Corporate Governance, Ethics and Stakeholder Management
Governance fundamentals
Corporate governance is the system by which organisations are directed and controlled. Understand the agency problem (separation of ownership and control), and the mechanisms that mitigate it: independent non-executive directors, audit and remuneration committees, separation of chair and CEO, internal and external audit, and disclosure. Traps: confusing the roles of chair (runs the board) and CEO (runs the business); assuming NEDs manage the company.
Codes and principles
Know the logic of 'comply or explain' (principles-based, e.g. UK-style codes) versus rules-based regimes (e.g. Sarbanes-Oxley). Be able to argue the trade-offs: flexibility and proportionality versus comparability and enforceability.
Stakeholder theory and ethics
Stakeholders are any group affected by or affecting the organisation (Mendelow's power–interest matrix guides engagement). Distinguish shareholder (stockholder) and stakeholder views. Ethical frameworks - utilitarian (consequences), deontological (duties/rights), virtue (character) and justice (fairness) - should be applied, not just named. A frequent exam error is listing stakeholders without analysing their power, legitimacy and urgency (Mitchell's salience).
Worked rule of thumb
For an ethical dilemma, identify the decision, the affected stakeholders, apply at least two ethical lenses, then recommend an action with safeguards (disclosure, escalation, independent review).
Governance failures
Recognise patterns - dominant CEO, weak NEDs, opaque related-party transactions, aggressive remuneration - as warning signs rather than isolated events.