution • Criminal offenses corporations can be prosecuted for – Unsafe products and working conditions – Bribery and corruption – Willful pollution – Fraud and conspiracy to commit fraud