Question

1.What is corporate governance?

type L1

-Describe the separation of ownership and control and the conflicting of interests between the shareholders (owner or principal) and manager (agents) in a corporation. -The owner- principal of firms establishes appropriate incentives for agents and impose a mechanism to oversee management agents. This mechanism is called corporate governance - A more broad definition of corporate governance: Corporate governance refers to the set of systems, principles and processes by which a company is governed

2. What is agency problem?

L1

-Addressing the issue of conflicting of interest between the owners and management-agents of firms. - Describe the possible of expropriation of the shareholders’ value by the agents since “the men in control of a corporation can operate it in their own uses”. =>opportunistic behavior on the part of the agent that works against the welfare of the owner-principal - Give some example of agency problems

3.What are the major OECD (Organisation for Economic Co-operation and Development)principles of corporate governance?

-The OECD Principles of Corporate Governance were originally developed in by the OECD Council Meeting at Ministerial level on 27-28 April 1998. Content of OECD principles + Ensuring the Basis for an Effective Corporate Governance Framework + The Rights of Shareholders and Key Ownership Functions: secure methods of ownership registration, convey or transfer shares, obtain information on a timely and regular basis, participate and vote in general shareholder meetings, elect and remove members of the board, share in the profits of the corporation + Equitable treatment of shareholders + Roles of shareholders in Corporate Governance + Disclosure and transparency: timely and accurately; include (financial report, policy…) + Responsibility of the board

L3

+Increasing agency problems in Vietnam +Give example: explain the legal frame work in Vietnam: corporate laws and securities laws which provide legal enforcement to improve corporate governance. employees. focusing on: + OECD is corporate governance in market developed countries.4. +Vietnam can implement. Student gives one example of changing in corporate governance of firm when privatized in Vietnam. Legal framework. Financial reporting.Students use the 6 major core issues of OECD corporate governance framework (as mentioned in question 2) and describe the possible implication in Vietnam. property rights. .How do you think about the possible implication of OECD corporate governance framework in Vietnam? L3 . step by step while transforming to market economy. possible to enter stock market. political influence. 5. BOD representative. Capital raising. The issues of compare can be varied according to: Ownership structure. Agency problems. L2 Student is requested to explain the new corporate governance mechanisms when firm is privatized. How corporate governance mechanism is changed when a state owned company is privatized? Please give one example in Vietnam. Note: this question is a group presentation question which provided opportunities for students prepared and discussed in class already. Explain the market enforcement that encourage corporation to improve corporate governance in competition. Objectives of business. investor protection. takeover.

suppliers. shareholders.There were several scandals of some big US corporation (such as Enron and WorldCom) and auditing agent. and for other purposes. + Improve transparency. companies such as Enron. How do you think about the relationship between corporate governance and corporate financial performance? Effective corporate governance produces high financial performance: + Ensure the profit maximization of firm L2 + Effective investor protection  providing capital for development + Effective board and well. high quality of financial reporting . trade associations. incentives and supervision. WorldCom and Tyco covered up or misrepresented a variety of questionable transactions. and between minority shareholders and controlling shareholders. The major intend of this laws is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws. political groups. employees and communities. disclosure. Corporate governance plays the role of ensuring that the interests of all parties are at least taken into consideration when achieving the economic and social goal of a corporation. resulting in huge losses to stakeholders and a crisis in investor confidence The US government enacted the law to improve corporate governance. who may be government. 1. The OECD corporate governance principals (2004) emphasize the importance of accountability to all stakeholders. public company boards. What is the major intension of Sarbanes-Oxley Act? L3 The Sarbanes–Oxley Act is a United States federal law that set new or enhanced corporate governance standards for all U. What these scandals had in common was skewed reporting of selected financial transactions. management and public accounting firms.What is stakeholder theory? L2 The agency problems outlined above are between shareholders and managers. 2. 3. customers. Stakeholder theory has emerged because of the increasingly important influence of other stakeholders on the performance of firms. For instance.S.functioning of Board in providing effective leadership.

