The system by which companies are directed, controlled and evaluated.

1. Corporate Governance
April 8th 2010
Meetup #2
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2. Who are we?
Why are we doing this?
What should we aim to
achieve?

3. Today’s Presenter
• An Entrepreneur
• Invited to Dragon’s Den
• Co‐founder of MosaStore Inc.
• Master of Business AdministraVon & Bachelor
of Engineering

4. Today’s Agenda
Types of CorporaVons
Corporate Structure
Corporate Governance
Management
Shareholders
Stakeholders

5. CorporaVon
– ArVficial person or legal enVty
– Created under and subject to governing statute
– Composed of one or more members or owners
– Existence separate from members
– Perpetual existence independent of owners
– Limited liability of owners

6. Types of CorporaVons
– For profit vs. not for profit
– Share capital vs. non share capital
– Closely held (‘private’) vs. widely held (‘public’)

7. Design of a Corporate Structure
ExecuVve Owner Independent
directors directors Directors
Board of
Directors
Supervisory &
Management enforcement
authoriVes
Corporate
Shareholders Stakeholders Creditors

8. What is a CorporaVon?
 Capital raising and the relaVonship between risk and return
 Returns increase as risks decrease
 Corporate form reduces risk
– LimitaVon of liability
– Transferability of ownership
– Professional management
– Rules (i.e. laws) intended to curb management abuses
 shareholder rights and remedies

9. What is a CorporaVon?
 Separate Legal Existence
 CorporaVon is separate at law from its
owner(s)
 Owner can be employee and creditor
 Limited liability
– Debts of corp. are not obligaVons of owner
– Shareholding caps risk at amount invested

10. The Principal‐Agency
A principal‐agent relaVonship arises when a “principal”
hires someone – an “agent” but cannot fully observe or
at least cannot legally verify the acVon of the agent
• Avoiding effort
• Avoiding risk
• Avoiding failure
• ReputaVon
• CompensaVon

11. Asymmetric InformaVon
This is a special type of uncertainty where some
parVcipants in a market have more informaVon (or be3er
informaVon) than others.
Types of informaVonal asymmetry:
a) Hidden CharacterisVcs
b) Hidden AcVon

12. Corporate Governance
“The system by which companies are directed, controlled
and evaluated”
[Ont. Teachers’ Pension Plan]
"Corporate governance is about promoVng corporate
fairness, transparency and accountability."
[J. Wolfensohn, President of the Word Bank]
“Corporate governance is only about reducing the cost of
capital…This is not a moral crusade”
[Alastair Goobey Chairman, InternaVonal CG Network]

13. Corporate Governance
 Corporate law mechanisms to safeguard owners
– Corporate democracy – shareholders’ voVng power
 To elect directors
 To decide on fundamental changes
– Reliance on statutory duVes and standard of care
 Fiduciary Duty
 Duty of Care

14. Corporate Governance
– ReporVng obligaVons
 financial results
– SeparaVon of Ownership and Management
– Management and control vested in the board of directors
– Board elected by shareholders
– Board in turn appoints officers and delegates authority

15. Shareholder VS Stakeholders
DODGE v. FORD MOTOR CO.
204 Mich. 459, 170 N.W. 668 (1919)
The difference between an incidental humanitarian expenditure
of corporate funds for the benefit of the employees, like the
building of a hospital for their use and the employment of agencies
for the be3erment of their condiVon, and a general purpose and
plan to benefit mankind at the expense of others, is obvious. There
should be no confusion (of which there is evidence) of the duVes
which Mr. Ford conceives that he and the stockholders owe to the
general public and the duVes which in law he and his co directors
owe to protesVng, minority stockholders. A business corporaVon is
organized and carried on primarily for the profit of the
stockholders. The powers of the directors are to be employed for
that end. The discreVon of directors is to be exercised in the choice
of means to a3ain that end, and does not extend to a change in the
end itself, to the reducVon of profits, or to the nondistribuVon of
profits among shareholders in order to devote them to other
purposes. [Emphases added.]

16. Thank You
Comments/SuggesVons
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