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Governance and Risk

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Governance and Risk

An Analytical Handbook for Investors, Managers, Directors & Stakeholders

McGraw-Hill,

15 min read
10 take-aways
Text available

What's inside?

Corporate governance has real financial impact — investors pay a premium for good governance and demand a discount for bad.

Editorial Rating

9

Qualities

  • Innovative
  • Applicable

Recommendation

This may be the most thorough and methodical exposition of corporate governance and risk management now available. It is hard to imagine a facet of the subject this book does not address. Sustainable development, cross-border governance issues, directors’ and officers’ insurance, theory, practice - it’s all here. The book does not aspire to be anything but comprehensive and factual. The section authors, each an expert in his or her subject, eschew any pretense of courting the reader with easy-to-read prose. They write not for the casual reader or the educated lay person, but for the professional with a consummate need to know the subject. That said, getAbstract.com believes this book should be part of every major corporate or business school library; it will have a long shelf life.

Summary

Corporate Governance

Scholars identified the problem of "agency risk" (or "principle-agent-problem") in the 1930s. In the early years of the Industrial Revolution, ownership and management were often inseparable. Consider Andrew Carnegie, J.P. Morgan and Henry Ford as examples. None of these men was a hired manager. Each one owned a substantial stake in an enterprise he founded. With the exception of a few of the surviving and successful new technology companies (Microsoft comes to mind), the founder-owner-manager scarcely exists today. As a practical matter, ownership and management are separate. Retail and institutional investors own stocks in enterprises, but they do not exercise effective supervision or oversight of those enterprises. Managers control the wealth of shareholders.

The wave of corporate scandals that broke around the year 2000 showed how much damage the ungoverned self-interest of managers can do. Chief executive officers (CEOs) appoint boards that then set the pay of chief executives — and nine digit checks are commonplace. Executive paychecks rise while stock prices fall, and staggered boards and legal red tape make it difficult for shareholders...

About the Author

George S. Dallas is managing director and global practice leader of Standard & Poor’s Corporate Governance Services unit.

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