=>opportunistic behavior on the part of the agent that works against the welfare of the owner-principal. What is the difference between creditor rights and shareholders rights? Content II L2 Compare the following issues: + paid and secured interests versus residual rights + voting + liquidating + Control rights 5. proposal.Describe the possible of expropriation of the shareholders’ value by the agents since “the men in control of a corporation can operate it in their own uses”. The power of shareholders is presented via the number of shares they owned Big and small shareholders have different interests and resources: Small shareholder own small amount of stock => benefit to personal wealth from improve stock’s performance is much smaller than the cost of forcing a change => less incentive to be an activist Large or block shareholders have more incentive to be a SH activist. L2 What is the outsider investors (shareholders): An outside investor is a person who owns shares in a company’s stock but is not in any way able to control the direction or management of the company. Vote in GSM.4. How can outside investors do to monitor and influence a company’s management? Give one example of how outside investors did influence company’s managers in Vietnam. They also have greater influence in GSM. getting information. How does investor protection matter to corporate governance? L2 -So investors (or shareholder) protection is the most important intend of corporate . proxy fights. -The shareholders of firms establish appropriate incentives for agents and impose a mechanism to oversee management agents. This mechanism is called corporate governance 1. . shareholders lawsuits. How to do: claim BODs. laws.

day-to-day control over the firm’s decisions. Function of BOD: Appointing CEOs. BOD plays the primary role in setting corporate governance framework to protect interests of shareholders. Set up effective mechanisms for monitoring managers · Aligning executive incentives with shareholder desires 4. Explain the role of board of directors in corporate L3 governance? BODs is the representatives of shareholders in a corporation. 2. What is ownership structure? How it matter to corporate governance? L2 -What is ownership structures: the proportion of shares or ownership -Explain the different between the big shareholders and small shareholders in terms of interests. BOD is a legal body in corporate structure.governance. to make sure the firm’s activities and financial conditions are accurately reported to shareholders. power to influence. 3. The BOD can improve its role by: · Try to balance to number of members and the proportion of insiders and non-insiders · Provide leadership. How BOD can improve its roles? L3 BODs: Elected by the shareholders. The BODs are voted by GSM. and more incentive to join in BODs and monitor the CEOs -How it matter: Big SHs More Small SHs less Related interests . setting corporate governance framework to protect interests of shareholders CEOs: Appointed by the BOD (agent). What is the differences between the role of BOD and CEOs. Control major decisions on behalf of the shareholders. vote for major operating and financial proposals and decisions.

Apart from receiving director’s remuneration. What is an independent director? 2. its promoters. . does not have any material pecuniary relationships or transactions with the company. -The lack of transparency: SOEs are lack of transparency Independent director is Non-executive director.Power to influence Disclosure Investor protection Financial structure of company (externally) More power to join BODs and voting right Low incentives Low Bank model(when company need capital mobilization. and conflicts between the interests of many layers of bureaucrats and the citizens. property rights issues. its subsidiaries and associated 1. What is business ethics? L3 L5 -Business ethics: is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. laws governing. other influence of stakeholders…. incentives. . for examples: -Objective: SOEs have profit objective and political objectives =>conflicts between interested parties -Agency problem: SOEs have double agency problem: conflict between the interests of managers and owners. it asks for bank’s support) Less and difficult to join BODs High incentives High Market model(when company need capital mobilization.It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations. principal and agents. L2 Decision making power More concentration More decentration The major issues of corporate governance in SOEs: objectives. appointing BODs. -Property right: ownership is government => residual claim is not clearly => less incentive. disclosure. it issues stock to stock market) 5. What are the major issues of corporate governance in State Owned Enpterprises (SOEs)? Give an example of corporate governance problems in SOEs in Vietnam. CEOs. its senior management or its holding company.

control.. who performs an audit in accordance with specific laws or rules on the financial statements of a company.3. Corporate governance of auditing: +Auditors perform as consultants when proving consulting services => reduce the independent +Corporate financial reports considered as the primary source of information in the evaluation of a company are highly complex => it is difficult to SHs. and who is independent of the entity being audited. disciplined approach to evaluate and improve the effectiveness of risk management. It helps an organization accomplish its objectives by bringing a systematic. what arecorporate governance issues of auditing? L4 Internal auditing is an independent. investors to check and evaluate +“ boiler plate” audit reports => investors do not obtain fact situation of firms 4. and governance processes. . What are the major contents and implications of Sarbanes Oxley Act? L4 . and the public company being audited + Increase the monitoring ability and responsibilities of BODs and improves their credibility by making BODs more independent and more responsible for audits + make executive actions more transparent to shareholders by requiring the disclosure of “offbalance-sheet transactions” and decrease time that an executive has to report company stock trades to the SEC + Makes it easier to prosecute executive criminal behavior in future (spelling out new definition of criminal behaviors.) . to oversee the audit of public companies and to protect the interests of investors and the general public by improving audit report accuracy + Attempt to protect investors by isolating the relationships among auditors.What are internal and external auditors.Main contains and implication : + The legislation establishes a nonprofit corporation which will operate under SEC discretion. government entity or organization. objective assurance and consulting activity designed to add value and improve an organization's operations. External auditor are accountants from outside the firm. consultants.

