Corporate Governance Concept Worksheet

Concept

Application of Concept in the Scenario

Reference to Concept in Reading

Board of Directors

Beltway Investments expects McBride Financial Services to use best practices in corporate governance (University of Phoenix, 2010). However, Hugh McBride, CEO of McBride Financial Services, plans to run the company as he wants, disregarding corporate governance for the company (University of Phoenix, 2010). Beltway's concentrated ownership will not play a dominant role in providing corporate governance for McBride Financial because of there are several regulations that restrict or discourage significant ownership positions like the "five and ten" rule and Section 16(b) of the Securities and Exchange (Chew & Gillan, 2004). An independent board of directors unit is necessary to monitor management practices of McBride Financial Services.

A board of directors unit is the agent for shareholders and has the responsibility to manage the affairs of the corporation in the best interest of the shareholders (Chew & Gillan, 2004). The Board should actively and independently monitor management; participate in agenda setting; determine information flow; and conduct private board meetings that exclude management to evaluate the senior leaders' performance (Chew & Gillan, 2004). A self-governing board of directors reduces the agency problem with McBride Financial Services and has the authority to terminate the CEO because of unethical management practices.

"An active and independent board of directors working for shareholders clearly benefits the corporation by reducing the 'agency problem' that arises from the separation of ownership from control in the modern corporation" (Chew & Gillan, 2004, p. 180).

Economic Value Added (EVA) incentive plan

Management has the responsibility of tracking stock, stretch setting goals, and bonus incentives (Chew & Gillan, 2004). Hugh McBride sees...