CORPORATE GOVERNANCE AND ETHICS

CORPORATE GOVERNANCE

AND ETHICS

Sven-Olof Collin

Sven-Olof Yrjö Collin- Professor in Business Administration with emphasis on Corporate Governance and Accounting- Teach in corporate governance, accounting, management control, corporate finance, strategy, scientific method and supervise on all levels. - Research in corporate governance, for example riding schools, municipal corporations, family firms, but also director and executive compensation, accounting choice, auditing, duty.E-mail: [email protected]: www.svencollin.sePhone: not in useCrisis: 0708 204 777

EXAMENSARBETE

http://www.svencollin.se/Method.htmÄmne: Hemsidan, gamla uppsatsers sista

kapitel, ämnen på kursenGrupparbete 2 st (max och min)Schema novemberKontakta mig eller Magnus, Andreas, Anna,

Jenny

WHY BOTHER ABOUT THE CORPORATE GOVERNANCE OF CORPORATIONS?

The corporation

Wealth distribution

Risk distribution

Quality of living

Values of society

Nature

Prod

uctio

n of

wea

lth

Dis

tribu

tion

of w

ealth

Corporategovernance

CORPORATE GOVERNANCE…a set of mechanisms that support the fulfilment of the will

of the principal. SCIENTIFIC PROBLEMProblem 1: Who is the Principal?Problem 2: What is the Will of the Principal?

POLITICAL & NORMATIV PROBLEMProblem 1: Who should be the Principal?Problem 2: What should be the Will of the Principal?

WHO IS THE PRINCIPAL?

The stateThe shareholders

The debt holders

Employees

CustomersSuppliers

The managers

The nature The unborn

Society at largeThe unions

Neighbors

CULTURAL DIFFERENCESWieland (2005)

Model Maximization Economizing CooperationCharacter of the Corporation Autonomous Dependent

Principal Shareholder StakeholdersGovernance focus Monitoring Negotiations

Conflict Resources

Theory Agency theoryStakeholder

theory

Countries

Switzerland, Sweden,

Finland, UK, Ireland,

Denmark, Netherlands,

Spain, etc

Austria, Germany,

France, Italy etc.

FOR THE FUTURE, REMEMBER…

“…any efficient and effective governance structure needs to serve two functions: to constrain and to enable.. (Wieland 2005:77)

Control, Monitoring

Discipline

Development

Ask not what your corporation can do for you - ask what you can do for your corporation

CORPORATE GOVERNANCETo satisfy the will of the principal

(travesty of J. F. Kennedy Inaugural Address 20 January 1961)

WHY DO WE ACT?

What’s in it for Me, Me and Me?/ I

MOTIVATION TO ACT

Self-interest: An individual act upon a calculus where the costs and benefits for the individual are summed together through a preference function into a utility which produce the action Agency theory, The shareholder

Belongingness: An individual act in order to belong to a group, and over time adjusts to the norms of the group through accepting them or internalization Stakeholder theory/Stewardship theory, The stakeholders

Duty: An individual perform an action because the individual consider the action to be obligatory.Not yet developed, The imperative

Care: An individual act towards those that the individual have a close relationship with care, considering the concrete individual and tries to understand the needs through empathy.Feminist ethics, Closely related

THE FEMINIST CORPORATE GOVERNANCE MODEL

- The firm is a web of relationships

- Obligation to care, based on the need of the other

- Priority are given to those with a close relationship or former relationship, where the relation is with a concrete other, considering their individuality and identity

Nexus of contract, transaction costs minimization

Profit maximizationStakeholder satisfaction

Dependency and power

Categories of individuals

not a normative model, not an empirical model, but an Ideal type, describing a set-up and principles that are connected logically, but maybe not empirically, but elements can be found in existing organizations

THE SHAREHOLDER IS A VICTIM FOR AGENT MISCONDUCT

The agent is - opportunistic- exploit information asymmetry- cheat and steals- lazy

The principal is- exploited- endure agency costs- have to slave with monitoring- have to slave with fiat

SHAREHOLDER MISCONDUCT: THE BAD LOSER

Right to influence the corporationRight to the residualRight to sell these rights

Any liability…?

Liable for the debts until the share capital is consumed

LIMITED LIABILITY

• Asymmetric distribution of the residual• Socialisation of risk

ProfitsLosses 0

Share capital ShareholdersOther credit suppliers

THE MORAL DILEMMA

The Causality Principle:Thou shalt be liable for theconsequences of thy actions

The Symmetry Principle:Such as enjoy the benefitsshalt suffer the losses

A MORAL OF CONSEQUENCES

Intention Action

Situation

Consequence

P r e r e q u i s i t e s f o r a m o r a l o fc o n s e q u e n c e s :

T h e S i t u a t i o n- P r e d i c t a b i l i t y o f c o n s e q u e n c e s

T h e I n d i v i d u a l- E x e c u t a b i l i t y o f t h e a c t i o n

p s y c h o l o g i c a l l i m i t a t i o n si d e o l o g i c a l l i m i t a t i o n s

SEPARATION BETWEEN THE INDIVIDUAL AND THE ACTION

In ten tio n Action

Situ atio n

Co n seq u en ce

resp o n sib ility lia b ility

V I C A R I O U S A C T I O N

P r e r e q u i s i t e :- T h e P r i n c i p a l c o n t r o l s t h e A g e n t .

C O L L E C T I V E A C T I O N

O r g a n i c g r o u p w i t h s o l i d a r i t yS e r i a l g r o u p w i t h c o n g r u e n ti n t e r e s t s

MORAL ACTIONS WHEN FACING RISK OR UNCERTAINTY

CompetenceMoral Action Number One: Employ managers of thefirm

ControlMoral Action Number Two: Engage the other creditsuppliers in the control of the corporation

Limited liability for other credit suppliers regardingprofitMoral Action Number Three: Excess Profit distributed tocredit suppliers, or to the Art.

WHO TO BLAME? WHO ASSUME CONSEQUENCES?

Cision Fingerprint Cards

Groucho Marxets Stock market

Friday 10.17-10.34

79,25

52,25

WHY DO WE ACCEPT THISMORAL MISCONDUCT?

GLOBAL RESPONSIBILITY

Corporate Social Responsibility (CSR)All humans, All nature, Today, Future

To act in accordance to laws, social norms, ethical standards: legality, fairness and justice

fad ……… legitimacy ………strategically integrated

THE CORPORATION AS AN IDEAL

Corporatisation- Outside pressure: Competitive capacity

- Inside pressure: Rationalisation

Privatisation- Political causes: Private property superiority

- Institutional causes: Fashion- Economic causes: Specialisation

The end of class struggle?Meritocracy

THE AIM AND THE GOVERNANCE OF THE

CORPORATIONAIM AGENT OF GOVERNANCE

Profit Shareholder

Wealth Stakeholders

Democracy Politicians

EcologicalSustainability

Scientists

Happiness Clowns