There should not be any conflict of interest with his personal interest in making decision. L3 4. stock grants. How can executive compensation align the interests of managers with the L4 . What are ownership structures and minority shareholders? L2 L2 What is ownership structure: the proportion of shares or ownership. 2. -Describe small and big shareholders.Independent directors may not keeping a balance power . What are the roles of independent director? 3.Independent directors are notactually independent because of various relationship not regulated -Not clear legal requirement about responsibilities of independent directors -Recruitment of independent directors is difficult -Independent directors do not function effectively in a company that has high concentration in ownership structure Discuss compensation as an internal mechanism to align interest of managers and sharehodlers Explain there types of executive compensation: base salary. Discuses pro and con of each Type of executive compensation in aligning interest of managers . Independent director doesn’t work as he should do . 1. Compare corporate governance mechanisms of SOEs and Private Company ? Please give one example of corporate governance issues of SOEs in Vietnam. stock option. What are the major corporate governance issues of independent directors? L3 -Role of independent director: Provide independent opinion. -Minority shareholders are shareholders who have minority stakes in a company that is controlled by a majority shareholder.Independent directors may have low incentives.5. protect interests of minority shareholders: What is most important is judgement of an independent director is independent in real sense.

In corporate governance.Base salary (Pro: not aligning incentives and performance sustainable strategy. startup companies.. “transparency” means accessible to information of related corporate shareholders and other stakeholders L3 Compare Agent Agency theory Principle-agent Stakeholder theory  Principle . broker-dealers. What is “transparency” in corporate governance? 3. investment banks. Credit ratings are used by investors. risky business) 5. issuers. con: short term strategy. What is the role of credit rating agencies? L3 -There are basically two kinds of legal system that influence on corporate governance mechanisms amongst countries: civil law and common law A Credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves or financial strength.e. and governments A credit rating for an issuer takes into consideration the issuer's credit worthiness (i. and L5 2.interests of shareholders? and shareholders: . hospitals. risky business) Stock grants (Pro: align the interests of employees and shareholders. 1. Transparency is the result of information being available. its ability to pay back a loan) altogether: small governments. What is the influence of legal systems on corporate governance mechanisms amongst countries? Give some comments on how the legal system of Vietnam matter to corporate governance. easy to budget. con: short term strategy.What is the different between agency theory and stakeholder theory? L2 “transparency” or “access to information “ has the similar meaning.Stock option (Pro: aligning personal interests employees with performance.con: not aliging with the performance of the company and shareholders’ interest) .

large number of shareholders . What is the difference between the bank-model of corporate governance and market model of corporate governance? L3 Compare some of the typical issues: Bank model Capital structure Shares proportion of biggest owner Biggest owner power Financial providers capital source: banks and funds Large Market model capital source: stock market Small Very power Banks and funds Normal Shareholders. that shareholders have all residual rights   Reputation Develop the brand=>>increase the profit Better environment Social citizen Think more about social impact 4.  Objective Maximize the profit Employee Social citizen Reasonable profit Various social objectives Multiple responsibility with  Employee Obligation Principle gets all.

Having a short-run horizon if the managers is near retirement Student give some examples of manager could harm the interests of stockholders in Vietnam based on the framework discussed. Building empires. non-transparency.Level of disclosure and transparency Law system Low High civil law common law 5. Consuming excessive perks. =>opportunistic behavior on the part of the agent that works against the welfare of the owner-principal -How to do. -Principal –agent problems. -Dispersion ownership structure: No incentive of small shareholders to monitoring the company. 1. not working hard). Hiring friends. In what ways can managers harm the interests of stockholders? Give some examples of managers who could harm the interests of stockholders in Vietnam. they may use this control of board to have “tunneling” activities. manager act on their owned interest without effective . the Manager can: + Providing wrong information for purposes + Short – term action + Use company resources for their owned interests + Risk business stock + use firm’s assets for their own personal use. Taking excessive risk to earn large bonuses. issues of conflicting of interests L1 -Describe the possible of expropriation of the shareholders’ value by the agents since “the men in control of a corporation can operate it in their own uses”. +Others: Shirking (i.e. Taking no risks or chances to avoid being fired. low level of shareholder protection.What is the differences between principal–agent problem between concentration ownership structure and dispersion ownership structure? L2 -Concentration ownership structure: large shareholder taking control of management..

