Ethics and Corporate GovernanceCourse manualEthics and Corporate Governance (BKM13FI)1. Course descriptionThis 2 ECTS course deals with ethics and corporate governance. The course starts with corporate governance, i.e. the management and control of corporations. We then go on to discuss the connection between corporate governance and ethics. We look at two issues more specifically. First, we look at reasons for unethical behaviour and the individual organization members that make up the firm and will address questions of behavioural ethics. Secondly we will look at ways to control ethical behaviour within organizations.
Teachers:Prof. dr. Peter Roosenboom, drs. Martijn de Kiewit (KPMG)Office:T9-56Phone:010-4081255, 020-6568587Email:[email protected], [email protected] hours:Please make appointment via email.2. The lecturesThis course consists of six lectures. Lectures will be held on Monday (1 lecture), and Thursdays (5 lectures). See schedule in section 5. During these lectures, we will discuss journal articles. These journal articles are available on Blackboard in the folder Course documents/literature (course material). We post the links to articles and not pdf documents on Blackboard given copyright issues (note you need to be logged into the university network in order for the links to work). For the same reason, there is NO reader for this course given the high costs involved (you would need to pay a substantial fee for author’s rights in addition to copying costs). We therefore recommend you to print or copy the articles yourself.
2.1. Overview of the lecturesLecture 1 (Week 44): Agency theory (Roosenboom)Jensen and Meckling (1976) developed a theory where the principals (owners, shareholders) hire an agent (manager) to manage the company for them. This creates a potential agency conflict since the managers might pursue their own interests at the expense of the shareholders. In this class, we will introduce agency theory and discuss the empirical literature that tests this theory. In particular, we will discuss how managerial incentives affect financial decisions and firm performance. We discuss (parts of) Shleifer and Vishny (1997) and Dennis and McConnell (2003). Before lecture I will post discussion slides that contain empty boxes. You
RULE 1: TAKE ACTION 1.1.1. The problem is, do I have too many agent options? Answer: no. There are ways to maximize the time or space available to evaluate these options. If you want your decision in one place, you have to have more than one agent available, since not everyone who has their own agent has to make the decision for them (Meyers, 1969). 2. How do you determine the best agent I can think of? To evaluate whether an interest is beneficial or not (Ferguson, 1985). 3. Will there be a good agent present as a counterweight. Answer: that depends on the value of the agent. We need to be sure that (1) the agent has the ability to change the outcome of the action, (2) that the value of the agent is relevant and that (3) that the influence of the market is relatively small and that there is no reason to over-indulge in other people’s preferences as a counterweight (Ferguson, 1993). 4. What is the relationship between agents as a counterweight and decision-making decisions? Answer: that is a question that depends on who’s going to do it. There will not be an agent who will behave the way a manager might behave when he has little control over the situation. 5. How does the agent perform the actions of others? Answer: by acting alone, as opposed to in groups or through interaction with others. This is especially important for managers, because there is no simple substitute for groups. 6. What if there are several competing sides? Answer: not everyone is the best judge of individual performances. In one case, a group with very few agent options has an advantage over those with many. For those groups, there is a lot of opportunity cost. 7. How do we evaluate the benefits to an agent? Answer: by comparing the results to one another. More on this in a bit. 8. How do other people evaluate an agent? Answer: if we have more than two people involved (i.e., less than one agent), we make the decision at that time (Meyers, 1969). The better the agent (e.g., a nonverbal expression, for instance) the more good the outcome will be. 9. How do you determine whether you could have an agent for all of our purposes? Answer: we must assume that all of our agents have the same interests in the business. For example, an agent whose interests are different from that of everybody may want to offer an improvement in the stock of a company. But one or more of our agent representatives may not like the plan and may oppose it (Carr, 1980). 10. What is a good role model? Answer: for instance, a good role model can help