Business Ethics
What is business ethics?
The standards for morally right and wrong conduct in business.
What is corporate governance?
1. direct and control an enterprise
2. ensure that the firm pursues strategic goals successfully and legally
2. tasked with providing oversight
What are other governance mechanisms used for?
align incentives between principals and agents
What are the universal norms in business ethics?
Fairness, honesty, and reciprocity
What does corporate governance attempt to address?
The principle-agent problem
How are the board of directors selected?
shareholders vote to determine who is elected
What is a part of Executive Compensation?
Stocks
Explain what is ethical dilemma and give an example
a conflict between two morally correct courses of action with no right or wrong answer
What is caused by information asymmetry?
Adverse selection and moral hazard
Who are the inside directors?
Members who are generally part of the company's senior management team, such as the chief financial officer (CFO) and the chief operating officer (COO).
Who are activist investors?
a. buy shares of stocks in open market through buyouts
b. sell shares of stocks in open market through buyouts
A
Difference between bad apples and bad barrels
bad apples: individuals who act opportunistically
bad barrels: an unethical organizational climate
what is a public company?
a company that has issued securities through an IPO and is traded on at least one stock exchange or in the over the counter market
Who are the outside directors?
Senior executives from other firms
What does GAAP stand for?
generally accepted accounting principles
How to set an ethical tone?
2. put structure, culture, and control systems in place
3. align formal and informal culture
4. adhere to the company vision and values
Which of the following is NOT included in the public company hierarchy of authority?
State charter / CEO / board of directors / management / employees
CEO
What are the responsibilities of the board of directors?
1. strategic oversight and guidance
2. CEO selection, evaluation, compensation, succesion
3. guide executive compensation
4. review, monitor, evaluate, approve strategic initiatives
5. risk assessment and mitigation
6. ensure financial statements
7. ensure compliance with laws and regulations
On what basis do industry analysts base their buy, hold, or sell recommendations?
2. business news (WSJ, Forbes, CNBC)