-Describe the separation of ownership and control and the conflicting of interests between the shareholders (owner or principal) and manager (agents) in a corporation.e. give some examples. Proxy fights. Hiring friends. providing biased information. not working hard). shareholder proposals. Taking excessive risk to earn large bonuses. What are corporate governance issues of credit rating agencies? Name some of credit rating agencies? 4.Describe the possible of expropriation of the shareholders’ value by the agents since “the men in control of a corporation can operate it in their own uses”.Describe the separation of ownership and control. Having a short-run horizon if the managers is near retirement -Explain the different agency problems of Concentration ownership structure and Dispersion ownership structure . Consuming excessive perks. 2. Taking no risks or chances to avoid being fired. the Manager can: + Providing wrong information for purposes + Short – term action + Use company resources for their owned interests + Risk business stock + use firm’s assets for their own personal use. . Building empires.control and supervision from minority shareholders. +Others: Shirking (i. claim of shareholders on the media… 3. Shareholders lawsuits.What is the most common form of shareholder activism? L2 -Incentives of shareholders -Types of shareholder activism: Vote in GSM. =>opportunistic behavior on the part of the agent that works against the welfare of the owner-principal -Weak supervision. How that separation of comes about and why it leads to problems? L5 L1 Corporate governance issues: rating agent does not act independently base on their adjustment. manipulating information.

  Listing on the securities market is another important method to improve corporate governance  +Dispersion ownership structure: No incentive of small shareholders to monitoring the company.   Takeover .What is ownership structure? Describe how ownership structure matters to corporate governance? Give one example of how the change in ownership structure matters to corporate governance of (a) firm(s) in Vietnam. Boards of directors and supervisors are established to control and monitor the interests of the shareholders. the corporate governance mechanisms are adjusted to:  Improve of legal protection to minority shareholders.   Improve transparency and disclosure. enhancement of transparency and effective enforcement of market regulators.L2 5.   Improve supervise management performance on their behalf.this mechanism is usually implemented in liquid capital markets  More Shareholder activism activities . manager act on their owned interest without effective control and supervision from minority shareholders  how to fix this. -What is ownership structure: the proportion of shares -Explain the different agency problems of Concentration ownership structure and Dispersion ownership structure matter to corporate governance: +Concentration ownership structure: large shareholder taking control of management and act for their owned interests how to fix this. the corporate governance mechanisms are adjusted to:  align the interests of managers and shareholders.

raising capital from stock market. They argue that all persons or groups have equal rights to claim for the residuals of firm. claim of shareholders on the media. government or community. trade associations. shareholder proposals. Shareholders lawsuits. suppliers. customers. sell stock… 3. -Types of shareholder activism: Vote in GSM. Although shareholders don't run a company. there are ways for them to influence the board of directors and management. Stakeholders may be government. shareholders. 2. Corporate law Security law Government: Law Corporate law .What is shareholder’s activism? How does it matter to corporate governance of firm? Content II L2 Shareholder activism is a way in which shareholders can influence a corporation's behavior by exercising their rights as owners.1. Corporate governance plays the role of ensuring that the interests of all parties are at least taken into consideration when achieving the economic and social goal of a corporation. Proxy fights. Compare corporate governance mechanisms between the firms listing and the firm not listing in stock market? L3 Mechanisms Objective Liquidity of stock Financial providers Compan ies outside the stock market Less Less Bank or current shareholders Companies inside the stock market More supervision of market on profit maximization More Large number of shareholders. Stakeholder theory suggests a corporate governance model that monitors profit for shareholder and social responsibility for other stakeholders such as employees. political groups. employees and communities. By these efforts they can have influence on corporate governance of the firm.What is stakeholder theory on corporate governance of firm? L3 Stakeholder theory has emerged because of the increasingly important influence of other stakeholders on the performance of firms.

What are the major benefits and difficulties of implementing corporate social responsibility L5 in Vietnam? .The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment. social benefit). communities. low protection of minority shareholders’ interests minority shareholders’ interest So under the Civil law => weaker investor protection=> high ownership concentration=> less development of stock market. consumers. brand development. Under the Common law => stronger investor 4. +Target of corporate governance is maximize + High protection of employee benefits (retire profit for shareholders. . What is the influence of legal systems on minority investor protection amongst countries? How it influence the development of capital markets? L4 . employees.Corporate social responsibility is an implementation of Stakeholder theory in corporate governance of firms . 5. protection => low ownership concentration=> more development of stock market.Disclosure of information Ownership Risk of being acquired Less Limited in the number of shareholders Less More More open to outside investors More Civil law + maximize social profit Common law + maximize individual profit.Student discusses the major benefits (sustainable business development. high protection of salary. stakeholders and all other members of the public sphere who may also be considered as stakeholders.

-Investor protection defines the entity of efforts and activities to observe. Corporate law 2. raising capital from stock market.1. give examples. What is investor protection and why investor protection is important in corporate governance? L2 corporate culture) and major difficulties (budgets.Corporate governance is a mechanism to protect shareholders from the expropriation of the shareholders’ value by the agents The investor has more confident because effective corporate governance structure can ensure: -the rights of shareholders and key ownership functions -the equitable treatment of shareholders -the appropriate role of stakeholders in corporate governance -disclosure and transparency -the accountabilities and responsibilities of the Board -weaker investor protection=> less development of stock market==> borrowing capital from bank market for development.How investor protection matter to corporate finance structure of a company? L2 4. social and business awareness). safeguard and enforce the rights and claims of a person in his role as an investor. Companies outside the stock market Changes inside the Mechanisms stock market Objective Less More supervision of market on profit maximization Liquidity of stock Financial providers Less Bank or current shareholders More Large number of shareholders. How does an effective corporate governance structure improve investor confidence? L2 3. Explain the changes in corporate governance mechanism when a firm listing in stock market? L4 Government Law: Corporate law . -Describe the conflicting of interests between the shareholders (owner or principal) and manager (agents) in a corporation and the possible of expropriation of the shareholders’ value by the agents . -stronger investor protection => more development of stock market  raising money from stock market for capital need.

but who are not residual claimants.and bureaucrats in the government administration structure who play the role of the original principals.No particular principals and the principals have no incentive to monitor -Double agency problems associated with management agents in state firms –agent problems in SOEs of Vietnam. take over market. The mechanisms integrate internal-firm level governance and external-macro level institutions.Disclosure of information Less Ownership Limited in the number of shareholders Security law More More open to outside investors Risk of being acquired Less More . L1 . managers and other Shareholders. legal and government policies.What are internal and external corporate governance mechanisms? competition in product and capital markets. They are actually the second order agents of the true owners – the citizen who exercise ownership rights in reality. role of bankers.  This explain the weak corporate governance in SOE  Student gives one example about the principal – agent problems in SOEs of Vietnam. What are principal – agent problems in State owned enterprises (SOEs)? Please give one example about the principal L2 +The fist agency problem if between the state ownership representatives and manager +The second agency problem is from bureaucrats. The core internal-firm level governance relates to the key issues of cooperation of participants pursuing their own interests: principals. The external-macro level links the internal governance with external enforcements such as 1. 5.

L2 5. When the firms are in bad financial distress.If there is low protection for Minority investor. Please explain the major internal and external corporate governance mechanisms? Compare the differences between creditor rights and shareholders rights? L1 Control right When the corporation’s assets are liquidated Liquidity The last to receive the liquidated corporation's assets Rights to the transfer of stock Minority shareholders are shareholders who have minority stakes in a company that is controlled by a majority shareholder. creditors are paid first Usually not The lenders of the firm. Rights to transfer of bonds.Minority investor determine the floating of shares and they will sell off if they do not believe on growth and profitable of the company. 4. May also have the right to redeem debt securities in exchange for stock. Corporate governance issues of   takeover: .Differences Paid Voting right Sharehol ders Dividends. 2. the control may be transferred to creditors Priority rights in the liquidation. the Minority investor will not invest and firms listing in stock market cannot get the benefits from listing in stock market such as acquiring capital and increasing in stock prices low development of capital market. What is minority investor and the importance of minority investor protection in development of securities market? Minority investor protection in corporate governance has important role because: . Is takeover a good or L . after the creditors are paid Yes The owners. control the firm Creditors Interests.

bad corporate governance mechanism? Give one example in Vietnam and explain. Culture  Similar culture backgrounds create a better working environment.  Different culture requires time to adapt.  Low public information disclosure because the information of target is under the control of bidder. Share prices of bidder corporate firms can fall when acquisition announced  markets to  Managers’ resistance takeovers threatening positions to Low liquidity of equity   The positions of the BoD.  The reposition Executives and employees better managers The differences of interests  The reduction among managers and shareholders agency conflicts  of the target and bidder  of  Threats to the employees of the target and bidder  between bidder The conflicts of interests the managers and shareholders of the target and Information disclosure and  Higher public transparency information disclosure because of better management system. 6 Impact on the ownership rights  Shareholders are and wealth of the shareholders wealthier if synergy is committed Affect the stock price  The promotion and the value of the entities - of efficient restructuring  The low protection of minority shareholders (voting restrictions and discrimination against minorities)  Equity holders’ vulnerability is higher compared to other Shareholders. .

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